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THE

LEBANON BRIEF

ISSUE 818

Week of 22 – 27 April, 2013

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 Table Of Contents of 14

ISSUE 818; Week of 22 -27 April 2013

S A L

TABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTS

FINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETS 3333

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Market 5

Eurobond Market 6

ECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWS 7777

Gross Public Debt Recorded $58.08B by February 7

Lebanon Ranks 94th on the NRI Index 7

Construction Area Reached 2.82M sqm Up to March 8

Consumer Confidence Index (CCI) Stabilized In March at 66 Points 8

CORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTS 9999

BLOM Bank’s Net Profits Increase by 3.6% Y-o-Y to $87.12M in Q1 9

FOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEF 10101010

Lebanon’s External Balance – 2012 Overview 10

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.

The Lebanon Brief of 14


S A L

FINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETS

Equity Market

Stock Market

26/4/2013 19/4/2013 % Change

BLOM Stock Index* 1,227.07 1,232.73 -0.46%

Average Traded Volume 115,319 281,461 -59.03%

Average Traded Value 938,797 1,515,381 -38.05% *22 January 1996 = 1000

The rise of the stock market on Friday did not

prevent the BLOM Stock Index (BSI) from wrapping

up its weekly performance in the red with the

political stalemate continuing to take its toll on the

performance of the market. As a result, the BSI

declined 0.46% to stand at 1,227.07 points. The

average daily volume of trade contracted to 115,319

shares valued $938.797 compared to 281,461

shares worth $1,515,381 last week. As for market

capitalization, it narrowed by $44.19M to $9.57B.

The Lebanese main equity index underperformed

the Morgan Stanley Emerging Index (MSCI) which

increased 3.01% from last week’s close of 997.33

points to settle at 1027.3 points. The S&P AFE40 and

the S&P Pan Arab Composite LargeMidCap gained

this week 1.51% and 1.09% to reach 57.12 points

and 114.36 points, respectively.

Regionally, most of the Arab markets ended the

week in the green with Dubai and Abu Dhabi Stock

Exchanges posting improvement by 6.53% and

6.44%, respectively. The worst performer was

Jordan’s stock exchange losing 1.33%, followed by

Tunisia and Egypt stock exchanges dropping 0.91%

and 0.82%, respectively.

The real estate sector prevailed over this week’s

trades with a stake of 54% of total traded value.

Solidere shares class “A” lost a weekly 1.64% to

close at $13.17, while the class B maintained last

week’s closing price, standing at $13.20. On London

stock exchange, Solidere GDR gained 0.15% to end

the week at $13.02.

The banking stocks ended the week with Audi

Listed shares gaining 1.36% to close at $6.69. The

Global Depositary Receipts (GDR) of BLOM and

Audi as well as Byblos Listed shares lost 5.00%,

1.57% and 0.61% to stand at $8.55, $6.89 and

$1.64, respectively. Worth noting that BLOM GDRs

loss resulted as the 24th of April happens to be the

ex-dividend date. On the London Stock Exchange,

BLOM GDR shares lost 3.33% to trade at $8.70 also

in reaction to the distribution of dividends. Audi

shares fell 4.86% to close at $6.66.

Banking Sector

Mkt 26/4/2013 19/4/2013 % Change

BLOM (GDR) BSE $8.55 $9.00 -5.00%

BLOM Listed BSE $8.75 $8.75 0.00%

BLOM (GDR) LSE $8.70 $9.00 -3.33%

Audi (GDR) BSE $6.89 $7.00 -1.57%

Audi Listed BSE $6.69 $6.60 1.36%

Audi (GDR) LSE $6.66 $7.00 -4.86%

Byblos (C) BSE $1.64 $1.65 -0.61%

Byblos (GDR) LSE $70.00 $70.00 0.00%

Bank of Beirut (C) BSE $19.00 $19.00 0.00%

BLC (C) BSE $1.95 $1.95 0.00%

Fransabank (B) OTC $28.00 $28.00 0.00%

BEMO (C) BSE $1.84 $1.84 0.00%

Mkt 26/4/2013 19/4/2013 % Change

Banks’ Preferred

Shares Index *

105.14 105.37 -0.22%

BEMO Preferred 2006 BSE $100.00 $100.00 0.00%

Audi Pref. E BSE $101.00 $100.90 0.10%

Audi Pref. F BSE $100.00 $100.00 0.00%

Byblos Preferred 08 BSE $102.50 $102.50 0.00%

Byblos Preferred 09 BSE $102.90 $102.90 0.00%

Bank of Beirut Pref. E BSE $25.45 $26.85 -5.21%

Bank of Beirut Pref. I BSE $25.40 $25.40 0.00%

Bank of Beirut Pref. H BSE $25.40 $25.40 0.00%

BLOM Preferred 2011 BSE $10.20 $10.20 0.00%

* 25 August 2006 = 100

1050

1100

1150

1200

1250

Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

BLOM Stock Index HI: 1,227.46

LO: 1104.42



S A L

Real Estate

Mkt 26/4/2013 19/4/2013 % Change

Solidere (A) BSE $13.17 $13.39 -1.64%

Solidere (B) BSE $13.20 $13.20 0.00%

Solidere (GDR) LSE $13.02 $13.00 0.15%

The Banks’ Preferred Shares Index inched 0.22%

down to stand at 105.14 points following a 0.10%

increase in Audi Preferred shares class “E” that

closed at $101.00. Meanwhile, Bank of Beirut

Preferred shares class “E” fell 5.21% to reach

$25.45.

Manufacturing Sector

Mkt 26/4/2013 19/4/2013 % Change

HOLCIM Liban BSE $15.50 $15.02 3.20%

Ciments Blancs (B) BSE $3.26 $3.26 0.00%

Ciments Blancs (N) BSE $3.00 $3.00 0.00%

Within the manufacturing sector, Holcim stocks

rose by 3.20% to end the week at $15.50.

Funds

Mkt 26/4/2013 19/4/2013 % Change

Beirut Preferred Fund BSE 102.00 $101.50 0.49%

BLOM Cedars Balanced

Fund Tranche “A” ----- $6,984.91 $7,003.96 -0.27%


Fund Tranche “B” ----- $5,089.03 $5,304.73 -4.07%


Fund Tranche “C” ----- $5,302.81 $5,319.25 -0.31%

BLOM Bond Fund ----- $9,766.18 $9,766.18 0.00%

Finally, investors are expected to react to the

upcoming political developments mainly the

cabinet formation and the electoral law.

Retail Sector

Mkt 26/4/2013 19/4/2013 % Change

RYMCO BSE $3.10 $3.10 0.00%

ABC (New) OTC $33.00 $33.00 0.00%

Tourism Sector

Mkt 26/4/2013 19/4/2013 % Change

Casino Du Liban OTC $515.00 $515.00 0.00%

SGHL OTC $7.00 $7.00 0.00%



S A L

Foreign Exchange Market

Lebanese Forex Market

26/4/2013 19/4/2013 %Change

Dollar / LP 1,511.00 1,512.50 -0.10%

Euro / LP 1,962.46 1,973.62 -0.57%

Swiss Franc / LP 1,596.76 1,621.67 -1.54%

Yen / LP 15.28 15.20 0.53%

Sterling / LP 2,326.83 2,316.12 0.46%

NEER Index** 104.66 104.57 0.09%

*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.

Lower Demand on the US dollar was witnessed over the past

week as the range at which banks exchange the currency went

from $/LP 1,510.5 - $/LP 1,514.5 with a mid-price of

$/LP1,512.5 to $/LP 1,509 - $/LP 1,513 with a mid-price of $/LP

1,511. Foreign assets (excluding gold) at the Central Bank

stood at $35.33 billion as of end March 2013, 1.47% less than

end of February’s $35.86 B. Meanwhile, the dollarization rate of

private sector deposits stood at 64.6% in February 2013

compared to 65.6% in February 2012.

Nominal Effective Exchange Rate (NEER)

The contrasting unemployment results in Europe and the US

led the Euro’s weekly 0.57% fall against the dollar. In the US,

unemployment fell from 8.2% in March 2012 to 7.6% in March

2013 and Bloomberg’s Consumer Comfort Index registered its

highest level in five years while paradoxically unemployment in

Spain reached its 37-years peak. Over the period October-

March 2012/2013, tax receipts in the US rose by 12.4% totaling

$1.2 trillion however higher wealth from rising stock prices and

home values will act as buffers against the higher tax burden.

Growth in the US is most likely to pick up as the Standard and

Poor’s 500 (S&P) Index gained more than 7% in the first quarter

of 2013. By Friday April 26th, 2013, 12:30 pm Beirut time, the

euro closed at €/$ 1.30 down by 0.57% from last week. As for

the dollar-pegged LP, it appreciated to €/LP 1,962.46 from

€/LP1,973.62 recorded on Friday April 19th. The Nominal

effective exchange rate (NEER) rose 0.09% over the cited

period to 104.66 points, while its year-to-date performance

stood at 0.82%.

Money & Treasury Bills Market

Money Market Rates

Treasury Yields

26/4/2013 19/4/2013 Change bps

3-M TB yield 4.39% 4.39% 0

6-M TB yield 4.87% 4.87% 0

12-M TB yield 5.08% 5.08% 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

26/4/2013 19/4/2013 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 week ending April 11th, broad Money M3, expanded

by LP655B ($435 M), to reach LP 160,628B ($106.55 B).M3’s

growth rate reached 7.36% on a year-on-year basis and 1.71%

from end of December 2012. As for M1, It regressed by LP57B

($38M) since currency in circulation decreased by LP86B

($57.05M) and demand deposits increased by LP29B

($19.24M).Total deposits (excluding demand deposits) registered

a LPB711.61B ($472.05M) expansion , justifiable by the LP86B

increase of term and saving deposits in LP and the $415M rise of

deposits denominated in foreign currency. During the period 4-11

April, broad money dollarization rate increased by 15 basis points

to attain 58.72% compared to its previous level of 58.57%.

According to The Central Bank, the overnight interbank rate stood

at 2.75% by the end of February 2013.

In the TBs auction held on April 18th, the Ministry of Finance

raised LP512.44B ($339.93M) through the issuance of

Treasury Bills. The highest demand was witnessed on the 3-

year bill capturing 88% of total subscriptions, while the 1Y

and 2Y papers accounted for 9% and 3%, respectively.

During the auction, the average discount rate for the 1Y Bill

stood at 5.08% while the average coupon rates for the 2Y and

3Y notes registered 5.84% and 6.50%. New subscriptions

exceeded maturing T-bills by LP226.78B ($150.44M).

93

95

97

99

101

103

105

107

Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13



S A L

Eurobond Market

Eurobonds Index and Yield 25/4/2013 18/4/2013 Change Year to Date

BLOM Bond Index (BBI)* 107.710 107.830 -0.11% -1.24%

Weighted Yield** 5.39% 5.38% 1 37

Weighted Spread*** 464 463 1 34

*Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market

** The change is in basis points ***Against US Treasuries (in basis points)

Lebanese Government Eurobonds

Maturity - Coupon

25/4/2013

Price*

18/4/2013

Price*

Weekly

Change%

25/4/2013

Yield

18/4/2013

Yield

Weekly

Change bps

2014, Apr - 7.375% 104.11 104.18 -0.07% 3.04% 3.05% -1

2014, May - 9.000% 106.00 106.00 0.00% 2.98% 3.08% -10

2015, Jan - 5.875% 102.96 102.95 0.01% 4.07% 4.10% -3

2015, Aug - 8.500% 109.38 109.33 0.05% 4.14% 4.20% -6

2016, Jan - 8.500% 109.46 109.42 0.03% 4.76% 4.80% -4

2016, May - 11.625% 119.41 119.78 -0.31% 4.70% 4.62% 8

2017, Mar - 9.000% 113.77 114.02 -0.22% 5.06% 5.02% 5

2018, Nov - 5.150% 99.12 99.19 -0.07% 5.33% 5.32% 2

2020, Mar - 6.375% 102.94 102.93 0.01% 5.85% 5.85% 0

2021, Apr - 8.250% 113.60 113.79 -0.17% 6.07% 6.05% 2

2022, Oct - 6.100% 99.82 100.01 -0.19% 6.13% 6.10% 3

2023, Jan - 6.00% 98.55 98.72 -0.17% 6.20% 6.18% 2

2024, Dec - 7.000% 105.28 105.54 -0.24% 6.35% 6.32% 3

2026, Nov - 6.600% 100.21 100.34 -0.14% 6.58% 6.56% 2

2027, Nov - 6.75% 100.17 100.30 -0.13% 6.73% 6.72% 1

*Bloomberg Data

The Lebanese Eurobonds market scaled back this week with the BLOM Bond Index (BBI), which tracks Eurodollar

government bond performance, edging down by a weekly 0.11% to close at 107.71 points. Demand on the medium and

long term Lebanese Eurobonds slightly decreased during the week as their yields added 1 basis point (bps) and 2 bps to

stand at 5.23% and 6.20%, respectively. On a comparative scale, the BBI lagged behind the JP Morgan’s emerging markets

bond index that advanced by 0.25% to 671.76 points revealing a higher demand in the Emerging markets this week.

US job claims retreated with the jobless rate standing at 7.6% in March compared to 8.2% registered during the same

period last year, according to a recent report published earlier this week. The mentioned improvement of the labor market

conditions reduced the demand for safe-haven assets that was reflected on the U.S Treasury yields performance.

Accordingly, the 10Y US benchmark Treasury bonds yields rose by 2 bps to stand at 1.74%, while the 5Y notes yields

remained steady at 0.71%. As for the spread between the 5Y US bonds and its comparable Lebanese Eurobond yields, it

widened by 1 bps to reach 452 bps. The spread of long term bonds maturing in 2023 kept last week’s range at 446 bps.

Moreover, to swap the default risk of holding Lebanese government debt for 5 years, investors are paying a less expensive

premium of 400-440 bps, compared to last week’s 410-450 bps quote. Similarly in the Arab economies, Saudi Arabia and

Dubai’s 5Y CDS went down by an average of 3 bps and 5 bps this week to set at 59-64 bps and 200-210 bps, respectively.

Moving to regional emerging markets, risk premiums also narrowed for both Turkey and Brazil to 120-123 bps and 114-116,

respectively.

4.30%

4.80%

5.30%

5.80%

Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13

Weighted Effective Yield of Eurobonds



S A L

EEEECONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS

Local Currency Debt By Type Of Holder

Source: ABL

Lebanon’s Rank Compared with the Top MENA

Performer

Qatar NRI and Sub-indices

NRI Environment Readiness Usage

23 14 44 16

Lebanon NRI and Sub-indices

NRI Environment Readiness Usage

94 86 86 98 Source: World Economic Forum

Gross Public Debt Recorded $58.08B by February

The Lebanese gross public debt stood at $58.08B by the end of

February, rising by 7.6% y-o-y and by 0.65% on a YTD basis,

according to the Association of Lebanese Banks (ABL)

publication. Total debt represented 137.73% of nominal GDP at

end February. The local currency share of total debt slightly

grew from 57.7% in December 2012 to 57.8% in February.

Foreign currency (FC) debt, which accounted for the remaining

42.2% of total gross debt, added 0.5% since year start to stand

at $24.51B and was outweighed by a 0.8% y-t-d growth of the

Debt in LBP to $33.56B. The Net Public Debt which excludes

the public sector deposits at the Commercial banks and BdL

stood at $49.95B as of the end of February, hence increasing by

6.8% yoy and by 1.7% from end of December 2012. The

Lebanese banks held 52.2% of the local currency debt, or

$17.52B, while BdL detained 31.30%, or $10.51B.

Lebanon Ranks 94th on the NRI Index

According to the Global Information Technology Report released

by the World Economic Forum this month, Lebanon ranked 94th

out of 144 countries on the Network Readiness Index (NRI) thus

being outpaced by its MENA peers: Qatar (23), Jordan (47) and

Kuwait (62). Finland topped the chart after ranking 3rd in 2012.

This index has never been more relevant to the economic

environment as it is today since Information and Communication

Technology (ICT) act as a key driver of growth, competitiveness

and employment. The reason behind Lebanon’s poor score is

revealed when dwelling into the index’s sub-indices. Lebanon

ranked 86th on the Environment Index that includes the political

and regulatory front as well as the business and innovation

context on which Lebanon ranked 133 and 35, respectively.

Lebanon’s readiness towards ICT’s in terms of infrastructure,

affordability and skills lags behind at the 86th rank which makes

it logical for the country to rank 98th when it comes to ICT

usage by Individuals, government and businesses. According to

a weighted average over 2011-2012, intellectual property

protection in Lebanon is one of the poorest in the world

positioning the country at the 124th rank. However, the Ministry

of Economy and Trade began tackling this issue by making

online registration of trade and industrial trademarks available as

of March, a move saluted by the International Institute of

Intellectual Property (IIPI) that noted that respect of intellectual

property rights can inject up to $1B in the economy and add

50,000 jobs. Despite Lebanon’s 10th position on the quality of

the educational system in meeting the needs of a competitive

economy (2011-2012), Lebanese firms’ technology absorption

and R&D efforts still rank at the 70th and 114th position along

with the government’s procurement decisions in fostering

innovation being placed at the 141st rank

16.5 17.5

11.3 10.5

5.5 5.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2012 2013

Commercial Banks Bdl Non-Banking System

End of February (In $B)



S A L

Number of Construction Permits

Source: Order of Engineers Beirut & North

CCI During The First Quarters Of 2012 And 2013

Source: ARA Marketing Research and Consultancy

Construction Area Reached 2.82M sqm Up to March

According to the latest data released by the Order of Engineers

in Beirut and the North, the retreat in the construction activity in

Lebanon continued in March, indicating an expected decrease

in demand for the real estate sector amid political instability and

economic slowdown. The declining trend in the number of

permits that started in 2011 was smoother this quarter

compared to the 11% decrease in Q1 2012. This fall reflects last

year’s depleted investment sentiment amid a domestic political

standstill and the rise of regional turmoil; noting that permits are

usually issued at least six months after applications are filed.

Accordingly, the total construction area was down by a 21.8% y-

o-y to 2.82M sqm, from last year’s 3.61M sqm. In March 2013

alone, construction permits fell by almost 9% annually to 1,244

whereas total construction area authorized by permits

contracted 29% y-o-y to 1M sqm. Regarding the regional

distribution, Mount Lebanon captured 43% of the permits

issued in 2013, followed by the South of Lebanon and the North

with respective shares of 16% and 14%. Nabatiyeh region and

Bekaa took around 13% and 10% of total permits respectively,

while the capital Beirut took up only 5% of total permits. Worth

noting that the average area per transaction has decreased by

15.7% to 754.77sqm/permit from the first 3 months of 2012,

showing that investors are aiming for smaller plots of land for

their new projects.

Consumer Confidence Index (CCI) Stabilized In

March at 66 Points

According to ARA Marketing Research and Consultancy, March’s

Consumer Confidence Index (CCI) registered 66 points up by one

point from the previous month. One may be led to believe that

the CCI would plummet when coinciding with the Prime

Minister’s resignation, however consumers appeared somewhat

optimistic. In detail, improvement occurred in the sub-indices

relevant to the Expected Personal Income as well as the Current

and Expected Economic Situation. In fact, the Expected Personal

Income Index registered 65 points following an 8 point jump. As

for the Current Economic Situation Index, it rose by 45 points to

settle at 115 points while the Expected Economic Situation Index

increased by 6 points to 49 points. However, the CCI was

hindered by the staggering 22 points drop in the Current Security

Situation Index that recorded 50 points, the lowest level since its

creation in 2006. The cited Index fell by 129 points y-o-y and 97

points y-t-d, due to domestic strains and imported tensions from

Syria. Mounting concerns over the tax hike needed to finance the

pay-scale as well as the ongoing delays and reforms drove The

Current Personal Income Index down to 65 points, one of its

lowest levels.

2,501

2,853

3,662

4,522

4,024

3,736

2008 2009 2010 2011 2012 2013

In Q1

92 92

86

79

65 66

January February March January February March

2012 2013



S A L

CORPORATE CORPORATE CORPORATE CORPORATE DEVELOPMENTSDEVELOPMENTSDEVELOPMENTSDEVELOPMENTS

BLOM Financial Highlights by Q1

(In $M) Mar-13* Mar-12 % change

Customer's deposits 21,668

20,501 5.7%

Net Loans & advances to customers

6,051

5,656 7.0%

Total assets 25,112

23,774 5.6%

Total Shareholders’ Equity

2,244

2,056 9.2%

Net Profit 87.12

84.12 3.6%

*Unaudited

Source: Company Data

BLOM Bank’s Net Profits Increase by 3.6% Y-o-Y to

$87.12M in Q1

BLOM Bank’s net profits reached $87.12M during the first

quarter of 2013, representing a 3.6% increase from the same

period last year. In details, net operating income grew 3.0% y-

o-y to $183.58M combined to the 1.5% y-o-y increase in net

interest income to $129.7M according to BLOM’s unaudited

financials that were recently released. Earnings per share rose

by an annualized 0.7% to $0.39. The Bank’s balance sheet also

showed that by end March 2013 total assets reached $25.11B,

up by 5.6% from March 2012. Loans to customers advanced

by 7.0% y-o-y to $6.05B. On the liabilities side, customers’

deposits were 5.7% higher at $21.67B. BLOM’s total

shareholders’ equity also stood at $2.24B by March 31 this

year, rising 9.2% from the same period last year. Worth noting

that among Lebanese banks, BLOM recorded the highest

return on average common equity (ROE common) of 16.3%,

and the lowest cost-to-income ratio at 38.3%. In addition, the

bank achieved a high solvency ratio of 14% compared to the

required level of 8% according to Basel III. Moreover, BLOM

benefits of a high ratio of 66.5% in terms of primary liquidity to

customers deposits.



S A L

FFFFOCUS IN BRIEFOCUS IN BRIEFOCUS IN BRIEFOCUS IN BRIEF

Lebanon’s External Balance – 2012 Overview

Trade Deficit Levels in $M & Deficit Ratio to GDP

Source: Lebanese Customs, Blominvest Research department

Evolution of Lebanese Imports & Exports, in $M

Lebanon’s new high trade deficit of $16.8 billion in 2012 says little about the actual evolution of its international trade

activity during that stressful year. Taken alone, and for a country which imports about half of its GDP, the increasing

systematic deficit would conceal much of the underlying dynamics of its imports and exports’ trends. In fact, Lebanon’s

trade deficit recorded a much slower expansion of 5.68% during 2012 compared to higher rates of 15.91% and 7.41% in

2011 and 2010, as the year’s imports were hindered by the tempering local consumption, opposite to accelerating exports

on the back of emergent demand from war-troubled Syria.

The contraction of consumption was especially pronounced during the second half of 2012, when the lagged impact of the

nearly 2-year old crisis in Syria eventually reached the Lebanese average consumer accounts. Imports slowly grew by 5.68%

to $21.28 billion, compared to sharper rises of 12.21% and 10.6% in 2011 and 2010, according to official figures. However,

2012 imports are suspected to be inflated by a misallocation of oil imports worth $800 million, made by EdL during 2011 but

incorporated in 2012 February’s totals. Accordingly, Blominvest’s reallocation of the estimated amount into the last quarter

of 2011 led to an actual decline of 2.28% in imports and a subsequent narrowing of Lebanon’s trade deficit for 2012 by

4.2% to $16 billion. The revised quarterly performance for imports particularly revealed severe yoy drops in Q3 and Q4.

On the exports level, the attractive rise of 5.13% compared to the mere 0.28% during 2011, becomes less impressive when

looking at the exports' individual growths and quantities, or compared to the 22% rise recorded in 2010, the pre-crisis

period. In fact, the 2012 increase appears to be almost solely attributed to the overwhelming positive performance of the

precious metals’ industry, as well as to exports of first-necessity products and oil derivatives to ailing Syria, which together,

compensated for the fallback of major industrial exports. Oil exports to Syria contributed to 44.6% of 2012 exports’

increase, while the precious metals’ contribution exceeded 100% to offset the drawback caused by the fall in industrial

exports. The latter suffered from a competitiveness loss stemming from rising costs pressures and troubled exports routes.

A closer look at the trading activity of Lebanon’s largest accounts offers additional insights. The case for oil and its

derivatives reflect the hampered local individual and institutional demand for energy products, while noting their heightened

exports during the year1. With oil imports representing almost 14.3% of GDP, Lebanon’s most expensive purchases were

the first in line to show a 3.48% drop to $5.23 billion during 2012 after our revision, although they recorded a 30.52% surge

based on the official figures. However, the soaring official cost of oil imports fails to hold when considering that imported

1 Probably there is a portion that is being re-exported to Syria, however if this is the case, it should not appear neither in imports nor in

exports but rather in the separate account of re-exports. One possible explanation could be that re-exports to Syria are being made from the readily available quantities in Lebanon.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2006 2007 2008 2009 2010 2011

Lebanon's Trade deficit Deficit to GDP ratio

0

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009 2010 2011 2012

Imports Exports



S A L

quantities rose by 8% only during the year while the average oil prices in 2012 remained near their 2011 averages2. In the

meantime, official exports of mineral products in 2012 almost tripled from $34 million to $132 million, with their quantities

rising by 44%. The major bulk was destined to Syria which received 4x higher than usual oil exports, equivalent to $93

million, and double the regular quantities.

Direct consumption products followed suit, with the drop in their imported quantities aligning with the witnessed

contraction during the year. Thus, imported tons of prepared foodstuff, beverage and tobacco diminished by 5.53%, even

though their total bill rose by 8.63% to $1.40 billion. Also imports of live animal and animal products declined both in value

by 4.94% to $824 million and in quantities by 1.86%. Regarding their exports, prepared foodstuff, beverages and tobacco

rose 3.24% to $392 million but were 17.72% lower in terms of quantities.

Industrial trade was also stalled by the rising costs of transportation, increasing wages and the need for alternative roads for

exports to escape the now risky lines through Syria. As such, products used for manufacturing or transformative industries

like machinery and electrical instruments, products of the chemical industries and base metals, also saw a drawback or

stagnation at best, except for pearl and precious metals, which continued to shine on the exports list.

Machinery and electrical instruments were likely subject to low price levels both in raw materials and end-products.

Imported quantities remained unchanged while their value dropped 2.67% to $2.07 billion. Meanwhile, exported quantities

slightly increased by 3.14% with a larger decline in value of 7.86% to $478 million, possibly indicating the exports of lower

priced or more competitive products.

The performance of chemical products as well as base metals possibly reflects a maintained input to production despite the

notable decline in their exports. Absent any smuggling activities, this might indicate current stock piling and/or an increase

in domestic demand. In details, imports of chemicals products merely increased by 0.8% to $1.74 billion while imported

quantities increased by 5.25%. However their exports severely declined with shipped quantities falling by 13.20% and their

value dampening by 10.61% to $343 million. As for imports of base metals, a 0.35% rise was noted to $1.53 billion

alongside a slight increase of 5.46% in their imported quantities, while their exports ended up declining by 10.4% to $470

million with their corresponding quantities retracting by 30.50%.

On the positive front, imported quantities of pearls and precious metals rose by 5.46% but with a considerable decline in

value by 26% to $1.58 billion which might be attributed to gold price fluctuations. Their exports on the other hand rose by

15.56% to $1.72 billion despite an 8.33% lower net exported quantity, which emphasizes the high added value of this

transformative industry that singularly holds 38.45% of total Lebanese exports.

A special attention is also worth giving to the evolution of trading activity between Lebanon and Syria, particularly under the

intensification of war in Syria, Lebanon’s sole open land border. In fact, balance of trade between Lebanon and its troubled

neighbor switched from a negative $95 million in 2011 to a positive $28 million as exports to Syria in 2012 overrode imports.

The main drivers were the surge in Syria’s need for oil following the sabotage of many energy plants and the ensuing

reduction of local oil production capacity by more than half. Moreover, demand on direct consumption products increased,

although with a lesser impact on total trading activity. Exports to Syria thus increased by 37% to reach $294 million while

imports declined by 14.2% to $266 million.

Aside from oil exports nearing $93 million, the main exported items to Syria were machinery and electric instruments

increasing by 42% to $15.6 million; vehicles and transport equipment multiplying 5 times to $12.7 million; and animals,

vegetable fats and oils, which almost doubled in value to $11 million. However, one of the considerable imports to Lebanon

from Syria that maintained their edge were vegetable products which continued to increase by 19% to $43 million whereas

their exports to Syria declined by 5.25%.

However, the base of trade between the two countries was harshly hit as the larger traded accounts witnessed substantial

declines both in imports and exports. The Lebanese market was not yet capable of satisfying the lost supply in Syria, and

suffered the loss of a market share at the same time. For one, imported products of the chemical and allied industries from

Syria lost 13.8% to $29.91 million, along with a larger loss in exports of 19.58% to $15.7 million. Also imports of base

2 Brent crude oil averaged $111.67 per barrel in 2012 compared to $111.26 in 2011



S A L

metals and their articles declined 25% to $27 million, alongside a negligible rise in exports by 0.66% to $11 million. Imports

of pulp of wood, paper and paperboard rose 1% to $16.8 million while their exports retracted 41% to $22.5 million.

Textile, Plastics and their related items, were few of the industries that managed to partially substitute imports from Syria

with exports. The latter’s imports from Syria declined by 20.7% to $15.6 million while their exports rose by 22% to $12.4

million. Meanwhile, textile imports dropped 7.5% to $5.8 million with their exports rising 93.58% to $3.9 million.

Regarding the major trading partners of Lebanon during 2012, countries on both sides of the Atlantic remained favorites.

USA continues to be the top preferred import destination with a stake of 11% or $2.4 billion, followed by Italy at 9% or $1.8

billion, China at 8% or $1.77 billion, France at 7% or $1.5 billion and Germany at 6% or $1.2 billion. As for the main

importing countries from Lebanon in 2012, South Africa came first with a share of 19% or $864 million, followed by

Switzerland at 12% or $547 million. The former had replaced Switzerland as top destination for Lebanon’s most precious

exports. Next came KSA with a share of 8% or $359 million, UAE at 7.9% or $352 million, and Syria at 6.6% or $294 million.

Looking into 2013, figures for the first 2 months showed a continuing trend with deficit further narrowing by 0.9% to stand

at $2.65 billion, based on our revised figures. Local consumption and industrial input needs show no sign of recovery yet

with imports still backing by 0.46%. Exports rose 1% on the same interpretation of fluctuating demand from Syria,

especially in mineral products, some of the industrial products like machinery and electrical instruments as well as small

items like vehicles and transport equipment, leather and textile products, and diverse accessories. Syria managed to beat

South Africa and rank as top importer from Lebanon with a stake of 19%.

The narrowing trade deficit, apart from any re-established capital inflows and resources, helped the balance of payments

step back into positive territory as of February end. Ahead of the times when oil production will be possible in Lebanon, oil

imports would continue to ravage Lebanon’s external balance; however, a real focus on exports by underlining their

competitive advantages and capitalizing on markets’ deficiencies would boost the long-term prospects of a structurally

healthier trade balance.

The Lebanon Brief

of 14

Your Investment Reference

S A L

Research Department:

Riwa Daou [email protected]

Mirna Chami [email protected]

Youssef Chahine [email protected]

Maya Mantach [email protected]

Marwan Mikhael [email protected]

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