Editorial

Shooting blind, from the hip

by Yasser Akkaoui
written by Yasser Akkaoui

The current Lebanese government is, in economic terms, as dangerous as a blind man with a loaded gun and an itchy trigger finger.

To date, it has shown little to no leadership in guiding Lebanon’s floundering economy back to prosperity, offering no comprehensive strategy to promote sustainable growth across the different job-creating industries — be they financial, service-related, manufacturing or agricultural. Instead what the government has offered is ill-considered, quick-fix patches. Cabinet’s commitment last month to raise wages for workers in lower income brackets by an arbitrary amount would be in the same category, if it were not also actually counter-productive to the ends it is purportedly trying to meet.   

First, let’s be clear: With the rising prices it has become effectively impossible to achieve a descent standard of living earning the current minimum wage. However, the equation for setting the new optimal minimum wage requires knowing a few basics numbers ­— none of which the government has: It has developed no capacity to monitor wage rates or income distribution across the country, has no labor force or household surveys and no employer surveys. In other words the government has no idea what the optimal wage increase would be, and no clue as to the impact of its proposed minimum wage increase on either employees or employers.

Concurrently, since the beginning of this new government’s term, the country has experienced zero economic growth, meaning private sector businesses are already struggling. Forcing them to raise wages 40 percent overnight without offering the prospect of recouping these costs through new growth will result in employee layoffs and employer insolvencies.

What Lebanon needs is a comprehensive plan to address the fundamental flaws in the structure of the economy to boost growth, create jobs and raise the general standard of living — including setting the minimum wage at a level that is fair for employees and feasible for employers. What the country does not need is major policy decisions that affect millions of Lebanese and the economic stability of their country taken by shoot-from-the-hip politicians who, to date, have show themselves utterly unqualified to hold office.  

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Finance

Q&A – Walid Genadry

by Executive Staff
written by Executive Staff

Insurance customers rely on impartial authority to ensure that their insurance policy will be honored when they have to file a claim. For insurance companies, the supervision by a trusted public entity provides a shield of corporate credibility and a safeguard of companies’ financial solidity. Supervision, however, needs to be tailored expertly to meet both ethics and reality and even then dialog on regulations and requirements between insurance industry and insurance supervisor is often  tough and thorny. To better understand the local state of insurance, Executive sat down with Walid Genadry, head of the Insurance Control Commission at the Lebanese Ministry of Trade and Economy.  

E  When you outlined the concept behind proposed legislation for Lebanese insurance in 2004 you were not only convinced of the urgency of this matter but also enthusiastic about the law’s spirit and optimistic about a rapid adoption of what is still a draft law today. What happened?
I had less experience then [laughs]. Actually, there was reason to be optimistic, if things had gone like they would normally go in a normal country.

E  Under Lebanese circumstances, your optimism was a little bit…
…too high. But it was a reasonably good period at that time, before things took another turn. It is a shame because I see all the other countries in the region putting regulations in place.

E  But how important is regulation vis-à-vis having best practices? Lebanon, for example, has no actuarial association but we have more local actuarial competency in Lebanon than in most countries in the region. Is new regulation necessary where good practices already exist?   
Without regulation, it is not easy to have good practice. It becomes dependent entirely on who decides to have good practice. We would like everyone to implement good practices on their own and then we wouldn’t need a supervisor. This is not, unfortunately, how things usually go. On some issues, regulation is necessary. The issue is to determine which regulation you want through a law, which can be passed as a decree and which is best done through decision-making of the supervisory authority. That applies to most subjects, such as solvency and also actuarial issues. 

In terms of actuaries, yes we have more actuaries than others but we definitely don’t have enough, particularly since I am increasingly convinced of the necessity that some actuarial work needs to be done on non-life insurance.

E  Why do you see this actuarial work on non-life insurance lines as a growing need?
When I look at medical insurance, it is more risky in Lebanon than in France, or in Europe overall, because the government over there is the insurer of last resort. Under the French system, for example, it is quota-share by default and excess of loss without limit for anything serious, which means that the insurers have a very limited risk. We don’t [have this limited risk for medical insurers] and I would imagine that we need some actuarial work on this.

E  Has motor risk also been calculated with actuarial input?
Motor risk also, [but] I tend to be a bit less worried about motor. It is really high frequency and the nature of the accidents are almost always the same. Medical remains less controllable and you don’t know what types of diseases are being built in society. Today they are talking about cancer being not a genetic or a viral disease necessarily but a lifestyle one and we still don’t know what is hidden there. We are only realizing that cases of cancer are increasing significantly and we could not have forecasted this easily. That is why medical in my opinion is of concern.

E  Insurance balance sheets and risk calculations are widely seen as very difficult to understand even by accounting experts. From a regulator’s perspective, do the legislators sufficiently understand the needs for insurance regulations and how to legislate those terms?
This is not an easy business. People of course understand what insurance is and why it is needed, such as to avoid going bankrupt from being hit by a catastrophe. But when it comes to the mechanics of the insurance business and what a regulator ought to do, I would say that almost all of our legislators don’t understand that. This is a challenge because when you don’t understand you can be an easy target for inappropriate lobbying. You can get scared or influenced easily and with arguments that are seemingly logical. Unless you know how it really works and hear another point of view, it is very difficult not to be convinced that such arguments are right when they are not.  But we cannot change these things easily. We have to maximize whatever we can to introduce the proper legislation.

E  You have been criticized quite harshly at some points during the past seven years when the insurance law was being questioned repeatedly by the industry, and you have alluded in your speech to the fact that the supervisor, while never perfect, is regularly blamed when he does not deserve it. How do you view that criticism of your role?
I realized one thing at a point during these years: This was a change management process. In the beginning I never saw it that way. It took a discussion with a friend who had nothing to do with insurance but who happened to know a lot of insurers to clarify this to me, because he heard what insurers were saying. That woke me up and I realized that in fact I was organizing change management. Here was a sector that was active for decades without any supervision. There was some disposition in the law but it amounted to virtually nothing.

Then someone comes in and says we are starting to reorganize this issue. It is very difficult. Some people may feel threatened… There can be several processes within normality and we ended up in one process that, while not the most desirable was still a normal path: Confrontation. It could have been tough dialog but nonetheless dialog trying to convince [me], by showing data, where things failed or telling me where I am not seeing it clearly. But I think somewhere we were all growing; on both sides the visibility at times was not 100 percent.

A simple question: Do we want to bring in [the regulatory framework called] Solvency II in our region? This is for big sophisticated companies and complex insurance sectors whereas in the Middle East so far to a very high degree we have simple insurance. I think Solvency II as a framework is a beautiful thing but then we have to adapt and simplify it.

E  Solvency II has been criticized in Europe as being extremely complicated…
We cannot afford that. We need something that is understandable for the insurers and is feasible.

E  Would you say that there was a negative impact on Lebanese insurance companies from the fact that the law didn’t come into existence in 2004/2005?
Of course. The difference is between real loss and opportunities lost. Our human nature gives a very high weight to real loss, which could be $10. If you lose $1 million as opportunity cost, you may say ‘I am not sure if that would have ever come’. What we have here is a huge missed opportunity to grow the sector properly, to consolidate it properly and to show the region that we have serious companies that are well regulated.

The supervisor’s reputation of strength — and some companies realize that — is great publicity for the sector. This reputation is essential to the business of insurance companies. I wouldn’t say it’s free publicity because there is a cost to supervision, but it is publicity that you [as a company] don’t need to promote yourself. If you have a supervisor that has a reputation of being professional and capable of doing what he has to do, one who cannot be fought off easily, then you as an insurance company are seen as a very serious insurer.

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Finance

Treachery and trickery await online

by Executive Staff
written by Executive Staff

The lure of an easy buck is tempting for many, and as online trading becomes ever more accessible in Lebanon there are many who are ready to put their savings on the table. As with everything that seems too good to be true, however, the pitfalls are plentiful and inexperienced traders will quickly find themselves prey to the sharks of the market.

The number of online brokerages in Lebanon has been steadily swelling in recent years, with four launched in 2011 alone. Banque du Liban (BDL), Lebanon’s central bank, has 13 registered financial brokers, of which nine have online services. Also offering online trading platforms are many of  Lebanon’s other financial institutions, including the major banks.

What online brokers offer investors is easy access to the financial markets and the opportunity to trade a wide variety of securities from anywhere in the world, through a desktop, laptop or smartphone.

“Everyone can have access to the markets and trade all types of financial instruments for as low as $500,” says Walid Abousleiman, chairman of Aksys Capital, referring to the standard minimum deposit required to open an online account. 

Mohammed al-Hamidi, managing director at AM Financials, says that for average Lebanese people without a large capital base to invest from, online trading can be a tempting way to make money.

Aiding the surge in online brokerage is the rapidly expanding access to Internet across the region. “When you look at the percentage of Internet penetration in various countries in the Middle East, all are on the rise and Lebanon is no exception,” says Karim Farra, chairman of Amana Capital. “The concept was proven elsewhere, with online brokers in the United States and in Europe flourishing, so there was less risk for online brokers in Lebanon as we are not reinventing the wheel.”

Size of the market

The foreign exchange market is the world’s largest, with an average daily turnover of $4 trillion as of April 2010, 20 percent higher than in 2007, according to a report by the Bank for International Settlements. The report reveals that the growth of foreign exchange trading is partly attributed to increased trading by retail investors, who account for $150 billion of the average daily trade total, or 4 percent of the forex market.

Taking into account the population of the Middle East and North Africa (MENA), its trading history and Internet penetration, as well as the lopsided market share of the US, United Kingdom and Japan, Farra estimates that just 1.25 percent of total global foreign exchange trades are carried out in the MENA, equating to $1.8 billion per day, or $470 billion per year.

“The potential for the MENA region is clearly there as we have to play catch up in market share to claim our rightful 5 percent share,” says Farra.

An interesting perspective put forth by Henri Chaoul, general manager of Master Capital Group, is that the significant amount of liquidity sitting idle in Lebanese banks has contributed to the increase in the number of online brokers. According to Chaoul, Lebanese banks hold between $20 billion and $25 billion of ‘risk capital’ — money investors are willing to play the markets with.

“Banks have been very slow to react and provide products for [the excess liquidity]; as a result, finance companies have mushroomed because they want to take that opportunity,” he says. However, Chaoul is concerned about the lack of development concerning the financial products offered: “You don’t get any degree of sophistication. For instance, there is hardly any asset management.”

Jamil Barrage, head of asset management at financial institution Levantum, agrees on the lack of sophistication in the market. He says he tries to offer clients long-term investment advice, but encounters many who prefer much shorter horizons.

“‘Should I buy gold? I want to make a quick buck’,” says Barrage, mimicking these clients. “Their mentality is geared towards instant gratification and trading and they want to win now.”

Every online broker Executive spoke to for this article said the vast majority of traders in Lebanon, and the wider MENA region, are speculators, looking to make a quick buck rather than invest for the long-term.

“They gamble and they like it,” says Chaoul. “The more you gamble, the bigger your bet is and the higher the risk that you lose. Think about the casino. When was the last time you went to the casino and made money?”

Online brokers note that the average retail investor lacks market experience and so tends to lose money, while experienced traders generate better returns as they perform in-depth analysis of the securities traded and have superior market awareness.

A leverage-powered casino

In Lebanon, clients are typically offered 1:100 leverage on forex, meaning that for every $1 deposited the client can trade up to $100. This significantly raises the risk of being wiped out quickly.

Say a trader wants to buy euros and sell dollars. He opens an account with $5,000 and his broker gives him 1:100 leverage, so he can trade up to $500,000. If the euro/dollar exchange rate stands at 1.36, he can buy €368,000; if it falls to 1.345, his €368,000 is now worth $495,000, meaning he has lost $5,000 — or his entire investment — for just a 1 percent change in the euro/dollar.

“If you take on too much leverage with a small account, you cannot hold positions, you are obliged to [exit],” says Marwan Riachi, senior financial consultant at Berytus Capital.

The US imposed rules last year to reduce leverage at US Forex brokers to 1:50 on major currency pairs and 1:20 on minor currency pairs. No such regulation exists in Lebanon and some online brokers offer leverage up to 1:400. According to Rayan el-Annan, chief executive officer of Royal Forex Trading, “stricter leverage rules, like in the US, would be very good in general to protect people from assuming more risk than they can handle.”

Given that clients are frequently wiped out, online brokers have to constantly be on the lookout for new ones. “Online brokerage is a very inefficient business model as you have to constantly get new customers,” says Chaoul. “If you are living in the US or Western Europe, there are plentiful amounts of clients. The problem here is that the number is limited.”

The darker side

Among the reasons for the rapid rise in online brokerage is that it has proven lucrative, but revenues do not stem from commissions alone.

It is a popularly cited statistic in the brokerage industry that 90 percent of retail investors lose their money; many online brokers in fact count on this to fatten their pockets.

The role of an online broker is to execute trades for clients in exchange for a commission. A widely understood practice in Lebanon, however, is for brokers to place their clients’ orders on their books and not send them to the exchange. These brokers are betting that the majority of their clients will lose their deposited capital, which is a form of market making prohibited by the BDL.

“What is happening in Lebanon is mind-boggling,” says Barrage, who describes an encounter he says he had with a salesman. “He asked us how many of our customers make money. When we said, ‘just a few’, he replied, ‘You see how much money you could have made if you had taken all these positions onto your books.’”

“It is the Wild Wild West,” he adds.

According to Chaoul, some online brokers will say “X is a stupid trader so we won’t send their trades to the market as we expect him to lose; so we will trade against him and hold the trade on our books.” In this case, when the trader loses money, the broker does not just take the commission on the trade, he takes the entire amount initially deposited by the client for the trade. The risk is that the trader makes money, in which case the broker will have to pay him from his own account. If they face a smart trader, then they will send the order to the market.

Rawad Halawi, head of Halawi Investment Trust — which focuses mainly on South Lebanon — says his firm faces competition from several unregulated online brokers, which offer very low commission fees.

“They must be winning something. They are relying on the loss of the client — that’s the source of their income so that’s why they can lower their commissions. They are killing the market,” he says.

Holding traders’ positions on their books is not the only shady business online brokers are up to. When a trader buys a contract of gold from his broker, that broker is meant to place that order with the appropriate exchange, which will require a margin from the broker as a buffer. For instance, the current margin required by the Chicago Mercantile Exchange for a contract of gold is $11,475, and that is a fixed amount required from any investor who wants to buy a contract of gold.

In Lebanon, some brokers are ignoring the margin requirements of the exchanges and asking for lower margins to induce the clients to buy. “If the exchange requires a margin of $6,000, they will give it to you for a margin of $1,000 and they will not send it to the market,” says Chaoul. “At best it is deceptive marketing, and at worst it is fraud, and it is happening all the time.”

What is not generally realized is that when a client buys a future contract on the popular platform MetaTrader4, which is used by the vast majority of brokers in Lebanon, the order goes to the broker and not directly to the exchange, meaning the broker is doing the execution.

According to Nusseima Taleb from BDL’s legal department, the central bank is aware of these issues and is trying to curb them: “We require reports from brokers and we monitor them onsite. If they are not abiding by the law, we take the necessary measures. If their breach is serious, we can close them down.”

When asked about plans for issuing a license for market making, she replied that “it is just talks for now,” and that there are no concrete plans to issue such licenses as yet.

Looking ahead

“Online brokerage in the Middle East is still in its infancy and it is going to grow tremendously,” says Hamidi.

The number of online brokers setting up shop is a reflection of the expectation of growth in this industry, and while the ease of access to the financial markets is a step in the right direction — allowing investors in Lebanon and the MENA to have the same investment opportunities available in other parts of the world — traders should tread with care to avoid pitfalls in the perilous world of online trading.

 

Sidebar: Picking an online broker

With the rise in the Middle East of brokerage firms dedicated to online trading, Executive helps you ask the right questions when choosing your online broker.

What service do you need?
Online brokers differ in the amount of services they provide. So to decide which type of service you need, think about how experienced you are as a trader. If you have significant experience, you can go for an execution only brokerage. If you are not experienced enough, you will need a full service broker who will offer investment recommendations. Keep in mind that these services are usually not offered to small accounts and when offered, they come at a fee, sometimes embedded in the commissions. It is highly recommended to take courses related to financial securities before starting to trade. 

What securities do you want to trade?
Online brokers also differ in the amount of securities offered. Some brokers are specialized in particular securities while others offer several types. Deciding which ones to trade should be based on your understanding of the security and also on your risk appetite. For instance, trading future contracts is much riskier than trading equities. A typical future contract would provide you with a 1:100 leverage, meaning that if you open an account with $1,000, you can trade with up to $100,000. Equities, on the other hand, typically offer a 2:1 leverage.

What trading platform is offered?
Some brokers offer their own proprietary trading platform but most commonly they offer a third party platform such as MetaTrader4, JT Trader and CQG Trader. It is essential to become familiar with the platform before starting to trade. Most online brokers provide demo accounts so that you can practice before going live. Some also offer platforms for your smartphones and tablets — a feature worth taking into account if you expect to trade on the go.

What are the rates on different securities?
Online brokers charge different commissions for the various securities they offer. In most cases, these rates vary depending on the volume traded. You will need to ask what rate you will be charged based on the volume you expect to trade. Also make sure you ask about the “hidden” fees as some brokers might charge fees for closure of an account, an inactive account or the transfer of funds out of the account.

What is the minimum deposit required to trade?
When deciding to open an account, you need to ask what is the minimum deposit required. For trading of futures, in most cases there will be a margin requirement set by the exchange that online brokers abide by. For trading foreign exchange and equities, online brokers will usually require a minimum deposit to open an account; nowadays, this can be as low as $500.

Who are the correspondents?
Online brokers use correspondents, financial institutions that have access to markets and place trades on behalf of the brokers. Make sure to ask who the correspondents used are. The higher the rating of the correspondent, the more you can be assured that your money will not evaporate.

How good is their reputation?
Before deciding on an online broker, ask around. As there are still no professional reviews of online brokerages in the Middle East, you need to rely on word of mouth. Also try calling the customer service of the brokerage to check how quickly they respond, check if they have live chat and if their response is efficient and helpful. Visit the broker personally before you open an online account to make sure it feels right.

With the rise of Internet penetration throughout the Middle East and the ease of accessibility to trading financial instruments, online brokers have been mushrooming. Gaining an understanding of the various securities and making an informed decision on which online broker to choose is fundamental in order to reduce the risk of losing your investment.

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Lost in translation

by Gareth Smith
written by Gareth Smith

Admiral Michael G. Mullen, outgoing chairman of the United States Joint Chiefs of Staff, in September warned of a lack of communication with Tehran. “We are not talking… so we don’t understand each other,” he said. “If something happens… it’s virtually assured we won’t get it right.”

Admiral Mullen’s idea of a “hotline” to avoid an accidental flare-up was played down in Washington and rejected by senior Iranian commanders, despite its common sense assertion: In the absence of understanding, messages are invariably misinterpreted.  One theory over the alleged plot to blow up Adel al-Jubeir, Saudi Arabia’s Washington ambassador, came from American journalist Gareth Porter: That Tehran was “sending a message” as to how it might respond if attacked. Quite how complex this message sending becomes is illustrated when Porter notes that undercover American agents’ sting operation against Mansour Arbabsiar — the Iranian-American facing criminal charges in the case — may also have constituted entrapment. The truth lies hidden somewhere in the smoke, fog and noise of US-Iranian relations.

US Secretary of State Hillary Clinton warned Iran in a CNN interview it would be “badly miscalculating” if it believed the US military withdrawal from Iraq, announced last month by President Obama, was evidence of diminishing US military commitment in the region.  She had a point. While Washington is to withdraw almost all its troops from Iraq by the end of the year — the current level of 45,000 is already well down from a peak of 166,000 during the “surge” of 2007 — it still has 100,000 in Afghanistan and a considerable presence in the Persian Gulf, especially with the Fifth Fleet based in Bahrain.

Yet Washington wants more sanctions. The mantra is familiar. They will, said Clinton, “send a strong message to Iran and further isolate it from the international community.”

Hence David Cohen, undersecretary at the US Treasury, has been lobbying in Europe. As well as the alleged assassination plot, he cited two reports: One due this month from the International Atomic Energy Agency, which is expected to criticize Iran for inadequate explanations over its nuclear program, and another published last month by the United Nations special rapporteur on human rights in Iran.

Cohen raised the option of sanctioning Iran’s central bank. This is probably too radical a step for Europeans worried that freezing Tehran out of the global financial system could jeopardize its oil sales and send energy prices up, but they might follow the US in imposing sanctions against Iran Air and the port company, Tidewater Middle East. Washington has accused the two of carrying “illicit shipments” and defense supplies. While the US has long argued that both sanctions and its military build-up in the Persian Gulf “send a message” to Iran to end its nuclear program, Tehran believes Washington’s real aim is the overthrow of the Islamic Republic. Iranian politicians see sanctions as an alternative to talking, as coercion designed to force Iranian compliance.

The US message, linked to implicit or explicit threats, has been sent around the world. Washington has made it clear that countries and businesses trading with Iran may face severe penalties, especially through banking, and has targeted Tehran’s gasoline imports and crude oil sales, encouraging Tehran to curb gasoline consumption and increase refining.

With oil, Iran remains confident of finding buyers. But sanctions have had a deeper effect in keeping Iran’s gas underground. Despite reserves of 30 trillion cubic meters (m3) — surpassed only by Russia — Iran is a net gas importer, with an output of just 138.5 billion m3 last year.

Extracting and exporting gas requires advanced technology, especially in the most versatile means of transportation, liquefaction, and Iran’s joint projects with international majors floundered as companies like Total and Shell eventually decided they could no longer ignore Washington’s strong messages of disapproval.

Naturally, Iranian officials are loath to admit sanctions have hampered the country’s economy in case they communicate any weakening of the country’s resilience. They have no desire to send out the wrong signals.

Ayatollah Ali Khamenei, the supreme leader, seems to have opted to label Western pressures as conspiracies and to wait for problems to pass. In reaction to the US furor over the alleged bomb plot he said: “The way to success is not to retreat from the enemy, not even one step.”

 

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

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Jasmine in bloom

by Amna Guellali
written by Amna Guellali

Judging by the long queues at the polling stations, the elections for Tunisia’s Constituent Assembly on October 23 were an enormous success. People of all ages and walks of life, most voting for the first time in free, transparent and competitive elections, came en masse, steeped in emotion and with a new sense of dignity. Many patiently endured hours of waiting to experience democracy.

Two days after this historic moment, Tunisian streets are animated by debates over how to interpret the results.

The Constituent Assembly is tasked with writing a new constitution, drafting laws necessary for the transitional period and appointing a new interim government. A daunting challenge will be to reach agreement on how to incorporate into the state’s fundamental legal document the uprising’s ethos, with its aspirations for justice, dignity and freedom.

In elaborating the new constitution, the assembly should uphold international norms of human rights and create strong safeguards against backsliding into repressive rule. The first of these safeguards should be to remove the qualifying language and exceptions to exercising the rights to freedom of opinion, expression, press, assembly, association and movement that in the previous constitution eviscerated these rights of their content.

A second responsibility of the assembly is to revise the laws that the former president, Zine el-Abidine Ben Ali, and his government used to crush any genuine opposition, undermine judicial independence and limit political participation. While the interim government revised some of these laws during the past year ­—- such as the political parties law, the press code, and the law on associations —- more needs to be done to purge the country’s laws of all the repressive provisions that can be used to violate the rights of citizens.

The ability of the Constituent Assembly to incorporate human rights protections into the constitution and laws will depend on the dynamics among the various political forces that Tunisians elected to serve in that body.

While the good results of Al Nahdha came as no surprise, other outcomes were unexpected. The first of these was the failure of the Progressive Democratic Party and the coalition known as the Modernist Democratic Pole to gain traction — likely due to their inability to unite in a strong coalition, and a backlash against their secularist discourse. By contrast, the Congress for the Republic and Ettakattol, two modernist parties that did not rule out allying with Al Nahdha, did better than expected. Another surprise came from the almost unknown Popular Petition party, led by Hashmi Hamdi, which gained numerous seats in inland cities such as Sidi Bouzid and in the coastal cities of Sousse and Sfax.

The elections made clear the strength of the Islamist movement on the Tunisian political scene. We will soon see if it remains true to its campaign pledges to respect public freedoms and human rights.

Since Ben Ali was ousted, Al Nahdha has made significant efforts to dispel the suspicion that behind a veneer of moderation it has extremist and intolerant tendencies. Al Nahdha’s political platform, published September 13, abounds in references to democracy, human rights, respect for dignity and tolerance, and the party does not officially advocate applying or using Sharia as a source of law. In public speeches, its leaders have repeatedly stated that they will not seek to roll back Tunisia’s personal status code, perhaps the most progressive in the Muslim Arab world.

But even today, there are contradictions in the discourse of Al Nahdha leaders that make some skeptical about its professed attachment to human rights. While the party includes “freedom of expression” in its general program, it has qualified that right in some of its public positions. When protests erupted on October 9 against Nessma TV after it aired Persepolis, an animated feature film that includes a scene in which God is personified, Al Nahdha issued a communiqué that condemned attacks on the sanctity of Islamic principles and contended that a distinction should be made between freedom of expression and attacks on sacred beliefs.

Across the political spectrum, Tunisians hailed their election as fair. Nonetheless, more than a few are concerned by the configuration of the Constituent Assembly, with a plurality held by Al Nahdha and the strong showing of Popular Petition. Whether they serve in the ruling majority or not, the political parties should not forget, in the gambit of alliances and coalitions, that the struggle for dignity that set off the revolution nine months earlier was no fluke. The Constituent Assembly will exist only for a short interim phase and is expected to adopt a new Constitution one year after convening.

Tunisia is about to have real politics for the first time. Its parties should not squander this opportunity to profoundly remodel the legal and political system to embody the aspirations of Tunisians.

 

AMNA GUELLALI is the Tunisia researcher for Human Rights Watch

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Rein in the ratings agencies

by Paul Cochrane
written by Paul Cochrane

Why should we take credit ratings agencies seriously anymore? It is a question that has growing currency globally, and one that would not have been asked several years ago, certainly not by those in the financial sector. Yet in these turbulent economic times I have heard corporate bankers, private traders, insurance brokers and compliance officers rant about how the credit ratings agencies (CRAs) have gotten out of control.

People are starting to question why the CRAs’ “opinions” — for that is what their ratings are — should wield such power in the global markets given their prominent role in instigating the financial collapse. Subsequent moves over the past year have further escalated the crisis, such as downgrading Greece, Portugal and Italy in the midst of the European sovereign debt debacle.

The CRAs raising ire are the three majors in the United States, Moody’s, Standard & Poor’s (S&P) and Fitch, not the 70-plus other CRAs that operate on a much smaller scale worldwide. Indeed when China’s Dagong, the only non-Western sovereign CRA, downgraded the US in 2010 to “AA” status it hardly registered, especially compared to when S&P did the same (to “AA+”) a year later.

In particular, the problem is the way the three CRAs work to assess the risk of debt-based securities and other structured financial products: CRAs are paid by clients to “objectively” rate these same clients. But there is a clear conflict of interest here. As US Senator Charles Schumer remarked to the Senate Committee on Banking, Housing and Urban Affairs in 2008, this is comparable to “allowing students to pay for their grades,” for naturally, everyone wants to receive a higher rating. CRAs bestowed “AAA” ratings — the highest possible — on the bulk of the $3.2 trillion in mortgage-backed securities issued by banks during the build up of the housing bubble, despite the risky nature of bundling together what is known as ‘collateralized debt obligations’, while watching their profits double to $6 billion between 2002 and 2007. When the bubble burst the following year and the big three CRAs were asked during US government investigations why they kept these securities rated so highly, all three stated: “it’s an opinion.”

Among the core issues here is that these opinions — the downgrade on the debt of sovereign debt or unrealistically high appraisals of toxic assets — are a type of self-fulfilling mantra: a poor asset wrapped in the gloss of a high rating will attract people to invest in it, making it worth more. This warps a market and can cause havoc, as we continue to see. Credit ratings are also used to anticipate future credit worthiness, but CRAs cannot predict the future no matter how good the data at their fingertips, and especially not if they are inherently in a conflict of interest.

So what is the solution to curb the powers of the CRAs? The US Dodd-Frank Act, the financial overhaul law enacted in 2010, and the Securities and Exchange Commission (SEC) have proposed policies to crack down on the CRAs, but they do not go far enough, with pressure from the well-lined pockets of the CRAs and Wall Street lobbying for significant concessions.

A more radical — and simple — solution was proposed by economist David Raboy at a Congressional Oversight Panel in 2009. Raboy suggested creating an independent clearinghouse that would receive rating applications from securities issuers and allocate each assignment to a ratings agency in a random fashion, with payment dependent on the complexity of the securities involved. Accurate ratings would ensure assignment of further cases. This model could be applied nationally or even at an international level, such as for sovereign ratings. Another solution is to scrap the CRAs all together. After all, the stock markets are devoid of ratings, with investors getting by on research from firms and banks to make decisions. If neither of these solutions is adopted — which seems likely unless the ongoing protests of the Occupy Wall Street movement pick up momentum for greater change in economic policy — then one must hope that the SEC can effectively rein in the CRAs through tougher regulation.

In a world with properly functioning markets, however, it is likely CRAs would have already rated themselves out of business, with their lost credibility leaving the services they offer akin to stirring gossip and spreading rumor.

 

PAUL COCHRANE is the Middle East correspondent for International News Services

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Society

Executive Insight – The style and substance of Steve Jobs

by Line Tabet, Zeina Loutfi & Ramsay G. Najjar
written by Line Tabet, Zeina Loutfi & Ramsay G. Najjar

Steve Jobs is being mourned the world over, not just as a revolutionary inventor and talismanic chief executive officer, but also as an iconic personal brand and a globally-recognized leader who touched the lives of everyone, not simply the Apple fan or the tech community. Jobs is praised for his creative genius, for changing the way we communicate and interact and for turning Apple from a fruit into an international brand spoken in all languages across the globe. If we scour through the deluge of articles and blogs recently written in tribute to Jobs, we see recurring references to him as a visionary leader and dreamer, with one article even echoing George Bernard Shaw by labeling him “an entrepreneur who dreamed things that never were and asked ‘why not?’” Although the visionary aspect of Jobs’ legacy will continue to be studied and lauded for decades to come, what is even more striking was his uncanny ability to actually turn his visions into concrete reality through his unflagging persistence and passion. It is the combination of dreamer and achiever, a man of style and substance, which makes him stand out in history. 

Clearly, these dualities are incarnated in Apple’s products that marry design with technology. But as experts in communication, what really makes us stop and think is how he also applied these dualities, combining content with form. For most companies, style, design and form are means to an end, which is to maximize sales of their products. But for Jobs, these assets had a different meaning. He understood that these dichotomies, dreamer and achiever, design and technology, content and form, were the key words that should lead his strategic thinking, as they would turn Apple into the successful company it is today.

To the point

On the product front the adjectives that come to mind are innovative, pioneering and revolutionary but also beautiful, easy to use, simple and sleek. Jobs revolutionized the technological industry, reinventing the concept of personal computing and rendering it accessible to all. This was done by turning computers into designs while creating a great experience for users.

Steve Jobs worked religiously on upholding both the content and form of Apple’s communication. He recognized that during times of tough competition and struggle over market share, strong and creative ideas are needed and original content is critical to attracting and retaining customers. Jobs learned this the hard way from his mistakes at Apple and NeXT Computer.

As such, when he rejoined Apple in 1997 he made sure to make communication his top priority. Jobs started by developing a new branding platform with two syllable words for consumer products: the iPod, iPhone, iMac and iPad. There have been many speculations as to what the letter “I” signifies, with different theories including Internet, innovation, inspiration and individual. Jobs personally oversaw the taglines used to market and promote Apple and its products, including iconic slogans such as “Think Different”, “iThink, therefore iMac” and “It’s small. It talks. And it’s in color.”

The effectiveness of Apple advertising can be summarized in two words: simplicity and clarity. You would be hard-pressed to find lengthy press releases announcing new developments.  Instead they employed short and impactful messages devoid of technical jargon and sweeping numbers. This was applied throughout Apple’s many events, where presentations were punctuated with short sentences rather than bulleted PowerPoint documents, sometimes even resorting to imagery instead of words.

In fact, every Apple-related message was carefully written to convey the positioning of the company and allow customers to identify with its corporate culture based on innovation, passion and style. ‘Innovation’ because Steve Jobs’ purpose was not to sell products to customers, but rather experiences, something which translated into his messages. For Jobs, the iPod was “1,000 songs in your pocket”, the iPod Touch, “the funniest iPod ever” and the iPhone “the Internet in your pocket”. ‘Passion’ because Jobs believed that everyone should live to do something one loved and successfully achieve one’s dreams and as such would punctuate his sentences with words like ‘gorgeous’, ‘amazing’ and ‘fantastic’ when describing Apple products and services. ‘Style’ because Steve Jobs brought aesthetics to the heart of design, stating: “That’s not what we think design is. It’s not just what it looks like and feels like. Design is how it works.”

Another characteristic of Jobs’ communication was that he communicated solely about Apple, revealing little about himself. Nevertheless people dissected his messages in attempts to learn more about the man behind the logo. This was another carefully planned strategy to maintain an aura of mystery around him, not only reinforcing the perception of him as a visionary guru but also allowing each person to project his or her own ideas onto him and identify with him, with Apple and with its products. The video of his 2005 commencement speech at Stanford is a favorite on YouTube, which gave us a rare insight into the personal side of Steve Jobs, from Steve Jobs.

Hear what I say

As powerful as the substance and content is, it is only as impactful as the form or channel through which it is conveyed; in Jobs’ case that was his live performances. Jobs undoubtedly had talent and performance skills and knew how to leverage them. He made his live performances the most anticipated events in the tech year. The secrecy that surrounded his persona was extended to his products, creating anticipation among Apple fans who avidly waited for his performance. Each product launch was turned into a concert, whose rock star was Steve Jobs, a CEO full of energy and enthusiasm ready to introduce visionary products.

Among the more memorable moments were the envelope that was shown on the screen featuring the MacBook Air and Jobs reciting Bob Dylan’s “The Times They Are A-Changing” lyrics wearing a bow tie as he unveiled the Mac in 1984. The key success factor of these seemingly spontaneous shows was the perfectly coordinated build-up and weeks of rehearsal, which made these announcements a hit and demonstrated Jobs’ obsession with details and perfection. These timely performances, each of which had a specific purpose, were preceded by small pre-planned leaks, circulating information to raise curiosity and create drama. That said, Apple also bet on old school advertising with $420 million spent in 2010 on billboards, TV and online ads, all of which followed the rule of simple and clear messaging, with young people dancing and holding iPods or using the iPhone and iPad.

When it comes down to it, there is no secret recipe for successful communication. The equation is simple: content and form go hand-in-hand and no part of the equation should be favored over the other. Unfortunately, it is not something that companies and brands in our part of the world seem to have understood, with many still betting on the ability of flashy slogans and costly campaigns to make up for a lack of substance and content to back it up. From real estate to telecom, we have seen a myriad of regional companies put up impressive campaigns and creative visuals which have left us wondering: what is the real message, what do they stand for, what are they promising and can they deliver on it? These questions have remained unanswered and these companies have floundered in the aftermath of the global financial crisis. It is clear that in communication as in everything else, it is all about style and substance. Steve Jobs certainly understood that, and he will be missed sorely, not only for revolutionizing the technology industry but for setting the bar so high that it will be tough for anyone to follow suit.

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Prisoners to politics

by Ahmed Moor
written by Ahmed Moor

The prisoner exchange between Hamas and the Israeli government came at the only time it could; when the interests of both sides were aligned. In a sense, the actions of Mahmoud Abbas at the United Nations (UN) in September precipitated the deal. Both Hamas and the Netanyahu government sought to bolster their domestic popularity in its wake; something they managed with different degrees of success. The exchange — still unconcluded as October came to a close — has the potential to have an impact beyond its immediate implications, particularly for Palestinian reconciliation and the Gaza siege. 

In June 2006 Hamas conducted a raid in which they killed two Israeli soldiers and captured one. The party’s stated intent was to gain enough leverage to compel Israel into conducting a prisoner swap for some of the roughly 8,000 Palestinians held in Israeli jails, many of whom are political prisoners.

On October 18, Hamas and Israel completed the first stage of that swap. When the two-stage swap is concluded, 1027 Palestinians and one Israeli will have been liberated. It is significant that the exchange happened now and not years ago when the two sides appeared to be close to a deal. The gap between them was likely bridged by a mutual deterioration in their political situations.

Abbas — probably unknowingly — was the common denominator between the two adversaries. His appearance at the UN successfully undermined Benjamin Netanyahu and, to a lesser extent, Hamas. The call for an independent Palestinian state resonated so deeply and widely in the international community that both the Israeli government and the Islamic movement were forced onto the defensive. Hamas has also become increasingly sensitive as its patron Syria has been marginalized. Both parties sought to boost their support among their constituencies and the high-visibility, high-impact strategy of securing the release of prisoners was the best way to do that. Hamas gained more from the deal but Netanyahu also experienced a bump in the polls. Furthermore, whether  it was intended or not, the exchange had the added effect of undermining Abbas in two ways.

Firstly, Hamas demonstrated to the Palestinians that it could produce results: the release of Palestinian prisoners. Abbas by contrast seemed only capable of producing political theater. Further, Netanyahu made a massive concession to the extremists in his cabinet so as to gain their support for the deal.  He agreed to the establishment of a  new settlement which will consolidate the Israeli occupation of East Jerusalem, thus accelerating the erosion of Abbas’ credibility.

Aware of how weak the prisoner exchange with Hamas has made Abbas look, members of the Israeli government are now talking of attempting to bolster his public image by releasing more prisoners. However, hardliners led by Israeli Foreign Minister Avigdor Lieberman have protested loudly against any such move.

The political consequences of the prisoner exchange for the Palestinians are still unclear. It is likely that Hamas’ insistence upon the release of prisoners from all of the political factions earned the movement’s leadership goodwill among rank-and-file Fatah partisans. It may also work to thaw the hardened edges that have developed between the two factions in recent years, which would make a genuine reconciliation among the Palestinians possible.

Equally significant is the unprecedented degree of cooperation between Hamas and Israel. While not approaching anything like mutual recognition, the level of contact required for coordinating the exchange may provide the basis for future agreements on the scope of the Israeli siege on Gaza. Indeed, there have already been calls from both sides for the removal of the blockade — which was tightened punitively when Hamas captured the Israeli soldier.

The gains made by Hamas are also reflected on a regional level. According to recent media reports, Khaled Meshaal, Hamas’ political leader, may be meeting with Jordan’s King Abdullah soon. Observers believe that the organization is currently exploring the possibility of establishing political bureaus in Cairo and Amman.

Both Hamas and Israel have gained from the prisoner exchange. The Netanyahu government has improved its approval ratings while the Islamic party has reinvigorated its base and bolstered its reputation. What remains to be seen is whether the Hamas leadership is able to leverage the goodwill generated by the deal to weaken the siege on the Gaza Strip and achieve genuine reconciliation with Fatah.

 

AHMED MOOR is a contributor to Al Jazeera English and is a Master in Public Policy candidate at Harvard University’s Kennedy School of Government

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Economics & Policy

Executive Insight – Making smart investments in healthcare

by Jad Bitar & Ahmad Khalil
written by Jad Bitar & Ahmad Khalil

The Middle East is in the midst of a social transformation, with people aspiring to better lives, including better health. Governments are trying to meet this need at a time when their populations are growing rapidly and developing new, lifestyle-related illnesses such as diabetes and heart disease. At the same time, new and expensive medicines and technologies are ratcheting up cost pressures on healthcare systems.

In the face of such disruptive change in the health sector governments need to fundamentally rethink their approach to providing care. Rather than curing people who are already sick, governments will have to develop healthcare systems that emphasize keeping people well. They will need to ensure healthcare systems are operating as effectively as possible, and they must find the right level of involvement for the private sector.

This level of overhaul is a daunting challenge. To understand what needs to change, it is important to have a solid overview of the industry’s current spending patterns and the way they are shifting. Currently, governments in the Middle East spend an average of 5 percent of gross domestic product on healthcare — well below the 2009 Organization for Economic Cooperation and Development (OECD) average of 9.5 percent — ranging from 2.5 percent in Qatar to 9.3 percent in Jordan. But these numbers are on the rise due to the introduction of mandatory health insurance and the growth of chronic diseases. In the Gulf Cooperation Council (GCC), for instance, healthcare spending per capita grew at more than 5 percent per year in the last decade, according to the World Health Organization, from $843 per person in 2000 to $1,224 in 2010. Increasing proportions of this money go to treating chronic diseases; in Abu Dhabi, 10.2 percent of spending went to cardiovascular disease and 8.6 percent to diabetes.

Falling short

As the region’s healthcare needs become more pressing, the lack of resources available becomes more glaring. Saudi Arabia, for example, has just 37,000 hospital beds; in order to reach OECD levels of 2.8 beds per 1,000 people, it will need 73,000 more in the next few years. Many governments are rushing to fill the gap by building hospitals and encouraging the private sector to do the same. In their haste, however, they run the risk of encountering high operating costs and low quality of care due to many factors, such as a lack of national-level planning and a scarcity of skilled talent.

The talent shortage is especially acute. GCC countries average 1.8 physicians and 4.3 nurses per 1,000 people, compared to OECD averages of 3.2 and 11.4 respectively. Abu Dhabi, for instance, will need an additional 3,000 physicians and 6,000 nurses by 2020. This recruitment challenge is compounded by the fact that the majority of the emirate’s existing doctors and nurses are expatriates, who are proving hard to retain for long periods of time. Healthcare systems will continue to struggle to build the capabilities they need if they lose their talent every few years.

With such scarce resources, it is especially important for healthcare systems to be efficient and effective. At present, the delivery of care (including hospitalization, physicians and drugs) consumes the greatest portion of spending — more than 80 percent of total budgets. Therefore, this is the area most critical for reform. Healthcare systems must control the cost for each episode of care, reduce average length of stay, lower overall hospitalization rates and make sure hospital beds are used in the way they were intended — for instance, by not putting chronic care patients into acute care wards.

Finally, to fully understand the dynamics of existing healthcare systems we must look at the split between public and private care. Currently, governments account for the majority of healthcare provision, contributing 65 percent of care on average but rising as high as 80 percent in some countries. Given the gaps in existing systems, governments are understandably reaching out to the private sector to increase its involvement. This is a welcome development in terms of the private sector’s ability to marshal resources and attract expertise. However, governments will need to be cautious: a two-tier system that includes public and private care presents much more complex challenges than a purely public care one. Governments will need to develop the capabilities to provide oversight and regulation in order to ensure accessibility, quality and cost control. For example, two-tier systems tend to lead to a segregation of services, with “profitable” services such as bariatric surgery and gastric banding delivered by the private sector, while the public sector maintains the heavier and costlier burden of cases such as vascular surgeries and transplants.

The healthcare systems of tomorrow

With so much for governments to do, they will need to make a concerted effort to build the required capabilities for managing the dynamics of a two-tier system.   There is no single recipe that will work for all healthcare systems, as each has its own idiosyncrasies in areas such as financing, care delivery, policies and regulations. But there are smart investments that would benefit most systems in the region. Although this list is not exhaustive, we believe the following provide the foundations for the healthcare systems of the future:

Refocus priorities on prevention and disease management. In the face of the rapid rise of chronic diseases, investments in health maintenance and prevention will help reduce hospitalization rates, mortality rates and cost per case in the long term while improving quality of care and patient satisfaction. Recent studies suggest a 10 percent  increase in public health spending reduces mortality by 3.2 percent for chronic diseases. This shift will require innovative approaches, with partnerships between the public and private sectors, as well as a shift in budget allotments from curing diseases to preventing them, which empowers citizens to better manage their own health. For example, projects such as national school health strategies that improve children’s health by emphasizing physical education and nutrition services have proven effective worldwide, and have begun to make headway in the Middle East. However, they require proper funding and solid partnerships between entities such as the Ministry of Health, the Ministry of Education and private schools. Other solutions include an emphasis on disease-management services, such as risk identification, awareness, education and adherence to treatment.

Empower providers with the right information. Offering the right information at the point of care — whether in hospitals, in the physician’s office or at home — should be a top priority. The infrastructure to capture, store, process and deliver the right information is essential for the transformation of healthcare systems. Governments should not be shy about establishing partnerships with the private sector to develop national electronic health records with the potential to reduce medical errors and avoid wasteful duplications.

Develop the private sector and build the right governance capabilities. Regional governments are currently playing the roles of regulator, provider, payer and licensor, and it is becoming evident that there should be some space for the private sector, especially as providers and payers. For their involvement to be a success, however, governments will need proper governance capabilities, including the capacity to govern providers’ quality of care and accessibility, payers’ fees and coverage and the interaction between providers and payers. Without such capabilities, systems can descend into a vicious cycle in which providers try to overcharge payers and payers try to squeeze providers, leaving the patients as the victims.

Although the challenges facing the region’s healthcare systems are numerous, the will to confront them is evident. With the right set of experts and the appropriate resources, this decade should witness the emergence of new healthcare systems in the region.

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“We are the 99 percent”

by Peter Speetjens
written by Peter Speetjens

Occupy Wall Street and the Egyptian uprising have more in common than it may seem, and surely much more than Washington wished for. Egypt seems a la mode in New York. For example, the protests were partly inspired by Adbusters magazine, which in July encouraged its readers to flood Manhattan with the battle cry: “Are you ready for a Tahrir moment?”

When American protesters, blocked by police from reaching Wall Street, decided to settle at nearby Zuccotti Park, little did they know it had only been renamed after a local property developer in 2006. Until then it had been known as Liberty (Tahrir) Plaza. These were not the first American signs of emulation of revolutionary Egypt. When the state of Wisconsin last February attempted to cut the salaries and benefits of government staff, tens of thousands of workers took to the streets under the slogan: “Fight like an Egyptian”.

Most Western observers, however, prefer to stress the differences between Occupy Wall Street and the Egyptian and other Arab uprisings. The former, they argue, aims for economic reform, while the latter called for political change. Hence, they speak of an  ‘Arab Spring,’ a reference to the 1968 Prague Spring when Czech citizens attempted to shake off the Soviet dictatorship. Implicitly, the term assumes that both Czechs and Arabs aspire for a Western notion of democratic freedom.

That is only partly true. Sure, most people prefer voting over dictatorships, yet the Arab uprisings, especially those in Egypt and Tunisia, were as much about economic justice as fair representation. Let us not forget that the so-called  ‘Arab Spring’ started over economic injustices: Following the confiscation of his vegetable cart, Tunisian street seller Mohamed Bouazizi set himself on fire at the main square shouting: “How do you expect me to make a living?”

At Tahrir Square, demonstrators not only called for the downfall of Mubarak, but also of people like Ahmed Ezz. Politically, Ezz was not particularly powerful, yet he controlled two-thirds of the steel market and was seen as one of the faces of Egypt’s corrupt and elitist economy. Interestingly, the ‘Arab Spring’ started in Tunisia and Egypt, both formerly state-led economies that — more than most countries in the region — bought into the West’s free market mantra over the last decade. State-owned assets and companies were privatized —generally ending up in the hands of the well-connected few — and then streamlined, resulting in massive layoffs. And while economists routinely pointed at gross domestic product growth as a token of success, the disparity between rich and poor accelerated year after year. Just as the Arab uprisings were not solely about political change, so the current manifestations in New York and elsewhere are not exclusively about economic reform. Yes, the Occupy Wall Street slogan, “We are the 99 percent”, refers to the pyramid-like structure of the American economy, as 1 percent of Americans earn 24 percent of national income and own 40 percent of national wealth.

Yet by referring to the majority, protesters also evoke the founding principle of democratic rule. “We are the 99 percent, and that is why we need a voice,” is the full slogan. The reality is fewer and fewer Americans feel represented by the two traditional parties, which both seem caught in a web of corporate interests and lobbying dollars; the situation is only slightly better in Europe. 

This sense of a political sell-out culminated in the 2008 financial crisis and the subsequent bailout. While several banks were soon awarding major bonuses again, unemployment rose and people everywhere were confronted with austerity programs. In the minds of many it is all rather blunt and simple; politicians bail out the banks, and the people end up paying.

It would be a severe miscalculation if President Barack Obama were to define Occupy Wall Street as merely a call to rein in the malpractices of the financial system. As one protester in New York put it, “we tried voting for change, today we shout for change.” And tomorrow, if need be, they may well fight for it.

 

PETER SPEETJENS is a Beirut-based journalist

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