Consumer Society

Marvels, made to measure

by Executive Editors
written by Executive Editors

Expensive tastes are exclusive ones — why spend thousands on an identikit interior when your home can be one-of-a-kind? But beyond the diamond-encrusted couches and Arabic-embroidered rugs hand-woven to order by Nepalese craftsmen, the trend for tailor-made interiors opens up exciting possibilities in design and enterprise. Executive takes a tour of some of Beirut’s creative companies in the business of fulfilling dreams clients didn’t even know they had.

“I don’t like the word creativity,” says architect and designer Karim Bekdache, sounding at odds with the sun-filled furniture showroom behind him, crammed with mesmerizing concoctions in wood, glass and steel. “I think [design] should answer a real need, and then it can be completely wild and you can call it creative, or it can be completely invisible — but for me, creating something completely invisible or completely wild is the same.” Trained in France and working mostly in Lebanon and Europe, Bekdache does not worry about imposing a particular architectural signature on a project. Being at the top of your game as an architect or designer isn’t just about the ‘wow’ factor. As luxury consumers globally are cutting back on flash statements in favor of projects with personal meaning, Bekdache seeks a sort of synthesis where clients, if the process goes well, feel that they are the ones who defined the work.

Bekdache gives the example of a project in Gemmayze whose owner was making the move from the mountains to Beirut. Based on this background, Bekdache commissioned the famous French botanist Patrick Blanc to create a vertical interior ‘green wall’ inside the property, a self-sustaining structure made entirely of plants and mosses. “It’s about installing something in the house that gives meaning,” he explains. Then, “there’s an inside relation between the client and the house.” Horrified by the spectacle of so many design catalogues of endless, stultifying choices, Bekdache has learned to bypass the books and magazines predicting the latest trend. “This is the meaning of modern for me,” he concludes. “Not to imitate, but to keep on going, further than you did the last time.”

Let there be light

When it comes to local companies who can realize unconventional visions, Bekdache has high praise for lighting design and manufacture firm .PSLAB. He describes their approach as “very very courageous and daring. It’s incredible… they throw away all the catalogues of all the possible spotlights in the world, and then you come to them and say ‘I need a light for this space,’ and sometimes they really get beyond this stuff and start telling you how the architecture should be.” .PSLAB, unlike any other lighting company in the region, design and manufacture all their products in-house, giving them total control of their exclusive ‘haute couture’ approach. For them, the specifics of a given space define the lighting, rather than the lighting imposing a mood on the space. Their contemporary, industrial chic products are crafted by teams of in-house artisans and never re-used on the same market; an approach that has won them devotees as far apart as Parisian design darling India Mahdavi and Beiruti architectural rock star Bernard Khoury.

.PSLAB compare themselves to a five-star hotel, where the customer’s needs define their experiences and where each experience can be completely different. This synthesis of forward-thinking design, controlled production and sophisticated client relations is a complete service that puts .PSLAB ahead, not just of other lighting companies, but also of many other ‘bespoke’ design services. 

High-class problems

High-end, high budget projects will often involve an unusual attention to structure and detailing. Architects like Bekdache might lower a ceiling or find a way around an awkward hallway, which ultimately will increase the value of a property that has been sculpted into its best possible form. But there are some challenges that need the expertise of master designers and craftsmen — a niche demand that Karim Chaya and his partner Raed Abillama stumbled upon in 1997 when they began the projects that led to their company Acid, specializing in architectural detailing. Chaya, who jokes that the team are “detail nerds,” explains: “We started becoming known as the ‘mission impossible’ company — whenever there was something difficult, strange, unresolved, out of a dream, they would come to us, a company that will take the headache out of [it].” From staircases, to lifts, to made-to-order wall cladding (such as in the new Downtown café, Grid, that glows pink and gold from sets of copper mesh screens imported from Turkey), Acid have built their reputation on “quality and sensibility above all,” an uncompromising stance that brooks no opposition over the amount of time it takes to do a thing properly — principles that have landed them commercial projects like Lanvin and Joseph boutiques worldwide.

The artisanal skills that Acid often relies on originate in the “back alleys in Bourj Hammoud,” of which Chaya says “the most valuable thing that I have acquired since we started is that network. Good people we can work with and who have the same ideas.” Far from throwing out the skills of generations of craftsmen, Acid is one of the companies keeping them in business, playing an intermediary role between the metal smiths, carpenters and leather workers and the off-the-wall requirements of high-end clients.

“What I got from my father as a heritage… we changed completely. Instead of accumulating more stock from all over the world, we did the contrary”

The business of bespoke

A more classical approach to customized interiors offers clients the opportunity to have total control of the design of luxury items — a methodology that is revolutionizing some local businesses. Opened a year ago in Ashrafieh, the United Kingdom’s Rug Company has developed a bespoke service that complements its already elite range of rug designs created by the likes of Vivienne Westwood and Alexander McQueen. Existing designs can be adapted in myriad ways, while the customer controls the colors and the silk content of the weaves, which range from around $500 to $3500 per square meter. But the premium service sees clients designing their own patterns, such as their name in Arabic calligraphy, which are then tried and tested on screen before being sent to Nepal, where teams of expert weavers take up to a year to produce the finished product.

Serge Nalbandian of Nalbandian Textiles offers similar services, having personalized rugs for Elie Saab and had his Tibetan weavers produce a pop art Superman number. He has also redesigned his family business around customization, with the company abandoning its history of trading antique Persian carpets and preferring to give clients what they want — pieces for the home that are about immediate pleasure, without re-saleable value.

“What I got from my father as a heritage… we changed completely,” he says. “Instead of accumulating more stock from all over the world, we did the contrary. What the customer needs, we can provide him with.” The new year will see a giant state-of-the-art screen installed at Nalbandian for the sole purpose of giving clients a multimedia customization experience. “There is no longer a way of investing in your decoration as an heirloom,” says Nalbandian. “It fits in your house, you live with it for the time that you’re enjoying it and this is it.”

Extreme dreams

Enjoying the moment can take many forms. “I’ll be the executor of your dreams,” smiles Vick Vanlian — and he should know, being responsible for creations including a diamond-strewn sofa. Like Serge Nalbandian, he developed his family business, Galerie Vanlian, in response to customer demand for the high-end customized items that now make up 50 percent of his business. This led to Envy, his three-floor Downtown boutique — a mind-boggling collection where there isn’t one object that doesn’t glitter or gleam or clamor for attention. Vanlian is aware of his celebrity cachet as a successful and distinctive young designer; a further gloss on custom projects, which always bear his characteristic signature.

As such, Vanlian excels at realizing flamboyant visions, from a ‘famous singer’ who requested a room designed around 150 pictures of herself, to a Saudi prince’s pleasure chamber. Working through an intermediary, Vanlian received instructions for it. “[The client] called it the massage room, but it was the sex room… it had a round bed in the middle with four stages on each corner, with dancing poles and big screens and in the middle a big cage that could come up and down… nicely put together for a porn movie, basically.” There will always be mileage — and a lot of fun — in being known for making any dream come true.

“It’s not easy because when you have custom-made designs you have to create all the time”

Made in Lebanon

None of these dreams come cheap, of course. Maria Halios started her own furniture gallery in Mar Mikhael last year, producing limited edition and bespoke pieces, after demand for customization necessitated her own working space. She points to a pair of hoop-like metal sculptures with finely textured surfaces. “Imagine that I have to do them a centimeter smaller,” she says. “Molds are required. Each mold costs a fortune and because you cannot have the same dimensions in another house, you basically throw the mold in the garbage. So you invest in a mold that is supposed to produce a hundred pieces, just for one piece — the cost is huge.” The cost of a dining table can jump from $5,000 to $15,000 if you want to be sure no one else has it.

Yet these are the prices you have to pay to keep ahead of the neighbors — a popular pastime in a high society as small as Lebanon’s. But Lebanon is also an exciting hub of creative talent with a distinct price advantage over Europe. Halios, like most of the companies mentioned here, works with clients overseas who are happy to undercut designers offering similar services in more developed markets.

Yet aside from the business of pursuing the most exclusive clients around, a genuine commitment to originality at all costs is at the heart of these projects. Halios fingers an origami-like paper maquette, the first stage in creating an intricate table of angular interlocking pieces. “I never imagined the beauty that could come from a mock-up like this,” she says. “It’s not easy because when you have custom-made designs you have to create all the time. It’s not like you create two collections a year and then you forget about it.”

Far from a cynical exploitation of the fantasies of the super-rich, these companies are challenging themselves, and the industry as a whole, to keep evolving the practice of made to measure design.

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Economics & Policy

Avoiding collateral damage

by Sami Halabi
written by Sami Halabi

A friend in need is a friend indeed, or so the saying goes, but when sticking up for your confidante means you find yourself in a heap of trouble, companionship can be more of a liability than an asset. The accord between Lebanon and Syria, as with any old couple, has seen its ups and downs, yet no matter how precarious the politics ever were, the economic bond between the two has kept the Levantine neighbors’ fates intertwined, especially when it comes to banking. 

“It has always been the case because there was no private banking sector in Syria and they are still at an early phase in terms of techniques,” said Elie Yachoui, dean of the School of Business Administration and Economics at Lebanon’s Notre Dame University. “The Syrians have always done their transactions in Lebanon and gone back to Syria. It’s nothing new.” 

What is new, however, are the widening sanctions being imposed on Syria by those near and far, as its economy and foreign currency reserves continue to buckle under international pressure. The United States, the European Union and Turkey have all recently imposed new sanctions on the Syrian government, its central bank and prominent members of the business community [see table]. The Arab League initially mirrored the moves in November after an initiative to impose similar sanctions, including asset freezes and travel bans, was leaked to the press. In theory, these sanctions were seen to be the most effective against the regime as most trade with Syria goes to its neighbors: close to 60 percent of its exports are to Arab countries. But the league’s sanctions were more or less declared dead on delivery. 

“They said they were going to freeze the Syrian government accounts but they allowed the Syrian government to pull 75 percent of the accounts before the decision was made,” said Yachoui. “They say they want to sanction the Syrian central bank but then allow Syrian expatriates to send foreign currencies back to Syria. So from one side you sanction and from another you nourish.” 

Ibrahim Saif, specialist on the political economy of the Middle East at the Carnegie Middle East Center think tank, agrees that the sanctions will have limited effect, “For the simple reason that those countries that seem to be very adamant about imposing the sanctions are not the countries that can effectively do it.”

As Executive went to press the Arab League was wavering and the list of sanctions was removed from the league’s website in December. Arab League Secretary General Nabil al-Arabi even released a statement last month denying that a ban on air travel would be implemented, given that discussions were ongoing between the league and the Syrian regime. 

“Many countries will not be applying [Arab League sanctions] and even [regarding] the countries that want to apply them, we don’t really know if they have the know-how and logistics to implement those measures,” said Jihad Yazigi, editor-in-chief of The Syria Report. “So in this sense they are not extremely meaningful.”

The ones that bite

The sanctions that are proving consequential are those coming from the West that pressure Syrian access to foreign currency, such as a ban on Syrian oil exports to Europe. Already the Syrian pound has lost some 25 percent of its value since March and an emergency reserve fund used by the Syrian central bank to prop up the currency is dwindling. With gross domestic product estimates for 2011 forecast (depending on who you ask) to fall by some 20 percent and the Syrian fiscal deficit continuing to climb on the back of an increase in subsidies and civil servant pay, the situation has produced an economic exodus according to Yazigi. “Everyone’s plan now is not to do anything. For everyone, business is dead here, they are just managing. Those who can are leaving,” he said. 

As the economic migration takes place, Lebanon is finding itself under increasing international pressure to abide by Western sanctions. A visit by US Treasury Assistant Secretary for Terrorism Financing Daniel Glaser in November set off a renewed wave of fears in the banking sector, especially after “concern” over the dealings of Lebanese Canadian Bank (LCB) threw the sector into crisis mode earlier in the year. 

While the case of LCB and Syrian sanctions are not directly related, the fear that further action could be taken by the US over assistance to the Syrian regime is ever-present, even though “US sanctions do not directly obligate Lebanese financial institutions,” according to a US Treasury department official who spoke to Executive. 

“Lebanese financial institutions may be choosing to perform their own enhanced due diligence on transactions associated with Syria due to the heightened risk associated with that jurisdiction,” the official said. 

True or not, reports of sanctioned individuals attempting to use Lebanon as an outlet abound, and a battle  has kicked off between those seeking to dodge the sanctions and financial institutions looking to protect themselves, the sector and by extension, the country’s economy.

“Now we are afraid of another LCB issue,” said Paul Morcos, founder of the Justicia law firm that provides legal consulting for the banking sector. “They need a new scapegoat so that the new procedures they are asking for can be implemented. Since our banks have accounts with correspondent banks in the US, they should be afraid.”

Avoiding lists

Sanctions are based on what those in the business of complying with them call ‘the lists’. The most infamous of all is the US’s Office of Foreign Assets Control (OFAC) list. Companies placed on this list, or those who have dealings with persons on them, are effectively banned from dealing in US dollars and any banks that carry out transactions for such a person could potentially be sanctioned themselves. Banks have relationships with other intermediary American banks to deal in US dollars, which would act as the initial trigger for any US-imposed sanctioning of transactions. “The banks have to do their due diligence and not have accounts with people who are on the lists, because they have relations with US banks,” said the manager of a compliance unit at one of Lebanon’s major banks, speaking on condition of anonymity. 

Of course, anyone on a list would likely not be naïve enough to think they could waltz into a Lebanese bank and open an account. But using an intermediary, or setting up a Lebanese company that then would work with the Syrian government, could be ways around this, given that, in theory at least, “the sanctions are on Syria and not Syrians,” according to the compliance manager. 

“Banks don’t hold any accounts for people listed on the OFAC lists or other lists,” said Morcos. But those who deal with or front for sanctioned individuals is another issue: “We don’t know if we have [sanctioned accounts] or not,” Morcos added. 

Camille Barkho, manager of Amerab Business Solutions, a firm that provides products to help financial institutions protect themselves against US money laundering and terrorist financing regulations, confirmed that some banks are simply saying “no” to Syrian traders. “But it’s institution by institution and it also depends on the sect the bank belongs to. For one sect it’s okay and for another it’s not.” 

He stressed that in principle the OFAC list targets money laundering, terrorist financing and other financial crimes and not sanctions, which come under a wider US legal principle called a country ruling. Even so, banks still use the lists as the basis for compliance. 

Lebanon’s legal texts do not actually cover sanctions per se, given that banking secrecy can only be lifted on accounts under Law 318, which, like the OFAC list, covers financial crime and not sanctions. Under that law, the Special Investigations Committee at Lebanon’s central bank can remove secrecy and look into the account after the banks raise the alert. Even then, very few of these cases actually make it to court. “You have rare cases in the courts, very rare cases. Most of them are not tried for specific reasons, like the case does not apply under Law 318,” said Morcos. Indeed, according to the compliance manager, “The central bank has nothing to do with this — it is up to each individual bank to do its due diligence.” 

Given the uncertainty, many banks are taking measures that go beyond the text of the law by refusing to bank with those on the OFAC list as well as their relatives, close friends, business associates and so on, according to Morcos. And, according to Yazigi, many Syrians can no longer open up accounts in Lebanon and find it very difficult to conduct financial transactions even if they do not have ties with the regime. “I would not open a [Syrian national’s] account. I would advise other banks not to give themselves a headache and just not take the account,” he said. 

In theory, holding the accounts of sanctioned individuals should not pose a problem for the banks, as long as they do not move money through them, especially in US dollars. And of course there are ways around that as well. “If I am a Syrian and I’m sanctioned and I have money, I can easily get four people to set up a company and trade with China and do it all with cash,” said Barkho. “When you trade with lots of cash the banks start asking, but all you have to do is convince them that you are generating daily sales. The main point is that it is not money laundering because it’s not covered by Law 318.” 

Last month Executive called 12 Lebanese banks, both large and small, asking how they were dealing with accounts held by Syrian nationals. None of the banks responded.

Many ways to still move money

Those seeking to dodge the sanctions are likely to employ the same methods that money launderers do, given that these techniques have proven useful in the past. In essence, what those seeking to skirt sanctions will do is find ways to generate cash and obfuscate the origin of funds and to whom transfers are going. It’s up to the banks to monitor and report suspicious transactions.  

What launderers generally do is generate the illusion of as many cash sales as possible to justify their cash deposits. Supermarkets are a good way to do this, given the number of retail operations that take place in a single day. “What you can do is go to the supermarket and stand at the cash register and count the cash. But who is going to do that?” Barkho asked rhetorically. The only legal entity theoretically authorized to do so is the financial general prosecutor’s office, but the fact that the government currently has $11 billion unaccounted for on its books does little to inspire confidence that it will be able to keep pace with the launderers.  

Another tool used by launderers are pre-paid cards offered by banks where one can deposit cash on a card and then use it to withdraw money internationally, with some banks offering ‘buy-one-get-one-free’ packages. “Pre-paid cards are not customers, you don’t know them,” said Barkho. “Basically the banks are creating a tool for money laundering.” 

Executive, posing as a potential customer, enquired at one of Lebanon’s top banks about the buy-one-get-one-free offer and was told that it was indeed available. The bank said the second cardholder did not have to come to the bank or sign any paperwork and could give the card to someone else whenever they wanted. The card itself carried a daily limit of $5,000 and could be used internationally, said the sales rep. 

Covert conversions 

Since the LCB scandal, which allegedly involved a fair amount of currency conversion, the exchange sector has come under increased scrutiny from the central bank. 

Given that the Syrian pound has lost around 25 percent of its value since the uprising began, there is considerable pressure on Syrians to change their money into another currency or place it in a fixed asset. So far the Central Bank of Syria has taken several measures to limit this conversion, including closing dozens of exchange houses in Damascus, increasing the interest rates on deposits in Syria from 7 to 9 percent, reducing the amount foreign currency banks and Syrian exchange houses can give out to local residents from $10,000 to $5,000, as well as further limits on how much foreign currency can be taken abroad, especially in Arab countries. 

“It’s about the time when the foreign currency issue they are having and their injections into the market will not be adequate to protect the Syrian pound,” said the Carnegie’s Saif. “Already there is a black market for the Syrian lira. The more you witness of this the less likely you will see the resistance of the Syrian economy.” According to Yazigi, the Syrian pound was trading at roughly 60 pounds to the US dollar on the black market in mid-December. The official rate at the start of the uprising was around 47 pounds to the dollar. 

Lebanese exchange houses are regulated by Law 347, enacted in 2001, which declares that if they issue checks for more than $10,000 they must notify their affiliate bank, give the identity of the beneficiary and the purpose for issuing the check. Otherwise they legally have free reign and this simultaneously places pressure on and creates opportunities for, the Lebanese exchange market. Even so, most people believe that this avenue has been closing in recent months. 

“No one should think that millions of dollars a day are being exchanged at the exchange companies but there is nothing stopping someone with small amounts to exchange,” said Yachoui. “Today the borders are open. If someone brings in banknotes, especially dollars, in a suitcase and this comes into the market, there is no way to find out where it came from.”

Indeed what many Syrians are looking to do is change their money into fixed assets that hold value. “You either keep your money and pray that it is not going to deteriorate further, or if you have more money you buy real estate or invest in something,” said Yazigi. With the banking sector effectively closed off, and discounts on real estate purchases aplenty at a time when the market is cooling, this has become an increasingly viable option to place money.  

“If you are known to be a real estate promoter and I bring you $700,000 in cash and buy an apartment from you, you go and put it in the bank, they ask you where it came from, you tell them you made a sale, the bank is not going to ask more than this,” said Yachoui. “He’s not going to ask you who your customer is when you have hundreds of them.” 

Indeed, the compliance officer agreed: “Every bank is responsible for their accounts but we don’t have a crystal ball to see other accounts. It’s not your business to ask the nationality or the source of money of the other [third] party. The client is responsible. We flag it if there is much more cash than a real estate transaction would normally be.” 

Trouble down the road

As the Syrian currency and economy continue to take a beating and the uprising takes on new dimensions, Lebanese financial institutions seem to have chosen which side of the divide they stand on. In mid-December the Association of Banks in Lebanon announced that its members would fund the government’s contribution to the Special Tribunal for Lebanon, something that Syria’s main ally and the accused party in the investigation, Hezbollah, has stated should not have happened. 

“At every moment, every instant and every second they [Americans] can do what they want with us. If there is a decision to do something to us, they do it. But right now there is no decision,” said Yachoui. “No matter what precautions the banks take, don’t think for one second that all the records are clean. They can always find a million reasons to take action, but for now there is no decision to do so. The target is not Lebanon, it’s Syria.” 

 

Reporting contributed by Youssef Zbib

 
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Bahrain’s colonial flashback

by Paul Cochrane
written by Paul Cochrane

It is perhaps a cliché to say history repeats itself, yet this saying seems to have held true over the past year in the Middle East, particularly in Bahrain. Uprisings have happened before, and been successful or crushed through counter-revolutionary forces. But it is in behind-the-scenes developments that there really is a flashback to the past. 

Last month, Bahrain appointed two men — a former Miami police chief and John Yates, the former assistant commissioner of London’s Metropolitan Police — to oversee the reformation of the state’s police force, which was found in an independent inquiry to have committed systematic human rights abuses and used torture to crush the 2011 pro-democracy uprising.

By virtue of their nationalities and their countries’ strategic involvement with Bahrain, both former “top cops” are dubious choices. Yet Yates in particular stands out, as he was forced to resign from the Metropolitan Police in the summer over a newspaper phone-hacking scandal. Moreover, his appointment reeks of the colonial past. Britain set up Bahrain’s security force prior to independence in 1971, and the General Directorate of State Security was run from the mid-1970s until 1998 by former British policeman Ian Henderson. 

Amnesty International documented widespread torture under Henderson’s leadership, and he forcefully put down protests in the 1970s and early 1990s, earning him the sobriquet “the butcher of Bahrain”. It is the second such nickname for Henderson, who was a senior policeman in British-occupied Kenya in the 1950s, playing a role in the brutal suppression of uprisings and becoming labeled “the butcher of the Mau Mau”. In 1986 he was awarded the title of ‘Commander of the Most Excellent Order of the British Empire’ for his services.

Although a Jordanian has headed Bahrain’s security force since Henderson retired, the modus operandi has remained the same, as last year’s events document. Furthermore, Henderson, who still lives in Manama, is believed to have provided advice to the authorities during the crackdown. 

While Yates may not be cut from the same colonial cloth as Henderson, his mindset is not radically different. “Bahrain’s police have some big challenges ahead, not dissimilar to those the United Kingdom itself faced only a couple of decades ago,” Yates was quoted as saying in The Daily Telegraph newspaper. But what exactly is Yates referring to? When were there “pro-democracy” uprisings in Britain in the past 20 years? Or any protests suppressed by putting tanks and soldiers on the streets? Perhaps he is referring to the Brixton riots in London in 1980 and 1995, which, in any case, were widely attributed to racist policing methods and high unemployment. Yates appears to have fallen for the official Bahraini line that Iran is primarily to blame for inciting the uprising and the demonstrations had nothing to do with political repression or a minority Sunni monarchy ruling a Shia majority country.

The appointment is also curious when one considers the role of the Metropolitan Police in the riots in London and other English cities last August. A joint study by The Guardian newspaper and the London School of Economics into the causes of the riots published in December,  identified “distrust and antipathy toward police as a key driving force.” 

Such findings do not brook a great amount of confidence in appointing a senior London cop to overhaul Bahrain’s police force. But then, reforming a police force without reforming Bahrain’s political system, by giving the opposition seats in government and addressing the root causes of the uprising, will not change much either. As Saeed Shahabi, a campaigner with the Bahrain Freedom Movement, said of the appointments: “This is not the first time that foreigners have come from the West to upgrade the security services… The government cannot survive without suppressing freedom of expression; only a democracy can tolerate protest.”

The appointments are therefore just a veneer of reform, with Bahrain too strategically important to the West — especially with rising tensions over Iran’s alleged nuclear weapons program and Bahrain’s accommodation of the American Navy’s Fifth Fleet — to allow for substantive democratic change or dissent. By appointing one cop from the former colonial power and another from the current global hegemon, it seems that history really does repeat itself.

 

PAUL COCHRANE is the Middle East correspondent for International News Services 

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Business

Q&A – Karim Makhlouf

by Zak Brophy
written by Zak Brophy

Gulf Air, Bahrain’s national carrier, was the Arabian peninsula’s original pioneer in aviation, boasting more than six decades of in-the-air experience. However, in recent years it has fallen from profit and the political tumult in Bahrain and across the region has accentuated the nosedive. Executive met with Gulf Air’s Chief Commercial Officer Karim Makhlouf to hear how the airline fell from favor and about its attempts to claw back market share.

Gulf Air has fallen from profit and lost significant market share in recent years. Why?

More and more competition entered the market so customer choice got divided between the airlines, and commercially we were not aggressive or innovative enough in order to introduce quickly to the market the things that the customers need. We have corrected that this year with many new initiatives, with a clear target of winning back the market share to Gulf Air. 

What initiatives are being offered to win back your market share?

The new initiatives can be summarized in four areas where we are investing. The first is the Falcon Corporate Plus. Then we re-launched our frequent flyer program, called Falcon Flyer, and we have a new initiative for families called Family First. We are also now investing much more heavily in travel agent incentives.

What customer groups are you targeting with these initiatives?

When looking into the new commercial strategies we defined exactly the different customer segments and they are youth… business and corporate, religious traffic and we defined families as a new and important segment. 

Can you expand on the corporate strategy?

It is called Falcon Corporate Plus whereby companies receive special prices and become gold and silver members; there are other features such as complementary upgrade, marketing support, incentive deals and so on. The target is to have 500 deals signed by 2012 and so far we have had 500 deals signed and we have had a good market response from Lebanon. The target here is clear; that we want to increase our market share with the corporate traveler. Companies, especially small and medium ones, can collect [frequent flyer] points with the Falcon Flyer program — that is new.

We have redesigned the Falcon Flyer program with three tiers. Every tier has different advantages besides upgrades, lounge access, baggage access, and obviously the redemption of tickets is the main thing. We are promising that we have the most attractive redemption scheme in the region.

And you said family travelers were a target group?

We really want to position ourselves as the family friendly airline. We are the only airline in the world to offer a sky nanny service and soon we will have this service also in the lounge areas. Also, we are designing kids’ menus and we have kid focused in-flight entertainment systems. We see this as a very attractive target group.

How is Gulf Air developing its routes to take on the regional competition?

We are completely restructuring our network. We aim to avoid the heavy competition of our fast growing neighbors to position ourselves stronger into under-served niche markets. This is why we opened routes to Isfahan in Iran, Addis Ababa, Milan, Geneva, Basra, Kabul, Copenhagen, Nairobi, Rome, Entebbe and we are going to open Juba in March 2012.

E:  And how are you developing your regional network?

The target of double daily flights is not just to here in Lebanon but to all regional capitals. This is the difference from Emirates, Qatar Airways or Etihad; we try to make flying a commodity in the region. We think the Gulf and the Middle East will develop like Europe where it is normal for people to commute by flying, so we want to connect the regional capitals on a double daily basis. This is the differentiator, because we are not focusing on long haul to long haul — competing with the European carriers like our neighbors — but we really want to develop here an excellent choice for the people flying throughout the region.

What investments are being made in the fleet to accommodate your new strategy?

We undertook a major investment into the products, so we are refurbishing the whole of the business class compartment with new state of the art seats, which will be ready by the first quarter next year. With Panasonic we have invested in a new-state-of-the art in-flight entertainment system where we are the world’s first airline offering broadband internet, live television and phoning on board.

How about the actual planes in the fleet?

We are in the process of renegotiating our order book. In recent years there were a lot of orders placed with both Boeing and Airbus and we are fine-tuning that. Because we want to develop further the strategy of high frequency regional flying we are going to start flying with narrow bodies, 320s, with an extra tank and a full lie-flat business class to fly to Europe as of next year. We have six extra range A320s coming in next year.

How many jobs have been or are going to be lost as a consequence of the restructuring program?

Staff [numbers] have been reduced by 30 percent in 2010 and we also managed to reduce losses by 30 percent.

Due to political upheavals this year Gulf Air suspended its Beirut routes and is still not flying to Iraq or Iran. How serious an impact has this had on business?

We were hit very hard in March but in the meantime we managed to partly compensate for these losses with new routes, mainly to Europe and Africa. Of course we hope that the flights to Iraq and Iran will be back soon. 

I think the Lebanese market is somehow used to the political ups and downs. I think it is also clear that [Gulf Air was not] behind the decisions to suspend flights. I think the customer can very well differentiate between politics and Gulf Air. Obviously we see now the customers are coming back and flying with Gulf Air and that is why we are intending to increase the frequency of our flights for the Lebanese market.

How significant a portion of business is cargo and how does this fit into the overall strategy?

Cargo is integrated into our carriers but we don’t have specific freighters. Cargo business contributes around 25 percent to the revenue of the airline. It is very good ancillary revenue for us which we are developing further. By going toward a narrow body fleet we are focusing on high value cargoes.

With the sector becoming increasingly fractured between traditional carriers and low cost airlines, how is Gulf Air positioning itself?

Low cost doesn’t really work as well in the Arab world as it does in the US or Europe because we don’t have this infrastructure of periphery airports. That is where low cost can benefit from lower costs. So in the Arab world it is very difficult to get those low costs. I think in the Arab world ‘low cost’ is hype, which has more marketing content than real economics behind it. Of course, low cost airlines are competition and we treat them as such, but by offering the right service at the right price, especially in the Arab world, it is easier to maintain the customer loyalty than in, say, Europe, where low cost is spreading very aggressively.

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Ditching diplomacy in Iran

by Gareth Smith
written by Gareth Smith

The historical parallels are dismal. Iran’s display of a captured United States Sentinel drone sparked painful memories, both of the shooting down of Gary Powers’ U2 spy plane over the Soviet Union in 1960 and of two American helicopters abandoned in an Iranian desert in 1980 while trying to free US hostages held in the Tehran embassy. Both examples speak of the failure — or abandonment — of diplomacy. At their best, diplomats are better than soldiers at defusing potentially dangerous situations. Hence the freezing of relations between Tehran and London should be seen as a new escalation in tension between Iran and the West. 

When students stormed the British embassy in November in protest at new sanctions, their actions were vindictive. “They even slashed the paintings,” a British foreign office employee, formerly based in Iran, told me. “What’s the point of that?” There is one painting I remember from my own visits to the embassy. A British ambassador during the 19th-century refused to take off his boots in the Shah’s presence. “I take off my boots only for the Queen of England,” he insisted. Fortunately, a compromise was drawn up in which the ambassador wore outsize socks over his boots — a story told to me by a more recent ambassador who clearly enjoyed the diplomatic ingenuity. 

In our own time, politicians seem set on denying diplomats the space for such initiative. The US Congress is even considering legislation to outlaw any contact with Iranian officials without specific presidential approval, while several leading deputies in Iran applauded the students’ actions in trashing the British embassy.

Back in November, as leaks abounded about the negative content of a looming report on Iran from the International Atomic Energy Association (IAEA), Ali Akbar Salehi, Iran’s foreign minister, used an old Farsi expression, ‘Marg yek bar, shivan yek bar’, meaning: ‘You die once, you are mourned once’. With a background in nuclear physics, the US-educated Salehi is more of a technocrat than a politician. Evidently frustrated, he may have meant that if the IAEA had incriminating evidence of Iran working on nuclear weapons, then it should publish it. I don’t think he meant that if the US and Israel planned to attack Iran’s nuclear facilities, then they should go ahead.

In practice, while the IAEA report led to new sanctions from the US, Britain, the European Union and Canada, it was not sufficient for Russia and China to abandon their calls for renewed diplomacy and instead support increased United Nations sanctions. And in Tehran it was seized on — especially after the pre-launch leaks and hype — as proof of the credibility gap between US claims over the nuclear program and the reality of Iran’s peaceful, civil intentions. 

As for the new sanctions, the EU added 180 Iranian officials and entities to a list of those whose assets may be seized, but it remains in doubt whether Europe will ban Iranian oil imports. Canada’s new measures, prohibiting exports to Iran’s energy sector and blocking monetary transactions, are largely symbolic. The UK has banned its financial sector from involvement in Iran, significantly raising the costs for British companies trading there.

As ever, the real damage could come from Washington. New energy measures prohibiting any person, US or foreign, from providing support — defined as annual investment of $20 million or more — to Iran’s petrochemical industry, will have limited effect, as existing measures already prohibit American companies from dealing with the Iranian energy sector and give the administration power to bar from the US market any foreign companies that do. But the US Treasury finding that Iran, including its central bank, is a “jurisdiction of primary money laundering concern”, may encourage greater international wariness over dealings with the country.

Washington’s new sanctions, like many existing ones, are extra-territorial, and hence enforcement by the administration against third parties will involve calculation. The Obama administration is being driven by pressures from congressmen and lobbyists vexed over China’s role in Iran. 

But how far to go? While the State Department may now identify more Chinese or other foreign companies as engaged in sanctionable conduct in Iran, it remains to be seen whether Washington will completely dump diplomacy in the dust and bar them from the US market.

 

GARETH SMYTH has reported from around the Middle East for nearly two decades and was formerly the Financial Times correspondent in Tehran 

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John Newland Redwine

by Executive Staff
written by Executive Staff

John began working with Executive Magazine in 2007, first as a journalist and then later earning his way into the editor’s chair, before amicably departing his post to pursue further career interests in 2009. In his time here John was a standard bearer for professionalism, integrity and quality, imbuing the office with a sense of kinship through his intense loyalty to his colleagues and his dedication to his work.

Many were the nights when the blistering hours of production would stretch into the morning, and as we closed that next month’s issue and walked wearily out of the office John would inevitably find a smile to greet the morning sun. Rare are those who one can count on so thoroughly that they seem among the forces of nature, so devoid of excuses and frailties. Now, some two years since John left Executive, his indelible mark on the organization remains, as do the friendships that were forged.

Accompanying his professional prowess was a rugged outdoorsman, a man of intellect, easy charm and empathy, a husband dedicated to his amazing wife Irina — whose passport-sized photo John would have always near his hand whenever he wrote — and an adoring father to their newborn baby boy, Winston.  

It is with profound sadness that we received the tragic news that our dear friend, who had a contagious passion for climbing, had died in an accident in the mountains. Our thoughts, hearts and prayers are with his family and everyone that had the privilege of knowing this exceptional human being.

John, may you rest in peace.

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Revolutionary roles for Yemen’s women

by Farea al-Muslimi
written by Farea al-Muslimi

Yemenis, from the deposed dictator Ali Abdullah Saleh to the angry street protesters, can all agree on one thing: Their country’s women have amazed the world with their extraordinary work during the 2011 uprisings. That recognition reached its zenith when the Nobel committee acknowledged the well-known Yemeni activist Tawakul Karman by awarding her the Peace Prize, along with two Liberians.  

Since Saleh signed the Gulf Cooperation Council deal in November, which declares that he will step down next February, Yemenis have debated whether the political revolution is complete and what new political freedoms will emerge. Yet while the outcome of the political revolution is still unclear, the cultural one has brighter prospects. Art has emerged on Yemeni streets, scribbled by angry youths, while poets, singers and rappers have had a newfound impact on society. Even in the middle of ‘Change Square’, where Islamists play Quranic and Islamic songs on stage, musicians and rappers are offered the chance to express themselves. This cultural revolution is definitely more promising than the political one, but is it complete yet? 

The question is very difficult to answer as it is still too soon to evaluate such a sociological shift, but there can be little doubt that women’s participation has been more significant than ever before. Women’s role in the street protests and their participation in political discussions have raised hopes that they will finally be granted their political and social rights. The spectacle of tribal leaders praising Karman for her bravery when she was awarded the Nobel Prize was something profoundly new in this conservative society. More importantly, when Hooria Mashhoor, a well-known Yemeni woman, was named speaker of the National Transitional Council, before later becoming Minister of Human Rights, many considered it a real shift in Yemen’s culture. The council consists of some very conservative religious and military leaders, many of whom have consistently resisted women’s empowerment on the basis of religion and culture. 

Back in April, President Saleh tried to provoke Yemenis into supporting his regime by condemning the mixing of women and men in ‘Change Square’, calling it an anti-Sharia act. Initially the speech caused controversy, with conservative elements wary of the president’s accusations. The television footage of women peacefully protesting changed some attitudes, but it still did not get rid of the old mindset. Later, groups of Yemeni women burned their veils in the streets as a symbolic action to condemn some of the tribes’ support of Saleh. This sent a strong and very symbolic message to the leaders, partly about their political allegiances but also about their continued support of a patriarchal system.

Saleh’s gamble backfired, with the majority of Yemenis realizing it was a political ploy and many claiming the statement insulted the honor of Yemeni women. That has proved a significant moment; in the future politicians will think twice before using the veil of culture as an excuse to prevent women’s emancipation.

However, these positive trends are possibly too good to be true and some hard questions remain unanswered regarding Yemeni women in politics. What percentage of Yemeni women actually live in cities and participated in the revolution? Are the women in the streets reflective of their rural counterparts, who continue to be deprived of their basic rights? Is engaging in politics really the ultimate aim for Yemeni women? While there has been significant improvements in the political empowerment of Yemeni women, is it comprehensive? Not yet and progress can be frustratingly slow. Three women have now been appointed in the transitional cabinet, only one more than the previous government. 

The hope is that Yemen’s women, as in many other Arab countries, are entering a new phase, but there have been false dawns before. If you meet a Yemeni man protesting for more freedom, ask him this simple question, “While you say you are in favor of women protesting in the streets would you support your sister doing the same?” Some confirm that they would be, but too many still answer the question with an awkward smile and a red face.  

 

FAREA AL-MUSLIMI is a Yemeni activist and writer for Almasdar

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Finance

Big bucks for small business

by Maya Sioufi
written by Maya Sioufi

Riyada Enterprise Development (RED), a member of Abraaj Capital Group, in December launched a $50 million fund in a partnership with Cisco and European Investment Bank, to invest in Lebanese small and medium enterprises (SMEs). This is the largest fund dedicated to Lebanese SMEs and is the latest venture by Abraaj Capital Group — the largest emerging markets-based private equity— aimed at enhancing investment in Middle East and North Africa SMEs. SMEs account for 70 percent of MENA employment and 30 percent of MENA gross domestic product. 

“It is a well-known feature of the Lebanese economy that it produces an amazing amount of high-quality and highly talented entrepreneurs, so much so that they end up emigrating and succeed all around the world,” said Tom Speechly, chief executive officer of RED. “The aim of this fund is to encourage Lebanese entrepreneurs to stay in the country.” 

The Lebanese SME fund has an eight-year lifespan, with ticket sizes ranging from $1.5 million to $8 million. The aim of the fund is to invest in 10 to 15 growth companies across various sectors within three to four years, by acquiring between 25 and 40 percent of a company’s equity. So far in Lebanon, RED has invested in one company with two in advanced appraisal stages. 

With lower economic prospects predicted in Lebanon and uncertainty over the outcome of the uprising in neighboring Syria, the timing of this fund is questionable, but Elie Habib, Lebanon country manager for RED, believes that “it is the best time” to launch. As political transitions occur in the Arab world following the revolutions, there is an increasing interest from the diaspora in coming back. Yet structural issues in Lebanon — such as lack of access to know-how, distribution channels and financing — continue to hinder their return, according to Habib. 

When asked if RED considered delaying the launch of the fund to wait for more visibility on the economic and political situation in Lebanon, Habib replied: “RED saw an opportunity in 2007 and decided to launch a fund to tap into the SME opportunity in Lebanon. We are long-term investors, we build cyclicality into our business models and we help companies survive in downturns.” 

In Lebanon, SMEs represent a very substantial portion of economic activity. Bankdata and Sofres have recently released a market study on SMEs in Lebanon that estimates the total annual production of around 17,000 SMEs at $4.4 billion with an average annual turnover of $280,000 per company. The study, undertaken in the spring of 2011, reveals that approximately one fourth of the 300 SMEs interviewed have a turnover in excess of $500,000, and more than three quarters have been in business for more than five years. Two thirds of SMEs have seen their turnover grow year-on-year with more than 75 percent witnessing a double-digit growth over the past year. 

The fund is committed to $50 million and has so far closed $30 million through investments of $7 million from Cisco, $7 million from the European Investment Bank and the rest from Abraaj Capital. RED aims to raise another $20 million by the end of 2012 from investors attracted by the growth opportunities for Lebanese SMEs. Habib adds that after tapping into the $50 million fund, the long-term strategy is to launch another fund. It is “certainly not the last fund” that will be dedicated to Lebanon, confirms Speechly. 

When asked about their competition, Habib argues that it comes from the banking sector, which “can offer financing at attractive rates but does not offer the value added of a private equity.” In the Middle East, venture capital financing is focused on early stage investment, whereas RED is adopting a private equity model, investing in growth companies and undertaking extensive screening and financial modeling, according to Habib. “As far as I am concerned, Berytech, MEVP and a few others are complementary and they are our partners. We don’t compete for the same deals.” 

RED is looking to invest in established and growing companies. “We like proven business models where the business has stabilized itself, they’ve found their customers, they’ve got their supply chain worked out and the larger part of their growth is ahead of them,” says Speechly. When asked about his concerns regarding the reluctance of Lebanese companies to cede control, he replies, “We really don’t want control. These are founder-led businesses where we want the founder to continue operating the business as his or her business.” RED wants to grow the business for three to four years and then exit alongside the entrepreneurs, who ideally would start a new business. 

In the MENA region, SMEs face three main challenges, according to Speechly. One of these is access to capital, as only 8 percent of bank loans in the MENA region go to SMEs. Speechly does not blame the banks “because a lot of the SMEs are relatively informal and not ready for bank debt. What SMEs really need is equity, longer-term patient capital.” The other challenge is access to best practice: “Everything from sophisticated business practice to new networks, corporate governance and financial reporting,” Speechly adds, although he stresses that this is the least serious concern, due to the accessibility of information. The third issue is access to markets. The MENA region has 350 million consumers, a sizeable market but “the issue is that companies in individual markets don’t necessarily have access to the full market. It is more difficult than it should be to have access to that whole market,” he says. 

For the Lebanese fund, the target is for a 30 percent annualized return over the lifetime of the investment. While this may seem ambitious in challenging economic times, it leaves hope that newer financing options are being attracted to Lebanon and companies can rely on more than just their family and friends and the banking sector to fuel their expansion. 

CNN chose IXSIR’s winery as one of the greenest buildings in the world

CNN chose IXSIR’s winery in Basbina, Batroun, as one of the greenest buildings in 2011 “that have been recognized not only for their good looks but for their green credentials too.”

The Lebanese winery is the only building in the Middle East and North Africa that was featured on the list. Other cited buildings included the Casa Locarno and Swarovski Headquarters in Switzerland, the Sandal Magna School and Velodrome – one of the venues hosting the 2012 Olympic and Paralympic Games – in the United Kingdom, and the Livestrong Foundation in the United States.

“This is a design and architectural achievement that raises Lebanon’s profile on the international scene, confirming its high standing in this respect, and reinforcing the world-renowned reputation of Lebanese wine,” said IXSIR’s General Manager Hady Kahale. 

An eco-friendly building with sustainability at its heart, IXSIR’s winery won the 2011 Green Good Design Award.

The article underlined the winery’s contemporary concept that restores the traditional Lebanese winemaking process. “Overlooking Basbina in northern Lebanon, this winery combines a restored 400-year-old feudal seigniorial house with a modern-built, green-skinned […] structure,” the authors wrote. “Designed by Raed Abillama Architects, its cellar spaces are buried within the ground as a thermal sponge, creating the needed equilibrium of temperature and humidity.”

Using innovative skylights, the winery maximizes the use of natural light to illuminate the premises. And with its natural reliance on gravity, it respects the integrity of wine making. In addition to rainwater harvesting for irrigation purposes, it recycles all its outputs such as wastewater, and vegetable residue, which is turned into compost.

IXSIR’s winery will be open for the public to enjoy tours and tastings in the spring of 2012. 

To learn more about IXSIR, visit IXSIR’s official website www.ixsir.com.lb, or Facebook Page www.facebook.com/ixsir.wine.

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Finance

Merrill Lynch’s 2012 forecasts

by Maya Sioufi
written by Maya Sioufi

The view for 2012 is cautious rather than catastrophic, according to Bill O’Neill, chief investment officer for Europe, Middle East and Africa (EMEA) at Merrill Lynch Wealth Management. “One of the potentially good news stories in the coming year is a stronger domestic United States economy. The worst-case scenario would be a run on European sovereigns leading to a run on the banking system.” He forecasts 3.7 percent global GDP growth in 2012, down from 3.9 percent in 2011, led by emerging markets. 

O’Neill believes that decisions by policymakers will lead the markets in 2012 and he expects central banks to be more aggressive in terms of monetary easing, particularly in the Eurozone, and quantitative easing will become a global phenomenon. He stresses that “Europe needs to see itself increasingly as a single political entity and proper union.”

O’Neill is less compelled to buy into emerging markets than he was in previous years, as he believes that one needs to “dig beneath the surface to some of the sectorial stories”. He expects China to have a “soft landing” in 2012 and grow 8.6 percent down from 9.2 percent in 2011, but O’Neill won’t be buying Chinese equities as he finds more interesting emerging markets ideas elsewhere. He would keep an eye on China’s monetary policy and if it were aggressively eased, he would look to play that by buying into Russia, “despite politics issues and setbacks linked to presidential elections”, or Brazil, “which has been substantially de-rated”. 

Regarding the Middle East and North Africa region, O’Neill believes that although it will be affected by the weaker global growth in 2012, the region will be more resilient as it enjoys high oil prices and big investment programs, such as those initiated in Saudi Arabia and Qatar. The Arab revolutions have “sensitized governments to the need to enhance social and communication infrastructure and get money out to the population. I think Qatar, Saudi Arabia and to a lesser degree Kuwait are the areas to focus on.” 

Looking at Lebanon

On Lebanon, O’Neill is predominantly concerned with the high leverage. He is forecasting 3.8 percent GDP growth in 2012, up from 2.5 percent in 2011 but he warns that there are downside risks to the 2012 figure. O’Neill is concerned about the impact that the turmoil in Syria will have on Lebanon and whether it will also be slapped with sanctions. “What would affect my view on Lebanon in the coming year is… the knock on impact in Syria and the withdrawal of support from European banks and the effect it would have on the real estate sector,” he says. 

When asked about investor sentiment, O’Neill’s view of global investor confidence differs from what Tamer Rashad, Head of Middle East wealth management at Merrill Lynch, says is the prevailing sense among MENA investors. O’Neill says global confidence has severely deteriorated. “Investors are worried about the outlook as they are not convinced with the incredible actions taken by policymakers. There is a lot of emphasis on capital preservation. The loss in faith in equity markets is very significant, and will take time to rebuild.” Rashad, on the other hand, tells Executive that, “Interestingly enough, confidence is very high relative to what is happening in Europe and the US. It is very high in the [Gulf Cooperation Council] and we have not seen a lack of confidence or decrease in confidence as a result of what is happening on political scenes across the region. Obviously for investors in Egypt or Tunisia it’s a different thing, but overall in the GCC confidence is very stable.”

As for his top areas of investments, O’Neill stresses on the potential surprise from the US domestic market. For exposure to this potential upside, he recommends the US dollar and large cap quality stocks that enjoy strong cash flows and that are exposed to secular themes such as emerging markets consumers. He favors the technology, consumer staples and consumer discretionary sectors. For a more risk-averse investor, he would recommend US investment-grade credit.  

He sees limited upside to gold price in the first half of 2012, as he forecasts a price of $1,750 per ounce by June 2012, rising to $2,000 by December 2012. As for the oil price, he forecasts limited change in the first half of 2012 with Brent oil at $112 per barrel by June 2012 and then rising to $126 by December 2012. 

For a more long-term investment, he would look to Africa although he acknowledges it is not for the faint-hearted. He likes their improvement in governance from a low base, the young demography with an increasing life expectancy and their access to natural resources.

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Finance

Q&A – Maroun Mourad

by Maya Sioufi
written by Maya Sioufi

Zurich Financial Services Group (ZFSG), an insurance conglomerate with global reach, has been increasing its activities in the Middle East as part of an expansion strategy focused on emerging markets. Now one-year after the Swiss-based multinational acquired Compagnie Libanaise d’Assurances (CLA), a Beirut-based insurer with licenses in several countries in the Gulf region, Executive sat down with Maroun Mourad, chief executive of ZFSG’s insurance arm in the Middle East. 

What is your approach to the Lebanese market? Do you see potential for Zurich here? How much was the local market a consideration in buying CLA, as opposed to acquiring the licenses held by this company regionally?

Lebanon is an important market in its own right. If you look at the Gulf and Levant territory, Lebanon is effectively the third largest market after the United Arab Emirates  and Saudi Arabia. It closed last year at $1.1 billion and Lebanon also has probably the most progressive and open attitude vis-à-vis insurance, given that penetration stands at over 2.5 percent, versus an overall Arab regional penetration of, grosso modo, one [percent], if not lower. Lebanon is part of the Middle East expansion plan and it so happened that there was a company that is based here and which owns the licenses in the Gulf. But we would have come here anyway. Our entry into the market is part of a much bigger plan for the region and globally. 

As you said, the Lebanese insurance market reported $1.1 billion in gross premiums in 2010 but is very fragmented, with more than 50 operational insurance companies. What are your aspirations in terms of local market share and product mix?

We have none in terms of market share, that is predetermined. We don’t come in and say we will grab 5, 10 or 1 percent of the market. In the segments that we like, in the products that we can service and in the areas where we can actually be transparent, fast, easy to deal with, and honest — if we can dominate in that segment [then] we will. We recognize the fact that we are just starting here and we have to approach the opportunity with a bit of humility. There are household names in this market, good companies that have been operating here for some time. But this doesn’t mean that a new entrant with new ideas and top-notch local teams cannot succeed and cannot become one of the leading players. In the markets where we play we want to be as good as, if not better, than the leading local insurer.

Could you specify which segments of the Lebanese market are most interesting to you?

We are still in the process of finalizing our deep market studies, in order to not have one specific segment and miss out on the others that could potentially be areas where we could add value. [We will address a]  few areas such as the higher-end affluent personal segment, where definitely the high net-worth area is neglected, not only in Lebanon but in the region. The corporate segment is a very interesting one, because companies have complex risks, they have high-value assets, and they have potentially big liabilities. They need very strong financial security, which is what Zurich can offer here in the market. 

Is the high-end segment the most under-served area in the market?

From a claims servicing and proposition point of view, yes. Not just the highest end but in the affluent side of the market as well, there are a lot more things that this market deserves that are not being offered. I will not delve into the details [of what we plan to offer] now. 

Insurance is still largely considered a luxury in Middle Eastern markets. Some people have, perhaps wishfully so, predicted that insurance is moving from a luxury consideration toward wider acceptance. Are you seeing evidence that this is happening?

We certainly see the year-on-year growth in the industry. According to the IMF [International Monetary Fund], the Gulf Cooperation Council’s economic growth projections, on a compounded annual growth rate between now and 2016, will be 4.5 percent. The insurance industry is estimated to grow at nearly double that — at 9.5 percent. Does that really mean that penetration will effectively go from 1 to 3 percent so that we are at par with Southeast Asia and Latin America over the next five years? Probably not. A big push should come from compulsory insurance but compulsory insurance is directed at the areas that are most competitive: medical and motor.

…and least profitable?

Yes. Most competitively priced and least profitable. So what we would love to see more of is a combination of compulsory insurance and more awareness through cooperation between non-profit organizations and industry representatives like ACAL [the Lebanese insurance association], the media, publishing houses as well as the industry, be it the distribution side of the industry or the risk-taking side of the industry. The awareness is not there. People probably still look at insurance as an unnecessary expenditure but I am not entirely aware that people do a proper assessment of pros and cons of buying insurance. 

Is insurance awareness better in the high-end market versus the general consumer segment?

Awareness is [better] but it is not where it should be. You come across discussions where folks, taking a high-net worth [individual] for example, have a couple of pieces of art, a jewelry collection, and perhaps a few high-end rugs in their house and a lot of these properties are not insured. They should be insured as a financial protection mechanism… This is where insurance, besides being a financial management tool, can be a lifestyle support — if you have a piece of art you probably need to continue to be appraised of its market value. Through our network you can have access to events that talk about these things.

How are you investing yourself into awareness building on the high-end or the general level?         

In a lot of ways. We work closely with the regulators in every jurisdiction that we work in, to see which areas we can support. We participate in market studies whenever we are invited; we submit ideas, try to contribute to the publishing houses in terms of [specialized] pieces on insurance or general discussion of insurance. 

How strong is awareness in the corporate segment and where do you see a need to enhance awareness in the corporate market?

In the middle market and corporate segment the awareness is there. It could grow faster but it is there for basic products. But even with property insurance, you don’t find that companies always buy [coverage of] business interruption, which is a real risk subsequent to a [catastrophe]. I think a bit more education there would help. Then professional liability; a doctor or lawyer or accountant or auditor may buy life insurance and maybe workers’ compensation for the employees and car insurance for the drivers. But the areas that are crucial, which are professional liability and also general liability, are neglected. Overall, in certain products we see a higher take-up in penetration in the commercial segment where the policy holder is a company rather than an individual. What we don’t find enough of is the higher density per customer.

Meaning companies do not buy different types of insurance beyond what they absolutely have to have?

Exactly. I think if there is increased awareness — even without acquiring new customers, although you have to do this — if there is more density, this would spur growth.  

How much financial power is Zurich allocating to the Middle East? Any numbers that you can give our readers?

A lot [of power]. Just take a look: [Zurich has been positioned] in four countries through opening either a [Joint Venture], a greenfield or an acquisition. This is strategically important for us. The acquisition or expansion monies are not the only investments. When you come in, you have to integrate and expand and enhance. We are here for the long-term in multiple countries at the same time. We are pretty invested in the Middle East.

How large is your regional team today?

On the general insurance side we have over 250, including life we have over 350 people.

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