Ziad Maalouf: Senior Vice President of MENA Capital SAL
E: Would the Lebanese financial industry benefit from a more stringent regulatory environment? Do you see any realistic opportunities for a more advanced regulatory framework that would contribute to greater investor confidence in 2005?
The Lebanese financial sector is in a dismal state today. Investor confidence is very low and even though there are some regulations under the auspices of the central bank, in my view this is inadequate because the central bank should only take care of regulating commercial banks and setting monetary policies. There has to be an independent regulator that takes sole care of the financial markets. If we position Lebanon on the map of international investors today, I would say that we are not even a pre-emerging market. In my view it is a regressing market. In the Middle East, Lebanon is considered to have the weakest financial market because of this lack of regulation.
So we need to set an independent regulator quickly and model it after the SEC in the USA. Legislation has to be modern so as to encourage investors to invest in Lebanon. You have to also encourage the Lebanese businesses and mostly the family owned businesses to start looking at capital markets as a viable tool to raise capital. Companies are now loaning money from banks and banks are charging high interest rates. A proper regulation would start encouraging family owned business to tap capital markets for financing and this by itself is an encouraging factor for the entire economy.
Unfortunately, the political inefficiency and corruption is at the root at our failures in the financial industry overall and for this reason I don’t see any new regulatory framework being set in 2005. However, I say to the leaders of this country that they need to realize that the pace of change in the region – on the economic and political fronts – has never been so rapid, and any wrong turns at this stage have become nearly impossible to correct.
Walid Musallam: President and CEO if MECG
E: Is enough being done to woo foreign investors to Lebanon? If not, why not? What can the finance industry do improve the appeal of Lebanon as a genuine investment hub?
When one assesses the desirability of a country to investors two factors come to mind. First, investors look at the intrinsic attributes of a country like geography, culture, weather and availability of skilled labor. On all of these counts Lebanon favors very well. Investors also assess the political, legal and economic systems. In other words, does the political system function well, is the economy stable, can investor rights be protected and does the country offer the right incentives. Here Lebanon faces problems, the root cause of which is undoubtedly poor and corrupt governance.
As a matter of fact, one can argue that corruption is at the center of a public debt gone amok, weak performance of the judicial system, complicated and outdated laws and a bloated bureaucracy. Essential services like electricity and telecommunications are unreliable and among the most expensive in the world. My family and I moved recently back to Lebanon. When I refused to comply with the traditions for clearing shipment through customs, I was rewarded with delays and thorough searches that resulted in significant damage to many items. It took more than three weeks to clear our household shipment through customs and another two weeks to clear CDs and books.
Despite limitations, the financial sector has been a positive story for Lebanon. It continues to be buoyant and able to attract deposits from outside the country. More can be done. Implementation of reforms including Basel II is necessary and would allow the sector to provide long term financing and compete regionally. Lebanon has the elements to become a hub for private wealth management in the region.
Fadi Osseiran: General Manager of BLOM Invest
E: What are your expectations for the evolution of foreign and local investment flows for 2005? What do you think will be the key areas?
The factors behind the Lebanese economic growth in 2004 were mainly led by the tourism and real estate sectors. This latter, which is mostly driven by investments from Arabs and the Lebanese diaspora, is expected to continue to be beneficial. Actually, the Lebanese real estate market benefited from low international interest rates on cash, the international war on terrorism and soaring oil prices in 2004. Should similar conditions persist in 2005, resulting in increased income levels and high liquidity in the GCC countries, then the prospects for continued growth in these sectors are high. Such investments will mostly locate in vicinities like the Solidere area in Beirut, Aley, Bhamdoun and other attractive neighborhoods in Mount Lebanon as they are the most appealing destinations for shopping malls, housing projects and hospitality and tourist ventures. Local investment flows will expectedly follow in a similar path while additionally providing a boost to the construction sector catering to the appetite of incoming flows. This type of investment traditionally endows local and foreign investors with hedge against risks arising from macroeconomic instabilities like unexpected inflation or currency devaluation. In view of that, Lebanon’s tourism sector will also adhere to the historical trend it has experienced over the past few years.