Comment

Revolutionary roles for Yemen’s women

by Farea al-Muslimi
written by Farea al-Muslimi

Yemenis, from the deposed dictator Ali Abdullah Saleh to the angry street protesters, can all agree on one thing: Their country’s women have amazed the world with their extraordinary work during the 2011 uprisings. That recognition reached its zenith when the Nobel committee acknowledged the well-known Yemeni activist Tawakul Karman by awarding her the Peace Prize, along with two Liberians.  

Since Saleh signed the Gulf Cooperation Council deal in November, which declares that he will step down next February, Yemenis have debated whether the political revolution is complete and what new political freedoms will emerge. Yet while the outcome of the political revolution is still unclear, the cultural one has brighter prospects. Art has emerged on Yemeni streets, scribbled by angry youths, while poets, singers and rappers have had a newfound impact on society. Even in the middle of ‘Change Square’, where Islamists play Quranic and Islamic songs on stage, musicians and rappers are offered the chance to express themselves. This cultural revolution is definitely more promising than the political one, but is it complete yet? 

The question is very difficult to answer as it is still too soon to evaluate such a sociological shift, but there can be little doubt that women’s participation has been more significant than ever before. Women’s role in the street protests and their participation in political discussions have raised hopes that they will finally be granted their political and social rights. The spectacle of tribal leaders praising Karman for her bravery when she was awarded the Nobel Prize was something profoundly new in this conservative society. More importantly, when Hooria Mashhoor, a well-known Yemeni woman, was named speaker of the National Transitional Council, before later becoming Minister of Human Rights, many considered it a real shift in Yemen’s culture. The council consists of some very conservative religious and military leaders, many of whom have consistently resisted women’s empowerment on the basis of religion and culture. 

Back in April, President Saleh tried to provoke Yemenis into supporting his regime by condemning the mixing of women and men in ‘Change Square’, calling it an anti-Sharia act. Initially the speech caused controversy, with conservative elements wary of the president’s accusations. The television footage of women peacefully protesting changed some attitudes, but it still did not get rid of the old mindset. Later, groups of Yemeni women burned their veils in the streets as a symbolic action to condemn some of the tribes’ support of Saleh. This sent a strong and very symbolic message to the leaders, partly about their political allegiances but also about their continued support of a patriarchal system.

Saleh’s gamble backfired, with the majority of Yemenis realizing it was a political ploy and many claiming the statement insulted the honor of Yemeni women. That has proved a significant moment; in the future politicians will think twice before using the veil of culture as an excuse to prevent women’s emancipation.

However, these positive trends are possibly too good to be true and some hard questions remain unanswered regarding Yemeni women in politics. What percentage of Yemeni women actually live in cities and participated in the revolution? Are the women in the streets reflective of their rural counterparts, who continue to be deprived of their basic rights? Is engaging in politics really the ultimate aim for Yemeni women? While there has been significant improvements in the political empowerment of Yemeni women, is it comprehensive? Not yet and progress can be frustratingly slow. Three women have now been appointed in the transitional cabinet, only one more than the previous government. 

The hope is that Yemen’s women, as in many other Arab countries, are entering a new phase, but there have been false dawns before. If you meet a Yemeni man protesting for more freedom, ask him this simple question, “While you say you are in favor of women protesting in the streets would you support your sister doing the same?” Some confirm that they would be, but too many still answer the question with an awkward smile and a red face.  

 

FAREA AL-MUSLIMI is a Yemeni activist and writer for Almasdar

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Finance

Big bucks for small business

by Maya Sioufi
written by Maya Sioufi

Riyada Enterprise Development (RED), a member of Abraaj Capital Group, in December launched a $50 million fund in a partnership with Cisco and European Investment Bank, to invest in Lebanese small and medium enterprises (SMEs). This is the largest fund dedicated to Lebanese SMEs and is the latest venture by Abraaj Capital Group — the largest emerging markets-based private equity— aimed at enhancing investment in Middle East and North Africa SMEs. SMEs account for 70 percent of MENA employment and 30 percent of MENA gross domestic product. 

“It is a well-known feature of the Lebanese economy that it produces an amazing amount of high-quality and highly talented entrepreneurs, so much so that they end up emigrating and succeed all around the world,” said Tom Speechly, chief executive officer of RED. “The aim of this fund is to encourage Lebanese entrepreneurs to stay in the country.” 

The Lebanese SME fund has an eight-year lifespan, with ticket sizes ranging from $1.5 million to $8 million. The aim of the fund is to invest in 10 to 15 growth companies across various sectors within three to four years, by acquiring between 25 and 40 percent of a company’s equity. So far in Lebanon, RED has invested in one company with two in advanced appraisal stages. 

With lower economic prospects predicted in Lebanon and uncertainty over the outcome of the uprising in neighboring Syria, the timing of this fund is questionable, but Elie Habib, Lebanon country manager for RED, believes that “it is the best time” to launch. As political transitions occur in the Arab world following the revolutions, there is an increasing interest from the diaspora in coming back. Yet structural issues in Lebanon — such as lack of access to know-how, distribution channels and financing — continue to hinder their return, according to Habib. 

When asked if RED considered delaying the launch of the fund to wait for more visibility on the economic and political situation in Lebanon, Habib replied: “RED saw an opportunity in 2007 and decided to launch a fund to tap into the SME opportunity in Lebanon. We are long-term investors, we build cyclicality into our business models and we help companies survive in downturns.” 

In Lebanon, SMEs represent a very substantial portion of economic activity. Bankdata and Sofres have recently released a market study on SMEs in Lebanon that estimates the total annual production of around 17,000 SMEs at $4.4 billion with an average annual turnover of $280,000 per company. The study, undertaken in the spring of 2011, reveals that approximately one fourth of the 300 SMEs interviewed have a turnover in excess of $500,000, and more than three quarters have been in business for more than five years. Two thirds of SMEs have seen their turnover grow year-on-year with more than 75 percent witnessing a double-digit growth over the past year. 

The fund is committed to $50 million and has so far closed $30 million through investments of $7 million from Cisco, $7 million from the European Investment Bank and the rest from Abraaj Capital. RED aims to raise another $20 million by the end of 2012 from investors attracted by the growth opportunities for Lebanese SMEs. Habib adds that after tapping into the $50 million fund, the long-term strategy is to launch another fund. It is “certainly not the last fund” that will be dedicated to Lebanon, confirms Speechly. 

When asked about their competition, Habib argues that it comes from the banking sector, which “can offer financing at attractive rates but does not offer the value added of a private equity.” In the Middle East, venture capital financing is focused on early stage investment, whereas RED is adopting a private equity model, investing in growth companies and undertaking extensive screening and financial modeling, according to Habib. “As far as I am concerned, Berytech, MEVP and a few others are complementary and they are our partners. We don’t compete for the same deals.” 

RED is looking to invest in established and growing companies. “We like proven business models where the business has stabilized itself, they’ve found their customers, they’ve got their supply chain worked out and the larger part of their growth is ahead of them,” says Speechly. When asked about his concerns regarding the reluctance of Lebanese companies to cede control, he replies, “We really don’t want control. These are founder-led businesses where we want the founder to continue operating the business as his or her business.” RED wants to grow the business for three to four years and then exit alongside the entrepreneurs, who ideally would start a new business. 

In the MENA region, SMEs face three main challenges, according to Speechly. One of these is access to capital, as only 8 percent of bank loans in the MENA region go to SMEs. Speechly does not blame the banks “because a lot of the SMEs are relatively informal and not ready for bank debt. What SMEs really need is equity, longer-term patient capital.” The other challenge is access to best practice: “Everything from sophisticated business practice to new networks, corporate governance and financial reporting,” Speechly adds, although he stresses that this is the least serious concern, due to the accessibility of information. The third issue is access to markets. The MENA region has 350 million consumers, a sizeable market but “the issue is that companies in individual markets don’t necessarily have access to the full market. It is more difficult than it should be to have access to that whole market,” he says. 

For the Lebanese fund, the target is for a 30 percent annualized return over the lifetime of the investment. While this may seem ambitious in challenging economic times, it leaves hope that newer financing options are being attracted to Lebanon and companies can rely on more than just their family and friends and the banking sector to fuel their expansion. 

CNN chose IXSIR’s winery as one of the greenest buildings in the world

CNN chose IXSIR’s winery in Basbina, Batroun, as one of the greenest buildings in 2011 “that have been recognized not only for their good looks but for their green credentials too.”

The Lebanese winery is the only building in the Middle East and North Africa that was featured on the list. Other cited buildings included the Casa Locarno and Swarovski Headquarters in Switzerland, the Sandal Magna School and Velodrome – one of the venues hosting the 2012 Olympic and Paralympic Games – in the United Kingdom, and the Livestrong Foundation in the United States.

“This is a design and architectural achievement that raises Lebanon’s profile on the international scene, confirming its high standing in this respect, and reinforcing the world-renowned reputation of Lebanese wine,” said IXSIR’s General Manager Hady Kahale. 

An eco-friendly building with sustainability at its heart, IXSIR’s winery won the 2011 Green Good Design Award.

The article underlined the winery’s contemporary concept that restores the traditional Lebanese winemaking process. “Overlooking Basbina in northern Lebanon, this winery combines a restored 400-year-old feudal seigniorial house with a modern-built, green-skinned […] structure,” the authors wrote. “Designed by Raed Abillama Architects, its cellar spaces are buried within the ground as a thermal sponge, creating the needed equilibrium of temperature and humidity.”

Using innovative skylights, the winery maximizes the use of natural light to illuminate the premises. And with its natural reliance on gravity, it respects the integrity of wine making. In addition to rainwater harvesting for irrigation purposes, it recycles all its outputs such as wastewater, and vegetable residue, which is turned into compost.

IXSIR’s winery will be open for the public to enjoy tours and tastings in the spring of 2012. 

To learn more about IXSIR, visit IXSIR’s official website www.ixsir.com.lb, or Facebook Page www.facebook.com/ixsir.wine.

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Economics & Policy

Q&A – Fadi Abboud

by Executive Staff
written by Executive Staff

As minister of tourism, Fadi Abboud has seen Lebanon through the heyday of visitor arrivals in 2010 to the more barren roads of 2011, as well as the change in government from last year to this. At the helm of one of the most underfunded ministries in the government while overseeing an industry accounting for nearly a quarter of the country’s gross domestic product, Abboud pulled no punches when laying out the challenges for tourism in Lebanon as he sat down for an exclusive one-on-one with Executive.

E  Following a fantastic 2010, how bad was 2011 for tourism? 
We broke all records in 2010. Some 2.2 million tourists visited Lebanon, with total tourist spending up to an estimated $8 billion. In 2011, I think we will be down by some 300,000 tourists, most of whom come by road. Because of what happened in Syria, we lost roughly some 100,000 Jordanians, 100,000 Iranians and 100,000 Gulf Arabs. However, total spending in 2011 seems up, though I should add that buying residential property is included in tourism spending. What may also play a role is the fact that we are a dollar-based economy, and the euro went down.

E  What has been done or what could have been done to counter the negative consequences of the Syrian crisis?
In all honesty, we should have taken some measures much earlier, but we did not do anything to compensate what we lost by road. For example, we could have had planes to Jordan for $50 a flight. Most Iranians only come for 24 to 48 hours, as part of a trip to Syria, and they do not spend much. But I think we could work harder in attracting the some 1.5 million Iranians who visit Turkey. In other words, we should attract more Iranians flying to Lebanon. Generally speaking, we are not taking advantage of what is happening around us. We should grasp the opportunity to, for example, build a civil airport in the Bekaa Valley, or use the existing airport to create a regional hub for so-called low-cost carriers. I just came back from the World Travel Market in London, where I had a word with Monarch, which is one of the smallest low-cost carriers in the world. Still, with 34 jets and a turnover of some $1.3 billion, it is twice the size of MEA (Middle East Airlines). On average, they offer a return ticket from London to Cyprus for some $450. Compare that to flights to Lebanon. Also, open the travel section of the Sunday Times and you can fly anywhere in the world on a package deal. But not to Lebanon. As long as we have a monopoly in Lebanon, or a duopoly between MEA and BMI (British Midland International), which is technically bankrupt, prices will not come down. 

E  External factors aside, what do you think is the main internal problem facing the Lebanese tourism industry?  
I’d say a lack of professionalism. Lebanon is like a mezze. You eat a bit of everything but you never get full. For example, we have a casino, but we are not a gambling destination. Our casino is more like a hospital to treat the locals. We have ski slopes, but are not a skiing destination. Do you know any skiing destination in the world that does not have snow cannons? With all due respect, these days we can no longer rely on God alone. Another problem is that the owners of the separate ski stations do not want to cooperate. Yet to create a true ski destination we need lifts from Faqra all the way to the Cedars and snow cannons. Then, and only then, can we become a ski destination.
Likewise, we are not a Mediterranean destination. We need a coastal resort, where you have all the facilities in one place not to get bored for a few weeks. We are not a serious religious destination, even though we have all the sites in the world and no less than four saints. We are not even a serious destination in terms of nightlife. I’ll be frank, a lot of people come here for prostitution, yet the Emirates have much more to offer. In terms of diving we have the Victoria, the only ship in the world in a vertical position, and underwater archeology at Tyre, yet we are not a diving destination. Even when it comes to hiking, we do not take things seriously.   There are a lot of jacks-of-all-trades anywhere in the world, yet people want professionalism. We do not take anything seriously. And that is what I’m trying to change. In Arabic we have a saying ‘you do not drink from a well and throw a stone.’ I am embarrassed to say what we throw in this well. It is not just stones. It is rubbish. Tourism represents 22 percent of our GDP. We should invest in it. You cannot create an industry if you do not promote it.

E  Talking about promotion, what happened to the LL5,000 ($3.33) airport tax you suggested in 2010? 
It did not happen. It was refused as usual. It was meant to be an extra LL5,000 departure tax, which would have enabled us to promote Lebanon. But the whole 2010 budget was refused, including the extra tax. It was not even debated properly. The Ministry of Finance always emphasizes the unity of the budget, but, personally, I don’t see what a LL5,000 promotion tax has to do with the budget of, say, the CDR (Council for Development and Reconstruction).

E  What is the budget of the ministry?
It’s ridiculous. It’s less than $20 million, which includes all wages. It is by far not enough to promote the country. But suppose they give me $30 million, even then I cannot spend them. If I tell the World Travel Market I want to participate and ask if I can pay six months later, they will ask me politely to f*** off. For a stand at a fair you pay up front, regardless of what is the official way of doing things in Lebanon.

E  Will attracting more Western tourists be difficult considering travel warnings issued by many Western embassies?
Usually, we are not in the market of mass tourism. We cannot compete really. That does not mean we only want jet setters staying in 5-star hotels in Solidere. I love them, don’t get me wrong, but we cannot only rely on them. Fortunately, most educated people in the West know that these travel warnings are political. For example, why did England not issue a travel ban when earlier this year two young Britons were massacred in [Florida]? Is Beirut more dangerous than Bogota? I feel safer in Beirut with an expensive watch than in London, Paris or any city in the United States. Now, I don’t think these bans and warnings are working, but is it making our life any easier? No, not at all.

E  In a few words, how would you describe 2011?
2011 was not as good as 2010, yet it could have been much worse. Overall, certainly seeing what is happening in countries around us, I’m happy.

E  What to expect for 2012?
Of course, security is very important, but all things being equal, 2012 could be a good year. But, unfortunately, we are experts in losing opportunities. We have an excellent opportunity to build our position. We are currently one of the safest countries in the region. We should grasp this opportunity. 

E  What are the main challenges?
Well, regional politics of course. Look, if I were responsible for Israeli security I would have only one thing on my mind: a Shiite-Sunni war. Israel is usually very good at studying our weak points, and that is one of our weak points. Today, with the rise of Sunni fundamentalism everywhere, it is very feasible to instigate such a conflict. And the US would be happy with that, as they need a market to sell their weapons. If this scenario becomes reality, all hell will break loose.   Closer to home, we really need to redefine tourism in Lebanon. We really need to become a serious destination for the hiker, the religious tourist, the diver, etc. We really need world-class facilities. In addition, I strongly believe that monopolies, and the sisters and brothers of monopolies, are still controlling the Lebanese economy. This has to stop. I don’t believe that Lebanon should have just one casino, one airport and one port. We have to free the travel market, especially when it comes to flights. If you talk to tourism professionals in Jordan and Egypt, they will tell you that they could only break their records once they broke the travel monopoly. If we don’t free the market, we will never substantially expand.

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Tourism

Fadi Abboud

by Executive Editors
written by Executive Editors

A s minister of tourism, Fadi Abboud has seen Lebanon through the heyday of visitor arrivals in 2010 to the more barren roads of 2011, as well as the change in government from last year to this. At the helm of one of the most underfunded ministries in the government while overseeing an industry accounting for nearly a quarter of the country’s gross domestic product, Abboud pulled no punches when laying out the challenges for tourism in Lebanon as he sat down for an exclusive one-on-one with Executive.

  • Following a fantastic 2010, how bad was 2011 for tourism? 

We broke all records in 2010. Some 2.2 million tourists visited Lebanon, with total tourist spending up to an estimated $8 billion. In 2011, I think we will be down by some 300,000 tourists, most of whom come by road. Because of what happened in Syria, we lost roughly some 100,000 Jordanians, 100,000 Iranians and 100,000 Gulf Arabs. However, total spending in 2011 seems up, though I should add that buying residential property is included in tourism spending. What may also play a role is the fact that we are a dollar-based economy, and the euro went down.

  • What has been done or what could have been done to counter the negative consequences of the Syrian crisis?

In all honesty, we should have taken some measures much earlier, but we did not do anything to compensate what we lost by road. For example, we could have had planes to Jordan for $50 a flight. Most Iranians only come for 24 to 48 hours, as part of a trip to Syria, and they do not spend much. But I think we could work harder in attracting the some 1.5 million Iranians who visit Turkey. In other words, we should attract more Iranians flying to Lebanon. Generally speaking, we are not taking advantage of what is happening around us. We should grasp the opportunity to, for example, build a civil airport in the Bekaa Valley, or use the existing airport to create a regional hub for so-called low-cost carriers. I just came back from the World Travel Market in London, where I had a word with Monarch, which is one of the smallest low-cost carriers in the world. Still, with 34 jets and a turnover of some $1.3 billion, it is twice the size of MEA (Middle East Airlines). On average, they offer a return ticket from London to Cyprus for some $450. Compare that to flights to Lebanon. Also, open the travel section of the Sunday Times and you can fly anywhere in the world on a package deal. But not to Lebanon. As long as we have a monopoly in Lebanon, or a duopoly between MEA and BMI (British Midland International), which is technically bankrupt, prices will not come down. 

  • External factors aside, what do you think is the main internal problem facing the Lebanese tourism industry?  

I’d say a lack of professionalism. Lebanon is like a mezze. You eat a bit of everything but you never get full. For example, we have a casino, but we are not a gambling destination. Our casino is more like a hospital to treat the locals. We have ski slopes, but are not a skiing destination. Do you know any skiing destination in the world that does not have snow cannons? With all due respect, these days we can no longer rely on God alone. Another problem is that the owners of the separate ski stations do not want to cooperate. Yet to create a true ski destination we need lifts from Faqra all the way to the Cedars and snow cannons. Then, and only then, can we become a ski destination.

Likewise, we are not a Mediterranean destination. We need a coastal resort, where you have all the facilities in one place not to get bored for a few weeks. We are not a serious religious destination, even though we have all the sites in the world and no less than four saints. We are not even a serious destination in terms of nightlife. I’ll be frank, a lot of people come here for prostitution, yet the Emirates have much more to offer. In terms of diving we have the Victoria, the only ship in the world in a vertical position, and underwater archeology at Tyre, yet we are not a diving destination. Even when it comes to hiking, we do not take things seriously.   There are a lot of jacks-of-all-trades anywhere in the world, yet people want professionalism. We do not take anything seriously. And that is what I’m trying to change. In Arabic we have a saying ‘you do not drink from a well and throw a stone.’ I am embarrassed to say what we throw in this well. It is not just stones. It is rubbish. Tourism represents 22 percent of our GDP. We should invest in it. You cannot create an industry if you do not promote it.

  • Talking about promotion, what happened to the LL5,000 ($3.33) airport tax you suggested in 2010? 

It did not happen. It was refused as usual. It was meant to be an extra LL5,000 departure tax, which would have enabled us to promote Lebanon. But the whole 2010 budget was refused, including the extra tax. It was not even debated properly. The Ministry of Finance always emphasizes the unity of the budget, but, personally, I don’t see what a LL5,000 promotion tax has to do with the budget of, say, the CDR (Council for Development and Reconstruction).

  • What is the budget of the ministry?

It’s ridiculous. It’s less than $20 million, which includes all wages. It is by far not enough to promote the country. But suppose they give me $30 million, even then I cannot spend them. If I tell the World Travel Market I want to participate and ask if I can pay six months later, they will ask me politely to f*** off. For a stand at a fair you pay up front, regardless of what is the official way of doing things in Lebanon.

  • Will attracting more Western tourists be difficult considering travel warnings issued by many Western embassies?  

Usually, we are not in the market of mass tourism. We cannot compete really. That does not mean we only want jet setters staying in 5-star hotels in Solidere. I love them, don’t get me wrong, but we cannot only rely on them. Fortunately, most educated people in the West know that these travel warnings are political. For example, why did England not issue a travel ban when earlier this year two young Britons were massacred in [Florida]? Is Beirut more dangerous than Bogota? I feel safer in Beirut with an expensive watch than in London, Paris or any city in the United States. Now, I don’t think these bans and warnings are working, but is it making our life any easier? No, not at all.

  • In a few words, how would you describe 2011?

2011 was not as good as 2010, yet it could have been much worse. Overall, certainly seeing what is happening in countries around us, I’m happy.

  • What to expect for 2012?

Of course, security is very important, but all things being equal, 2012 could be a good year. But, unfortunately, we are experts in losing opportunities. We have an excellent opportunity to build our position. We are currently one of the safest countries in the region. We should grasp this opportunity. 

  • What are the main challenges?

Well, regional politics of course. Look, if I were responsible for Israeli security I would have only one thing on my mind: a Shiite-Sunni war. Israel is usually very good at studying our weak points, and that is one of our weak points. Today, with the rise of Sunni fundamentalism everywhere, it is very feasible to instigate such a conflict. And the US would be happy with that, as they need a market to sell their weapons. If this scenario becomes reality, all hell will break loose.   Closer to home, we really need to redefine tourism in Lebanon. We really need to become a serious destination for the hiker, the religious tourist, the diver, etc. We really need world-class facilities. In addition, I strongly believe that monopolies, and the sisters and brothers of monopolies, are still controlling the Lebanese economy. This has to stop. I don’t believe that Lebanon should have just one casino, one airport and one port. We have to free the travel market, especially when it comes to flights. If you talk to tourism professionals in Jordan and Egypt, they will tell you that they could only break their records once they broke the travel monopoly. If we don’t free the market, we will never substantially expand.

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Real estate

Business talk

by Executive Editors
written by Executive Editors
Zardman: Guy Manoukian, CEO

“Beirut is reaching its normal prices, but it’s still undervalued compared to Jordan, Syria and all the countries around us, although not as undervalued as the Metn [area]. The most undervalued area for me is the Mechref area [south of Beirut]; it’s nicer than Rabieh and Faqra, and I think it’s on the way up.”

Capstone Investment Group: Ziad Maalouf, CEO

“We have only seen a slowdown in sales but it has not affected prices of land, which remain high. Expectations of landowners keep increasing despite new realities in the market today. If I were to buy land today in Ashrafieh, I would have to sell at a starting price above $6,000 per square meter, which should not  be the case… The owners have to readjust their expectations to market realities. Since 2005, land prices have increased exponentially per year, so they assume that this will continue. But that was when Lebanon was underpriced in the region; it’s not true anymore. Growth of land prices and apartment prices should be around 5 percent per year, if there is any at all.”

Seven Invest Developers: Fawaz Sawaf, Director 

“The biggest problem in Ashrafieh is parking. The government is trying to improve roads in Ashrafieh, but it wasn’t originally made for this many cars, if all the buildings come up in the area.”

FFA Real Estate: Mireille Korab Abi Nasr, Head of Sales and Marketing

“While prices have generally risen for the past several years, in 2011 we have noticed a standstill in the market in some areas which has caused some developers to resort to giving discounts to sell their apartments. This is all due to the mismatch between the market needs and the supply. This has been the case especially with large-scale apartments. The market will always correct itself, and this is very healthy in order to regain the balance between supply and demand.”

Ramco Real Estate Services: Karim Makaram, Director

“A couple of years ago, a project would have sold half by the time excavation was complete… The absorption rate would have been 80 percent by the time it was delivered; now it is about 60 percent. But if you’re selling the right size in the right area, there is still demand.”

Benchmark Real Estate: Zina Dajani, Managing Director

“Last year you could get a 5 percent or 10 percent discount at best, if you are a serious buyer, except at the launching of new projects where discounts were more substantial. This year, buyers are expecting around 20 percent and 25 percent discounts and are making counter offers to developers before they accept a deal. Given that the sales momentum has slowed down, these numbers may have been achievable in some projects.”

Prime Consult: Massaad Fares, General Manager

“Clients tend to be more selective; they know what they are looking for… the ones interested in city living tend to require mostly smaller sizes but very sophisticated buildings. Being environmentally friendly is very important [and] tall buildings are becoming more and more interesting as views of the city can be guaranteed, and as you know this is not always available. Environmentally friendly projects and gated communities will be more and more in demand.”

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Banking & Finance

Markets review

by Executive Editors
written by Executive Editors

Beirut SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 728.99 points                  Period change: -25.01%

One has to wonder what is worse for the economically-minded living in the country once hailed as the Switzerland of the Middle East  — the muddled perspective on economic and fiscal policies by the national government, the slide of equity values on the Beirut Stock Exchange or the external risks of exposure to trade disruption and internal warfare in one neighboring country and to unabated dangers of intrusion and armed interferences from a second. Although there is a link between external risks to the reduction of total turnover on the BSE to $405 million in 47 weeks of 2011, from $1.4 billion in the same period in 2010, this is not the primary factor affecting the country economically.

Amman SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 1,997.55 points   Period change: -16.63%

Sitting on fences is generally a disingenuous activity and Jordanian equities certainly did not benefit from the country trying to keep one leg on either side during the Arab spring. Whereas the market capitalization of the Amman Stock Exchange (ASE) has been ahead of GDP in better years, the $26.7 billion market cap reading on Nov 24 suggests that it will close the year below $30 billion for the first time since 2006. Arab Bank, while weakened considerably with a 23.5 drop, remained the ASE’s most valuable company. Industrial assets Arab Potash Co. and Jordanian Phosphate Mining Co. closed the period 9.9 and 24.2 percent lower respectively but the stock of Northern Cement Co., which debuted on the ASE in spring 2011, managed to defend its value and was best nominal performer, with a share price gain of over 200 percent when compared with its initial public offering.

Abu Dhabi SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 2,418.13 points   Period change: -11.78%

Representing a drop of 28 percent from the same period in 2010, the Abu Dhabi Exchange’s (ADX) total 2011 traded value up to market close on Nov 24 reached $6.2 billion, according to data company Zawya. Compared with the hyperactive 2008 and the pre-crisis year 2007, traded values in 2011 were down about 90 and 84 percent respectively. The last time the ADX had hovered lower than this was in February 2009, when the index fell below 2,200 points. The finance sector indices fared better than the benchmark, while the consumer, construction and industry indices underperformed the market thoroughly. Market leader Etisalat dropped under pressure in the second half of the review period but the NBAD, the largest bank registered, stayed in positive territory despite sliding from September. A brief upward ADX index interlude in June on the back of hopes of UAE inclusion in the MSCI’s Emerging Markets proved an aberration.

Dubai FM  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 1,348.59 points   Period change: -19.16%

Those who believed that the UAE was an island of stability in a sea of uncertainty need only have paid a little more attention to the downswing of the Dubai Financial Market (DFM) to realize that UAE exchanges are nowhere near immune from global and regional concerns. Although not suffering the worst index fall in either the Gulf Cooperation Council or North Africa, the DFM on Nov 24 had moved only a millimeter away from a seven-year bottom. The exchange’s market cap was lower than at the end of November 2009, when the Dubai debt crisis was rattling international financial markets. Among the few gainers on the DFM were market cap leader Emirates NBD, albeit they were unable to hold onto most of their intra-year gains. Developer Emaar Properties was less fortunate, registering a 30 percent drop in its share price.   

Kuwait SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 7,782.00 points   Period change: -16.63%

Whatever Kuwaiti citizens did with the $4 billion in free cash the government gave them to celebrate 50 years of independence last January, there is no sign that any of it worked its way into the domestic stock market. The Kuwait Stock Exchange (KSE) market cap stood at $101.3 billion on Nov 24, down more than $20 billion from the end of 2010. When compared with the same period in 2010, total traded value from Jan 1 to Nov 24 dropped more than 50 percent. The National Bank of Kuwait, the KSE market cap leader, dropped 12.9 percent but the second largest, telecommunications firm Zain, weakened by 40 percent. Developers MENA Holding, troubled airline Wataniya Airways and investment bank Gulf Finance House were among the KSE’s worst losers but the budget flyer Jazeera Airways showed a steep ascent. The banking and food sector indices were among the market’s better performers.      

Saudi Arabia SE   

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 6,086.10 points   Period change: -8.54%

Unlike many other markets in the Middle East and North Africa, the Saudi Stock Exchange (SSE) sported a broad range of stocks that achieved substantial gains in the 47 weeks covered by this review. However, the most valuable companies on the SSE, chemicals giant Sabic, Banking group Al Rajhi and telecom operator STC, all experienced double-digit drops in share prices. On the positive side, a number of smallish insurers were among the fewer than 10 stocks that closed the period between 50 and 125 percent higher, with agro firm Jazan Development Co the only non-insurer among the five top advancers. While there was a deep v-shaped cut in the first-quarter performance of the TASI benchmark index, caused by the political jitters that affected the kingdom during the Arab Spring’s initial period, the index curve in following months appeared more reflective of global market volatility than of domestic dissent.  

Muscat SM  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 5,428.52 points               Period change: -20.24%

The Muscat Securities Market (MSM) seems to be a case study in both contagions and fear, as the decline in its index appears to exceed any domestic threats, either economic or political. The total traded value on the MSM during the review period was down for the third year in a row. The only lines in Oman looking worse in 2011 than the MSM general index were those of the banking and industrial sector indices, which both underperformed this underperforming securities market. The services index was no anomaly, but it dropped a comparatively benign 12 percent from the start of 2011. Market heavies Bank Muscat, Omantel and Bank Dhofar were all trading down in the review period. However, unlike in Bahrain, there were also some strong gainers, led by leasing firm United Finance and by agricultural firm Salalah Mills. 

Bahrain SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 1,161.34 points   Period change: -18.67%

One extremely hard political bump in February killed of any idea of a normal year on the Bahrain Bourse and sent the small market’s index sliding to a dismal close on Nov 24. Although it is not the year-to-date’s lowest point, having bottomed out another 17 points further down on Oct 20, the scale of the crisis is captured by the fact that the index has not stooped this low at any moment since September 2003. Notwithstanding the impact of global crises, the domestic political connotations of the Bahraini equity market’s depression cannot be denied; the best hope for the Bourse in 2012 may be that the insular Kingdom’s professed will to reform will prove to be genuine.

Doha SM 

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 8,564.59 points               Period change: -2.02%

With roughly 90 percent of the year’s trading sessions in the bag, Qatari investors will be thankful that by November 24, 2011 the market capitalization of the Qatar Exchange (QE) was actually $4.4 billion higher than a year ago, at $123.5 billion, while the exchange’s total traded value of $19.3 billion in the period also exceeded the corresponding 2010 figure. In total, the QE, despite its marginal drop for the review period, was the best of a bad bunch in terms of markets across the Middle East and North Africa. If there was a slight dampener it was in real estate, where Mazaya Qatar (-21.2 percent) and Barwa (-19.2) rolled downhill the most of QE-listed stocks. Except for the Commercial Bank of Qatar, lenders stayed on top and the banking sector index outperformed the QE index. 

Tunis SE 

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 4,722.67 points               Period change: -7.06%

The greatest relief currently available for any regional investor whose sentiments are torn between the profit motive of engaging in financial markets and enthusiasm for democratic change comes from the trading hall in Tunis. The Tunindex, pulled down 1,000 points or 20 percent in the hot revolutionary weeks from January through early March, has regained almost 700 points since March 7, displaying surprisingly little volatility during its steady rise in the past six months. While the remoteness and small dimension of the Tunis Stock Exchange (TSE) — market cap $9.6 billion on Nov 24 — do not lend themselves to extrapolating the local experience in the same way that Tunisia’s politics has influenced other countries, the rebound of the TSE demonstrates that good business, principled profits and freedom with dignity are indeed interconnected.

Casablanca SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 10,909.13 points             Period change: -13.8%

While many stock market analysts had seen Morocco, before the start of the Middle East’s migration into the new and unknowable future, as the region’s best bet for investing in securities, the Casablanca Stock Exchange (CSE) has failed to meet expectations. Inverse to the trajectory in Tunisia, the MASI held relatively steady in the first five months, with a minimal net drop during that period, but has bowed to downward pressures in the six months since then. Speedier political reform in the country would have meant better performance for the CSE, though it is to be noted that Morocco’s bourse is presently the largest securities exchange in North Africa, with $60.65 billion in market capitalization versus the Egyptian Exchange’s $48.4 billion.  

Egypt SE  

Review period: Jan 1, 2011 to Nov 24, 2011

>  Closed at 3,332.87 points               Period change: -46.86%

In the country’s social and political storms of 2011, market buying emerged as the only upward impulse on the EGX, with two periods of gains in May/June and October paling in insignificance when compared to the overall erosion of financial value. The drops are indicative of the poisonous mix of factors that have marred the state since Mubarak fell, including political uncertainty, social unrest, international fears of extremism, unclear relations with global funders and lethal patterns of oppression. In 2011, $32.7 billion in market cap has been wiped out on the EGX and, with minimal exceptions, stocks were in the red. In international investor parlance, the time for buying is good when blood is pumping, but that adage gets exposed for its financial fallacy when the real red stuff is being shed.  

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Banking & Finance

Banking Talk

by Executive Editors
written by Executive Editors

“The global picture is gloomy and the regional picture is not clear. Oil prices are still maintained but if the crisis persists there will not be enough global demand for oil. Syria is another question mark, and because of its historical and political ties to Lebanon there will be an impact on the local scene, whatever the outcome will be. These unclear issues lead me to believe that prospects for 2012 won’t be much better than 2011.”

Bank Audi: Freddie Baz, CFO

“Lebanon cannot afford a crisis. You have seen what happened to Greece. Greece being a European country, having a strong currency, not having political or security problems, saw interest rates at 40 percent and was on the brink of defaulting, despite all the backing it had from very strong countries and the IMF (International Monetary Fund). Lebanon doesn’t have these advantages so we have to work on building up a real economy, and we have to keep our tradition of commercial banking. We want to have investment bankers and capital markets, but let it be outside of the commercial banking.”

Banque du Liban: Riad Salameh, Governor

“We expect next year to witness a better growth than this year. Regionally, the situation is affecting us negatively, as the instability is leading to lower growth. However, over the medium to long term, as the situation improves, stability is regained and economies enjoy more openness, the impact on us will be positive. It may also open doors for us to expand in other countries.”

BLOM Bank: Saad Azhari, Chairman

“Lebanese banks are proving to be resilient so far to what is happening in Lebanon, in the region and over the world. Going into 2012, we have a lot of concerns: how things will develop in Syria is very important and critical for the banks and how the Lebanese government will tackle the budget deficit and the issue of the Special Tribunal for Lebanon. Lebanese banks are already very conservative and will continue to be so next year.”

Byblos Bank: Alain Wanna, Deputy General Manager – Head of Group Financial Markets Division

“I think the banking sector will remain stable during 2012, and I don’t believe we will see very interesting local growth opportunities. The challenge for the banking sector will be how to continue the high pace of growth. ”

BankMed: Khaled Zeidan, General Manager of Securities & Structured Products at MedSecurities

“In the current situation it is very difficult to make a forecast and see exactly what will happen tomorrow in Lebanon and the region; 2012 will definitely be a tough year. The situation in Syria is a concern, elections are coming up in the United States and in France, and the European crisis will continue and will have a strong impact. With all this, one will have to be cautious.”

BLF: Walid Raphael, Chairman

“I think great companies as well as great banks are built during tough times, so for me these times present both an opportunity and a challenge for Lebanese banks. If they know how to weather the crisis, especially the banks exposed to countries such as Syria and Egypt, and even Jordan to a certain extent, they will emerge stronger. All these troubles will end, and when they do the banks will  probably be able to grab the opportunity.”

FFA: Jean Riachi, Chairman

“There is still an increase in deposits in the banking industry, which is a sign of confidence in Lebanon. If you look at the rates paid on the Eurobonds and the rate achieved on the latest Eurobond issued in May 2011, you can see the rate has dropped and not increased. That’s really a sign of confidence in Lebanon.”

HSBC: Francois Pascal de Maricourt, CEO Lebanon

“Going into 2012, I am quite optimistic about the banking sector in Lebanon, and I think economically Lebanon will fare much better next year. I am not worried about the outcome from Syria as I think we have already seen the worst and I only see things improving. The main opportunity looking forward will be the development of the capital market in Lebanon. The new law passed in August will definitely help.”

AFS: Sami Akhras, CEO

“I wish for economic prosperity and political stability so that Lebanon can continue to prosper and grow to the best of its ability. We have a strong banking sector and a strong regulatory environment; there are always opportunities for growth. Unfortunately, growth this year has been affected by lots of events but, I hope that we will go back to the growth momentum we enjoyed in previous years.”

Standard Chartered: Pik Yee Foong, CEO Lebanon

Credit Agricole: Mario Jamhouri, General Manager

“[For private banking portfolios] in terms of investments, cash in 2011 was king and bonds and commodities were also part of clients’ allocation. In the middle of a crisis people look for real assets, as witnessed by the real estate boom we saw in the past years in Lebanon. We are seeing our clients invest in real estate in Europe as well, as part of their asset allocation.”

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Editorial

Pride, if nothing else

by Yasser Akkaoui
written by Yasser Akkaoui

The year began with hope — it was contagious after seeing Tunisians rise up and send the tyrant Zine el-Abidine Ben Ali fleeing the presidential palace for exile in Saudi Arabia. Next came Egypt, where the awe-inspiring resolve of millions of Egyptians not to yield Tahrir Square to the regime’s security forces and thugs led to the removal of President Hosni Mubarak.

However, nations of people rising up for the freedom to claim their own destiny was a veneer that became sullied shortly after the beginning of the Libyan revolution. As the NATO bombing campaign ramped up and global powers began jockeying for position in anticipation of the post-Qadhafi era, the work of foreign hands pulling strings in Arab affairs again became apparent.

Given the strategic importance of Bahrain to Western powers, the Saudi decision to invade and crush the uprising there could not have been made in a vacuum; Ali Abdullah Saleh’s dubious cooperation with the West against Al Qaeda led to the continued support for his regime,  long after its brutality against protesters was exposed, while Syria, at the crossroads of a myriad of Middle Eastern conflicts, is a veritable playground for foreign interference from every direction.

But look around the world in 2011 and it is no longer clear that the global powers know what they are doing anymore. Currencies and economies are crumbling everywhere while mass public protests have taken hold throughout much of the West. There would seem to be a fundamental reordering of the global geopolitical and economic structures taking place, and with so many moving parts, where the world will settle in five years is beyond any plausible guess.

What is certain is only uncertainty. And, almost ironically, there are few people more schooled at adapting to, and thriving in, instability than the Lebanese — when the sky is falling, who else would think to begin exporting umbrellas?

Whatever the future of the uprisings across the Middle East and North Africa, however, and no matter how foreign influence contorts the counter revolutions, the one thing the Arabs have taken back in 2011, what will not be easily stolen again, is their pride.

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Business

Q&A – Tarek Sadi

by Executive Staff
written by Executive Staff

Entrepreneurial fervor among the Lebanese is well established, though the proper support systems to encourage and assist entrepreneurs are only recently improving. Endeavor, a non-profit nongovernmental organization (NGO), which supports high impact entrepreneurs in emerging markets, set up shop in Lebanon at the beginning of the year. It has helped create more than 156,000 jobs worldwide since its establishment in 1997 and now aims to do the same in Lebanon. Executive sat down with Tarek Sadi, managing director at Endeavor in Lebanon, to discuss how to discover the best entrepreneurs, how to help them and what is in it for him.

E  What are the main challenges that entrepreneurs face in Lebanon?
One challenge they face is finding the right talent to build up their team. The difficulty in hiring people that are dedicated and motivated consistently comes up in our discussions with entrepreneurs. This is partially due to the brain drain in the country and partially due to a cultural preference to build careers in established and stable businesses.

Another challenge in Lebanon is that entrepreneurship is still not viewed as a viable career choice and failure is perceived negatively. Globally, it is accepted that most entrepreneurs fail a number of times before becoming successful, and the failures are viewed as valuable learning opportunities. In Lebanon we view failure negatively, not as a stepping-stone to success. This is reflected in our laws as Lebanon lacks laws protecting entrepreneurs from failure and encouraging them to start again, such as Chapter 11 in the United States. As they say, the US was built on the back of Chapter 11.

The third challenge is that the economy is not geared towards helping and supporting small and medium enterprises (SMEs), and as such the cost of financing the partnership is still high. Kafalat, which provides loan guarantees to help SMEs, is a very successful pioneer in increasing banks’ support to SMEs and it is a great example of how effective the right programs can be.

Finally, there is a disconnect between the investment industry and entrepreneurs in Lebanon. Venture capitalists tell us that they are not seeing the volume of opportunities to invest in that they would like to see and entrepreneurs tell us that there are not enough investors in Lebanon. There is a schism between the two that needs to be bridged.

E  Who do you think is right; the entrepreneurs or the venture capitalists?
I think both are right. From what I see, there are a lot of very exciting businesses and great startups in Lebanon being funded informally by friends but not by the venture capital (VC) industry. Entrepreneurs do not fully appreciate the value VCs bring to the table and prefer to go to sources of capital that are within their comfort zone. A couple of great successes out of the VC industry in Lebanon will do a lot to correct that misconception.

E  Since you launched Endeavor in Lebanon at the beginning of this year, you have selected four companies to offer your support to. How did you go about selecting them?
We selected Eastline Marketing, Mobinets, Nada Debs and Printworks. We look for companies that are already in business, and we identify as many companies as possible that are innovative, have high growth potential, a good track record and above all that are headed by entrepreneurs who are ambitious, trustworthy, perseverant and who want to give back. We look for businesses that can be regional and global. These companies then go through a rigorous selection process which culminates with a global event, during which an international selection panel, made up of professionals from different backgrounds, selects entrepreneurs presented by our 13 countries. Historically over the past 15 years only 3 percent of companies around the globe identified by Endeavor offices became Endeavor entrepreneurs.

In Lebanon, we look to select about four companies a year and give them a tremendous amount of support. Our focus is not how many we can select but how many we can support and help create value which translates into new jobs and economic growth for the country. As we build up our capacity, we build up the amount of companies that we select.

E  What makes it so attractive to be selected?
First of all, the rigorous selection process is incredibly valuable. Even if the entrepreneurs are not selected, they are still sitting in front of some of the brightest business minds in the world giving them feedback on their businesses. Entrepreneurs that have been through the selection process have told us this is extremely valuable as they have a rare opportunity to have a 30,000 foot view of their business. For entrepreneurs that have their nose to the steering wheel every day, this is a great opportunity to gain perspective.

Secondly, once entrepreneurs get selected, we distill all the feedback we get throughout the process into very clear actionable points that we help them overcome through our global networks.

There are several other attractions to being selected, such as access to international markets, access to a peer network of over 600 Endeavor entrepreneurs from around the world and access to mentorship. Through our relationships with top business schools, we help entrepreneurs secure bright interns from schools such as Harvard Business School, MIT, Insead and Stanford. We also have global partnerships with the top four professional services and consulting firms that help us support our entrepreneurs.

E  What is in it for Endeavor?
We have three goals in Lebanon: create jobs, grow the economy and help identify and promote top entrepreneurs to stimulate our entrepreneurial sector. We have a small ‘give-back’ program, which is designed to make sure our entrepreneurs see us as service providers and not as a freebie. In the more mature Endeavor offices such as Mexico, Brazil, Chile and Argentina, the give-back program covers at most 30 percent of the budget so it is not something we will live from. The idea is that as entrepreneurs become successful and exit their businesses, they start sitting on the board of directors and fund Endeavor locally themselves for future entrepreneurs. Our work will also help promote global best practices and the right corporate cultures, giving proper incentives to employees and building meritocracies, which we believe will also help reverse the brain drain. We are part of a global world; we need to think in global terms and act in global ways.

E  Booz recently published a report calling for accelerated entrepreneurship in the Middle East to tackle the surge in labor force numbers expected in the region. How crucial is entrepreneurship in helping to create jobs?
Entrepreneurship is the only way we are going to create the 80 million jobs in the next 10 years that are needed in the Middle East. Otherwise where will these jobs come from? The public sector can’t create that many jobs and the large companies are consolidating their workforces in the face of uncertain economic times. There are a lot of great institutions and NGOs helping start-ups and early stage entrepreneurs in Lebanon. And we are starting to see some great stories come out of them.

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Finance

Lebanese securities performance 2011

by Maya Sioufi
written by Maya Sioufi

For the Beirut Stock Exchange (BSE), crises at home and abroad made 2011 a predictably rough year. A five-month government deadlock in Lebanon left the country in a bind, and Lebanese securities priced in this uncertainty. Revolutions in the Arab world and the unresolved European sovereign debt crisis took their toll on the Lebanese stock market as well. Lebanon’s fixed income market, on the other hand, is looking increasingly attractive to investors in comparison to troubled markets on the other shores of the Mediterranean and beyond.

The nascent year

At the beginning of 2011, just weeks before the fall of the previous cabinet, the BSE’s market capitalization stood at $12.6 billion. Six months later, immediately following the formation of the current cabinet, it had fallen to $11.3 billion.

Although Lebanon’s political situation stabilized after the formation of a government in June, the BSE was not immune to regional turmoil, nor the European sovereign debt crisis. The BSE witnessed consistent monthly drops in its market capitalization throughout the year but these accelerated into double digits from June through October as political troubles in Syria and economic woes in Europe escalated.

In addition to the turbulent regional and global markets, the BSE has its own structural problems, such as a lack of liquidity, a deficiency of listed companies, a now two-year void in its presidency and no independent authority to oversee the exchange. The capital markets and insider trading law approved by parliament in August is expected to tackle this last issue by providing Lebanon with an independent authority to oversee the exchange and protect investors.

According to Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, the law would attract “substantial” investment in Lebanese companies.

Good-looking Lebanese… debt

As Lebanese equities suffered steep losses in 2011, Lebanon’s credit default swaps (CDS) — a proxy for sovereign default risk — performed relatively better. In the third quarter of 2011, Lebanon’s change in CDS spreads was one of the best performers globally, along with Venezuela, Qatar, the United States and Ireland. Lebanon’s CDS spread widened by only 22 percent in the third quarter to 430 basis points. The widening of a CDS spread means it is more expensive to insure a country’s credit and it reflects an increased perception that the country is more likely to default. Relative to the widening of the CDS spreads of 68 countries monitored by CMA Vision, a provider of market pricing data, Lebanon fared well. Italy, Germany, the Netherlands, Denmark and Austria, meanwhile, all saw their CDS spreads widen by more than 150 percent in the third quarter.

Lebanon’s credit is classified as non-investment grade or “junk” by the three rating agencies Moody’s, Standard & Poor’s and Fitch, though all three have a stable outlook on Lebanon.

Lebanon’s gross public debt stood at $54.4 billion as of September 2011; Finance Minister Mohammad Safadi expects this figure to reach $60 billion by the end of 2012. Lebanon’s gross public debt to gross domestic product (GDP) stands at an astounding 134 percent, according to the International Monetary Fund. By comparison, Greece’s ratio, the highest in Europe, stands at 142 percent.

Freddie Baz, chief financial officer at Audi Bank, likes to compare Lebanon’s debt profile to that of Japan and not Portugal, Ireland, Greece or Spain (PIGS), as 95 percent of the debt is held by local investors, as opposed to only 30 to 40 percent in PIGS. Indeed, Jean Riachi, chairman of FFA Private Bank, says, “Although rating agencies classify Lebanon’s debt as low grade, many investors around the world and not only in Lebanon are quite confident because of the technicalities of the Lebanese debt whereby it is 95 percent held by Lebanese.”

There are restrictions imposed by BDL requiring local banks to acquire investment grade bonds only and, according to Khaled Zeidan, general manager at MedSecurities, yields on these bonds are very low and thus government debt becomes attractive for local banks. “Most banks have few options in deploying their liquidity and with all the restrictions that the central bank has put in place, banks generally go back to Lebanese republic paper whether in USD [dollars] or LBP [Lebanese pounds],” he says.

Lebanese bankers are not the only ones recommending Lebanese debt as an investment. International banks are doing so as well. Merrill Lynch upgraded in October its rating on Lebanese Eurobonds to “Overweight” from “Marketweight,” while Barclays, which has kept its “Marketweight” recommendation, raised the allocation of Lebanon’s debt in its emerging markets portfolio.

The 10-year yield on Lebanon’s sovereign debt has dropped by 40 bps this year and stands at around 5.8 percent as of mid-November, which bodes well in comparison to those in floundering countries in Europe like Italy, which has its 10-year yield at over 7 percent, a 2 percent rise from the beginning of the year, and Spain, which stands at 6.3 percent, a 1 percent rise year-to-date. 

Alain Wanna, deputy general manager at Byblos Bank, notes changes in the approach to Leban-on’s sovereign debt. “For the last two years, we had a strategy at Byblos of reducing our exposure to the government as a percentage of equity. But today, when we compare the sovereign debt of Lebanon to the sovereign debt of some European countries, we see that Lebanon is still performing extremely well,” he says. “At the end of the day, we need to make a choice on where to place our money.”

The attractiveness of Lebanon’s debt is reflected by the successful refinancing and issuance of Eurobonds this year. In May, Lebanon refinanced $1 billion in Eurobonds: one issue of $650 million maturing in 2019 at a yield of 6 percent, and a second issue of $350 million maturing in 2022 at 6.1 percent. And in July, Lebanon launched a $1.2 billion two-tranche Eurobond composed of a $500 million issue of bonds maturing in 2016 with a 4.75 percent yield, and a $700 million issue of bonds maturing in 2022 with a 6.2 percent yield.

“If you look at rates paid on the Eurobonds and the rate in the latest issued tranche, you can see [it] has dropped and not increased,” says Francois Pascal de Maricourt. “That's really a sign of confidence in Lebanon.”

The rosy picture painted by the attractive rates of Lebanon’s debt will likely be shaken if the government does not take action and implement the reforms necessary to tackle the debt. “A lack of reforms in the budget is very dangerous because they don’t realize the dangers if things go wrong,” says Byblos’ Wanna.

“Today there is excess liquidity in the sector, money is coming into Lebanon. But what if the banks stop investing; what if deposits don't flow?” he added. “The government should start to think about that and take corrective action. And it is time today to initiate reforms because money is available. It is more difficult to initiate reforms under pressure; look at Greece.”

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