Picking up life Insurance Clients

by Executive Contributor May 16, 2005

written by Executive Contributor

With a premium volume of $180 million in 2004, life insurance realized a rise of near 30% over 2003 and accounted for more than 31% of the total reported premium pie of $577 million. Bank-affiliated insurance companies, such as Audi’s Libano-Arabe, BLOM’s Arope and Bank Byblos’ Adir, as well as specialist firms Sogecap (linked with Societe Generale and SGBL Bank) and Bancassurance (an enterprise of Fransabank and BLF) fared very well in their development while the traditional life insurance leaders, Alico, maintained the top role in market share. Another convincing performance came from SNA, which supplies Bank of Beirut as well as several smaller banks with bancassurance products. Executive asked representatives of life insurance companies and bancassurance specialists about the achievements and potentials of these lines.

How do you see assess the role of bancassurance for the Lebanese insurance market and where are the growth potentials and untapped niches?

Pierre Talhami, manager, Beirut Broker Company

So far, bancassurance has proved to be excellent for us. In 1996 we were the first to introduce such products to Lebanon in form of four products which were developed with the Italian Assecurazione Generali. Today we have 9 bancassurance products that are sold at all Bank of Beirut branches. These are in three categories: life and capitalization; personal accident; and general accident insurance.

Recently, we were the first to introduce medical insurance policy sold over the counter and underwritten directly, with no medical check required until 45 years of age and only an interview with the doctor for people between 45 and 55. This policy is priced 50% below the market price for health insurance and targets mainly young and healthy people with a $500 deductible on hospitalization under a policy that covers up to $125,000 in total medical expenses, at a cost of $300 per year, which is $25 per month. It can be combined with a loss-of-income compensation policy that provides the insured from the second day of hospitalization with $200 a day in compensation if due to an accident or $100 per day from the third day if due to sickness. At only $3 per month for this B-Compensated product, we introduced combo sales of health and loss of income compensation products in January 2005.

Over the past three years, using bancassurance products developed by SNA, we sold 7,000 new policies in 2002. In 2003, most of these policies were renewed plus we sold 7,200 new policies, followed in 2004 by sale of 7,600 new policies and again renewal of most existing policies.

Beirut Broker handles business for Bank of Beirut and our target is for 40 % of all Bank of Beirut clients to buy at least one bancassurance product over the counter. As of now, about 18% of the client base holds a policy. We feel that we are very well positioned in the market because we have one of the largest distribution channels.

How do you assess the potential of Lebanese insurance firms to penetrate regional markets with bancassurance products and which companies do you anticipate to succeed in the Lebanese insurance market?

Rene Klat, general manager, Adir Insurance

We have developed bancassurance that does not exist as such in Middle East and Arab world. Thus we have specialties that we could develop in the Middle East. As we are part of the Bank Byblos Group, we will definitely follow the ownership of our bank in Sudan and Algiers. We are also trying to make a partnership in Jordan with local banks and insurance companies but I must admit that things are sometimes slow in this region. I could also mention Syria but there is no insurance law in Syria. However, we have been following corporate clients of Bank Byblos for quite a few years there.

We hope that with the intentions of the United States to spread democracy there could be a lot of development in the region but I hope especially that there will be an economic opening.

The Lebanese life insurance market is big. We have a retirement plan with 5,000 policies in force over two years. I think now that everyone has confidence in the Lebanese economy we can all hope that the young people who brought the revolution will insist on new faces. We have fantastic people and a lot of wealth in many areas, from human resources and climate to history and archeology.

However, I always state that there is no hope in the mid-term for insurance companies that are not backed by big banks and in the long-term for those that are not connected to international insurance companies. In 2004, we could prove the profitability of the investment by our international partners by distributing $1 million to shareholders. They are very happy with us. We are a real institution.

Where are the best development potentials for life insurance providers in Lebanon and how do you expect the domestic market to develop?

Jean-Francois Jaboulay, general manager, Sogecap Liban

We are the second company in life insurance after Alico and 2004 was a very good year for us. It was only our fourth year of activities but we managed very well.

In 2004 we had lower growth than in 2003 and it was our intention to go this way. In the moment, term life products are the best for us while the line of capitalization products doesn’t give us much profit because the law doesn’t allow more than 50% of life premiums to invested outside. We could do very well if we could place 100% of every contract in specialized unit-linked products.

Sogecap are very proud of the unit-linked products we are providing in France, Europe and even North Africa. Our best unit-linked products in the “audacious” category gave over 25% over the last 18 months and the secure ones over 20 % over 18 months, and we don’t want to spoil our reputation with a product that would offer less interest.

We want to find new channels and partnerships with banks or brokers. Our products now are not fit for brokers and we are building products that are fit for partnership with brokers.

The future of the country can give the insurance industry a lot of hope for development The Lebanese market is still cornered by laws and needs modernization. It should also concentrate a bit. If the market is modernized, it can develop very well and give a lot to the country. There is a need for more awareness on capitalization products.

The people have a need and start contracts but a number of these contracts fade out after three to four months for economic reasons. The need is larger than the economic capacity.

May 16, 2005 0 comments

Special Section

Not A Fire Sale

by Thomas Schellen May 16, 2005

written by Thomas Schellen

It takes but a few steps to walk from the site of the first bomb explosion that shook Lebanon in March in the aftermath of the Hariri assassination and anti-Syrian protests to the offices of one of the country’s largest insurance brokerage firms, Beirut Broker. The offices of the brokerage in fact suffered some slight damage from the blast in March and in a perfunctory nod to the heightened awareness for security, the doors of the no-frills office building in New Jdeideh now remain closed and have to be buzzed open during business hours.

Inside, the mood is cautiously upbeat, despite a very slow period in the last three months. “The entire retail business saw basically no growth in the last couple of months; that was not at all our expectation for 2005. In 2004 we grew and started feeling that clients are more and more accepting bancassurance,” says the firm’s manager, Pierre Talhami. Bancassurance is the distribution channel of standardized insurance products through bank branches, which the brokerage handles for its parent company, Bank of Beirut.

Predictably, the first quarter of 2005 was not extremely kind to Lebanon’s insurance providers. They apparently did not have to pay out huge claims for damages incurred by businesses from the bomb that killed former Prime Minister Rafik Hariri, former minister for economy and trade, Bassil Fuleihan, and 19 others, nor were they called upon to cover damages from four subsequent bombs that cost several lives and millions in destruction of property. But being spared spectacular claims costs did not mean that insurers would have benefited from increased demand. To the contrary, consumers kept their purse strings tight in face of the uncertain times they were confronted with and sales of retail insurance products suffered in consequence.

In the corporate segment, things looked somewhat better, though. While businesses did not respond to the security crisis by investing in more insurance protection, they on the other hand also did not turn their back to the need for insurance in the knowledge that covers for damages incurred because of acts of terrorism would be prohibitively expensive if at all available.

“Lebanese people are used to the fact that terrorism is not a cover you can buy in Lebanon,” said Talhami. Beirut Broker has a substantial business on the corporate side, as it assists Bank of Beirut and its corporate clients in assessing insurance needs when discussing loan financing. In the corporate segment, the firm found that by and large, companies carried on buying general insurance products as they encountered the necessity. This left the insurance industry during the aftermath of 2/14 exactly there where it has been perennially: following economic trends set in other sectors. And these, as we all know, were pretty dismal over the past three months.

This is not to say that the insurance industry’s progress, which had been accelerating over the past two years, is in danger of stalling. The process of consolidation and natural selection of viable companies in the overpopulated, sector is also continuing. Many of the sector’s reputable companies could improve their results in 2004. Some, like life insurance specialist Sogecap, moderated their growth purposely while others achieved tremendous portfolio increases. Arope, the insurance daughter of BLOM bank, reported a 71% increase in total premiums to $24.7 million, which included a more than fivefold boost of its previously smallish life insurance portfolio. According to unofficial company figures, a number of insurers achieved some growth in the first quarter of 2005 even as players across the industry conceded that they had expected much more and could only hope to catch up in the second half of the year. “It is a slowdown in our progression. Our plan was to grow more than we did but we are still 5 to 10 % above production of last year,” said Rene Klat, general manager of Adir Insurance.

Prospects also remain interesting for the development of Islamic insurance where the Arab Finance House (AFH) plans to market TAKAFUL products in cooperation with Bahrain-based firm Solidarity, one of the world’s foremost providers of financial protection that is Sharia-compliant. According to Mounir Sinno, marketing manager and spokesman for AFH, the two institutions already signed an agreement and are preparing to offer TAKAFUL products in Lebanon probably before the end of this year.

Yet although being large by regional standards and despite impressive growth of life insurance business and respectable improvements in general insurance premiums by leading companies – often those providers whose shareholders include local banks and/or international insurance firms – the total insurance premium volume in Lebanon still measures about 1 against 100 when compared to the country’s banking deposits.

Market mechanics and private sector initiative have worked in the past five years to gradually increase the degree of insuredness in the business community. While in the mid to late 90s only about a quarter of enterprises in Lebanon could be counted upon to be fortified with well-rounded insurance protection, industry experts generally agree that coverage today extends to an estimated 40 to 50% of enterprises. This is in a major part due to the fact that more and more businesses rely on bank finance for their development and banks in turn oblige them to obtain the appropriate insurance covers, and as such the trend can be expected to continue.

To make the logic of insurance more compelling in Lebanon, administrative action and legislative initiative remain major needs. Industry insiders say the Insurance Control Commission at the ministry of economy and trade could do more in advancing the professionalism of insurance companies than monitor their financial soundness, in which the ICC achieved clear progress with field audits and improved supervision.

The main item to advance the insurance industry in this respect is the further enhancement of the insurance law. A new draft law stipulation a clearer industry structure, higher capital requirements and stronger teeth for supervisory entities was presented in April 2004 by then minister of economy, Marwan Hamadeh, but expectations for the law’s quick implementation by its admirers did not get fulfilled.

Insurance legislation is a clear need not only as far as better legislation on the sector’s activities but also in relation to legislation to make insurance products more attractive under tax perspectives, such as allowing tax deferrals on both employee and employer contributions to individual or group retirement plans. While consumers bought life insurance in recent years at a faster rate than before, life products with a savings element still have to become more attractive when compared to the simpler and in the short run cheaper term life products, which offer protection of one’s family in case of sudden death or accident but do not serve the insured as tool for wealth creation and financial security later in life.

Law givers in developed nations widely provide incentives to personal provisioning for old age by deferring the tax burden on contributions into retirement plans. As long as this is not the case in Lebanon, the concept of individual retirement provisioning is deprived of a psychologically and financially important support factor.

Another obstacle to growth in the life insurance sector is the ceiling on investing funds abroad. This has become even more of an issue as the interest rate environment in Lebanon has dropped from the unsustainably high levels of the 1990s and the turn of the century. In light of the deficiencies of the local financial market – the anemic bourse and the absence of alternatives to bank deposits – the regulation that 50% of the amounts managed by life insurance companies have to be kept in the domestic market means that insurers cannot unfold their full potential to develop attractive products. This applies especially to unit-linked life insurance products, where returns from the savings component of the policy depend on the performance of sophisticated investment strategies. “The Sogecap unit-linked knowledge is worldwide. If we have to keep 50% in country, we cannot do the products we are best in,” said Jean_Francois Jaboulay, general manager of Sogecap Liban.

With expectations for quick adoption of new insurance-related legislation appearing over-optimistic in light of the sector’s relatively low priority in the economy and more pressing needs consuming the political realm for at least several more months, the hottest issue and best opportunity for the insurance industry right now is institutional self-improvement. The insurance industry association ACAL has for the past few years been involved in lobbying for insurance but its role has been impeded by fragmentation of interests and somewhat incomplete structures.

As demonstrated by a near total absence of studies and publications and a gap of several years even in providing figures available from insurance firms on its website, ACAL has not been able to formulate the positions of the industry as convincingly as it could have. Some insurance professionals have criticized the association as a body where the large number of small firms with restricted ambitions for sector improvement has held developments back. Others said it is high time for ACAL, which is holding elections for its president and part of its board early this month, to establish a position of director general or secretary general, in the aspiration to make ACAL function more like the role model in finance sector associations, the Association of Banks in Lebanon (ABL). “I hope that the profile for the position of secretary general will be devised. The president of ACAL, who has to take care of his own company, does not have the time to do everything,” said Klat.

In 2004, ACAL shone in organizing the 25^th General Arab Insurance Federation conference, whose list of registered participants included more than 900 insurance professionals from around the Arab world and beyond. With this record attendance, the event highlighted the growing regional awareness of insurance development and raised new hopes for faster development of activities in key Arab markets.

While some countries, notably Bahrain and Saudi Arabia, are making good on their programs for competently regulation and opening up their insurance markets and partly Beirut-based Medgulf Insurance was included on the top of the Saudi Arabian Monetary Agency’s list of companies that have completed the application process required for operating in the kingdom’s insurance and reinsurance market, the development of the insurance sector in the region is overall anything but a fast affair. Syria, another market where many Lebanese companies are keen to build insurance capacities, is still awaiting its insurance laws. Lebanese insurance companies that already have a presence in the neighboring country deny the existence of problems in pure economic interaction and are upbeat about their business relations and acceptance of Lebanese firms there, but nonetheless operate in an environment not comprehensively covered by insurance legislation.

Given the slow evolution of the domestic and regional insurance markets, no radical changes appear to be in the cards for Lebanese insurance firms in the near to mid term future. Internationally, the outlook for insurance continues to focus on prudent underwriting in order to maintain profitability in changeable investment environments. Natural catastrophes, as demonstrated painfully by the Tsunami that devastated so many parts of Indonesia, Sri Lanka and other countries bordering the Indian Ocean, continues to be the leading concern for insurance providers worldwide. However, as terrorism risk has been increasing around the world and especially in developed countries, the provision of protection against the damages from a terrorist attack is becoming an issue of increasing importance for the world’s insurance leaders.

May 16, 2005 0 comments

State department

Parallel lives

by Washington Correspondent May 16, 2005

written by Washington Correspondent

Last month saw many Americans – Republicans mostly – quick to seize on the perceived similarities between Pope John Paul II and former President Ronald Reagan.

True, both men played all-important roles in helping bring about the fall of communism and the demise of the Soviet empire and playing important roles in shaping the 20^th century and getting rid of oppression; one as president of a thriving democracy, and the other as the spiritual leader of the world’s 1.1 billion Catholics. Their alliance against communism seemed natural after all, but the similarities do not stop there.

Both Reagan and the pope were the targets of assassination attempts in the same year. The pope’s would be assassin, a Turk by the name of Mehmet Ali Agca, was reportedly working for the Bulgarian intelligence services who, in turn, could have been acting for the benefit of the Soviet KGB. The Soviets – or at least a certain hierarchy within the Kremlin – understood the danger a Polish pope represented.

Reagan on the other hand was shot by John Hinckley, Jr., an unstable young man, obsessed with the actress Jodie Foster and her role in, Taxi Driver, a movie that allegedly made a deep impression on him. Now you know why they give films “R” ratings.

In fact both men started out as actors; the pope playing a few minor roles on the stage in his native Krakow, where he founded an underground theatre company, writing and acting in plays that dealt with oppression. Reagan had a longer career in acting, appearing in 57 films, once with a chimpanzee.

They also loved the outdoors; as a younger the man the pope skied and was a something of a soccer player, while Regan was a high school footballer and accomplished horseman, never happier than on his California ranch.

Nancy Reagan, the former president’s widow was quoted as saying of the two men, “they were very much alike, both “Great Communicators.” In one of his more memorable speeches, Reagan, facing the Berlin Wall said in typical Hollywood fashion, “Mr. Gorbachev, tear down this wall,” while on his first visit to his native Poland as pontiff, Pope John Paul II defied the communist authorities telling his fellow Poles, “Do not be afraid.” This was later seen as the landmark speech that led to the snowball effect that eventually brought the Eastern Bloc out of communism.

Similarly, both men suffered political setbacks, but managed to remain relatively unaffected, their popularity intact. Indeed, Reagan was often referred to as “the Teflon” president, emerging relatively intact from the debacle that was the Iran-Contras weapons deal, in which the Reagan administration was found to be selling arms to Iran, then engaged in a war with Iraq, to fund the Nicaraguan Contra rebels fighting the Leftist Sandinistas. Additionally, the bombing of the U.S. Marines headquarters in Beirut, in which 241 American servicemen died, happened on Reagan’s watch. In both cases the president avoided blame.

The pope, likewise, lived through one of the worst reported crisis in the history of the Catholic Church when the scandal of sexual abuse of children by priests came to light. Hundreds of priests, primarily in the United States, were accused of sexually abusing children, with some cases dating back decades. The Catholic Church was blamed for not acting, instead, at times, covering up the actions of the delinquent priests.

Never since its founding has the shortage of priests been so acute as on John Paul II’s reign. Many analysts blame this on the pope’s insistence on maintaining celibacy in the priesthood, keeping an all-male priesthood and demanding condom free sex in an Africa riddled with Aids. For his part Regan is also accused of ignoring the real dangers of AIDS, although this is easier to say with the benefit of hindsight.

Later in life, both men were struck by terrible debilitating diseases; the pope by Parkinson’s and Reagan with Alzheimer.

Similarities followed the two men in death as well; both received grandiose funerals. In Washington, National Airport was renamed Ronald Reagan Airport, and one of the largest buildings in the city was named the Ronald Reagan Building. A nuclear aircraft carrier was named after him.

“Their legacies are tainted by the same thing that made them strong leaders: their unbending beliefs that both believed came from a higher source,” wrote Larry Mendte, an anchor with CBS. Since the pope’s death, many Catholics have demanded that John Paul II be made a saint. Maybe this is where the similarities should end.

May 16, 2005 0 comments

For your information

Riad Salameh

by Executive Editors May 16, 2005

written by Executive Editors

Governor of the Central Bank Riad Salameh has been widely credited with steering a prudent monetary course during his time in office. Now with Lebanon on the verge of a new chapter in its history, Salameh talks to Executive about his confidence in people power, the outlook for interest rates, Basle II compliancy, and the continued stabilizing role of the central bank in a period of national change. He also warns that it is too early to predict a contraction in Lebanon’s economic growth

The IMF readjusted its GDP growth expectation for Lebanon to 4% in 2005 and even less (3.5%) in 2006. What is your expectation for GDP development in 05 and 06?

It is unrealistic to base expectations on the past two months. These were crisis months and any attempt to read into them future predictions might give the wrong picture. We need to wait for the summer season. INSEE [the French National Institute for Statistics and Economic Studies] will make a proper assessment and then release figures.

So the IMF was hasty in its forecasts?

As I said, these were devastating months for the country. The Central Bank needs time to really know what weight to give this period?

In February 2005, gross public debt increased by 5.9% in comparison to Feb 2004. Can one even dare to envision an end to the debt spiral?

One area in which Lebanon is vulnerable is in the growth of its debt. This and other matters of fiscal reform are the priority of the government. It is feasible that debt growth can be contained. There is $20 billion in Lira and other currencies and $10 billion in debt held by the central bank. Paris II is holding $2.5 billion. Any improvements in the management of the public entities will lead to more rational interest rates for the country.

Given the increased confidence in Lebanon will we see another donor conference?

We have heard that statements that there will be international, economic support for Lebanon but in what form we don’t yet know?

What would Riad Salameh like to see?

I guess one could use the same structure as Paris II and by that I mean long-term loans from other countries. With the IMF, Lebanon has a small quota and the process takes too long.

What have we learnt from the lessons of Paris II? Why should the international be convinced of Lebanon’s willing to comply with loan obligations third time around?

Many of our [Paris II] obligations were let down by a lack of political support. Today, the government is under pressure to create a modern economy and generate employment. There is power from the people. They have the awareness. They have demonstrated and they have ambition and politicians are sensitive to the needs of the people.

In theory

[Laughs]Yes. In theory

While understandable giving the current situation, the current high interest rates are affecting banks’ profitability and damaging to debtors? When can expect a drop in rates?

Interest rates are dictated by the markets and have increased in a rational way. Global rates are rising and are not the same as four years ago. They will come to a more realistic level when the international markets develop more confidence in Lebanon. What we need to do is reduce the premium by improving our economic performance by improving our country rating, which will allow us to bring interest rates on our debt down. For the moment we are paying a premium over Libor of 5% and we need to decrease it to 2%. In terms of the outlook, I can say that rates will remain stable or decrease mildly.

What has the central bank agreed with the BIS for Lebanon to ensure that Lebanon fulfills all its Basel II obligations? Are we on course for parallel development with the rest of the G10 nations?

We will comply with Basle II but the only criteria with which there is a question mark is the Lebanon’s dollarization and the weighting on foreign exposure, which does not apply [to Lebanon] and the Bank of International Settlement needs to understand the realities of this. We can be integrated into Basle II with these exceptions. Today, in the Lebanon we have a high capital adequacy and exposures in terms of mis-matching has progressively improved.

In the absence of a Lebanese equivalent of the US Chapter 11, local banks often take advantage of struggling businesses. Can we expect our own Chapter 11 anytime soon?

There is no law and I am not sure that the Lebanese culture could bear such a law. However, the central bank recently issued Circular 41, which addresses those companies with doubtful debt and allowed them to repay with real estate or have a structured debt repayment for up to ten years. As a result $1 billion of the doubtful debt has been resolved and by 2005 the debt portfolio will be in a perfect situation.

So there is no need for a Chapter 11 style law? The current situation is satisfactory?

Yes especially since Circular 41

Do you foresee any changes in the role of BDL in the “new Lebanon”?

The law that created the central bank is 40 years old but it was a modern law for its time and is still relevant. The changes that are likely to happen in Lebanon in the coming months will be political and the central bank will continue to perform independently of this and continue to do its job.

Did you think that the cover of the April issue of Executive accurately captured the mood of the month?

The Superman cover? [laughs] in my opinion it was better than any interview. But we held out, didn’t we?

May 16, 2005 0 comments

For your information

Country risk ranking drops

by Executive Editors May 16, 2005

written by Executive Editors

Lebanon saw its global country risk ranking drop by two notches, reinforcing its low position among the Middle East and North African (MENA) countries, according to Euromoney magazine’s twice-yearly survey. Ranked 109^th globally, down from 107^th in September 2004 – behind Cape Verde and Ecuador – Lebanon ranked 14^th out of 19 MENA countries, scoring 36 points, well below the regional 49.14 average.

The country’s overall score regressed by 7% from the previous survey and declined by 3% on a year-on-year average.

The survey evaluates individual country risk by assigning a weighting to nine categories ranging from political risk to economic performance, debt indicators and access to bank finance. Lebanon maintained a perfect score on debt default and rescheduling, reflecting the country’s clean record in honoring its debt obligations, and also scored high on political risk and debt indicators. Lebanon scored lowest in credit ratings, access to bank finance and discount on forfeiting.

However the survey was conducted before the February 14^th assassination of former premier Rafik Hariri. Since then, analysts say investors have tended to adopt a wait-and-see attitude, with no significant capital flight from the country having been registered since February.

Lebanese economist, Kamal Hamdan, maintains a positive outlook on the situation if the government meets its economic and fiscal obligations.

“Should this happen, we will be in good shape, because we are still benefiting from the effects of Paris II as well as this ‘beatific optimism’ as we characterize the behavior of investors here. It’s an optimism that goes contrary to rational economic behavior and leads investors to keep their capital and investments in Lebanon, despite the risk involved. This behavior has saved the economy from crashing time and again since 2001, and it looks as though it continues to do so.”

Beirut wins human resources award

Beirut was nominated first city in the Middle East for human resources (HR) by FDI Magazine, a publication of the Financial Times Group. Lauded for the standard of its schools and internationally recognized universities, the survey assessed the Lebanese capital to have the highest proportion of graduates among any city in the region, and came first for the quality of its academic institutions.

According to FDI, Lebanon’s 41 universities and 377 technical colleges have made it a center for regional learning.

“The educational sector has benefited from the country’s democratic institutions, and the fact that there has been no state interference in higher private education,” said Samir Makdisi, professor in economics at the American University of Beirut (AUB).

The survey indicated that Beirut’s high skills pool was a contributing factor in attracting foreign direct investment (FDI), which reached $2 billion in 2003.

“I haven’t seen the empirical evidence tying the level of education with the country’s FDI, but there is no doubt about the fact that a higher level of education contributes positively to economic growth and development,” Makdisi noted.

A high level of education combined with affordable wages by regional standards, make Beirut a city of choice for recruiters.

“All Arab countries like to recruit in Lebanon, especially Saudi Arabia, Qatar, Dubai and Bahrain,” said Dominique Safa, recruitment manager for the Beirut-based HR company Recruiters.

Makdisi painted a more nuanced picture. “Salaries aren’t necessarily lower across the board, there is a disparity. At the top level in businesses such as banks or private institutions of higher education, salaries are higher, making Lebanon more competitive with regards to other Arab countries, but not with the Gulf.”

Beirut was followed by Haifa in Israel, Doha in Qatar and Jubail in Saudi Arabia, as part of the survey designed to select the Middle Eastern Cities of the Future for 2005-2006.

Cutting down Cedars

Cedars, the second biggest-selling cigarette brand in Lebanon, has witnessed a drop in market share since February 2005, with some shop owners reporting a decrease of up to 50% in sales. The national brand which shot through the ranks of best selling cigarettes in the country largely due to its low price (LBP 750 per packet) is understood to be the smoke of choice for the country’s estimated 400,000 low-wage Syrian workers.

“Between 2000 and 2005, we experienced a 100% increase in sales,” says Antoine Madi of the Regie Libanaise des Tabacs et Tombacs, which produces the brand. “We did no marketing, nor any promotion. Sales went up due to the quality of the brand and its low price.”

Until January 2005, Cedars averaged annual sales of 80 million packets, giving it a 20% share of the Lebanese market, estimated at 7.5 billion “sticks” a year. It by-passed sales of leading international brands Winston, Viceroy, Gauloises and Gitanes, and briefly challenged Marlboro as the country’s leading brand. Since February however, perhaps as a result of many Syrian workers returning home, Cedars has slipped to second place.

“We see two reasons for this,” said Madi. “An increase in counterfeited products on the Lebanese market, which is challenging our product, and the mass departure of Syrian workers in the country since the assassination of former Prime Minister Rafik Hariri.”

Illicit trade and counterfeited products remains a significant problem in Lebanon and the region. “It’s a big issue in this country,” said Naushad Ramoly, head of Corporate and Regulatory Affairs at British American Tobacco’s Levant and Yemen operations. “It’s a lose-lose situation for everybody: the consumers get products of poor quality, the country loses tax income and the tobacco companies suffer a drop in revenue.”

Habib Abdel Massih, the owner of a grocery store located next to a construction site in Gemmayzeh, says his shop has witnesses a 50% drop in sales of Cedars.

“The Lebanese prefer smoking Marlboro, Winston or Lucky Strike,” he explains. “They don’t trust the Regie to provide a quality product. Cedars is predominantly smoked by Syrian workers and the Lebanese living in the mountains.”

Apprenticeship put on hold

The Lebanese Broadcast Corporation (LBCI & LBC-SAT) much trumpeted plans to launch a pan-Arab version of NBC’s hit business TV show The Apprentice have been put on hold.

The 15-part series, scheduled to air in October, a month after the premiere of the rival CEO show, had already made announcements for casting and had signed up business mogul Mohamed Ali Alabbar as host.

Yet a media spat between Alabbar and the producers of CEO clouded the show in controversy from the start, leading to rumors of a pullout by the colorful chairman of the real estate development company Emaar-Dubai.

“The decision to put the show on hold until a more appropriate time was a unilateral decision made by LBC, which we were merely informed of,” an aide said, on condition of anonymity. “Mr. Alabbar will abide by their decision, but he had not expressed any desire to pull out of the show.”

LBC has refused to issue a public statement on the matter, but sources close to the production team say the casting has been put on hold and the shooting of the show postponed.

As of yet, none of the leading advertising agencies in Lebanon have entered negotiations on a sponsorship contract for the show, one of the largest sources of revenue for reality TV shows – another indication of the delays in launching the program.

A FreemantleMedia franchise, The Apprentice pits several contestants against each other in a bid to showcase their business savvy. Contestants are teamed up and made to solve a variety of business problems, negotiate deals and manage projects. The winner of LBC’s Apprentice was scheduled to walk away with a $300,000 a year senior position at Emaar-Dubai, working alongside Mr. Alabbar.

Bullish trade fair

In yet another testament to the continuing violence ravaging parts of Iraq, for the second year in a row, the country’s main trade show, dubbed “Rebuild Iraq,” was forced to kick off April 4th in a foreign capital.
In one sense, however, the setting for the four-day conference and expo in nearby Amman could not have been more appropriate: Jordan and last year’s host Kuwait have become the undisputed gateways for a deluge of consumer and industrial goods currently flooding the Iraqi market.
Unfortunately, for many Iraqi producers, the import binge has come at precisely the moment when they are least able to compete, leading to fears and impassioned complaints by some that Iraq’s productive sector is in danger of collapsing altogether.
In a sign of the frustration, one conference participant, who identified himself as “ one of the 25,000 Iraqi industrialists who are out of work,” upbraided an (inexplicably) bemused William Lash, US Assistant Secretary of Commerce, for having been more concerned with implementing a near zero tariff policy than supporting the already fragile domestic industrial sector.
In separate interviews after the conference, both Lash and Dr. Mehdi Al-Hafedh, Minister of Planning in Iraq, defended the Iraqi government’s ultra laissez faire approach to the country’s fragile post-war economy.
“All of our colleagues,” said Lash, “Ambassador Bremmer and all of his team spoke with the private sector and the interim government… When you are trying to attract capital in a very challenging environment you need to be as open as possible. The long-term future for Iraq is for opening her markets and opening her doors to capital, technology, ideas and partnerships, not restricting it.”
For his part, Al-Hafedh was less diplomatic in his assessment of the industrialists’ complaints. “Their problem,” he said, “is to always depend on the state, which is over now. We are in need of goods from outside in order to satisfy the needs of the local market. [Our policies] might be reviewed in the future, but the current need is to encourage imports from outside.”]

Investors head to Ras Al Khaimah

Ras Al Khaimah (RAK), among the UAE’s least developed emirates, is now positioning itself as a serious place for investment. To help promote this process, the World Bank is organizing an Investors Conference to be held in RAK 28-29 May. Under the heading “Invest and Live in Ras Al Khaimah” the conference aims to draw attention to RAK’s undoubted investment strengths. For a start, industries like glass, packaging, sanitary goods, pharmaceuticals, and tableware, which involve huge investments, are already exporting to more than 100 countries. Nevertheless, there is a lot of potential for more investments in manufacturing. RAK has also just begun to develop it tourism capability, and hopes to attract investors for constructing more hotels, golf courses and many forms of water based recreation and sport. All of this of course will act to promote other sectors, including real estate development, as has happened in Dubai. RAK’s public and private sectors launch a few weeks ago of the new real estate company, RAK Properties has thus been a timely move to promote real estate, leisure facilities and tourism.

RAK has considerable land that can be made available strategically for residential, commercial, and service industry development. A comparison of land prices between RAK and other emirates indicates great potential for this. Besides lower-cost land, RAK should be able to capitalize on its good environment and recreational facilities to attract investors. Strengthening of land use planning and management institutions is one of the priorities of the emirate. With the UAE Highway reaching RAK very soon, travel times to Dubai are being greatly reduced. This enhanced connectivity should make it increasingly feasible for people and businesses to locate in RAK and take advantage of the lower cost land there. More advanced transport such as high speed trains will eventually cut even these times down to make commuting to RAK even simpler. Travel from RAK to Dubai airport via the UAE Highway will be no more than 45 minutes. Success in this respect will establish RAK as a world-class investment destination in its own right.

Details of the coming “Invest and Live in Ras Al Khaimah” conference are available at investinrak.com.

Haifa not there yet

Dubai-based magazine Arabian Business recently published a list of the ten richest Arab singers. Top of the bill was Egyptian heartthrob Amr Diab with no less than $37 million, closely followed by Fairuz with $34 million. Diab’s fortune stems from record sales, concerts and – a staggering $17 million – from advertisement deals among which most notably his contract with Pepsi.

Taking into consideration Diab’s worldwide reputation spanning a 20-year-career, $37 million is not an unlikely nestegg. The same is true for Fairuz, one of six Lebanese singers on the list. The diva does not do commercials but has been performing for over half a century and currently charges up to $500,000 for a concert.

Less convincing were the alleged earnings posted for Elissa and Nancy Ajram. Elissa, whose duet with Chris de Burgh brought her brief international recognition, makes the fourth spot with a staggering $31.5 million. Music insiders say that this is far too high a figure for a singer whose first of her four albums was released in 1999. Nancy Ajram has supposedly clocked up $16.2 million, not bad for a 22-year-old with only two albums under her belt and a $500,000 Coca Cola endorsement.

One notable absentee was starlet, Haifa Wehbe, who along with Nancy Ajram is Lebanon’s hottest selling artist and who was recently voted most popular Arab singer at the Lebanon’s Murex d’Or awards.

Wehbe’s manager, the alluringly-named Cynthia, defended her client’s pulling power by reminding Executive that Haifa, who charges $40,000 for a private concert, has just released her second album and will soon sign her first major advertising deal that would propel her into the big league. With an average of two concerts a week in the summer season, Haifa has to work quite a bit before she sings herself into the top earners list, which is propped up by Zahleh’s favorite daughter Najwa Karam, who has to make do living on $13 million.

Danny Richa gets top job

Danny Richa, managing director of Impact BBDO in Beirut was elected President of the Lebanon Chapter of the International Advertisement Association (IAA) on March 30.

Richa is confident that, if Lebanon’s political situation changes for the better over the next few months, the sector as a whole will, despite the political setbacks, be able to match last year’s ad figures, which showed growth for the first time in years.

“Lebanon has been here before,” he said. “In any other country the consequences of the crisis would have been much more disastrous.”

Richa believes that Lebanon’s leading advertisement agencies have been spared the current economic and political crisis. “We mainly work with international clients and brand builders who plan their strategies months ahead and so far all kept their promises,” said Dani Richa. “Unfortunately, it is the smaller agencies that suffer.”

Advertisement expenditure in Lebanon has been in gradual decline since 1999, when it peaked at $105 million, falling to $80 million in 2003. According to Stat Ipsat, TV advertisement expenditure decreased from $56 million to $33 million, press advertisement from $36 to $24, while only outdoors increased from $12 to $18 million over the same period.

“Last year we crawled back into the low eighties” said Richa. Hopes were high that growth would continue in 2005. According to some experts however, the 2004 figures did not signify a structural change for the better, but were boosted by the massive multi-media campaign for the Dubai Palm Island resort.

The IAA is a tripartite association representing the interests of advertisers, advertising agencies and the media with over 3,500 members in 89 countries.

May 16, 2005 0 comments

Economics & Policy

It’s the Economy, Stupid

by Faysal Badran May 1, 2005

written by Faysal Badran

In assessing the state of the country, at this critical juncture, there is a need to emphasize the importance of placing the economic aspirations and needs ahead of the politics. In fact, for Lebanon to be on a true trajectory of prosperity it should elevate the debate from the confessional distributions and redistributions of the pie, to the development of the economy. The major themes have so far been political. There is almost a fixation on elections, and this is totally understandable, but is it the endgame?

The priority for developing countries, in this day and age, is the ability to attract and maintain capital investment and to attain a degree of economic growth that alleviates fiscal and social imbalances. Where is Lebanon in that framework? It is not enough just to reshape the political landscape and take a broom to Syrian occupation (but it’s a start). The current political stalemate belies an inherent unwillingness of the political players to come up with solutions and face the true problem of Lebanon: its economic performance. The key to the future of Lebanon is its GDP, not in how cleverly crafted the next election law is. Prosperity is the only guarantee that sectarian extremism thinking will fade, and that Lebanon can draw on the strength of its expatriate community as well.

A pivotal legacy of Mr. Hariri was his constant focus on the economic priorities. The revamping of the infrastructure, though criticized by many, was inevitable and founded, rightly or wrongly, on spurring growth through tourism. The helmsman has gone is that we may be in a political spiral.

Getting priorities straight

Despite GDP most likely contracting, the biggest issues seem to be political which seems odd. Yes, the proper holding of elections is crucial not only to respect the will of the people, and to reflect the reshuffling of political poles post 2/14, but also to boost confidence by investors in Lebanon’s political process and cast aspirations in a more long-term light.

Syria is out, and though its influence will probably linger on for some time, it will be less of a drain on Lebanon economically. From there, we will need to find a pax economica. Now that the risks of actual armed conflict having been reduced, the main focus of attention will be the level of commercial activity and the economy’s ability to generate social peace: erasing corruption and reducing the burden of the public sector. Then what? The fighting for a slice of the pie will not matter a jot if the pie itself is miniscule and in years to come it will be the economy that will shape politics, not the other way around.

Most pundits are obsessing on how a better political environment will lubricate the economic engine. This is counterintuitive. Think about the generation that took the streets. Eventually, do they really care more about the politics or their destiny as a prosperous and vibrant society? We are entering a period where the opinions of non-sectarian portion of the economy will matter most.

And given their aspirations, they will demand a meritocracy, and will probably get it. Lebanon’s identity is built on its commerce, its banking and its openness. And these conduits of prosperity require a political agenda based essentially on promoting the economy and restoring fiscal balance.

The rebalancing of deficits will inescapably require a reduction of the size of government, its role in the economy’s fortunes, and a shifting of resources from the public sector to the productive sector. And herein lays the contradiction of Lebanon right now. All focus is on the politics, where it should be on the economy. There is in a sense a need to de politicize life in Lebanon. All current politics, and this despite the inebriating mass unity on the streets, is sectarian and divisive, and this is why it will not survive. It falls short of the aspirations of the educated elite and it goes against the process of change sweeping across the region.

The domino effect from the fall of Iraq will no doubt have repercussions for many years to come, and Lebanon is best positioned in the region to monetize this change both economically and socially. It has the best arsenal of human resources, one of the most vibrant and successful diasporas, and will have soon the most democratic system.

It will not be painless, but we are heading straight toward it. But it is crucial to set out an economic track and not be engrossed in the political system. The new political order will be shaped by the level of prosperity we achieve.

The price of failure in reviving the economy and reducing government would be too devastating to even contemplate and it is vital to work toward boosting collective purchasing power and overall wealth to defuse the confessional time bomb. If the economy plunges further it creates a Petri dish for tensions between communities. One of the overlooked and under analyzed aspects of all wars, especially the Lebanon one is the economic backdrop. We hear of foreign interference, of internal disharmony, when reading about the war, but little is said about the one major catalyst: poverty and class tension and this is what will drive political reform.

Time for a change

Anything short of seismic change toward a meritocracy will be seen as a failure by most. It must be led by the private sector and see a reduction of the size of the public sector. There is no other workable formula. High unemployment and poverty are typically mirror images of the same sequence of symptom and cause. The experience of the past decade in developing economies has demonstrated that the high priority of economic reform and privatization of inefficient public entities is key to long-term efficiency and job creation. Yet this effort, which initially leads to job cuts, is frustrated by the absence of alternative job creating mechanisms, which creates a vicious circle that does not augur well for the future.

What is needed is a private sector framework with public sector support and participation to inculcate a culture of venture capital as an effective means for job creation, accelerated growth, and enhanced innovation and competitiveness in Lebanon. We need to see a structure and a process triggered by which limited investment capital can be combined with entrepreneurial skills to break through the vicious circle of economic stagnation and public sector inefficiencies by laying a foundation for job and wealth creation.

The Gulf is a great example of economics triumphing over politics. The political systems there are slow to change but the role and size of government have been reduced and the promotion of the economy has been given top priority. This is not to say that Lebanon emulate the static monarchies of the Gulf, simply a reminder that after the current spasm of over politicization of the process in Lebanon, mouths have to be fed and it would be meager consolation if we “fix” representation in parliament but build it on the back of economic depression.

May 1, 2005 0 comments

Business

Onward and Upward

by William Long May 1, 2005

written by William Long

While most Lebanese were transfixed by the final pullout of Syrian troops and a lively confidence vote in Parliament, for Mounir Douaidy, Solidere’s General Manager, April 26 was little different than most of his days – these days, that is – at his office in the heart of Beirut’s Central District (BCD). He was signing contracts.

Ever guarded about revealing too much in the way of exactly how many items awaited his signature in the adjacent conference room, Douaidy was nonetheless both detailed and specific in outlining to Executive why Solidere had finally met its tipping point.

“ 2004, in my opinion, was a turning point in the life of the company,” said Douaidy. “Despite all the obstacles and the difficulties, [the last ten years were crowned] with big achievements that have led to a much stronger financial situation. 2005 is Phase Two in the life of the company. It will allow the company to grow on a much stronger basis because the fundamentals that were strong in the beginning remain strong and are now even stronger.” Indeed, by most accounts, Douaidy’s estimation is correct.

Solid performance

Although Solidere’s 2004 annual report is still to be released later this month, the audited financial results for 2004 made public at the beginning of April provide exactly the kind of performance data points that Solidere always said it could generate – if it was just given the time and the good graces of geopolitical events. At least for the moment it seems, geopolitical events are in fact cooperating. And Solidere has certainly put in the time over the past decade. As Douaidy (the trained accountant and pitch man) is quick to point out, 2004 saw the country’s largest single company post its best after tax profit gain in the last five years – $54.1 million or an amount nearly triple that of 2003.

Most significantly, however, the underlying dynamics were strong. Solidere said it generated its highest sales level in a decade in 2004 – $180 million in all or nearly $100 million better than last year. Rental revenues from leased properties also came in strong at $18.6 million, up from $15.4 million in 2003. And the company’s borrowing level dropped substantially – from $320 million in 2003 to $234 million at the end of 2004 – leaving a reduced debt to equity ratio of 13.9%.

“Our plans are to continue with sustained increases in sales, not necessarily at these levels [158,000 square meters in 2004] but not less than 100,000 to 120,000 square meters of built up space,” Douaidy explained. Of course, even though the sales numbers provided the most fodder for celebration, the performance of the company’s share price – especially in the aftermath of the Hariri assassination – have also played a crucial role in supporting Douaidy’s claim that Solidere is moving inexorably forward with a sustainable, winning formula. Indeed, as was widely noted in both the international business and political pages, the company’s stock registered only a temporary hit after Hariri – Solidere’s founder and most visible backer – was killed in the BCD he helped to build.

The quick rebound of the stock price to just below its pre-February 14 level provided strong evidence for some observers that investors both believed in Solidere and, more importantly, believed in the long-term viability of the entire country.

“We are even now having regional investors coming to Beirut,” Douaidy added proudly. “Even during the last two months, those who were negotiating with us did not stop negotiating with us and in fact a certain number of deals have emerged from these negations and some of them are being signed presently.”

Thus freed, somewhat, from the political situation that gripped the rest of the country, Solidere registered a daily average of 216,388 shares traded on the Beirut Stock Exchange during the tumultuous first quarter of 2005 – up a robust 515% from the same quarter last year. What’s more, the stock price ended up closing out 8.36%percent higher for Class A shares and 9.87% higher for Class B shares compared to fourth quarter 2004. In London too, where Solidere’s global depository receipts are traded, the receipt price rose to its highest level in six years by the end of March 2005.

Of course, a key reason for the rise in both the stock price and the overall trading activity lies in last June’s successful initiation of a land-stock swap program that raised $73 million in 2004.

But another very visible indication of public confidence in Solidere – and Solidere’s own confidence in both itself and Lebanon – came when the company decided to go ahead with its plan to list on the Kuwait Stock Exchange March 8.

“We thought [these actions] would give us a much wider investor base,” said Douaidy. “Last year when we did [the land swap program] we felt as though the share price was trading at a severe undervalue….both this and the listing on the Kuwait Stock Exchange have achieved their objective by increasing our sales and requiring investors who are using the program to go and buy shares on the market,” which has also raised the stock price, he noted.

On with the Souks

Although plagued by prior delays, Douaidy said the much anticipated Souks project, which envisions a large pedestrian area filled with shops and restaurants, was finally ready to go forward immediately. The permits have been secured and all underground facilities, including the parking, have been completed. As a result, even though the January start date was not met recently, Solidere is still aiming for the Souks to come online in 2006. And when this happens, rental revenue, already rising, is expected to double with the 100,000 square meters of floor space that will be available.

Adding to the positive growth outlook over time, Solidere is also set to ramp up its land preparation and infrastructure efforts in the massive reclamation area situated near the Beirut Port and Marina.

“In the next three to four years we will start selling land on the reclamation space because today [this area] is not ready yet,” said Douaidy. “There are still waste treatment [facilities] that need to be finished. Subsequently we will do the infrastructure for the reclaimed land. Then we can start with the marketing of the reclaimed land.”

Noting that the price for built up space had increased from $950 per square meter to as high as $1,400 per square meters over the past several years, Douaidy was quick to point out that the 1.5 million square meters of land reclamation would likely be a crucial component ensuring Solidere’s profitability well into the second half of Phase Two.

During this time though, he added, Solidere intends to pursue somewhat of a different approach than during the last Phase.

Laying down foundations

“We prepare the land, we prepare the design. This is what is happening…[It allows] developers to practically start within a short period of time. This is the kind of thing we really want to do: develop the concept and sell the idea rather than do the development ourselves. We will continue to do one or two developments here and there but we would like to encourage third party developers to do it.”

Of course, despite the recent positive balance sheet, growing investor interest and the much-anticipated movement on several development fronts, risks remain – as is true for the entire Lebanese economy.

Most significantly for Solidere, when Hariri was assassinated, the company didn’t only lose its largest single shareholder, it also lost its most powerful proponent in government circles. Of course, in Lebanon, such influence goes a long way towards solving the routine, and sometimes not so routine problems of bureaucracy and competing private interests that may not just vanish with Syria’s withdrawal. As one recent report noted, before Hariri left office last year he prevailed on the Cabinet to pass a number of critical resolutions that freed Solidere to act in a more expeditious, and profitable manner. In the end, a total of 24 projects with a total value of more than $500 received the necessary permits to move forward.

Douaidy is confident that Hariri left Solidere in “safe waters.” But even though his political stature will be sorely missed, April 26 and the events that led up to it, should be well for Lebanon and Solidere.

May 1, 2005 0 comments

Comment

Basil Fuleihan 1963-2005

by Peter Grimsditch May 1, 2005

written by Peter Grimsditch

If former Premier Rafic Hariri provided the grand plans and vision for how he thought Lebanon could and should grow into a modern prosperous state, Basil Fuleihan injected the precision, the research, the experience and the knowledge to put those ideas into practice. Although most recently remembered as a deputy and former Minister of Economy and Trade, Fuleihan was also recognized as a brilliant academic from the moment he graduated with distinction from the American University of Beirut in 1984 as a Bachelor of Arts in economics.

He was just 41 when he died in the Percy military hospital in Paris, 64 days after the February 14 murderous blast at St Georges that claimed the life of his friend and patron Hariri, as well as 19 others. Before becoming a deputy on Hariri’s Beirut ticket in the 2000 elections, Fuleihan had carved out a career and a reputation as a thoughtful, competent and thorough behind-the-scenes adviser on economics.

His first degree at AUB was succeeded in the following year by a Master of Arts at Yale University in International and Development Economics and the meticulous study continued until he was awarded a doctorate in economics at Columbia University in 1990.

Fuleihan worked as an adviser to the executive director of the International Monetary Fund and was well on his way to a dazzling career on a global level when he returned to Lebanon to become an economic adviser to the Ministry of Finance in 1993. And for six years until entering Parliament he passed on his infectious enthusiasm for the subject as an economics lecturer at his old university, AUB.

It was in large part down to Fuleihan’s patient homework on the subject that Lebanon was able to tap the international markets for cheaper eurobond loans to begin the process of reducing debt costs and, also in his role as an adviser to the finance ministry, he was responsible for devising reforms of the Customs administration, land registration and internal training.

Yet it was not until he became a minister that Fuleihan was in a position to publicly claim credit for his work. He was the lead negotiator for the country’s entry into the EuroMed Association Agreement. He argued persuasively – and successfully – that Lebanon should have a privileged position as far as tariffs were concerned until its economy was strong enough to withstand open competition. He also played a major role in formulating the economic plans submitted to the Paris II talks that resulted in an easing of the burden of debt service and led to the slashing of interest rates. And he took up the causes of copyright and consumer protection, issues both at the core of encouraging investment in Lebanon by major foreign companies.

But Fuleihan didn’t claim credit publicly. He wasn’t that sort of man. Totally devoid of the arrogance that plagues many politicians, Fuleihan had a ready smile, a friendly hello for all who crossed his path and a fluency on matters concerning his ministry that never deviated into the meaningless obscure generalities beloved by so many politicians.

A close and faithful ally to Hariri, Fuleihan was by his side to the last. He was a passenger in the premier’s car when it was blown to pieces.

This gentle, loving husband and father is an enormous loss to his widow Yasma, and their two young children, Rena and Rayan, to whom we extend our deepest sympathy. Our condolences, too, to Lebanon. Men of talent, integrity and honesty, like Fuleihan, are rare.

May 1, 2005 0 comments

The Buzz

Better to be safe than sorry

by Marianne Stigset May 1, 2005

written by Marianne Stigset

The February 14th attack, followed by the bombings in New Jdeideh, Kaslik, Sad al-Boushrieh and Broumana have seen increased demand for private security services from banks, shops, hotels, malls and large institutions, as well as real estate developers with substantial works in progress.

Unfortunately, pro-active security remains a novel concept in Lebanon. The current “boom” is still largely ad hoc, temporary and price-sensitive. In fact, security providers say, it’s a regional thing. Lebanon conforms to the Middle East pattern of taking a reactive, rather than preventive approach to private security.

“This is the trend,” says Jinane Zod, assistant managing director of Zod Security. “People only react once the damage is done.”

Although not exactly a revolution, industry insiders believe there might be a gradual shift towards a more preventive-oriented approach to security.

“The measures we are taking now are permanent,” says Shoughari. “It’s a trend happening throughout the Middle East – just look at the last bomb attack which hit Cairo. We are now faced with a new environment, locally, as well as internationally. The enhanced security measures are here to stay.”

Yazigi believes it is too early to tell whether the panic attack which hit the Lebanese will result in any long-term changes, but does detect a trend in the region towards greater security awareness.

One security firm that spoke to Executive, admitted that his company witnessed a 5% increase in demand after February 14th but that figure soon rocketed to 100% after the Jeddah bomb attack.

Demand has mainly focused on electronic surveillance, monitoring systems more than security guards and Youssef Mohamed Beydoun, vice-president of the Syndicate of Security and Safety Professionals in Lebanon and general manager of Beydoun Fire and Security, estimates that overall sector business has spurted by 30-35%.

“Most of this new demand is coming from the banks,” he said. “It has now become a priority for everyone to increase their security coverage, but banks in general are especially afraid of robbery and hold-ups due to the current political and economic climate.”

Demand for security guards has also surged. They are an easily deployable form of security service, especially when it comes to carrying out vehicle and personal checks, yet they still trail behind electronic surveillance systems in terms of what is wanted in today’s market. Security firm, Protectron, has estimated the hike in demand for security staff to be at around on normal business 25%, although it admitted that tight budgets force many companies to employ their own staff in a security role.

And maybe this is why the industry sees the employment of extra security guards as a stopgap measure. “We can already see a drop in demand,” says Lotfallah Yazigi, president of Securitas in the Middle East. “It was a reaction to panic. People [in office and apartments] would get together and chip-in for a guard to watch the premises for two weeks to a month, but contracts wouldn’t go much longer than that. It was a quick-fix for peace of mind but most people can’t afford this type of service in the long-run.”

Many major banks, hotels large companies and institutions, such as the Phoenicia InterContinental, which has incurred minimal costs in upgrading an already comprehensive security infrastructure, already have adequate systems in place as part of their commitment to comply with international standards and regulations issued by their head offices and who systems and procedures are regularly assessed by external consultants.

“We haven’t hired more people,” says Jana Sleen of the Safir Heliopolitan hotel. “What we have done is increase the number of security guard shifts and tightened security measures, especially with regards to all cars coming into the hotel. Half of our staff is from Protectron and the other half is our own staff. But otherwise, we already had cameras in place everywhere.”

The Beryte Hotel reported to have increased security staff by four, at an additional cost of $3,000 per month, to which will be added the installation of surveillance cameras, at $2,000-3,000.

“It’s an additional cost, but one that everybody has to incur right now,” says Jihad Shoughari, operations manager for the hotel. “After the attack, the army and the police went around to all the hotels in the surrounding area and asked for the films of the surveillance cameras. We have now in the process of ordering 3 or 4 more.”

But it is the banks and shops – for obvious reasons – that have had to burden the cost of maintaining confidence among their client base. Byblos Bank has retained the services of the international Group 4 Total Security, while ABC’s popular Mall in Achrafieh has hired 20 new security guards, at an estimated $7,000 a month, and is reportedly in the process of installing a new surveillance camera system. Supermarkets Monoprix and Spinneys have also committed themselves to assuring their customers with cursory vehicle checks.

Universities, embassies and international organizations have for their part made few requests for additional security services. Virtually all embassies have their security equipment sent to them from their respective countries and are prohibited from purchasing any local products.

The UN, whose offices in central Beirut were reinforced with cement blocks and sandbags following the attacks, claims this was a measure that had long been in the pipeline.

“We asked the government two years ago to make this arrangement around the building, because the UN building in Beirut was non-compliant with international regulations that have been established for the institution – it had nothing to do with the attacks,” says Elias Daoud, head of security for the UN building. “Otherwise, nothing has changed.”

Despite the recent hike in demand for security services, some industry insiders are not convinced that it will necessarily entail an overall increase in the quality and profitability of the sector. According to Haled Jaber, general manager for Security Engineering, there are no rules in Lebanon governing security services. “We tried to push for this through the creation of a syndicate, but it turned into a forum for social events. Every company now has its own standards. We now have a lot of security providers in Lebanon, probably some 100-150, but out of these, I would say there are only 10 which are really professional, offering high quality services and products.”

“Right now the market is booming, but it’s not really profitable,” said one manager of a security company offering, “human guarding”. “Salaries remain low, contracts are offered on a short-term basis. A lot of people working as guards view it as temporary employment, it’s not one they invest in to make a career out of.”

Partly in response to this lack of regulation and partly – or mostly – in response to the recent events in Lebanon and the region, Securitas will be opening the Swiss Academy for Security in Lebanon in May – a first for the region – to train professional security guards at every level.

And who said there was lack of job creation in Lebanon?

May 1, 2005 0 comments

Business

Conflicts of Interest

by Michael Young May 1, 2005

written by Michael Young

In April, New York’s Columbia University issued a report that, while focused on a matter related to its Middle East studies program, may end up having a broader impact on the study of the region in the United States. More specifically, what occurred at Columbia highlighted the uneasy relationship between education and public funding, and whether universities can use tax dollars to advance what, to critics at least, are ideological agendas.

The Columbia story revolved around whether Middle East studies professors (principally Joseph Massad and Hamid Dabashi) had abused their position by intimidating students, but also by imposing their pro-Palestinian sympathies in the classroom. When the university administration initially failed to respond to some students’ complaints, the latter made a film documenting their grievances, which was produced by a pro-Israel outfit known as the David Project.

Spurred into action by the film, Columbia appointed a panel to look into the students’ accusations. However, this only led to new controversy when, as a New York Times editorial put it in early April, the administration appointed “one member who had been the dissertation adviser for a professor who had drawn criticism and [appointed] three members who had expressed anti-Israel views that, critics allege, might incline them to soft-pedal complaints.” While the panel report was subsequently considered objective, the university had merely created a new point of contention in order to end another.

The Columbia hullabaloo will not go away easily, largely because it has become so deeply politicized. As Massad told a Times interviewer, “I am simply an entry point for right-wing forces that want to destroy academic freedom.” Massad and his allies believe the issue is whether they can continue to defend the Palestinian cause on U.S. campuses in the face of what they consider a pro-Israel onslaught. For supporters of Israel, the issue boils down to whether the university is the right place to advance, often aggressively, a particular ideology, particularly one which many of them dislike.

There is no consensual answer on either side. However, there is a legitimate protest that has continued to dog the debate, namely whether it is up to the public to continue financing, through Title VI of the National Education Act, Middle East studies centers in American universities where the ideological disputations are taking place. The act, passed in 1958, was designed to allow public funding for area studies on the grounds that the added knowledge could served American national security interests. Partly, this meant that scholars would more readily take one issues relevant to U.S. foreign policy. Over time, however, as the Israeli-American scholar Martin Kramer wrote in his influential pamphlet Ivory Towers on Sand, an indictment of U.S. Middle East studies, the funding became “a secure semi-entitlement” where many academics gradually came to reject the very principle of Title VI funding, namely collaborating with the government on policy issues.

Instead, funded Middle East centers began resisting official efforts to take advantage of their expertise by arguing that academic freedom demanded drawing a clear line between government and university. This self-imposed isolation, in turn, made government less reliant on scholars. Kramer quoted a 1981 Rand report on Middle East studies as saying: “We found in talking with faculty at area centers that their own training often makes it difficult for them to translate scholarly research into an applied format useful to policymakers.”

This perceived irrelevance effectively marginalized Middle East studies centers in American policymaking circles, to the advantage of more practical think tanks. Yet as French Middle East scholar Gilles Kepel recently warned in the Financial Times, “This battle, over the ‘right’ and ‘wrong’ approaches to teaching the region’s politics, history and culture, has already caused considerable damage to academia and is now jeopardizing U.S. ability to decipher a complex area in which America is deeply engaged.”

Meanwhile, the notion that academic freedom meant taking money from the government while giving nothing in return proved unsustainable. That’s why the House of Representatives recently passed the International Studies in Higher Education Act (which is currently being debated in the Senate), to provide greater oversight over federal funding to study centers. Many Middle East academics have reacted by crying “censorship”, and Massad’s insistence that both he and academic freedom were being targeted by “right-wing forces” was directed both at the House legislation and at people like Kramer.

There is little evidence for the charge. The House act protects against anything that would “mandate, direct, or control an institution of higher education’s specific instructional content, curriculum, or program of instruction.” However, if one mistrusts government, doesn’t it make more sense to simply forego its money and search for “independent” funding in the private sector? In that way, disputes like those at Columbia would be less about “censorship” and more about actual competence and significance.

May 1, 2005 0 comments