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THE

LEBANON BRIEF

ISSUE 893

Week of 03 – 08 November, 2014

ECONOMIC RESEARCH DEPARTMENT

Rashid Karame Street, Verdun Area

P.O.Box 11-1540 Beirut, Lebanon

T (01) 747802 F (+961) 1 737414

[email protected]

www.blom.com.lb

S A L

The Lebanon Brief of 17

ISSUE 893; Week of 03-08 November, 2014

S A L

TABLE OF CONTENTS

FINANCIAL MARKETS 3

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Market 5

Eurobond Market 6

ECONOMIC AND FINANCIAL NEWS 7

BDL’s Total Assets Inched up by 0.91% to $86.21B by October 7

PMI Records a Four-Month High in October 7

Lebanon Ranked 135 Out of 142 Countries on the Gender Gap Index 2014 8

Lebanon Trade Deficit Narrows 2.50% y-o-y by September 2014 9

Value of Kafalat Guarantees Dipped to $93.70M by October 10

CORPORATE DEVELOPMENT 11

Lebanese Parliament Approves $30M Loan to SMEs 11

ODEABANK Posts a Loss of $4.84M up to September 12

FOCUS IN BRIEF 13

The Information Technology Market in Lebanon: Strengths, Weaknesses and Prospects 13

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.


FINANCIAL MARKETS

Equity Market

Stock Market

07/11/2014 31/10/2014 % Change

BLOM Stock Index* 1,171.04 1,180.48 -0.80%

Average Traded

Volume

133,767 148,764 -10.08%

Average Traded Value 1,171,918 1,444,518 -18.87%

*22 January 1996 = 1000

.

Banking Sector

Mkt 07/11/2014 31/10/2014 % Change

BLOM (GDR) BSE $9.35 $9.35 0.00%

BLOM Listed BSE $8.75 $8.80 -0.57%

BLOM (GDR) LSE $9.40 $9.41 -0.11%

Audi (GDR) BSE $6.40 $6.49 -1.39%

Audi Listed BSE $6.30 $6.38 -1.25%

Audi (GDR) LSE $6.50 $6.40 1.56%

Byblos (C) BSE $1.61 $1.64 -1.83%

Byblos (GDR) LSE $80.00 $80.00 0.00%

Bank of Beirut (C) BSE $18.39 $18.39 0.00%

BLC (C) BSE $1.70 $1.70 0.00%

Fransabank (B) OTC $28.00 $28.00 0.00%

BEMO (C) BSE $1.73 $1.73 0.00%

Mkt

07/11/2014

31/10/2014

% Change

Banks’ Preferred Shares

Index *

105.06 105.12 -0.06%

Audi Pref. E BSE $101.50 $101.50 0.00%

Audi Pref. F BSE $101.00 $101.00 0.00%

Audi Pref. G BSE $101.00 $101.00 0.00%

Audi Pref. H BSE $101.00 $101.00 0.00%

Byblos Preferred 08 BSE $100.80 $100.80 0.00%

Byblos Preferred 09 BSE $101.00 $101.30 -0.30%

Bank of Beirut Pref. E BSE $25.80 $25.80 0.00%

Bank of Beirut Pref. I BSE $25.75 $25.75 0.00%

Bank of Beirut Pref. H BSE $25.85 $25.85 0.00%

BLOM Preferred 2011 BSE $10.20 $10.20 0.00%

BLC Pref A BSE $101.40 $101.40 0.00%

BLC Pref B BSE $100.00 $100.50 -0.50%

BLC Pref C BSE $100.00 $100.00 0.00%

Bemo Preferred 2013 BSE $101.20 $101.20 0.00%

* 25 August 2006 = 100

The Beirut Stock Exchange couldn’t preserve

last week’s positive performance. The BLOM

Stock Index (BSI) lost 0.80% to close at 1,171.04

points.

The average traded volume went from 148,764

shares worth $1.45M down to133,767 shares

worth $1.17M. As for the market capitalization, it

narrowed by 78.86M since last week to $9.79B.

Although the BSI declined, it performed better

than its regional peers. The S&P Pan Arab

Composite Large Midcap Index dropped by

2.86% to 148.71 points, the S&P AFE40 Index

slid by 2.64% to 68.65 points, and the Morgan

Stanley Emerging Index (MSCI) declined by

1.61% to 991.32 points.

Among the Arab world, Tunisia’s stock

exchange was in the lead for the second week

in a row, rising by 3.36% since last week,

followed by Egypt’s bourse that added 3.35%,

and the Qatar’s financial market that inched up

by 0.68%.

On the other hand, most GCC countries’

bourses tumbled due to declining oil prices.

Saudi Arabia’s stock exchange was the worst

performer for the second week back-to-back,

dropping 3.84%, Kuwait’s financial market and

Dubai’s bourse followed declining by 3.08% and

3.06%, respectively.

Back to the BSE, the banking sector contributed

for around 64.83% of total traded value and was

followed by the real estate sector and the

industrial sector with shares of 34.843% and

0.33%, respectively.

In the banking sector, all traded shares saw a

weekly drop in price. BLOM listed shares and

Byblos listed shares went down by 0.57% and

1.83% to $8.75 and $1.61, respectively.

Likewise, Audi listed and GDR shares lost 1.25%

and 1.39% to $6.30 and $6.40, respectively.

The BLOM Preferred Stock Index (BPSI)

weakened as well, posting a minor downtick of

0.06% to 105.06 points. This was triggered by

Byblos Preferred 09 shares that dropped by

0.30% to $101.

1050

1100

1150

1200

1250

Nov-13 Mar-14 Jul-14 Nov-14

BLOM Stock Index HI: 1,234.30

LO: 1,137.46


Real Estate

Mkt

07/11/2014 31/10/2014 % Change

Solidere (A) BSE $11.38 $11.39 -0.09%

Solidere (B) BSE $11.23 $11.39 -1.40%

Solidere (GDR) LSE $11.10 $11.20 -0.89%

On the London Stock Exchange (LSE), the Global

Depository Receipts (GDRs) of Audi increased

by 1.56% to close the week at $6.50, while

those of BLOM Bank and Solidere respectively

lost weekly 0.11% and 0.89% to $9.40 and

$11.10.

Manufacturing Sector

Mkt 07/11/2014 31/10/2014 % Change

HOLCIM Liban BSE $15.00 $15.49 -3.16%

Ciments Blancs (B) BSE $3.50 $3.50 0.00%

Ciments Blancs (N) BSE $2.75 $2.75 0.00%

Solidere shares class “A” and “B” remained on

their downtrend for the fifth week in a row,

declining 0.09% and 1.40%, to close the week

at $11.38 and $11.23, respectively.

In the industrial sector, HOLCIM shares shed

3.16% to reach $15.00.

Funds

Mkt 06/11/2014 30/10/2014 % Change

BLOM Cedars Balanced

Fund Tranche “A”

----- $7,306.35 $7,302.71 0.05%


Fund Tranche “B”

----- $5,223.87 $5,221.20 0.05%


Fund Tranche “C”

$5,549.22 $5,546.46 0.05%

BLOM Bond Fund ----- $9,608.62 $9,608.62 0.00%

The BSE might continue to move in a seesaw as

no positive political and security developments

seem to loom in the next few months.

Retail Sector

Mkt

07/11/201

4

31/10/2014

% Change

RYMCO BSE $3.32 $3.32 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

Tourism Sector

Mkt 07/11/2014 31/10/2014 % Change

Casino Du Liban OTC $360.00 $360.00 0.00%

SGHL OTC $7.00 $7.00 0.00%


Foreign Exchange Market

Lebanese Forex Market

07/11/2014

31/10/2014

% Change

Dollar / LP 1,512.00 1,512.00 0.00%

Euro / LP 1,868.40 1,894.02 -1.35%

Swiss Franc / LP 1,551.40 1,570.97 -1.25%

Yen / LP 13.08 13.51 -3.18%

Sterling / LP 2,383.81 2,410.64 -1.11%

NEER Index** 141.85 140.08 1.26%

*Close of GMT 09:00+2

**Nominal Effective Exchange Rate; Base Year Jan 2006=100

**The unadjusted weighted average value of a country’s currency relative to all

major currencies being traded within a pool of currencies.

Demand for the dollar steadied over the prior week as reflected

by the Lebanese pound’s peg against the dollar that remained at

$/LP 1,510-1,514 with a mid-price of $/LP 1,512, since the 4th of

September, 2014. Foreign assets (excluding gold) at the Central

Bank rose by a monthly 1.15% from $38.42B by September to

$38.87B by end-October. Meanwhile, the dollarization rate of

private sector deposits stood at 65.89% in August compared to

66.13% in December 2013.

The Dollar journeyed on its biggest weekly rise in more than 16

months this week. A US report revealing that employers added

more jobs in October than this year’s average, in addition to the

European Central Bank President, Mario Draghi, intensifying his

commitment to stimulus triggered the euro to decline by 1.35%

against the dollar, ending the week at €/$ 1.2394..

Nominal Effective Exchange Rate (NEER)

The strong greenback drove the demand for gold on a downtrend

where the price of gold went from $1,198.64/ounce last Thursday,

down to its new low since 2010, at $1,140.90/ounce this week..

By Friday November the 7th, 2014, 12:30 pm Beirut time, the

dollar-pegged LP appreciated against the euro going from €/LP

1,894.02, the prior week, to €/LP 1,868.40. The Nominal effective

exchange Rate (NEER) gained 1.26%, weekly, to 141.85 points,

widening its year-to-date gain to 9.91%.

Money & Treasury Bills Market

Money Market Rates

Treasury Yields

07/11/2014 30/10/2014 Change

bps

3-M TB yield 4.39% 4.39% 0

6-M TB yield 4.87% 4.87% 0

12-M TB yield 5.35% 5.35% 0

24-M TB coupon 5.84% 5.84% 0

36-M TB coupon 6.50% 6.50% 0

60-M TB coupon 6.74% 6.74% 0

07/11/2014 30/10/2014 Change

bps

Overnight Interbank 2.75 2.75 0

BDL 45-day CD 3.57 3.57 0

BDL 60-day CD 3.85 3.85 0

During the two weeks ending October 16, 2014, broad Money

M3 rose by LP 231B ($153.56M), to reach LP 175,148B

($116.18B). M3 growth rate reached 6.82% year-on-year and

4.52% since year start. In contrast, M1 declined by LP 336B

($223.07M) due to the decrease in money in circulation by LP

196B ($130.02M) and in demand deposits by LP 141B ($93.53M).

Total deposits (excluding demand deposits) grew by LP 567.77

($376.63M), given the expansion of term and saving deposits in

domestic currency by LP 187B, and of deposits denominated in

foreign currencies by $253M. Over the above mentioned period,

the broad money dollarization went up from 58.81% to 58.95%.

According to the Central Bank, the overnight interbank rate stood

at 2.75% at the end of August 2014.

In the TBs auction held on the 30th

of October 2014, the Ministry

of Finance raised LP 285.589B ($189.45M), through the issuance

of bills maturing in 1 year and 2-year and 3-year notes. The

highest demand was achieved on the 3Y notes that took a share

of 75.86%, while the 1Y bills and 2-year notes accounted for

5.23% and 18.91%, respectively. The 1Y bills yielded 5.08%,

while the average coupon rate for the 2Y notes and 3Y notes

stood at 5.84% and 6.50%, respectively. New subscriptions

exceeded maturing T-bills by LP 61.00B ($40.46M).

120

125

130

135

140

145

Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14


Eurobond Market

Eurobonds Index and Yield

06/11/2014 30/10/2014 Change Year to Date

BLOM Bond Index (BBI)* 108.142 108.123 0.02% 2.37%

Weighted Yield** 5.19% 5.20% -1 17

Weighted Spread*** 370 377 -7 -60

Eurobonds Lebanese Government

Maturity - Coupon 06/11/2014

Price*

30/10/2014

Price*

Weekly

%

Change

06/11/2014

Yield

30/10/2014

Yield

Weekly

Change bps

2015, Aug - 8.500% 100.351 100.395 -0.044% 3.99% 3.93% -6

2016, Jan - 8.500% 103.665 103.726 -0.059% 3.51% 3.53% 3

2016, May - 11.625% 105.658 105.744 -0.081% 3.65% 3.64% -1

2017, Mar - 9.000% 111.429 111.558 -0.116% 3.80% 3.80% -1

2018, Jun - 5.150% 110.802 110.766 0.033% 4.17% 4.22% 5

2020, Mar - 6.375% 101.419 101.31 0.108% 4.73% 4.76% 3

2021, Apr - 8.250% 104.738 104.536 0.193% 5.35% 5.39% 5

2022, Oct - 6.100% 114.636 114.591 0.039% 5.52% 5.53% 1

2023, Jan - 6.000% 101.858 101.855 0.003% 5.81% 5.81% 0

2024, Dec - 7.000% 100.832 100.655 0.176% 5.88% 5.91% 3

2026, Nov - 6.600% 106.215 106.202 0.012% 6.21% 6.21% 0

2027, Nov - 6.75% 102.197 102.139 0.057% 6.34% 6.35% 1

*Bloomberg Data

In contradiction with developments in other parts of the world, Lebanon’s Eurobonds showed improvement during the week, with

the BLOM Bond Index (BBI) increasing 0.07%, to settle at 108.22 points. The gauge posted a 2.44% year-to-date (y-t-d) increase.

The bouncing back of the Eurobonds market can be attributed to a weekly downtick in the 5Y and 10Y yields of 2 basis points (bps)

and 1 bp to reach a yield of 5.17% and 6.21%, respectively.

Early discussions between Russia and Ukraine for the trade of Russian natural gas and the clear victory of the Republican Party, an

event that generally strengthens the U.S stock market, in the U.S midterm elections led to emerging markets witnessing a

declining bond market, with the JP Morgan emerging countries’ bond index weekly performance demonstrating a weekly decline

of 0.88% to 678.52 bps.

In the U.S, further strengthening of the dollar against other leading currencies after a Republican victory in the Senate caused a

slide in treasuries. This sent the 5Y and 10Y U.S yields up by 9 bps and 7 bps to 1.67% and 2.39%, respectively. Correspondingly,

the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark respectively narrowed by 9 bps and 8 bps to

350 bps and 382 bps.

In the U.S, further strengthening of the dollar against other leading currencies after a Republican victory in the Senate caused a

slide in treasuries. This sent the 5Y and 10Y U.S yields up by 9 bps and 7 bps to 1.67% and 2.39%, respectively. Correspondingly,

the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark respectively narrowed by 9 bps and 8 bps to

350 bps and 382 bps.

5.00%

5.50%

6.00%

6.50%

Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14

Weighted Effective Yield of Eurobonds


ECONOMIC AND FINANCIAL NEWS

BDL’s Total Assets by October

(in $B)

Source: BDL

BLOM Lebanon PMI

Source: Markit, Blominvest Bank

BDL’s Total Assets Inched up by 0.91% to $86.21B

by October

According to the Central Bank’s (BDL) balance sheet, total

assets revealed a 0.91% monthly rise to reach $86.21B by end

of October, 2014.

The bank’s foreign assets edged up by 1.15% to $38.87B and

its securities portfolio widened by 2.22% to $13.59B. Likewise,

loans to the local financial sector increased by 1.62% to $3.98B

in October.

Gold reserves declined by 2.88% from September, to $10.81B,

noting that during this period the price of gold fell to $1,173.92

per ounce on the 31st of October.

On the liabilities side, financial sector deposits grew by 1.63%

month-on-month to $67.08B while public sector deposits

dropped by 1.06% to $6.78B by end of October.

PMI Records a Four-Month High in October

The private sector’s economy remained in the contraction area

in October, as revealed today by the private sector activity

indicator BLOM PMI which registered 48.8 points, however it

improved over last month’s figure of 47.6 points, noting that the

current rate of contraction is the lowest in four months.

Lebanese companies participating in the monthly PMI survey

reported slower demand as a result of the unstable security

situation in north of Lebanon. That being said, the rate of

deterioration in their output has rather eased since the last few

months. On the supply side, employment at the Lebanese

companies recorded another marginal rise and buying levels

grew, in what looks like an anticipation of a pick-up in demand,

according to Ms. Maya Mantach, Head of equities at

Blominvest Bank. Output prices also remained subdued to

stimulate sales and counter the growing competition.

2009 2010 2011 2012 2013 2014

51.77

60.77

71.63

77.38 78.85

86.21

May '13 Jul Sep Nov Jan'14 Mar May Jul Sep40

45

50

55

Increasing rate of contraction

Increasing rate of growth50 = no change on previous month

BLOM Lebanon PMI


Lebanon’s Score Card on the Gender Gap Index

2014

Rank Score

Gender Gap Index 135 0.592

ECONOMIC PARTICIPATION AND

OPPORTUNITY 133 0.432

Labor force participation 135 0.34

Wage equality for similar work 104 0.58

Estimated earned income 134 0.27

Legislators, senior officials and managers 118 0.09

Professional and technical workers 70 0.93

EDUCATIONAL ATTAINMENT 106 0.952

Literacy rate 103 0.92

Enrolment in primary education 106 0.952

Enrolment in secondary education 1 1

Enrolment in tertiary education 1 1

HEALTH AND SURVIVAL 62 0.975

Sex ratio at birth 1 0.94

Healthy life expectancy 76 1.04

POLITICAL EMPOWERMENT 141 0.010

Women in parliament 131 0.03

Women in ministerial positions 138 0.00

Years with female head of state (last 50) 64 0.00

Source: World Economic Forum

Lebanon Ranked 135 Out of 142 Countries on the

Gender Gap Index 2014

The World Economic Forum recently released “The Global

Gender Gap Report 2014”, which examines the gap between

men and women in four essential categories: Economic

Participation and Opportunity, Educational Attainment, Health

and Survival and Political Empowerment. Out of 142 countries

Lebanon ranked 135th on the Gender Gap Index, with a score of

0.592 (noting that the score measures the female-to-male ratio,

so a score of 0.00 implies inequality, while 1.00 signifies

equality).

In the Economic Participation and Opportunity category,

Lebanon took the 133 position with a 0.432 score, where

female labor force participation stood at 26% and legislators,

senior officials and managers female-to-male ratio of 0.09.

Lebanon occupied the 106 position in the Educational

Attainment category, with a score of 0.952. However, Lebanon

ranked the 1st, with a score of 1.00 on female enrollment in

secondary and tertiary education.

Lebanon performed the best on the Health and Survival

category, ranking 62 out if 142, with a score of 0.975.

Finally, Lebanon was the second-to-last on the Political

Empowerment sub-index, with a score of 0.010. This can be

attributed to the 3% female parliamentarians and no female

minister in the country.

Among the 13 Arab Countries included in the report, UAE was

the 1st with a rank of 115, followed by Qatar (116) and Tunisia

(123). In contrast, the three worst performers among the Arab

countries were Lebanon, Syria with a rank of 139, and Yemen

occupying the 142nd

position.


Total Imports and Exports by September

(in $B)

Source: Lebanese Customs

Lebanon Trade Deficit Narrows 2.50% y-o-y by

September 2014

Lebanon’s trade deficit for the first 9 months of 2014 narrowed

to $12.43B, down from $12.75B. Accordingly, trade deficit

contracted by 2.50% year-on-year (y-o-y) as exports increased

and imports decreased. Lebanon’s exports covered 21.19% of

the imports by September 2014, up from 19.86% for the same

period in 2013.

Total imports dropped by 0.85% y-o-y to $15.77B. The three

main goods imported to Lebanon were mineral products, which

increased by 6.48% y-o-y (25% share of total imports),

machinery and electrical instruments, which dropped by

16.53% y-o-y (11% share of total imports) partly due to the

weak construction activity and to the mild intensity of the past

winter, and products of the chemical or allied industries, which

rose 3.27% y-o-y (10% share of total imports). The three major

countries that Lebanon imports products from were China, Italy

and France, with respective weights of 12%, 8% and 7%.

Concomitantly, total exports widened by 5.79%, yearly, to

$3.34B. This was mainly due to the 40.86% y-o-y surge in

machinery and electrical instruments exports (17% share of

total exports) and the 25.28% growth in prepared foodstuff,

beverages and tobacco exports (12% share of total exports).

However, pearls, precious stones and metals (13% share of

total exports) plunged by 35.45%. The three major countries

that Lebanon exports products to were Saudi Arabia, South

Africa, and the United Arab Emirates, with weights of 11%,

10% and 9%, respectively.

Lebanon’s trade deficit, for the month of September alone,

narrowed by 0.61% y-o-y to $1.27B, triggered by the 39.73%

surge in exports. Imports also inched up by 6.82% in

September.

4.54 4.87 3.30

3.16 3.34

-13.19 -14.61 -15.23

-15.91 -15.77

Exports Imports


Breakdown of Kafalat Guarantees by Sector in

October

Source: Kafalat

Value of Kafalat Guarantees Dipped to $93.70M by

October

Kafalat issued 732 guarantees in the first 10 months of 2014,

with a total value of 93.70M, compared to 731 guarantees

worth $99M for the same period in 2013. Correspondingly, the

average value per loan edged down from $135,429 by October

2013 to $128,009 this year.

The agriculture sector was the main sector to benefit from

Kafalat guarantees with a share of 48.09%, followed by industry

and tourism, with respective shares of 35.11% and 11.20% for

the first 10 months of 2014. The guarantees of the agriculture

and industry sectors increased by 45 and 6 to 352 and 257,

respectively. Meanwhile guarantees in the tourism sector

actually declined by 40 to reach 82, caused by the poor political

and economic stability.

As for the regional breakdown, Mount Lebanon continued to

grasp the majority of guarantees, with a 42.76% share,

followed by respective shares of 19.81% and 11.89% for the

Bekaa and South regions. The guarantees issued in Mount

Lebanon jumped up to 314 guarantees, from a previous 295,

while the Bekaa and the South witnessed declines from 162

and 93 guarantees to 145 and 87 guarantees, respectively, by

October 2014.

In October alone, Kafalat issued 62 guarantees, representing a

27.91% drop from 86 guarantees in the same month last year.

The value of loans guaranteed by Kafalat totaled $6.99M in

October 2014, down from $11.57M in October 2013.

Accordingly, the average value per loan stood at $112,724

down from $134,486 per loan in October 2013.

2011 2012 2013 2014

40

31

20

30

31

29

25

25

1

3

20

12

13

2

3

4

3 1

Agriculture Industry

Advanced Technology Tourism

Crafts


CORPORATE DEVELOPMENT

Kafalat Guarantees by October

Source: Kafalat

Lebanese Parliament Approves $30M Loan to SMEs

The Lebanese Parliament has approved the $30M loan provided

by the International Bank for Reconstruction and Development

(IBRD).

The loan was initially approved on October 2nd, 2014, but

Parliament had to reapprove it after 1 month due to the vacancy

in the presidential office.

The purpose of the loan agreement between IBRD and the

Lebanese government is to support the foundation of

numerous SMEs. The loan amount is to be invested under the

supervision of Kafalat, which will aim to invest in innovative

startups and SMEs.

Under the conditions of this loan, no interest rates are to be

paid by the SMEs. Applications submitted to Kafalat will be

studied and analyzed before being sent to BDL. The next step

is for the Ministry of Finance to transfer the necessary funds to

Kafalat to perform its investments in the designated SMEs.

The loan program is composed of two main parts. In the first

step, donations are given to SMEs in order to support

preparation and development of innovative ideas, strategies,

studies, and work plans, in addition to financing approved

investments in the qualified institutions. The second part of the

program is designed to provide the SMEs the necessary

support in establishing project management units and facilitate

the administration and execution of projects.

2011 2012 2013 2014

95

79

61

58


Odea Financial Highlights

(In $B)

Sep-14 Dec-13 %change

Customer's deposits 7.84 5.44 44.03%

Net Loans & advances to

customers

6.78 4.99 35.80%

Total assets 9.68 7.09 36.52%

Total Shareholders’

Equity ($M)

584.78 585.65 -0.15%

Net Loss ($M) 4.84 48.07* -89.93%

(*): September 2013 Value

Source: BSE News, Audi Bank’s Website

ODEABANK Posts a Loss of $4.84M up to

September

Large operating expenses continued to weigh on the income of

Bank Audi’s Turkish subsidiary – ODEABANK. The subsidiary

recorded a net loss of $4.84M in the first 3 quarters of 2014

compared to $48.07M in the same period last year.

As for total assets, they rose from $5.44B in December 2013 to

$7.84B by September 2014 with loans and receivables growing

by 35.80% to $6.78B.

On the liabilities side, customers’ deposits advanced from

$5.44B in December 2013 to $7.84B.

Total shareholders’ equity remained almost the same, ticking

down by 0.15% to $584.78B.


FOCUS IN BRIEF

The Information Technology Market in Lebanon: Strengths, Weaknesses and Prospects

Market Figures

In millions of USD 2010 2011 2012 2013e 2014f 2015f 2016f 2017f

IT Market Value 258 318 350 368 395 433 477 529

o/w Hardware 164 200 219 228 243 264 289 319

PC 133 163 179 189 201 219 239 264

Servers 15 18 20 21 22 24 26 29

o/w Software 19 25 30 32 36 40 46 51

o/w Services 75 93 102 108 116 129 143 159

Source: Business Monitor International, Information Technology Report 2014

Source: IPSOS

“IT-literate, linguistically-skilled and cosmopolitan”. This is how Business Monitor International (BMI) described the

Lebanese workforce in its latest “Information Technology Report”. This same workforce and Lebanon’s strategic

position as a regional hub are the main pillars of strength for the Lebanese IT market. Sharing BMI’s views on the

market’s drivers, challenges and future prospects offers a solid road map for nurturing its strengths.

Business Monitor International (BMI) maintained a bullish view on the Lebanese IT market despite the ongoing civil

war in neighboring Syria. The size of the IT market is forecast to reach $394.96M in 2014 a 7.4% growth compared to

Internet

Penetration

=

56% in 2012

Internet

Penetration

=

61% in 2013

Internet

Population

=

1.7 million in

2012

Internet

Population

=

1.9 million in

2013


a slower 5.1% recorded in 2013. BMI forecasts a compounded annual growth rate (CAGR) of 9.5% in the period 2014-

2017, inflating the size of the market to $529.35M in 2017.

Strong growth is also expected in the various segments of the IT market. Computer hardware sales, the biggest

segment with a share of 61%, are forecast to reach $242.92M in 2014 and to record a CAGR of 8.8% over the period

2014-2017. Sales of IT services, with a share of 29% of the total, will total $395.02M in 2014 and will register a CAGR

of 10.2% up to 2017. As for software sales, which represent only 9% of the total, they will amount to $35.75M and

are expected to record the highest CAGR of 12.4%.

Market Drivers

The expected growth in the overall IT market is owed to several factors according to BMI. Household PC penetration

is relatively high but there remains room for sales to first-time buyers and for sales to multiple devices households.

The strong sales opportunity also lies in personal devices which should translate into strong growth for tablets and

hybrids which combine the best feature of a laptop and a tablet and that are offered at attractive prices.

BMI has also based its strong growth expectations on the fact that modernization initiatives are undertaken as private

and public sectors spend more on software solutions. Overall, BMI identifies opportunities for IT vendors in the

telecoms, banking, utilities, real estate and government sectors which are likely to spend on modern equipment and

IT solutions. Government and enterprises will also steer their spending towards e-commerce and e-government

service delivery.

According to BMI, the development of e-commerce and e-government is driven by investments in the telecom

infrastructure. BMI acknowledged that the poor quality and coverage of the Lebanese telecoms infrastructure and the

elevated service prices in the past have weighed negatively on the IT market. However, BMI believed that the launch

of 4G services in 2013 and the higher international bandwidth1 that will allow lower costs of services are promising

signs of improvement. The latest figure provided by the Ministry of Telecoms puts Lebanon’s international bandwidth

capacity at 900 megabits.

Although these developments do not render the market fully liberalized, they can revive some interesting prospects

for Lebanon. First, device demand will be boosted in the retail market, networks will be rolled out over wider areas

and costs will be lower for the end-user. This progress can also make “cloud computing” services more affordable

and reliable. Yahoo! Mail, Gmail or Hotmail are perfect examples of “cloud computing” according to which a user

doesn’t need to install an e-mail program on their computer but can simply access the software through the services’

computer cloud. With these modernization efforts, Lebanon can even speed up the process of becoming an

outsourcing destination.

According to BMI, vendors should tap into the informatization of Small and Medium Enterprises (SMEs) which

account for the majority of Lebanese businesses. The modernization is inevitable for Lebanese SMEs either if they are

looking to preserve their market share or if they are contemplating a regional expansion. BMI notes that most of the

Lebanese SMEs are still in the “developmental phase” of IT infrastructure. However, they are the perfect target for

“cloud computing” service providers who can adapt the cost of their services to an SME’s small budget.

Benefits of Cloud Computing

1 International Bandwidth refers to the capacity of international connections between countries for transmitting internet traffic


Market Challenges

The IT market is not at bay from the insecurity reigning over neighboring Syria and more specifically from cyber

threats which undermine confidence in the sector. Cybersecurity should be at the top of the agenda, be it for public

institutions or private firms.

According to the Telecommunications Regulatory Authority (TRA), cybersecurity in Lebanon should be inscribed in the

framework of a national policy. Organizational structures, legal and regulatory guidelines need to be enforced in order

to reconcile accessibility of information and protection of personal data.

In terms of enforcing regulations, figures indicate that Lebanon still has some short-comings. According to the BSA

Global Software Survey entitled “The Compliance Gap”, from 2007 till 2013 the share of unlicensed software

installation rates hovered between 73% and 71%. This share drops to 57% in Jordan, 50% for Saudi Arabia, 49% for

Qatar, 36% for UAE and rises to 89% for Libya, 87% for Yemen and 86% for Iraq.

The Lebanese IT Industry Benchmarked Against MENA Peers

Rewards Risks

Country Industry Rewards Country Rewards Industry

Risks

Country

Risks IT Rating

Qatar 55.8 100 55 66.3 68.4

Israel 55 95 65 67 68.2

UAE 52.5 90 60 68.3 65.4

Kuwait 42.5 100 55 66.7 60.6

Saudi Arabia 45.8 75 55 67.7 58

South Africa 63.3 50 52.5 45 57.6

Oman 31.7 80 57.5 60.5 51.2

Bahrain 28.3 80 57.5 61.8 50.5

Achieves Economies of Scale

Lowers Spending on IT Infrastructure

Increases Returns from IT investments

Improves Accesibility for employers and employees

Spares the need to buy expensive software licences

Cloud Computing


Nigeria 63.3 30 45 61.8 49.6

Lebanon 46.7 65 20 44.7 47.2

Ghana 51.7 35 40 42.2 46

Egypt 53.3 25 45 50.8 43.6

Kenya 53.3 10 55 43.4 39.4

Average 49.5 64.2 49.6 33.6 54.3

Source: Business Monitor International, Information Technology Report 2014

According to BMI, it’s Lebanon’s weak regulatory environment that earned it the 10th

bottom spot amongst 13 other

MENA countries on the Industry Risks Reward Rating (IRR) with a below average score of 44.7 over 100. BMI also

highlights that “the slow pace of reforms in the telecoms sector is preventing the deployment of affordable Next-

Generation-Networks (NGN)” and that the volatile security situation continues to worry investors.

In our world today, governments, private companies, individuals have no choice but to live by “tech-savvy “standards.

As for Lebanese, which have never shied away from any trend, they need the right regulatory framework and the

stabilization of the security situation to tap into the IT market’s growth potential.


Your Investment Reference

S A L

Research Department:

Lana Saadeh [email protected]

Riwa Daou [email protected]

Mirna Chami [email protected]

Marwan Mikhael [email protected]

mailto:[email protected]

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