E How could UN sanctions on Syria affect Lebanon’s finance sector? What can we expect from Syria in the long term, after possible regime change or crisis resolution?
I don’t think UN sanctions on Syria would affect Lebanon’s finance sector. I don’t see how they could affect it. They might affect the transportation sector, the industrial sector but I don’t see what effect they could have on financial markets or banks in Lebanon, other than maybe the freezing of some Syrian accounts in Lebanon, which cannot be negative. So, I don’t think sanctions would have a significant effect on this country’s finance sector. On the contrary, if there are any sanctions which affect Syrian institutions, that might affect the level of activity of Syrian nationals through Lebanon. They’re mainly commercial banking issues.
So far, although the assassination of former prime minister [Rafik Hariri] has created some fears, it has also created some optimism. Capital markets, fixed income and equity, have shown positive trends this year. Fear has been balanced by hope. The trigger was economic rather than political, which means that for the equity market the performances of the companies themselves justified the upward trend of stock prices and for the fixed income Eurobond market I believe that the better tenure of the budget deficit and the liquidity that we have had in the country have sustained the bond market. So I don’t believe they went up because of the assassination of Hariri or its results, such as the withdrawal of the Syrians, as people say. I think the reasons were here.
As for a financial sector in Syria, you have state commercial banks administrated by the state under a socialist system. The few private banks that have opened are too young to have any significant impact on the economy so you can’t even talk about a financial sector in Syria.
There are two scenarios. Either they comply with international requests and everything is okay with them and I think that then they will initiate a lot of reforms, or they maintain a situation of confrontation, which makes them into a sort of fortress, and they find ways of getting around the sanctions. They’ll find ways to finance their economy through neighboring countries. But that would have a retarding effect on any efforts to reform the banking sector. They would go backwards. I can’t imagine anyone willing to promote reforms in a state of siege.
Marwan Abou Khalil
Head trader, Gulf Finance
E How will the opening of regional exchanges in Dubai and Cairo affect the performance of the Beirut Stock Exchange (BSE)? Can we expect the BSE to respond positively to the regional competition, especially in light of the expected privatization initiatives, or has it missed the boat?
The BSE is a different case from Dubai or Cairo. We need political and economic stability first. Dubai and Egypt have them. When we have them here, we can have expansion. We hope, nonetheless, that the opening of the exchanges in Dubai and Cairo will have a positive effect on the BSE. However, I expect some capital to go from here to there. We have seen a Lebanese company go public and it wasn’t traded on the BSE. It was traded on the Dubai stock exchange. That was a negative thing for Lebanon. In the short-term, the opening of these two exchanges may have this kind of negative effect on the BSE. But in the long run I hope it will help the Lebanese markets. Maybe in the short run Lebanese companies will be listed on the exchanges in Cairo and Dubai. But maybe as hope returns to this country, new foreign funds will be invested here, through these exchanges. In the long run, maybe we will become like them. We hope so.
We are afraid that the BSE will miss the chance to reap the benefits from any privatization. But if there is a good political climate and renewed faith in our country we will be able to attract foreign capital investment in the privatization process. But we hope that the privatization process is reflected on the BSE, and not on foreign ones. Privatization of big companies here would result in market capitalization and in a greater volume on the BSE. For the moment, we have Solidere and two or three other big companies. That’s all. The other companies are small companies. They never give dividends. They don’t care about the stockholders. The privatization of government companies here will help the BSE, provided it occurs with the right timing. I don’t think the timing is right now. The BSE is not moving. Since March we have had about the same price for Solidere shares, between $12 and $13. We’re waiting for a boom. It’s a fundamentally excellent company. But we need political stability. That’s why I think we should wait for the right timing for privatization, when we have foreign investment. It’s pointless privatizing a company, if when it is launched, no one wants it. The amounts generated will be small. It will bring a low volume to the BSE and it will become a black mark on the record of the BSE.
Arab Finance Corp
E What will the impact of privatization and administrative reform within the public sector be on Lebanon’s financial markets?
We are on the verge of some very important structural reforms. Privatization is something that Lebanon needs in order to go forwards. Financial markets, in particular, need such reform. We’ve been seeing lots of demand from regional and even local investors, as well as from European and American financial investors, whether they were high net worth individuals, companies, investment banks, or huge brokers who now regard Lebanon as a very interesting emerging market and are now willing to diversify into our country given that we have a more stable political scene now. In terms of the Lebanese markets, we need privatization in order to increase our tools of investment and the opportunities that we can present to those investors who are willing to take this risk and invest here. If you look at our equities market, it’s really very small and limited, even though Lebanon benefits from a pioneer banking sector and the best banking and finance people in the whole region. It’s really contradictory that we have such a small equities market. I believe that now with all the money that’s present in the neighboring countries, in the Gulf region, mainly due to high oil prices, the whole region has boomed so much that people really are interested in moving money here. But it will come here if there are the opportunities and tools I mentioned. If we privatized some of the public companies, we would have these tools. We need more listings.
We also really need administrative reform, because there’s lots of corruption. We need a more efficient system and a more effective team. For the moment, everyone is working individually. This way of thinking needs to be gotten rid of. The problem is that the system is too politicized. You can’t really create something if you’re putting the wrong people in the wrong places. Unfortunately the whole country is like that. But I think we’ll get there.
We already have the willingness. And there have been sneak previews of possible success with demand for sovereign or corporate Eurobond listings, and hopefully by the summer MEA will be listed. Another is EDL, and another the telecoms industry. So we’re getting there. We are on the right track. The only problem is the short-term political pressure.