N 38 November 2015 Page 3 Lebanon to issue more long-term debt, weighted yields rising Page 4 Resilient consumption buoying Lebanon s car market Page 5 Trade deficit down $2bn through August Page 6 Lebanon s economy became more competitive in 2015, WEF report shows Page 7 Latest data for Lebanon s key economic sectors Page 8 Key trends in the Lebanese economy Political stalemate weighs on economic activity The escalation of violence in Syria and a continued domestic political stalemate are weighing heavily on general Lebanese economic activity, while select consumption and tourism driven industries appear to have held up relatively well. The economic outlook, however, depends on the prospects of a resolution to the conflict in Syria. A recent diplomatic activity aimed at brokering a broad political deal may lead to a de-escalation of the conflict there, but the outcome of such negotiations remains uncertain. Meanwhile, economic data point to slower growth in the key real estate, banking, and export sectors, in contrast with improvements in tourism and consumption. The Central Bank s coincident indicator, a composite measure of main indicators and a proxy of economic growth, rose by only 0.68% yoy in the first eight months of the year. The government has also provided no meaningful fiscal policy response to the domestic slowdown. Public spending, excluding electricity transfers and debt service, increased by only 8.5% yoy to $4.02bn in the first half of the year. At the same time, the government is delaying more of its payments to hospitals and to public works contractors among others in order to keep its cash deficit in check. Public sector arrears to private hospitals increased by an estimated $199m in the first nine months of 2015 to over $900m, according to the Syndicate of Hospitals in Lebanon. Lower public spending translated into slower growth in the country s debt pile. Gross public debt grew by $2.31bn yoy to $68.88bn in the first eight months, compared with an increase of $2.39bn over the same period in 2014. Total debt is expected to accelerate in the final months of the year following the issuance of a $1.3bn 20-year Eurobond. However, deteriorating economic conditions and rising uncertainties do not appear to be compromising the ability of the Lebanese government to tap into local and foreign debt markets. Politics is complex, security risks are acute, and the economy is in stagnation, but the local banks are so vast and so willing to prop up the government that the risks of sovereign default are significantly lower than what the headlines would suggest, stated Citi. The latter sees real GDP growth accelerating to 2.4% in 2015 from 1.7% in 2014, but expects activity to slow again to 2% in 2016. Durable Goods Purchases Index (3-month MA) Coincident Indicator (12m moving avg. %yoy) Beirut 4 & 5 star hotels RevPAR (Jan-Sep, $) 12% 176 179 10% 8% 6% 123 121 89 86 101 4% 2% 1.50% 0% Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Source: BdL, Economena, SGBL Research 2009 2010 2011 2012 2013 2014 2015 Source: Ernst & Young, Economena, SGBL Research
Similarly, Standard Chartered highlighted the importance of Lebanon s financial system to the government s ability to finance its deficit. In particular, the bank cited strong non-resident deposit growth, which provides firm support for the peg and for the sustainability of debt financing. Economic growth is expected to grow by 2.2% in 2015 and by 3% in 2016 with the fiscal deficit widening to 8.5% of GDP from 8% in 2015, according to Standard Chartered. Sales transactions dropped by 13.45% yoy to $5.77bn in the first nine months of the year as demand for luxury apartments by foreign investors and expatriates slows. Real estate and construction, which drove much of the economic boom between 2007 and 2010, have declined. Sales transactions dropped by 13.45% yoy to $5.77bn in the first nine months of the year as demand for luxury apartments by foreign investors and expatriates slowed. Cement deliveries, a proxy for current construction activity, are similarly down by 14.55% yoy to 3.16 million tons in the first eight months. Business conditions in general appear to have deteriorated in recent months. The ratio of returned cheques to total cheques hit a multi-year high of 2.28% in the 12-month period through July 2015, which may indicate difficult operating conditions in the economy and an increase in cash collection cycles for businesses. Credit to the private sector rose by only $1.51bn in the first eight months of 2015, versus $2.36bn over the same period in 2014. CONSUMPTION STILL STRONG But lower oil prices and consumption growth are helping stave off a recession. In particular, resilient consumer confidence and a strengthening US Dollar are helping prop up the new car market in Lebanon despite a slowing economy and more restrictive car loan regulations in 2015. New passenger car sales increased by 1.25% yoy to 29,170 vehicles in the first nine months of 2015, a multi-year high for the period. However, new commercial car sales fell by 3.59% yoy to a 4-year low of 1,666 vehicles in the first three quarters of the year. Lebanon s trade deficit shrank by $2.02bn to $9.8bn in the first eight months of the year, driven largely by a lower oil import bill. At the same time, expatriate remittances are projected to rise by 0.7% yoy to $7.5bn despite economic headwinds in oil-exporting countries with large Lebanese expatriate populations. A smaller trade deficit and higher remittances, however, have done little to curb the widening balance of payment deficit which reached $1.65bn through August. Port of Beirut s income rose by 10.14% yoy to $177.5m in the first nine months of the year, on the back of an increase in maritime trade. Port activity has also been strong so far in 2015. Port of Beirut s income rose by 10.14% yoy to $177.5m in the first nine months of the year, on the back of an increase in maritime trade following April s closure of the Nasib border crossing between Syria and Jordan. A recovery in tourist arrivals is also providing some relief to the country s hotel industry, but social unrest in recent weeks poses a serious risk to occupancy rates and pricing power especially in Beirut. Tourist arrivals continued to increase through September, but hotel occupancy rates appear to be stagnating. Beirut s 4- and 5-star hotels reported an average occupancy rate of 53% in September, the same as in September 2014, with the Revenue Per Available Room metric down 3.16% yoy to $92 during the month. Tourist spending increased by an estimated 5% yoy through September, with impetus from higher Arab tourist numbers, VAT refund data by Global Blue showed. Lebanon is also gaining ground in global competitiveness even as traditional growth drivers lose momentum. The country s competitiveness rankings improved slightly in 2015 driven by advances in technology and financial market development, while poor infrastructure and political instability remained key challenges to doing business, according to the World Economic Forum s Global Competitiveness Report. Claims on resident private sector (Jan-Aug, $bn) Tourist spending (Jan-Sep, %yoy) 4.08 3.12 2.98 2.67 2.42 2.29 1.68 1.47 1.45 0.71 2006 2009 2012 2015 Source: BdL, Economena, SGBL Research Jordan US Qatar UAE KSA France Iraq Egypt Total Nigeria Kuwait Syria 35% 22% 20% 14% 14% 11% 6% 5% 5% -8% -8% -30% Source: Global Blue, Economena, SGBL Research
GOVERNMENT Lebanon to issue more long-term debt, weighted yields rising The Lebanese government is looking to finance more of its deficit using longer-term securities, particularly in foreign currency, to increase the average years to maturity and to take advantage of low global interest rates while they last. Gross public debt grew by 4.55% yoy to $68.88bn by the end of August, equivalent to an increase of $2.31bn, compared with an increase of $2.39bn over the same period in 2014, with foreign currency debt touching a multi-year low of 38% of the total. The country s foreign debt is likely to accelerate in the remaining months of the year with the issuance of an estimated $1.3bn in foreign currency debt. The government is expected to raise that amount by issuing a 20-year Eurobond in early November, with coupon rates likely to range between 7% and 7.2%, following a record $2.2bn issue in February 2015. Lebanon is also offering to exchange a maturing 8.5%, $750m bond for 9-year and 13-year securities carrying yields in the ranges of 6.2%-6.35% and 6.6%-6.75% respectively. The issues are co-managed by Société Générale de Banque au Liban, Fransabank, and Standard Chartered Bank, and Citi. The weighted life of foreign currency debt increased by 0.1 years yoy to 5.67 years at the end of September, while the average maturity of local currency debt rose by 0.14 years to 3.36 years over the same period. Outstanding LBP securities (% of total) 1.2% 0.2% 0.8% 5.2% 3.1% 36 months 5.3% 60 months 84 months 35.2% 120 months 11.1% 144 months 24 months 96 months 18.3% 12 months 19.5% 6 months Source: ABL, Economena, SGBL Research *As of Auust 2015 As a result of the issuance of more debt with longer maturities, average yields on outstanding Eurobonds and on Treasury bills also increased. The weighted yield on Eurobonds rose by 10 basis points in the 12 months through August to reach 6.68%, and the cost of outstanding local currency securities grew by 4 basis points to 6.96% over the same period. Average interest rates on Central Bank-issued Certificates of Deposit, which are often used to indirectly finance the state, rose for the second consecutive month to reach 8.16% at the end of August. At the same time, Credit Default Swap spreads, the cost to insure against a sovereign default, have seen an upward trend in recent months on the back of heightened risks from rising political uncertainty and social unrest. Lebanon s 5-year CDS spreads widened to 411 points by October 16, from 358 bps at the end of June. In comparison, Egyptian and Russian debt were less costly to insure with spreads of 354 bps and 294 bps respectively. Lebanon s 5-year CDS spreads widened to 411 points by October 16, from 358 bps at the end of June. The government relies heavily on the local banking industry s large deposit base to finance its deficit, but deposit growth has slowed in recent years. Private sector deposits grew by 5.73% yoy to $149.63bn at the end of August, their second slowest pace since June 2007. However, deposit growth would have to fall significantly below 2% in order for bank balance sheets to start coming under stress. Even under this scenario, it would take many years before the stress would become critical, given the extent of excess liquidity currently in the system, according to Citi. 55% Foreign currency debt (% of public debt) 10% Weighted average interest rates 50% 45% 9% 8% CDs Eurobonds Treasury Bills 8.16% 40% 7% 6.96% 38% 6.68% 35% 6% Aug - 06 Aug - 09 Aug - 12 Aug - 15 Aug - 11 Aug - 12 Aug - 13 Aug - 14 Aug - 15 Source: BdL, Economena, SGBL Research Source: ABL, Economena, SGBL Research
TRANSPORT Resilient consumption buoying Lebanon s car market Resilient consumer confidence and a strengthening US Dollar are helping prop up the new car market in Lebanon despite a slowing economy and more restrictive car loan regulations in 2015. Car sales, an indicator of consumer demand for large-ticket items, are bucking a downward trend in the Lebanese economy. New passenger car sales increased by 1.25% yoy to 29,170 vehicles in the first nine months of 2015, a multi-year high for the period. The upward trend comes despite the introduction of new regulations by the Central Bank in late 2014 limiting the amount of financing to 75% of the total car value. An index of consumer confidence published by ARA Marketing Research and Consultancy rebounded by 9.1% yoy to an average of 94.38 points in the first eight months of the year, the highest level for the period since the Syrian conflict erupted in 2011. A sub-index for durable goods, including cars, also surged 46.73% yoy to 157 points in August. In parallel, more private sector business managers reported increasing their headcount in September, according to the Purchasing Managers Employment Index, which bodes well for the car market. Lower oil prices in international markets have also been almost entirely passed through to consumers in Lebanon, with the price of 95-octane gasoline down 27.9% yoy in the first nine months. At the same time, a stronger US Dollar versus the Euro and most major global currencies is helping improve the affordability of new cars in the country as consumers purchasing power increases. Sales of European brands are up 14.13% yoy to 5,994 vehicles in the first nine months, with some support from a 17.8% yoy depreciation in the Euro. In particular, sales of BMW, Renault, and Mercedes increased by a dramatic by 89.5% yoy, 24.93% yoy, and 18.52% yoy respectively. Higher-end European brands including Jaguar, Porsche, Lamborghini, and Ferrari all posted double-digit growth rates through September. Similarly, distributors of Japanese brands reported fast growth in their sales volumes over the period led by Toyota, Suzuki, and Mitsubishi compared with sagging sales at Nissan. Rymco, the distributor of the Nissan brand, still grew its revenues from car sales by 44.15% yoy to $112.91m in the first half, even as the company reported selling 18.5% yoy fewer new cars over the period. Results were likely buoyed by increased sales of the higher priced Infiniti vehicles and a possible increase in demand for second-hand cars. New passenger car sales (Jan-Sep) Renault 1,263 4% Other 10,102 35% Nissan 3,070 10% Kia 5,473 19% Hyundai 4,531 16% Toyota 4,731 16% Cars imported (Jan-Sep, '000) 33.0 Source: AIA, Economena, SGBL Research 74.1 73.5 71.4 59.5 61.5 58.3 62.7 48.4 2007 2009 2011 2013 2015 Source: PoB, Economena, SGBL Research A total of 62,724 new and used cars were imported through Port of Beirut in the first nine months of the year, up 7.6% yoy. A rise in car imports may reflect a move by dealers to take advantage of favorable currency trends, and may to some extent be an effort to replenish their inventories. Slowing economic activity, however, appears to be taking a toll on commercial vehicle sales which are less dependent on consumer spending. New commercial vehicle sales fell by 3.59% yoy to a 4-year low of 1,666 vehicles in the first three quarters of the year. New car sales (Jan-Sep, %yoy) 7.4% 8.4% 8.3% 1.8% 1.7% 0.8% 1.2% Durable Goods Purchases Index (3-month MA) 175 150 143-4.8% -26.6% Passenger Commercial -3.6% 125 100 2011 2012 2013 2014 2015 Source: AIA, Economena, SGBL Research 75 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Source: ARA, Economena, SGBL Research
TRADE Trade deficit down $2bn through August Lebanon s trade deficit shrank to $9.8bn in the first eight months of the year, representing total savings of $2.02bn for the economy over the period. A smaller trade deficit, however, has done little to stem the widening balance of payments deficit which reached $1.65bn in the first eight months of the year, almost three times larger than in the same period in 2014. Slowing trade activity will also likely translate into weaker trade finance business for Lebanese banks, with the value of opened letters of credit for import and export down 20.1% yoy to $5.2bn through August. Imports fell by 16.09% yoy to a six-year low of $11.79bn as lower oil prices continue to help reduce the country s energy import bill. On the other hand, exports have yet to recover from scathing regional unrest and falling demand from oil-exporting countries. Exports to the Gulf Cooperation Council s six countries declined by 4.58% yoy to $584.31m through August, their lowest level for the period since 2011. Indeed, there are strong signs of faltering demand from Lebanon s largest export market, Saudi Arabia, where the economy has been hit by a sharp downturn in oil prices. The kingdom s total global imports fell by 3.19% yoy to $96.23bn in the first seven months, while the drop in Lebanon s exports to Saudi Arabia was less extreme, at 2.57% yoy to $250.45m through August. Exports by land through Masnaa have remained subdued at ~5% of pre-syrian conflict levels since the closure of the Nasib border crossing between Syria and Jordan in April. It remains unclear whether a recent campaign by the Russian-led coalition forces would lead to the re-opening of border crossings between Syria and both Iraq and Jordan, which would likely help reduce shipping costs for Lebanese exporters. Even then, a significant recovery in exports to the GCC is unlikely in the near-term given weak demand drivers in destination countries. Lebanese traders are also feeling the pinch of deteriorating market conditions in Turkey along with a depreciating Turkish Lira. Exports to Turkey plummeted by 44.78% yoy to $56.03m in the first eight months, nearly a fourth of their levels in 2011. The biggest hit to exporters, however, continues to be the fledgling export of pearls, precious stones, and metals which were historically pre-dominantly destined for South Africa and Switzerland. Such commodity exports have declined sharply over the past three years, most recently shedding 25.56% yoy to $297.02m through August 2015, a massive drop from $1.1bn over the same period in 2012. In contrast, a recovering Egyptian economy is offering Lebanese exporters some respite from a generally unfavorable eastward trade picture. Exports to Egypt gained significant momentum through August, rising by 31.23% yoy to $57.63m, supported by smooth maritime shipping logistics. The signing of the Iran nuclear deal in July may also be behind the recent sudden uptick in exports to Iran which hit a 43-month high in August. Export destinations (Jan-Aug) Other 56% KSA 12% UAE 10% Iraq 8% Syria 7% South Africa 7% Source: Customs, Economena, SGBL Research Exports to GCC (Jan-Aug, $m) 548.8 595.3 617.1 612.3 584.3 2011 2012 2013 2014 2015 Source: Customs, Economena, SGBL Research L/Cs for export (12m moving sum, $bn) Trade deficit (Jan-Aug, $bn) 4.5 4.0 3.5 3.0 8.58 11.57 9.80 2.5 2.0 2.6 4.43 1.5 Aug-07 Aug-09 Aug-11 Aug-13 Aug-15 Source: BdL, Economena, SGBL Research 2006 2009 2012 2015 Source: Customs, Economena, SGBL Research
Lebanon s economy became more competitive in 2015, WEF report shows Lebanon s competitiveness improved slightly in 2015 driven by advances in technology and financial market development, but poor infrastructure and political instability remained key challenges to doing business, according to the World Economic Forum s Global Competitiveness Report (GCR). The country s rank improved to 101st place among 140 countries under coverage in the 2015-2016 survey, up from 113th place out of 144 countries the previous year. Among the same sample of countries in both periods, however, GCR data indicate that Lebanon s rank in fact retreated from 100th place in the 2014-2015 survey. The GCR provides a comprehensive assessment of economic and social factors that influence competitiveness, and surveys executives to determine the main obstacles to doing business in each economy. The latest results for Lebanon are based on a survey of 92 executives, while those in the previous year included only 40 respondents. Regionally, Lebanon was the 11th most competitive economy behind Tunisia and Algeria, but ahead of Egypt. Gulf Cooperation Council countries led regional rankings, with Qatar and the UAE placing 14th and 17th globally, respectively. The biggest improvements in Lebanon came in technological readiness, innovation, financial market development, and institutions. In particular, the country ranked 33rd in the world in terms of the percentage of individuals using the internet, and moved up in ranking in the availability of latest technologies. The country also moved up 9 places to 45th place globally in its capacity for innovation. Most financial development indicators also posted strong improvement in competitiveness, including the availability and affordability of financial services. The biggest leap, however, came in improvements in the categories of soundness of bank and venture capital availability, where Lebanon ranked in 42nd and 23rd place respectively. Recent initiatives by the Central Bank are re-enforcing the conservative nature of the Lebanese financial sector, and contributing to the development of private equity markets. In 2013, the Central Bank allowed banks to invest a portion of their capital directly into startups, leading to an estimated $280m being pledged to funds and startups as of August 2015. The Central Bank also moved in 2014 to put a cap on household debt ratios, contributing to stronger balance sheets at banks and higher capital ratios. In addition, Lebanon s education and health remained highly competitive globally, ranking the country in 12th place in the quality of its management schools and in 19th place in the quality of its overall higher education system. On the other hand, the Lebanon s infrastructure lagged behind that in most of the world. The country ranked 138th among 140 countries in the overall quality of its infrastructure and 137th in the quality of electricity supply. Power outages in Beirut averaged three hours per day in the first nine months of 2015, and reached 10.68 hours per day outside Beirut, according to data by the Ministry of Energy and Water (MoEW). Electricity production fell by a slight 0.82% yoy to 8.39bn KWH in the first eight months of 2015 leaving significant demand to be serviced by diesel-fueled private generators. New power plants are expected to add up to three hours of electricity supply in 2015, as per MoEW. However, surveyed executives expressed more concern for political development than economic challenges in the 2015-2016 report. In previous years, inadequate supply of infrastructure was the main issue identified by executives as the most problematic factor for doing business, but in the latest survey, worries over government instability topped the list. Similarly, corruption became a less problematic factor for surveyed executives, according to the latest report, falling to 5th place from 2nd place in previous surveys. Executives also expressed deep distrust over the public spending, placing Lebanon second to last in the world in wastefulness of government spending, ahead of only Venezuela. Lebanon Global Competitiveness Index rankings Regional GCI rankings (out of 140) 113 103 101 92 91 89 2011 2012 2013 2014 2015 2016 Source: World Economic Forum, Economena, SGBL Research Qatar UAE KSA Kuwait Bahrain Oman Jordan Morocco Algeria Tunisia Lebanon Egypt 14 17 25 34 39 62 64 72 87 92 101 116
Key indicators Unit 2014 Jul-15 Aug-15 Sep-15 %Y/Y YTD PYTD Cleared cheques $bn 74.27 5.47 5.90 n.a. -9.72 46.14 49.46 Real estate transactions $bn 8.95 0.79 0.69 0.71-11.33 5.77 6.67 Construction permits Sqm, m 13.55 0.96 1.35 0.93-10.44 9.21 10.55 Cement deliveries Tons, m 5.52 0.41 0.47 n.a. -0.31 3.16 3.69 Tourist arrivals m 1.35 0.21 0.17 0.14 12.04 1.18 1.02 Airport traffic m 6.57 0.79 0.89 0.75 17.11 5.55 5.02 Balance of payments $bn -1.41 0.00-0.33 n.a. -41.12-1.65-0.43 Money supply: M3 $bn 117.68 120.82 121.52 n.a. 5.10 3.84 4.46 BSE volumes m 96.79 3.37 2.76 10.04-71.59 60.96 75.75 Passenger car sales 37,816 4,241 3,603 3,279-5.07 29,170 28,811 Hotel occupancy (average) % 52.00 56.00 61.00 53.00-3.00 55.89 50.22 Indices 2014 Jul-15 Aug-15 Sep-15 %Y/Y %YTD Consumer confidence index - ARA 80.58 89.00 94.00 n.a. 22.08 11.90 Consumer Price Index 100.81 96.89 96.37 96.07-4.67-3.25 Purchasing Managers' Index 47.55 49.30 47.80 48.10 1.05-2.43 BdL Coincident Indicator 273.18 264.60 266.60 n.a. 0.60-8.85 Trade Unit 2014 Jun-15 Jul-15 Aug-15 %Y/Y YTD PYTD Imports $bn 20.49 1.69 1.53 1.48-30.24 11.79 14.06 Exports $bn 3.31 0.28 0.22 0.15-50.18 1.92 2.23 Trade balance $bn -17.18-1.41-1.31-1.26-30.93-9.80-11.83 Port of Beirut volumes TEUs, m 1.21 0.11 0.11 0.10-7.71 0.76 0.83 Financial and monetary Unit 2014 Jun-15 Jul-15 Aug-15 %Y/Y YTD %YTD Commercial bank assets $bn 175.70 180.08 179.91 181.62 6.62 5.92 3.37 Claims on the resident private sector $bn 45.37 46.29 46.54 46.82 5.99 1.45 3.19 Claims on the non-resident private sector $bn 5.53 5.45 5.51 5.59 0.39 0.06 1.09 Claims on the public sector $bn 37.35 37.95 37.88 37.46-1.50 0.11 0.30 Resident private sector deposits $bn 114.12 116.90 117.23 117.93 5.07 3.80 3.33 Dollarization rate (average) % 60.13 59.26 59.30 59.24-0.98 59.43-0.74 Non-resident private sector deposits $bn 30.30 31.68 31.16 31.70 8.28 1.40 4.62 Dollarization rate (average) % 87.54 86.54 86.12 86.22-1.37 86.70-1.05 Private sector deposits with commercial banks $bn 144.43 148.58 148.38 149.63 5.73 5.20 3.60 Private loans / deposits % 39.08 39.60 39.70 39.70 0.34 39.68-0.05 Public sector deposits $bn 9.26 9.56 9.62 8.98-12.55-0.29 3.11 BdL foreign assets $bn 43.35 44.93 43.63 43.21-3.88-0.15-0.34 BSE market capitalization $bn 11.22 11.56 11.44 11.17 1.97-0.06-0.50 Gross public debt $bn 66.58 69.02 69.19 68.88 4.59 2.31 3.46 Public finance Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD PYTD Revenues $bn 10.88 1.06 0.89 0.97-1.20 5.01 5.24 Value Added Tax $bn 2.19 0.30 0.11 0.13 8.99 1.03 1.09 Telecommunications $bn 2.01 0.10 0.10 0.10-0.55 0.62 Income taxes $bn 1.85 0.19 0.34 0.38-17.46 1.31 1.30 Customs $m 508.04 43.03 42.51 44.10 2.98 238.78 250.82 Expenditures $bn 13.95 1.49 1.12 1.04-11.50 6.79 6.82 Transfers to EdL $bn 2.04 0.07 0.09 0.16-52.94 0.63 1.04 Debt service $bn 4.19 0.46 0.46 0.33 7.78 2.15 2.08 Primary balance $bn 1.31 0.04 0.28 0.29 116.04 0.48 0.58 Fiscal balance $bn -3.07-0.43-0.23-0.06-65.54-1.78-1.58 YTD: year-to-date, PYTD: previous year-to-date. Source: MoF, BdL, BSE, ARA, Customs, Markit, EY, RHIA, CAS, Economena, SGBL Research
Value of returned cheques (% of total) The ratio of returned cheques to total cheques hit a multi-year high of 2.28% in the 12-month period through July, 2015 which may indicate difficult operating conditions in the economy and an increase in cash collection cycles for businesses. 2.8% 2.6% 2.4% 12-month moving average 3-month moving average 2.8% 2.6% 2.4% Vistor arrivals (millions, 12-month moving sum) Tourists have become a minority at Beirut s international airport as Syrians become increasingly dependent on Lebanon for international travel. An estimated 3.47 million non-transit passengers landed in Beirut in the 12 months through September, of whom only 1.52 million were tourists. 4.0 3.5 3.0 2.5 Airport arrivals (non-transit) Tourist arrivals 4.0 3.5 3.0 2.5 2.2% 2.2% 2.0 2.0 2.0% 1.8% 2.0% 1.8% 1.5 1.0 0.5 1.5 1.0 0.5 1.6% 1.6% Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Source: BdL, ABL, Economena, SGBL Research 0.0 0.0 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Source: CAS, BIA, Economena, SGBL Research Lebanon 5-year CDS spreads (bps) Lebanon s 5-year CDS spreads, the cost to insure against a sovereign default, widened to 411 basis points (bps) by October 16, from 358 bps at the end of June. In comparison, Egyptian and Russian debt are less costly to insure with spreads of 354 bps and 294 bps respectively. 500 Construction orders in N. Lebanon ('000 sqm, Jan-Sep) Construction execution orders issued by the Order of Engineers and Architects of Tripoli (OET) have surged since Tripoli s security plan was implemented in 2014. OET gave permission to start construction of 1,009,789 sqm in Built-up Area in the first nine months of 2015. 450 400 350 Lebanon 411 Egypt 354 500.87 685.62 953.07 820.31 834.68 845.26 927.70 1,009.79 300 Russia 294 250 200 Q4 '09 Q4 '10 Q4 '11 Q4 '12 Q4 '13 Q4 '14 Oct-15 Source: Capital IQ, Economena, SGBL Research 2008 2009 2010 2011 2012 2013 2014 2015 Source: OET, Economena, SGBL Research