THE LEBANON BRIEF. ISSUE 746 Week of October, 2011

Transcription

1 SAL Your Investment Reference THE LEBANON BRIEF ISSUE 746 Week ECONOMIC RESEARCH DEPARTMENT Rashid Karame Street, Verdun Area P.O.Box Beirut, Lebanon T (01) /7 F (+961) research@blominvestbank.com

2 Table Of Contents Page 2 of 14 TABLE OF CONTENTS FINANCIAL MARKETS 3 Equity Market 3 Foreign Exchange Market 5 Money & Treasury Bills Markets 5 Eurobond Market 6 ECONOMIC STATISTICS & INDICATORS 7 Q3 Exports Contain Trade Deficit Expansion 7 Construction Permits Up by 10.2% Y-o-Y During the first three quarters of Industrial Exports Rose 7.4% up to August ECONOMIC AND FINANCIAL NEWS 9 IMF Revises Down Lebanon s 2011 Growth Forecast to 1.5% 9 Tourist VAT Refunds Climb by 8% Up Until September 9 CORPORATE DEVELOPMENTS 10 BLOM s Profits Reach $236.31M up to September Bank of Beirut Net Profits at $48.6M Up Until September BEMO Profits Reach $6.98M during the First Three Quarters of A Consortium of Lebanese Banks to Provide $28M Loan for Real Estate Project 11 CFH Group Advises ATCO Group on the Sale of 51% of Risal to ECG 11 FOCUS IN BRIEF 12 Doing business in Lebanon: Lessons to learn 12 This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

3 Financial Markets Page 3 of 14 FINANC CIAL MARKETS Equity Market Stock Market BLOM Stock Index* Avg Traded Volume Avg Traded Value *22 January 1996 = Oct-10 BLOM Stock Index HI: Banking Sector BLOM (GDR) BLOM Listed BLOM (GDR) Audi (GDR) Audi Listed Audi (GDR) Byblos (C) Byblos (GDR) Bank of Beirut (C) BLC (C) Fransabank (B) BEMO (C) BSE BSE LSE BSE BSE LSE BSE LSE BSE BSE OTC BSE $7.85 $7.42 $7.60 $6.60 $6.00 $6.50 $1.62 $80.00 $19.45 $1.81 $28.00 $2.47 $7.799 $7.655 $7.611 $6.622 $6.000 $6.511 $1.644 $80.00 $19.45 $2.000 $28.00 $ % -3.01% -0.13% -0.30% -0.15% -1.22% -9.50% Banks Preferred Shares Index * BEMO Preferred 2006 Audi Pref. D Audi Pref. E Byblos Preferred 08 Byblos Preferred 09 Bank of Beirut Pref. D Bank of Beirut Pref. E BLOM Preferred 2011 * 25 August 2006 = 100 Jan-11 28/10/ , ,441 Apr-11 21/10/111 % Change % 54, % 653, % LO: Jul-11 Oct-11 Mkt 28/10/11 21/10/ /11 % Change Mkt 28/10/ /11 21/10/11 % Change $ $ % BSE $ $ BSE $10.35 $ BSE $ $ BSE $ $ BSE $ $ % BSE $26.00 $ BSE $26.00 $ BSE $10.13 $ The ongoing political tension in the region as well as the mounting m pressure regarding the special tribunal for Lebanon offset the resilience of third-quarter financial results released by top Lebanese banks. This was largely reflected on the activity of the Beirut Stock Exchange (BSE) that was characterized by an overall negative sentimentt this week. The BLOM Stock Index (BSI), Lebanon s leading index, finished f another week in red, falling 1.19% to settle at 1,200 points, its lowest record level since June Consequently, the BSI B lost 18.32% % since year start and ranked as the third worst performer among Arab markets this year after Egypt, and Bahrain. With respect to market capitalization, it fell on a weekly basis by $107.11M to $8.98B. The average daily traded volume reached 76,570 shares worth $770,441, higher than last week s volume of 54,912 shares, but way below the year-to- underperformed the S&P Pan Arab Composite LargeMidCap Indexx that rose 1.66% to 107 points as date average volume of 323,342 shares. On the regional front, the Lebanese L benchmark all Arab A markets managed to end the week on a positive note. Moreover, the BSI failed to beat the MSCI Emerging index that soared 9.49% to settle at points after European leaders agreement to stemm the debt crisis and speculation the US economy is improving boosted the global outlook. The banking sector extended itss dominance over the market this week, accounting for 59.2% of the total valuee traded. Lebanese financial stocks underperformed their regional peers with the BLOM Lebanese Banking Index (BMBI Lebanon) L declining by 0.41% % compared to a 0.76% increase in the BMBI for the regional banking stocks. BLOM GDR was the sole gainer on the Beirut Stock Exchange this week, rising 0.77% % to $7.85. In contrast, BLOM listed stock dropped 3.01% to close at $7.42. Worth highlighting that BLOM bank published its financial resultss for the first nine months of 2011, revealing net profits of $236.3 million, up by 0.22% from the same period last year. Audi GDR edged 0.3% down to $6.6, whereas Audi listed stock remained unchanged at $6. Byblos common stock retreated 1.22% to $1.62, while BLC Bankk tumbled 9.5% % to $1.81, its lowest level since June 28. Moreover, the BLOM preferred shares index (BPSI) inched 0.12% % down to points following a 0.6% drop in Byblos Preferred stock class On the London L stock exchange, BLOM and Audi GDRs both slipped 0.13% and 0.15% to $7.6 and $6.5 respectively, while Byblos remained at $80.

4 Financial Markets Page 4 of 14 Real Estate Solidere (A) BSE $14.57 $ % Solidere (B) BSE $14.63 $ % Solidere (GDR) LSE $15.10 $ % Manufacturin ng Sector HOLCIM Liban Ciments Blancs (B) Ciments Blancs (N) Funds Beirut Preferred Fund BLOM Cedars Balanced Fund Tranche A BLOM Cedars Balanced Fund Tranche B BLOM Cedars Balanced Fund Tranche C Mkt 28/10/ /11 21/10/ /11 % Change Mkt 28/10/ 11 21/10/ /11 % Change BSE $16.01 $ % BSE $3.255 $3.255 BSE $1.722 $1.722 Mkt 28/10/ /11 21/10/ /11 % Change BSE $ $ $6, $6, % $5, $5, % $5, $5, % BLOM Bond Fund $10, $10, In the real estatee sector, heavyweight Solidere stockk continued its downward trend with Solidere A declining 2.15% to a 33-month low of $14.57, while Solidere B lost 0. 48% to $ In London, Solidere GDR lost 1.18% to $15.1. With respect to the industrial sector, cement producer Holcim Liban slipped 5.55% to end the weekk at $ In conclusion, thee healthy third-quarter financial results published by major banks failed to boost the Lebanese L stock market. Activity on the Beirut Stockk exchange iss expected to remain lull in the coming week with investors positioning their portfolios ahead off Eid Al-adha holiday. Retail Sector RYMCO ABC (New) Mkt 28/10/ /11 21/10/ /11 % Change BSE $2.500 $2.500 OTC $16.50 $16.50 Tourism Sector Casino Du Liban SGHL Mkt 28/10/ /11 21/10/ /11 % Change OTC $ $ OTC $6.000 $6.000

5 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Financial Markets Page 5 of 14 Foreign Exchange Market Lebanese Forex Market Dollar / LP Euro / LP Swiss Franc / LP Yen / LP Sterling / LP NEER Index** 28/10/11 21/10/112 %Change % % % 2.04% % *Close of GMT 09:00+2 **Nominal Effective Exchange Rate; Base Year Jann 2006=100 **The unadjusted weighted average value of a country s currency relative to all major currencies being traded within a pool of currencies. The NEERR represents the approximate relative price a consumer will pay for an imported good. The exchange rate between domestic banks stabilized towards the lower edge of the trading band at the $/LP 1,500.5-$/LP 1,503.5 with a mid-price of $/LP 1,,502 on sustained demand for Lebanese Pounds. The Central Bank s foreign assets (excluding gold) increased by a monthly 0.39% in mid-october to $32.02 billion, while the dollarization rate of deposits in commercial banks reached 66.56% in August, down from 66.74% in July. Nominal Effective Exchange Rate (NEER) Aug-11 Oct-11 Money & Treasury Bills Markets Money Market Rates 28/10/11 21/10/11 Change bps Overnight Interbank % 0 BDL 45-day CD 3.57% 3.57% 0 BDL 60-day CD 3.85% 3.85% 0 Treasury Yields 28/10/11 21/10/112 Change bps 3-M TB yield 3.89% 3.89% 0 6-M TB yield 4.40% 4.40% 0 12-M TB yield 4.59% 4.59% 0 24-M TB coupon 5.34% 5.34% 0 36-M TB coupon 5.94% 5.94% 0 60-M TB coupon 6.18% 6.18% 0 As European leaders finallyy reached an agreement with EU lenders to split write-downs on Greek debt, and boost the bailout fund to t 1 trillion euros, the bloc s single currency rebounded over the past week gaining 3.12% against the US dollar to $/ Its increase was supported by a decline in the US dollar that t suffered losses after investors let go of safe haven currencies and bondss to capture stocks s at a good price ahead of an anticipated rally. The US dollar-pegged Lebanese currency thus depreciated to LP/ 2, from LP/ 2, last Friday. The Nominal Effective Exchange Rate (NEER) closed down by 1.7% to falling 1.07% below its year- start value. Money markets in Lebanonn continued to t expand with broad money M3 rising by a slight LP400B ($265M) during the week ending October 13 to attainn LP145,628B ($96.6B). M3 rose by 7.01% y-o-y and 4.74% fromm end of December M1 went down during the week by LP144B ($95.52M) as both money in circulation andd demand deposits fell by a respective LP107B ( $70.98M) andd LP37B ($24.54M). Total deposits (excluding demand deposits) progressed by $360.28M as term and saving deposits in LP rose $78.28M and deposits denominated in foreign currencies added $282M. As for the dollarization rate of broad money, it increased byy 13bps on a weekly basis to 60.18%. The overnight interbank ratee was at 2.77% during the month of August, A according to the Association of Lebanese Banks. On October 20, the Ministryy of Finance (MoF) raised LP281.27B ( $186.58M) through the issuance of Treasury Bills. The money collected fromm the auction largely exceeded the value of the maturing TBs of LP47.27BB ($31.36M). Demand was mainly observed on the t high yieldd medium term paper (36M) which accounted for 76.29% of total subscriptions. As for the 24M and 12M papers, they accountedd respectively for f 21.22% and 2.49% of total subscriptions. During the auction, yields across the maturity curve remained unchanged as thee average discount rate for the 24M paper and the average coupon rate for the 24M and 36M papers maintained m thee same rate as a previous auction at 4.59%, 5.34% and 5.94% respectively. To T note that the MoF continues to undertake all accepted bids.

6 Financial Markets Page 6 of 14 Eurobond Market Eurobonds Index and Yield 28/10/11 21/10/11 BLOM Bond Index (BBI)* Weighted Yield** Weighted Spread*** % % 392 *Base Year 2000 = 100; includes US$ sovereignn bonds traded on the OTC market ** The change is in basis points ***Against US Treasuriess (in basis points) Lebanese Government Eurobonds Change 0.08% Year to Date -0.84% Maturity - Coupon 2012, Mar % 2012, Sep % 2013, Mar % 2013, Jun % 2014, Apr % 2014, May % 2015, Jan % 2015, Aug % 2016, Jan % 2016, May % 2017, Mar % 2018, Nov % 2020, Mar % 2021, Apr % 2022, Oct % 2024, Dec % 28/10/11 Price* * /10/ /11 Price* Weekly Change% -0.58% -0.23% 0.12% 0.22% 0.24% 0.13% 0.21% 0.17% 0.42% 0.12% 0.41% 28/10/112 Yield 0.78% 2.59% 3.26% 2.95% 3.67% 3.72% 4.03% 4.18% 4.43% 4.58% 4.93% 5.32% 5.53% 5.71% 5.90% 6.22% 21/10/11 Yield 1.05% 2.69% 2.88% 2.85% 3.74% 3.85% 4.12% 4.23% 4.44% 4.60% 4.98% 5.32% 5.56% 5.77% 5.91% 6.27% Weekly Change bps Mid Prices ; BLOMINVEST bank Weighted Effective Yield of Eurobonds 6.00% 5.50% 5.00% 4.50% 4.00% Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 The Eurobond market continued to move sideways for the third consecutive week but sprung upp on Thursday sending the BLOM bond index (BBI) to a month-high of points. Demand was mostly driven towards long term papers thatt added an average 0.15%, while low liquidity on short term issuances kept their prices relatively stable. The T portfolio s average weighted yield narrowed 2 basis points (bps) to 4.75% %, while the spread against the US benchmark yield narrowed 11 bps to 381 bps after US yields surged on a rally in equities, as Europe s long awaited debt deal pushed investors away from Treasuries and towards riskier and more profitable assets, including debt instruments in emerging markets. Accordingly, the BBI lagged behind the JP Morgan emerging markets bond index that climbed 2.2% from last week. Lebanon s credit default swap for 5 years (CDS) narrowedd considerably over the past week, with thee bid-ask quotes sliding from bps to bps, in tandem with credit risk across the globe. CDS quotes in Dubai and Saudi Arabia also contracted to bps and bps respectively from bpss and bps last week. In emergingg countries, 5 year CDS in Brazil narrowed by 30 bps to bps, while Turkey s CDS quotes plunged 40 bps to bps.

7 Economic Statistics & Indicators Page 7 of 14 ECONOMIC STATISTICS & INDICATORS Trade Deficit Up to September ($B) Source: Lebanese Customs Department Q3 Exports Contain Trade Deficit Expansion Lebanon s trade deficit stood at $11.19 billion during the first three quarters of 2011, up by $1.02 billion or 10% from the same period in 2010, data from the Customs Department showed this week. Imports jumped 9.3% y-o-y or by $1.23 billion to $14.4 billion, while exports accelerated to a 7.16% annual increase reaching $3.23 billion. During Q3, exports managed to weather their slowdown of this year as Lebanon diversified from regional trade, with values of shipped products rising by respective annual rates of 38%, 17%, and 16% during July, August, and September. Of the main imports to Lebanon, mineral resources ranked first in terms of value comprising 19% of the total or $2.73B, while Machinery and mechanical appliances came in second with 11% or $1.59B. With regards to exports, pearls /precious stones continued to top the list, corresponding to $1.13 billion or 35% of total shipped products, tracked by base metals with a 14% stake, electric equipment with 12% and food products and chemicals with 8% each. Lebanese customs revenues dropped by 22.69% y-o-y to LP1,707 billion ($1.13B) up until September, dragged down by the slide in excise taxes on fuel and car imports. In the month of September alone, Lebanon trade deficit widened by a considerable 42.9% to $1.46 billion following a 36.8% upswing in imports to $1.79 billion and a much slower annual increase of 15.57% in exports to $334 million. Construction Area Authorized by Permits Up to September, Million sqm Source: Orders of Engineers in Beirut and the North Construction Permits Up by 10.2% Y-o-Y During the first three quarters of 2011 The number of construction permits issued during the first three quarters of 2011 reached 13,921, climbing by 10.2% from the same period a year earlier, data from the Order of Engineers in Beirut and the North showed this week. In contrast, construction area authorized by permits (CAP) still contracted 5.76% to million square meters (sqm), indicating a shift by developers towards smaller projects in the wake of slowing demand for high-end properties; keeping in mind that demand for residential units valued above $1 million diminished the most with the decline in real estate transactions this year. In September alone, the number of issued permits slid by 4.2% y-o-y to 1,411, after having dropped 17% y-o-y in August and 11% y-o-y in July. This shows that the slowdown in construction activity is persisting, however at a slower pace that the previous two months. CAP in September was 1.22 million sqm, 12.42% lower than the same month in 2010, and was mostly concentrated in Mount Lebanon that accounted for 590,174 sqm or 48.6% of CAP. The North of Lebanon came in second place with 184,154 sqm or 15.2% of total CAP, followed by the South and Beqaa with 11.6% and 9.7% respectively.

8 Economic Statistics & Indicators Page 8 of 14 Lebanese Industrial Exports Up to August ($M) 2,191 2,007 1,692 2,353 Industrial Exports Rose 7.4% up to August 2011 Lebanon s industrial exports increased by 7.4% in the first eight months of 2011 to reach $2.353B compared to $2.191B recorded a year earlier, according to the Ministry of Industry. Pearls and Precious stones took 24.48% of total industrial exports, tracked by base metals with 16.96%, and machinery and electrical equipment with 15.3%. In terms of exports distribution by destination, Arab countries captured the lion s share of Lebanese exports, corresponding to 32.7%, followed by African, European, and Asian countries with 27.3%, 19.5%, and 16.9% respectively. For the month of August alone, industrial exports jumped 18.74% to attain $311.1M compared to $262M recorded in August Source: Ministry of Industry

9 Economic & Financial News Page 9 of 14 ECONO OMIC AND FINANCIAL NEWS Revised 2011 Growth Forecast IMF Revises Down Lebanon s 2011 Growth Forecast to 1.5% Updated IMF 1.5 IIF World Bank 4 EFG Hermes 3.5 Source: IMF, Blominvest Research Department Previous In its latest Regional Economic Outlook, the International Monetary Fund (IMF) revised down Lebanon ss 2011 GDP growth forecast to 1.5% from a previouss estimate off 2.5%. IMF said that regional growth in i general has suffered from political unrest, which undermined confidence and accordingly, investment, trade, and tourism. Lebanon also suffered from the domestic political bickering, which left the country paralyzed during the first half of the year. Along with fuel tax cut, the government s standstill in H1 and the general economic slowdown will also lift the budget deficit to 7.8% of GDP in 2011, from 7.3% % in 2010, added the report. The IMF also forecast that an improvement in the domestic and regional situation over the coming year will boost Lebanon s GDP growth up to 3.5%. Tourist Spending Up Until September 17% -4% Saudi UAE Arabia Source: Global Blue -5% 12% Kuwait Syria 11% -1%- -6% -17% Egypt Jordan Qatar France Tourist VAT Refunds Climb byy 8% Up Until September Tourist spending in Lebanon increased by 8% y-o-y up until September 2011 after having increased by 4% y-o-y up until August, according to data d on VAT refund transactions from Global Blue. Refund transactions by tourists from the United Arab Emirates jumped 17% % from the same period a year earlier, followed by respectivee annual increases of 12% and a 11% in refund transactions by Syrian and French visitors. Refund transactions by Egyptian and Jordanian tourists dropped 17% and 6% respectively due to regional political unrest andd a slump in land-border travel. Arab tourists continuedd to capture the largest share of spending in Lebanon, led by Saudi residents with a stake of 21%, and followed by tourists from thee UAE and Kuwait with 12% and 9% respectively. In terms of spending by category, fashion and clothing accounted for 74% of total items purchased by tourists, watches captured 9% %, Home & Garden itemss and department stores took 5% each. While W spending in the city of Saida rose 67% from the same period in 2010, Beirut s shopping s districts continued to attract tourists the most, accounting for 83% of total VAT refunds.

10 Corporate Developments Page 10 of 14 CORPO ORATE DEVELOPMENTS BLOM Profits Reach $236.31M up to September 2011 BLOM Bank Financial Highlights ($M) Sep-11 Dec-10 % chgg Total Assetss Customers' Deposits Loans and Advances Net Profits* *: up to September Source: Company Data 23,380 20,154 5, , , 446 5, % 3.64% 8.60% 0.22% Bank of Beirut Financial Highlights ($M) Sep-11 Sep-10 % chgg Total Assets Customers' Deposits Loans and Advances Net Profits 8,918 6,716 2, ,444 5,327 2, % 26.07% 46.00% 0.32% Source: Company Data BLOM Bank published its unaudited financial results for the first nine months of 2011, revealing nett profits of $236.3 million, up by 0.22% from the samee period last year. BLOM ss return on average equity was still the highest among listed Lebanese banks at 18.07%. This performance was sustained as the bank continued to exercise its conservative policy, limiting its exposure to risks and reducing its expenses, as shown byy its lowest cost to income ratio, held at 37.97%. On the balance sheet side, assets reached $23.38 billion, up by $1.3 billion or 4.64% % from the same period in Similarly, customers deposits increased 3.64% to $20.15 billion, while total loans jumped by 8.6% from the previous year to $5.61 billion. Bank of Beirut Net Profits at $48.6M Up Until September 2011 Bank of Beirut (BoB) posted its financial results for the first nine months of 2011, reporting a slightt increase in profits of 0.32% to $76.25M compared to t $76M recorded last year. Total operating income jumped j 6.6% % to $180.03M, while total operating expense rose 18. 4% to $90.93M. On the balance sheet side, total assets grew 19.81% to reach $8.92B from $7.44B in September Loans to customers jumped 46% % to $2.93B, while customers depositss surged by 26.07% 2 to $6.72B. Total equity rose 16.35% from $874.28M to $1. 02B. BEMO Bank Financial Highlights ($ M) 11-Sep 10-Dec % chg Total Assetss Customers' Deposits Loans and Advances Net Profits* *: up to September Source: Company Data 1,421 1, , % 11.31% 15.81% 1.75% BEMO Profits Reach $6.98M during the First Three Quarters of 2011 BEMO Bank posted its financial results for the first f nine months of 2011, revealing a 1.75% increase in its net profits to $6.98 million compared to $6.86 million m recorded during the same period last year, despite a 2.98% % slide in total operating income to $19.49 million as profits fromm participationn jumped 29.7% to $3.07 million. On the balance sheet side, BEMO s total assets grew 17.48% to reach $1.42 billion from $1.21 billion in December 2010, loans to customers reached $ $ million, rising 15.8% from year start, while customers deposits climbedd by 11.31% to t $1.1 billion. Total equity surged almost 28% to reach $ million.

11 Corporate Developments Page 11 of 14 Project Details A Consortium of Lebanesee Banks to Provide $28M Loan for Real Estate Project Participating Banks Al Mawarid Jammal Trust bank Lebanese Swiss Bank Fenicia Bank First National Bank Source: Company Data Project 7,510 sqm 3 buildingss 162 apts Estimated Cost $500 M A consortium of fourr Lebanese banks, led byy Al Mawarid Bank, arranged a syndication loan worth $28 million to fund the property development firm Venus Real Estate, which will develop Venus Towers, a $500 million project of mixed-use residential and commercial buildingss in Mina El Hosn, Beirut. The consortium consists of Jammal Trust bank, Lebanese Swiss Bank, Fenicia Bank, and First National Bank. The project, which is expected to be completed by the endd of 2014, will stretches over a 7,510 square meters, and will include 3 buildings, 162 apartments, commercial stores and 4 underground basements. Select CFH Group Clients Saudi Cranes CL Limited MEREO I Aramex First National Bank MEREO II Albemarle Properties Limited Rakeen The Landmark Inkript Source: Company Data CFH Group Advises ATCO Group on the Sale of 51% of Risal to ECG Lebanon s Corporate Finance House (CFH) acted as the Financial Advisor to Abdulrahman Al Turki Group (ATCO Group) that announced the sale of o 51% in its fully owned subsidiary Redland Industrial Services Arabia (Risal) to Energy Capital Group (ECG) based in the UK. Risal is a leading company specializing in four main lines of services which include industrial cleaning, chemical cleaning & catalyst handling,, waste management, and environmental services. On the other hand, ECG is a prominent private equity firm with various oil and gas investments in North America and the GCC. Mr. Ziad Al Turki, the Vice Chairman of ATCO Group stated that the kingdomm of Saudi Arabia, being the powerhouse of the MENA region, continues to attract a interest from well-established regional and international private equity players. He added that this new venture will foster the growth of Risal and create significant value for the shareholders of both parties.

12 Focus In Brief Page 12 of 14 FOCUS IN BRIEF Doing business in Lebanon: Lessons to learn How Lebanon ranks on Doing Business topics Source: IFC Doing Business database The International Finance Corporation (IFC), which is part of the World Bank, published recently the doing business report for all countries that are members of the World Bank and among them Lebanon. The Doingg Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a `small to medium-size business when complying with relevant regulations. The index of doing business comprises ten sub-indices representing ten areas in the life cycle of a business namely, starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. Lebanon s ranking declinedd by one notch this year compared to the previous year. The country ranked 104 over 183 countries for which the index is computed on the easee of doing business in against 103 in the doing business of Since the doing business benchmark measures the performance of an economy against all other economies, a decline in the ranking does not mean necessarily that the country s business environment has deteriorated. In fact, an economy s business environment could have improved on a yearly basis, however if the ease on doing business in other countries has improved more, than the ranking of this economy will worsen. While this ranking tells much about the business environment in an economy, it does nott tell the whole story as it is mentioned in the report itself. The ranking on the ease of doing business, and the underlyingg indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Lebanon fared worse than the regional average a that stands at 93. Saudi Arabia was w the best performer in the region with a ranking of 12, while the UAE recorded 33 and Turkey 71. All three countries did better than the average. Jordan scored 96, which is worse than the average however still better than Lebanon. Egypt and Syria scored 110 and 134 respectively.

13 Focus In Brief Page 13 of 14 The weaknesses of the Lebanese business environment appear to be mainly entrenched in some areas related to the real estate sector and closing a business. The ranking of Lebanon in the different sub-indices shows that Lebanon ranked the worst in Dealing with construction permits at 161. Lebanon also ranked 125 in the sub-index related to Resolving Insolvency and 120 in Enforcing contracts. When analyzing the Starting a business sub-index where Lebanon ranked 109, it shows that the cost of starting a business as well as the paid-in minimum capital required are the two components that drove down the ranking of Lebanon. The country did well in the number of procedures and the time necessary to start a business. However with a cost of 67.1 percent of the income per capita and a paid-in minimum capital equal to 35.3 percent of income per capita, Lebanon is losing too many places in the ranking. Most countries in the region had a very low cost of creating a business to income per capita ratio. Moreover the top country in the list, namely the Denmark, has a zero cost for starting a business while there are 82 economies that don t require any paid-in minimum capital. As for Dealing with construction permits sub-index, Lebanon could well improve its ranking of 161 if it reduces the number of days it takes to get a construction permit, which stands at 219, and the percentage of cost to income per capita that is equal to percent. In Singapore, you can get a construction permit in 26 days, while in Qatar it costs you 1.1 percent of income per capita to get the permit. Two other areas where Lebanon did badly are related to Lebanon s legal system and its outdated laws. These are Enforcing contracts and Resolving insolvency where Lebanon ranked 120 and 125 respectively. For the former, it takes 721 days and 37 procedures to enforce a contract, while it takes only 150 days in Singapore and 420 days in Turkey. It also requires 21 procedures in Ireland and 36 in Turkey. Resolving insolvency or closing a business constitutes a major issue for Lebanon where it takes 4 years and costs 22 percent of the debtor s estate with an average recovery rate of 20.6 cents on the dollar. This compares to an average of 5 months in Ireland and 3.3 years in Turkey to close a business. As for the recovery rate, it is at 92.7 in Japan and 22.3 in Turkey. Lessons to learn are that only few measures are necessary to drastically improve the ranking of Lebanon. The country can easily reduce the cost of creating a business and the minimum capital required in addition to the cost for getting a construction permit. Lebanon can also manage to reduce the number of days it takes to register a property and to get a construction permit as well as the procedures required to enforce a contract. When resolved, these bottlenecks have the potential of changing the image of Lebanon in the eyes of foreign investors. Improving the ranking of Lebanon will most probably increase the amount of foreign direct investments that flow into the country each year. Consequently real economic growth will rise and unemployment will decline. Other issues may demand more work and revisions of the existing laws in addition perhaps to an expansion in the number of public sector employees especially when it comes to the judicial system. It is of essence to increase the number of judges, mainly those who deal with commercial and business related issues like resolving insolvencies and enforcing contracts. Specific training is also important as the business world is evolving at high speed with new financial products and types of businesses that are being created every year.

14 Research Department: Malak Hawa Walid Sayegh Gaelle Khoury Marwan Mikhael SAL Your Investment Reference