If the International Monetary Fund (IMF) were putting up candidates in this month’s municipal elections in Turkey, the best advice would be for them to withdraw before being trounced. On one side, the ruling Justice and Development Party, or AKP, is spending lavishly on certain local authorities while holding off on raising tax revenues. Those killjoys from the IMF have been campaigning for months for Prime Minister Recep Tayyip Erdogan to do exactly the opposite. If Turkey wants a new standby loan to see it through the tough times of 2009, say the men with built-in calculators, it needs to be less profligate.

A “deal” has been on the cards allegedly since last November and even in February Erdogan claimed the talks were progressing well despite a “last minute hitch” when the IMF was said to have injected some “unacceptable conditions.” A team from the Fund spent most of January in Turkey seeking to hammer out a deal before suspending the talks. Smart money (and certainly not the IMF’s) is going on a forecast that no agreement will be reached before the elections on March 29. A plummeting currency and rising unemployment are making life difficult for the Turks as it is, without the possibility of cutting public spending and improving tax collection.

The indication of economic performance afforded by early 2009 numbers make for grim reading. Officially the government’s policy is still to aim for four percent growth this year, a number it has been adhering to despite advice from the IMF and others that it was not only unattainable, but ruinous. In January, the budget deficit rose by 466 percent year-on-year to $1.65 billion, overall revenues limped up a mere 0.3 percent, tax revenues fell by 2.4 percent and spending shot up 15.3 percent. In face of the inevitable, some economists are now predicting that a two percent drop in GDP this year is far more likely than growth of any size.

Greasing democracy’s palm

While the IMF is talking of belt-tightening and even said to be suggesting a tax on pensions to help fund the social security system, AKP local authorities are distributing free food, washing up liquid and, reportedly, fridges and cookers, a tactic reminiscent of the Lebanese parliamentary elections of 2000.

In Ankara, the AKP-controlled metropolitan municipality awarded $64 million in local tenders in the first six weeks of 2009. The equivalent 2008 figure for the whole of January and February was $12 million. One tender this year for $26.6 million to buy washing up liquid, soap, detergent, beans, rice, jam, vegetable oil, pasta and cheese was won by Orpas Gida, with a note on the tender saying the products were to be delivered to locations specified by the head of the municipality’s social services department. In 2008 the exercise cost $1.4 million. The voters also know the temporary rules of the election game, with reports from throughout the country of the owners of illegally constructed buildings (of which there are many) using the campaign period to add another floor, reasoning that no local authority of sense would raise objections just ahead of polling day.

Meanwhile, more conventional ways of trying to stimulate the economy, which at any other time would have appeared sound suggestions, look increasingly hollow these days. New measures announced in February allow investors up to a 75 percent reduction in corporate tax for five years if they create at least 100 jobs and move textile plants to the eastern or south-eastern parts of the country before 2010. To help the car industry, the government is urging drivers to scrap their old vehicles to buy new ones. The central bank cut its benchmark interest rate by 1.5 percent to try to encourage business to borrow and grow. In practice, one of few expansion areas is the number of unemployed, with a rise of more than two percentage points in the last quarter of 2008 to 12.3 percent.

All of this depressing statistical news makes the more lurid politics of the mayoral race in Kecioren almost a welcome diversion. The AKP incumbent Turgut Altmok has pulled out of the election after photos were handed to the party leadership of him and a woman with whom it was claimed he was having an affair. The real problem appears to have been less his alleged dalliance than the fact that he refused to accept influence from the mayor of the neighboring Ankara Municipality about who should be on the AKP ticket.

March is going to be an interesting month.

Peter Grimsditch is Executive’s Turkey correspondent

“Give me the money that has been spent in war and I will clothe every man, woman, and child in an attire of which kings and queens will be proud,” said 19th century US senator and anti-slave leader Charles Sumner in reference to the US Civil War. His words have lost no salience since. The war in Iraq, for instance, has cost US tax payers at least $3 trillion according to research conducted by the former chief economist at the World Bank, Joseph E. Stiglitz. That’s enough money to put a lot of shirts on a lot of backs.

In Lebanon, war has become somewhat of a national sport pitting the interests of regional and global players against each other in a seemingly endless saga of death and destruction. Indeed, the latest episode of Lebanon’s war saga that took place in 2006 between Israel and Hizbullah proved no different, leaving dead around 1,200 Lebanese dead — mostly civilians — and 160 Israelis, mostly soldiers. Human suffering aside, Lebanon’s Council for Development and Reconstruction (CDR) estimated that the total material cost of the war stood at $3.6 billion.

Lebanon’s many needy

What was unique about the 2006 conflict, however, was the speed and magnitude of international humanitarian assistance in the form of funding that poured into Lebanon upon the cessation of hostilities.  A host of non-governmental organizations (NGOs) have since moved in to provide the humanitarian relief and development assistance needed for the country to recover from the conflict. Furthermore, the Nahr el Bared conflict in 2007 between the Lebanese army and the Fatah al-Islam militant organization kept the focus on Lebanon in terms of funding for humanitarian assistance. The Italian Government alone has committed over $217 million towards emergency relief and infrastructure in Lebanon since the 2006 war.

Today, however, Lebanon enjoys relative political stability, with Merril Lynch estimating 2009 growth at 2.7 percent, while most of the countries that have pledged money towards humanitarian efforts in the country are contracting. “The global financial crisis has affected humanitarian work around the globe. Countries worldwide have to make reductions and external elements are an obvious selection,” says Christina Bennike, Lebanon country program manager at the Mines Advisory Group (MAG), a British mine clearance organization.

Additionally, the transient nature of humanitarian work entails a specific work model that comes in three stages: the emergency phase (during and directly after a conflict or natural disaster), the post-war construction and capacity building phase and, finally, the development phase characterized by long, drawn out funding cycles. This natural progression also brings with it funding constraints that complicate the budgets of humanitarian organizations operating in Lebanon.

“Funding for projects during the crisis period could typically be expedited in around three months as opposed to the time it takes today which can be up to a year,” says Wolfgang Hager, EU senior policy adviser to the Lebanese Government. “Projects are now moving into more of a maintenance phase.”

As such, most revenue streams flowing into Lebanon for emergency and construction phases are expected to dry up by the end of this year. “The final phase of financing for our emergency program will [go from] 2009 until 2010 and I don’t think we continue with financing after that,” says Fabio Melloni, director of the Italian development cooperation office, the humanitarian and development arm of the Italian government.

“Usually when you have a crisis situation in any country you have a lot of international NGOs and donors that will come in and give a lot of money to handle emergency relief issues and then all of a sudden they leave,” adds Ghassan Makarem, editor and media coordinator at Lebanon Support, an organization that coordinates humanitarian efforts in Lebanon. “People already got their money for the first part of 2009. The problems will start when they apply for funding for 2010 or late 2009.”

Time to tighten the belt

As the cash flow of large donors becomes increasingly restricted, humanitarian relief organizations and some NGOs are feeling the crunch.

“This year we are getting half the budget we received last year, for projects of a similar nature [sic],” said a senior director of a European NGO, speaking on condition of anonymity.

Sarah Shouman, country director at Search for Common Ground, says “there is definitely going to be an effect on NGO funding and donors will be a lot more stringent on their regulations as to how they give out funding. Everyone is going to feel that and be taken aback.”

On some levels the lack of funding has already begun to materialize through the scaling down of projects essential to the well-being and development of the Lebanese population. Two of the seven international mine clearing organizations in the country have already shut down due to a lack of funding and it seems likely others will follow.

“Last year we had 22 [mine clearing] teams; at the beginning of this year we had 18 and now we are down to 15. We stand to loose more than half of our teams,” says Bennike. “The more we reduce teams the less likely there will be a handover of land, which is going to impede economic recovery, the construction of villages and homes as well as increase civilian casualties.”

As if that wasn’t enough, another natural element of the humanitarian sector is to move with the tide of wars and natural disasters. “Unfortunately, with the NGO game wherever the need is; you have to rush there,” says Shouman. Ergo, the recent Israeli onslaught on Gaza is expected to deplete the already skeletal coffers of large donors like the EU and the US. To some extent this transference of priorities has already begun to materialize. On February 18, the EU announced in a joint statement that it will grant the UN agency for Palestinian refugees (UNRWA) a further $51 million to meet humanitarian needs in the Gaza Strip.

Naturally, the combination of these factors has begun to affect Lebanon’s real economy as many people who were employed in these organizations are either on the verge of being unemployed or have already been handed a pink slip.

“The [number of] jobs will drop with the money,” explains Makarem. “There have been situations where all of a sudden you have all of the men in a village… unemployed.” Also complementary businesses stand to suffer once their cash cows leave Lebanon for greener pastures. “It’s over for the suppliers and some of them know it, but there is nothing they can do about it,” adds Makarem.

All in all, it looks like the party is over for the humanitarian sector in Lebanon. Most of what’s left to do inside the country will either be completed by the end of this year or pan out across several years and funding cycles before eventually being handed over to local partners and the Lebanese government. What remains to be seen is whether Lebanon’s government and civil society can shed their sectarian pretensions, step up to the plate and help themselves instead of having others do it for them.

Israel’s recent gaza onslaught is expected to deplete the coffers of donors like the U.S and E.U.

The global music industry is facing hard times. Over the last five years, sales of legal ‘hard copies’ (CDs, DVDs, cassettes and records) have declined sharply, due to the rise of MP3 and iTune formats, as well as Internet downloading. Some of these losses have been partially replaced by legal online sales — amounting to 15 percent of music sales worldwide by 2007, according to figures from the International Federation of the Phonographic Industry (IFPI), but the industry has been slow to grapple with new technologies and the changing consumer mentality. Add to this volatile mix the global economic crisis and a severe credit crunch, and the emerging picture seems gloomy indeed. Yet artists, retailers and producers are not all that pessimistic.

Tony Sfeir is the founding manager of both the retail shop CD-Thèque and independent label Incognito Records. He sees himself as the classic ‘disquaire,’ offering a near-complete knowledge of his products to customers and making it a point to let them discover new music. Sfeir takes his business extremely seriously. In fact, he even closed down CD-Thèque’s second outlet in Hamra when another professional disquaire could not be found.

“You know you have found a real tradesman when people say they bought their music from Raymond, not from the CD-thèque,” says Sfeir, referring to one of his employees. The closure has cost the company part of its turnover, but Sfier believes it has generated credibility, saying “CD-thèque has loyal customers who returned to the original establishment in Ashrafiyeh.” He quotes the 2008 turnover of CD-thèque as around $700,000 — down from $800,000 in 2007 due to the shop closure — estimating this to be 20 percent of the legal sales market in Beirut. He has yet to see a drop in sales due to the financial crisis.

The franchise guys

Anthony Ziade, CEO of the Virgin Megastore franchise for Lebanon and KSA, is equally optimistic about customer loyalty, feeling that Virgin has no real competition in Lebanon on the level of the overall shopping experience on offer. The concept of Virgin Megastore is a combination of music, books, films, multimedia hardware, musical instruments and a cafe. “Music is the anchor of Virgin, it is the first thing you connect with our Megastores, so we will keep selling hard copies – even if they represent only a fraction of our sales volume now.” Music has dropped from over 50 percent of turnover back in 2001 to a mere 15 percent in 2008. This is a global evolution. At Virgin France, music represents only seven to eight percent of total sales volume today and even that figure continues to drop. Yet Ziade is not considering selling MP3’s in the Megastore or through its website.

“I don’t think the Middle Eastern public is ready for that yet, even in Lebanon,” he says. The crisis is not making itself felt in Virgin’s sales yet, Ziade claims. It has, however, manifested on the supplier side, where the retailer is experiencing some shrinkage in its sourcing, as some producers and distributors have gone out of business or face difficulties obtaining credit. Suppliers are also less eager to give credit, demanding upfront payments instead and following up payments very closely. Despite the difficulties, Virgin Megastore has now branched out to Saudi Arabia, where it has taken the retailer some time to get started. The concept of Virgin Megastore is a controversial one in KSA. “We faced many hurdles from the side of the government, what with censorship and related issues, but we are now proud to present a respectable range of CDs, DVDs and books — albeit more limited than in Beirut of course,” says Ziade.

Hady Hajjar, marketing manager of the recording label Rotana Music, doesn’t see the global crisis as a major threat either. “We are not just selling ordinary products. Music is a universal language and people will always need music in one way or another. We have 120 stars in our portfolio, including all the big names in the Middle East.” Hajjar therefore doesn’t see the financial crisis as a major threat, although he admits Rotana has been affected by the global drop in music sales. To counter these losses, the Rotana empire, as Hajjar likes to call it, has been branching out to include management and event organization, as well as a digital department for the sale of ringtones and digital online formats. In 2008, the company signed contracts with Zain and Mediaphone to cover the region. Additionally, it has started licensing out its music to companies around the world in an effort to reach Arab households worldwide, and acquiring licensing contracts from Sony, Universal, Fox and Disney to distribute their music and films through its own distribution network in the region.

New scenes

Although Rotana is an established authority on the Arabic music scene, the company is always on the lookout for new talent, trying to keep its finger on the pulse of the ever-changing tastes of the young. Amanda Hartford manages Rotana Musiqa, one of Rotana’s multiple satellite channels, which features a show closely tracking hip-hop, techno and alternative music in the region. She is fascinated by what’s brewing now in terms of new developments. “Compared to only three years ago, young musicians — whether rappers, DJ’s or rockers — are becoming very professional. Scenes are rapidly evolving, especially in Lebanon, but also the clubbing scene in Egypt and hip-hop in Saudi Arabia, to name just a few.” Rotana has been sponsoring events like the Sound Bomb hip-hop festival in Beirut last fall and while these artists do not fit into any of the company’s formats at the moment, Hartford sees it eventually reaching the point where sub-labels will be set up for the different genres.

Yet questions are cropping up about how open the industry is to newcomers. Rima Khcheich is an up and coming Lebanese singer, who combines her classical tarab training with jazz influences. She has released three albums with the Dutch Yuri Honing Trio. She claims the situation for Arabic music in general today is bad, complaining that only commercial music has a chance to reach the audience, while artists who are working to develop their own voice do not get a lot of chances to produce their music, let alone to get it distributed.

“I produced my own first CD, so production is possible if you are determined, but distribution is another matter,” says Khcheich.

Sfeir feels the key is to create a separate or alternative scene. “With Incognito, we have started from the bottom up and I think that is the key to our success. We started with releasing budding musicians who gravitated around the CD-thèque,” he adds. The shop started publishing a magazine, organizing events and in that way eventually managed to create an interest in the music it wanted to release. The original Incognito label focused on rock and alternative music, such as Scrambled Eggs and Mazen Kerbaj. In 2006, the sub-label New Oriental Sounds was created, which releases classical Arabic music from across the region with a modern touch, in jazzy or experimental interpretations, or blended with a more Western-oriented sound.

This has proven quite popular, to the point where Incognito is now selling between 7,000 and 8,000 copies of its bestselling products. Together with their distribution of other labels, this has resulted in a turnover of $800,000 for 2008. “We are nowhere near the level of something like the Cuban scene yet, which is known and appreciated throughout the world, but we are trying to build a similar name for Beirut internationally,” he claims.

Piracy

Both independents and established companies agree that distribution is the biggest hurdle. In countries like Syria, Sfeir points out, there is hardly a distribution network for the simple reason that CD’s are downloaded and burned on demand in the retail shops — which brings us to the piracy issue.

The Middle East, as is well known, has a reputation for music and film piracy. Rotana’s Hadi Hajjar estimates illegal copying in Lebanon alone at 80 to 90 percent of the market. Ziade agrees, though he estimates that the effect on Virgin Megastore is not a sales issue, arguing that Virgin customers have a certain buying power and prefer the quality and extra features of the original. The issue, he says, is credibility.

“Customers ask us for season 17 of a series like ‘24,’ but we are still at season 12. We follow the official channels and we honor release schedules, whereas the pirated version is already on the market, of course,” said Ziade.

On the other hand, Ziade says he has seen a real effort from the Lebanese authorities in the last year and a half to crack down on piracy, although he agrees there is still a long way to go. Rotana has recently lowered the price of its CD’s drastically to combat piracy sales. Hajjar explains the concept, saying the price of a legal copy is now only a few dollars above the pirate price, as opposed to the previous 10 dollars-plus difference.

“We have also waged an awareness campaign and are moreover making a real effort to bring our CD’s closer to consumers, working not only with our own retail outlets and dedicated chains like Virgin, but setting up distribution to the small local supermarket-cum-fuel station chains,” he says. For smaller labels like Incognito, though, piracy does not have the same effect. Sfeir has no major problem with piracy, apart from the effect it has of impeding the establishment of a distribution network. On the contrary, he sees piracy as a form of promotion, bringing Incognito’s music to new audiences.

“A part of this public will eventually go looking for the original copy, attend concerts, or in other ways contribute to our scene,” concludes Sfeir. As Khcheich sees it, the main disadvantage is that with all the copying going on in the Arab world, “not only can you not count on the real CD selling in most countries, but there’s no way to know even how many you are selling.”

The warm weather this year may be celebrated by some but for the many keen skiers the snowy slush and closed slopes in the ski resorts of Lebanon are causing consternation. Despite this, however, people are still taking to the slopes at the ski resorts of Faraya and Kfardebiane in large numbers, allowing the businesses there to breathe a huge collective sigh of relief.

In fact, such is the nature of Lebanon that despite this being the worst ski season in terms of snow in recent history, businesses have seen robust growth year-on-year. Joanne Zarifé, communications manager of the Intercontinental Mzaar, says that, “the occupancy of the resort maintained a high level exceeding the percentage of the last two years by 26 percent and the hotel has occupancy averages of 90 percent until March 2009. Our restaurant outlets have also shown an increasing occupancy of 22 percent compared to 2008.”

Ronald Sayegh, general manager of www.skilebanon.co.uk, also announced that his company had achieved growth of 20 percent last year. So while the warm weather has kept the snow away, the lack of snow has not kept the people away.

However, companies in the mountains are not resting on their laurels and are keen to stress that there is enough snow to enjoy the slopes. As Zarifé claims, “Now since the weather conditions have changed due to global warming, there are periods where skiing conditions are perfect and periods where it could be much better. But since it snowed heavily [in February], it is guaranteed that the month of March will be great in terms of skiing.”

Lebanon is now in top gear for the parliamentary elections that will occur on June 7, and billboards throughout the land will soon bear images of leaders and the political symbols of the various competing parties. The new electoral law, signed post-Doha accords, not only puts a limit on campaign spending at roughly $100,000, with an added variable that depends on the number of voters within the electoral district determined by the Council of Ministers, but also stated that the private and public media wishing to take part in electoral advertising should create “a price list and information on the ‘spaces’ it intends to consecrate for electoral advertising and promotion.” An interesting facet about the new electoral law and electoral campaigning is that the Internet has been ignored. All references to the law refer to “radio, TV or printed media.” According to the International Telecommunication Union, 24 percent of Lebanese now has access to Internet. The role the Internet played in 2005 was relatively important, the 2009 elections will see the World Wide Web move center stage. It is likely that after this year’s elections there will be calls for regulation as the number of spam mail, abusive rumors and websites grows dramatically. However, those who try to regulate the Internet in Lebanon may find it as difficult as trying to regulate the politicians.

As the insurance world braces itself for a year or more of depressing outlook in terms of investment revenues, Lebanon’s insurance sector appears to be in a bullish mood as many industry insiders show little sign of worry. The confidence of Lebanese insurers is surprising given the extent to which the international markets they invest in have been affected. One of the premeire victims of the ongoing financial earthquake was the American International Group (AIG). AIG’s forth quarter 2008 losses are reported to have hit the $60 billion mark; that means they lost the equivalent of about $660 million per day. Accordingly, AIG’s local Lebanese arm, the American Life Insurance Company (Alico), may loose its big brother. “One of the things that AIG is trying to do now is to sell off Alico to get cash back and divest off profit making companies because they have to shrink the whole thing,” says Thomas Schellen, publishing editor and head of the insurance opportunities program at Zawya.

Roger Zaccar, assistant manager at Commercial Insurance, says there are three main areas that insurance companies around the world are concerned about in the current economic climate: “One is the assets invested by the company in the different financial instruments; two is the endowment policies which are linked to international investments; three is rate increases and commission reductions from international reinsurers.”

No crisis here

Yet Lebanese insurers hasten to add that despite the turbulent international environment, they have been able to avoid the short-term adverse affects of the global financial crisis. René Klat, CEO of Adir Insurance, states, “in my personal opinion I do not think that Lebanon will be affected by the global financial crisis that much… I am not scared about this crisis — Lebanon has suffered much worse [than this].” Indeed, the fact that Lebanon has been so far behind the rest of the region in terms of economic growth and is only now starting to show signs of promise is a major factor spurring on growth in all industries, including insurance. But the main reason that Lebanon has been spared the worst of the economic downturn’s consequences is its prudent and seemingly anticipatory financial policies that applied not only to the banking sector but to the insurance industry as well.

Lebanese insurance companies have been restricted in the “variety of investment categories accepted under admitted asset parameters,” says Mounir Kharma, the CEO of Med Net Liban. Zaccar goes on to explain, “non-life [insurance] companies like ours… are mostly invested in the local available financial investments… i.e. cash deposits, treasury bonds and very little in the limited stock exchange. This is the reason the insurance industry will be minimally affected.” Thus, instead of the insurance industry seeing regression, the industry expects continued strong growth.

Klat states that Adir insurance achieved growth of 38 percent in 2008, with further growth expected in 2009, albeit at a lower rate due to losses in policies linked to the stock markets. This growth figure, however, needs to be taken with a grain of salt. “The crisis has affected those portfolios that invest in the stock market such as retirement plans and this has seen a 20 percent reduction. We sell retirement plans, for instance, that give the opportunity to invest up to 50 percent on the stock exchange,” says Klat.

Whatever the claims of insurance providers regarding their relative immunity to the afflictions of the wider insurance industry, there is no hiding from the fact that the outlook for investment revenues in 2009 is nothing short of dismal.

“Compared to the size of the industry and the premium volume, the investment volume is pretty significant and the indicators pointing to the sensitivity of non-underwriting practices is very strong today,” says Schellen. Although figures for the whole of 2008 and 2007 have not been released by the Lebanese Ministry of Economy, the total assets for insurance companies in 2007 is estimated to total around $1.55 billion, of which $850 million were in investments according to research conducted by Zawya. Given that global markets were still stable until the fourth quarter of 2008, surely many of Lebanon’s insurers tapped into investments and were exposed to losses. Currently, companies are reorganizing their strategies until things start to pick up again on the international markets.

“The average rate of investment income will drop heavily and become very conservative. Companies will start to think in terms of the bottom line… as well as practice further cost cutting,” says Elie Nasnas, director general of AXA Middle East. “Clients will expect the same level of service if not more and you will have to cut your costs accordingly.”

The insurance sector must do its utmost to produce technical results as opposed to financial returns

Covering the risk

Insurance clients in Lebanon, however, may be in for a big surprise when it comes to how much they will be asked to dish out in order to cover themselves for various risks. As investment revenue no longer represents the beefy figure that it used to on the income statements of most Lebanese insurers, they may have to look for other ways to compensate for a lack of revenue streams. “Some part of the burden will definitely fall on the consumer,” says Schellen. Accordingly, Zaccar warns that due to the reduction in interest rates on investment and pressure from reinsurers, the insurance sector must do its utmost to produce technical results as opposed to financial returns. “As a result, insurance rates must increase in all lines of insurance,” he asserts.

Indeed, the pressure on reinsurance agencies to tighten their belts has never been greater with some of the biggest names beginning to falter. Moody’s Investors Service has recently cut its rating on Swiss Reinsurance Co (SwissRe) from Aa3 to A1 because of concerns about weaker profits and lower capital. However, from a reinsurance perspective it is not as simple as raising prices. “Reinsurers are becoming more selective on the risks they insure. So rather than demanding higher rates across the board they have reduced their willingness to cover certain risks,” says Schellen. This tightening of standards will invariably affect Lebanon at some point.

“We have seen the reinsurance market become much more rigid and very focused on underwriting profits. In turn, this will necessarily impact the insurance sector throughout the world, including Lebanon. Reinsurance cover will become more difficult to come by,” adds Kharma.

Insurance companies will have two choices: either they calculate their risks more carefully and adjust their premiums to fit, or they will have to find other reinsurers who will provide them with lower prices but may not be rated as highly as their previous provider. Hence, the consumer will either have to pay more in terms of premiums or lose out on quality. Yet some insurance providers see a third option.

“The biggest reinsurers were affected by the global financial crisis, causing a price hike. We will try to carry this burden instead of increasing our prices and affecting the purchasing power of the end consumer,” assures Fateh Bekdache, general manager at Arope Insurance.

Tapping the breaks on growth

Although Lebanon has the highest level of insurance penetration in the region, registering around 3.4 percent, this does not necessarily indicate that there has been a boom in the country’s insurance industry. Compounded with the prospect of insurance becoming more expensive, this will certainly have a knock-on affect in terms of industry growth. Nasnas explains that in order to have higher penetration rates, the economy has to contain a larger middle class who can afford these products — something Lebanon has yet to enjoy. Moreover, the decrease in oil prices as a result of lower demand has crippled the region’s most profitable asset and affected the Lebanese market through a decrease in remittances.

“If you have a drop in oil prices, there is a slowdown in the regional economy… Therefore with less disposable income there will be less demand for insurance,” says Farid Chedid, managing director at Chedid Re.

Ironically, the fall in oil prices may also be a source of growth for the insurance industry in the form of Lebanese returning from the Gulf countries. However, the insurance industry appears not to be taking this prospect seriously. Most in the industry seem to believe that Lebanese in the Gulf that have lost their jobs have been able to obtain jobs in less affected markets.

“The Lebanese are quality people and those that have lost their jobs in Dubai, for instance, have found jobs elsewhere in the Emirates,” Klat states.

Kharma adds that, “regional employers see an opportunity, at this time, to consolidate and improve on the talents available to them. The Lebanese expatriates should continue to be well sought after. In general terms, my feeling is that there is more talk and fewer Lebanese expatriates returning.”

As the throngs of repatriating Lebanese have yet to materialize at Rafiq Hariri International Airport, the country remains without what is arguably its most precious asset.

“In Lebanon, we had a huge human resources problem in 2008 because all the people we train get great offers from the Gulf and they leave… I still see people leaving Lebanon and going abroad,” says Nasnas.

A further avenue for growth — regarded as a potential panacea for the Lebanese insurance sector from the stagnation of the past few years — was the country’s booming real estate sector. That notion, however, seems to have been short-lived as systemic and natural factors have contributed to stifling the potential this industry once possessed.

“It did not take off as much as it was expected. This is particularly linked to the fact that the comprehensive construction and building insurance has not been legislated and is still not mandatory,” says Schellen. Moreover, the growth of the Lebanese real estate sector has leveled out somewhat over recent months curbing the growth scenarios that it was promising.

An opaque industry

All other considerations aside, perhaps the most debilitating and unrelenting factor halting the growth of the Lebanese insurance industry today is the lack of transparency and adequate legislative framework to support the industry.

“The success of the insurance industry is linked to its transparency,” confirms Farid Chedid. The Association of Insurance Companies in Lebanon (ACAL) used to publish an annual report on the Lebanese insurance industry, but has been unable to do so since the Lebanese Ministry of Economy stopped releasing annual figures on the insurance industry in 2006. According to the ACAL, when the association requested the figures from the Lebanese Ministry of Economy they were told that the government would be producing the report for 2007. The report is still not available to the public.

Nasnas believes that the lack of transparency in general has dissuaded many regional and international insurers, reinsurers and groups from taking the Lebanese insurance industry as seriously as they would if the figures had been available. Additionally, the government only requires insurance companies to provide their financial statements and not their breakdown figures, which further impedes accessibility to industry wide data. Moreover, there is some favoritism at play.

“In Lebanon the government is too concentrated on the banking sector. We have to diversify the importance of all of our sectors, especially in the financial sector, which includes insurance. In developed countries it is as important as the banking sector. So they [the government] should pay more attention to it,” concludes Nasnas. The Lebanese government has drafted a new insurance code but it has yet to be ratified and is still being tossed between political heavyweights and industry leaders.

“The draft law that started to be circulated around three years ago was never ratified. Last year there was a back and forth between the insurance industry and the regulator of the Ministry of Economy,” says Schellen. “As long as you don’t have political stability nobody really takes the time to discuss these things,” he adds.

Lebanon still operates under the insurance code drafted in 1977 by a legislative decree based on the old French insurance code. The code obliges the association of Lebanese insurers to insure the majority of passenger vehicles present in the country, as well as those entering the country from outside Lebanese territory. Accordingly, another decree issued by the government in 2003 aimed at implementing the law was passed.

However, according to Antoine Chedid, president of National Institute of Obligatory Insurance (NIOI) in Lebanon, the government has fallen short of its obligations to insure all vehicles inside Lebanon. “There are between 1.3 million and 1.4 million cars [in Lebanon and] only 750,000 of them are insured,” says Chedid. “We tried to develop the ‘105 regulation’ to include mandatory insurance on the material damages, but how could we move on this project if we can’t make sure that the one million… cars are not covered?”

The NIOI is not about to sit by and twiddle their thumbs while the untapped potential of the Lebanese market passes them by. The Lebanese NIOI launched an awareness campaign in late February urging the government to apply the 1977 decree. The campaign seeks to use a variety of media to encourage the government to apply decree 105/77 and specifically the clauses that are associated with insurance of bodily harm. The NIOI claims that for passenger vehicles the cost levied on the consumer to protect against the infliction of bodily harm would range from $40 to $60.

At the end of the day, the ability of organizations to pullout of investment and concentrate on technical underwriting will be the defining element in the Lebanese insurance industry. Remaining stationary is no longer an option in the current global economic climate as businesses turn inwards and shed the excess they were carrying through the recent period of growth. Hence, Lebanese insurers would do well to take advantage of Lebanon’s relative cushion from the global financial crisis to expedite the shift from investment to underwriting.

“We are back to the old school, which preaches adapting an acceptable risk factor and not relying solely on return on investment or financial income,” says Bekdache. However, as Kharma, the CEO of Med Net Liban stated, when all things are considered the global financial crisis is probably not the most important thing going, “other issues in Lebanon are likely much more profound.” With rockets fired across the border into Israel and elections coming in June, he may just be right. For now, it seems the most prudent course of action for Lebanese insurers’ is to do what they can and leave politics to the politicians. And it looks like they will do just that.