the lebanon brief - blominvest...1 the lebanon brief issue 957 week of february 22-27, 2016 sa l...

Your Investment Reference

THE

LEBANON BRIEF

ISSUE 957

Week of February 22 - 27, 2016

ECONOMIC RESEARCH DEPARTMENT

BLOMINVEST Bank Headquarters

Bab Idriss, Beirut, Lebanon

T (01) 991 784/2 F (+961) 1 991 732

[email protected]

www.blom.com.lb

S A L

The Lebanon Brief ISSUE 957 Week of February 22-27, 2016

S A L

TABLE OF CONTENT

FINANCIAL MARKETS 1

Equity Market 1

Foreign Exchange Market 3

Money & Treasury Bills Markets 3

Eurobond Market 4

ECONOMIC NEWS 5

Consumer Prices Continued to Drop in the First Month of 2016 5

Construction Activity Welcomes 2016 on a Positive Note 6

Number of Real Estate Transactions Increased by 12% in January 2016 7

Lebanon’s Occupancy Rate Rose to 53% in January 2016 8

Declining Trade with Syria Heavily Impacted Masnaa Customs’ Office in 2015 8

CORPORATE DEVELOPMENTS 9

EFG-Hermes is Selling Its Shares in Credit Libanais 9

FOCUS IN BRIEF 10

2015: Another Recovery Year for the Lebanese Tourism Sector 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.

1


S A L

FINANCIAL MARKETS

Equity Market

Stock Market

26/02/2016 19/02/2016 % Change

BLOM Stock Index* 1,157.07 1,166.85 -0.84%

Average Traded Volume 194,068 168,573 15.12%

Average Traded Value 1,214,609 931,490 30.39%

*22 January 1996 = 1000

After the positive momentum of the Lebanese

bourse for the past three weeks, the Beirut Stock

Exchange ended this week in the red.

The BLOM Stock Index (BSI) lost a weekly 0.84%

to 1,157.07 points, registering a year-to-date loss

of 1.06%.

Hence, market capitalization fell by $80.72M to

$9.55B while the average daily traded volume

increased from 168,573 shares valued at $931,490

to 194,068 shares worth $1.21M.

The BSI fell at a slower pace than the Morgan

Stanley Emerging Markets Index (MSCI) which

registered a 1.46% weekly loss, while the S&P Pan

Arab Composite Large-Mid-Cap Index & the S&P

AFE 40 Index posted respective 0.64% and 0.37%

weekly gains.

In the Arab world, a mixed performance was

witnessed as some stock markets reflected

optimism regarding a possible global agreement

between oil producers. In fact, the bourses of

Egypt, Saudi Arabia and Dubai respectively

recorded weekly rises of 2.27%, 1.56% and

1.01%. However, Tunisia stock market recorded a

1.52% weekly decrease, while Qatar’s and

Muscat’s stock exchange dropped by respective

1.20% and 0.57% from last week’s level.

On the Beirut Stock Exchange, the real estate

sector accounted for 62.05% of the week’s traded

value, while the banking estate and industrial

sectors respectively contributed to 29.00% and

8.95% of the total.

The real estate sector saw negative performance

this week as both Solidere shares class “A” and

“B” lost 3.81% and 1.19% to $9.85 and $10.00,

respectively.

In the banking sector, Audi’s listed shares and

Global Depository Receipts (GDR) dropped this

week by 0.97% and 1.95% to $6.15 and $6.03,

respectively. Also, the GDRs of BLOM slipped by

weekly 0.50% to $9.94.

On another front, the BLOM Preferred Shares

Index (BPSI) ticked up from last week’s level of

106.01 points to 106.08 points. In details, Byblos

preferred shares 08 and 09 went up by 0.10% and

Banking Sector

Mkt 26/02/2016 19/02/2016

%

Change

BLOM (GDR) BSE $9.94 $9.99 -0.50%

BLOM Listed BSE $9.60 $9.60 0.00%

BLOM (GDR) LSE $9.90 $9.90 0.00%

Audi (GDR) BSE $6.03 $6.15 -1.95%

Audi Listed BSE $6.15 $6.21 -0.97%

Audi (GDR) LSE $6.03 $6.15 -1.95%

Byblos (C) BSE $1.64 $1.64 0.00%

Byblos (GDR) LSE $75.00 $75.00 0.00%

Bank of Beirut (C) BSE $18.75 $18.75 0.00%

BLC (C) BSE $1.70 $1.70 0.00%

Fransabank (B) OTC $27.00 $27.00 0.00%

BEMO (C) BSE $1.90 $1.90 0.00%

Mkt 26/02/2016 19/02/2016 % Change

Banks’ Preferred

Shares Index *

106.08 106.01 0.07%

Audi Pref. F BSE $102.00 $102.00 0.00%

Audi Pref. G BSE $100.90 $100.90 0.00%

Audi Pref. H BSE $101.50 $101.50 0.00%

Byblos Preferred 08 BSE $101.10 $101.00 0.10%

Byblos Preferred 09 BSE $101.40 $101.00 0.40%

Bank of Beirut Pref. I BSE $26.50 $26.50 0.00%

Bank of Beirut Pref. H BSE $26.50 $26.50 0.00%

Bank of Beirut Pref. J BSE $26.50 $26.50 0.00%

BLOM Preferred 2011 BSE $10.15 $10.15 0.00%

BEMO Preferred 2013 BSE $100.00 $100.00 0.00%

* 25 August 2006 = 100

1100

1120

1140

1160

1180

1200

1220

1240

Feb-15 May-15 Aug-15 Nov-15 Feb-16

BLOM Stock Index

HI: 1,236.40

LO: 1,108.49

2


S A L

Real Estate

Mkt 26/02/2016 19/02/2016 % Change

Solidere (A) BSE $9.85 $10.24 -3.81%

Solidere (B) BSE $10.00 $10.12 -1.19%

Solidere (GDR) LSE $10.35 $9.85 5.08%

0.40% to $101.10 and $101.40, respectively, while

Bemo Preferred 2013 slipped by 0.10% to $99.90.

In the industrial sector, HOLCIM shares decrease by

0.35% to end the week at $14.31.

On the LSE, Solidere GDRs rose by a weekly

5.08% to $10.35 while Bank Audi’s GDRs lost

1.95% to $6.03.

Manufacturing Sector

Mkt 26/02/2016 19/02/2016

%

Change

HOLCIM Liban BSE $14.31 $14.36 -0.35%

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

Ciments Blancs (N) BSE $3.10 $3.10 0.00%

In the coming weeks, the Beirut Stock

Exchange is expected to reflect the

development of the diplomatic crisis with Saudi

Arabia.

Retail Sector

Mkt 26/02/2016 19/02/2016 %

Change

RYMCO BSE $3.23 $3.23 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

Tourism Sector

Mkt 26/02/2016 19/02/2016 % Change

Casino Du Liban OTC $323.00 $323.00 0.00%

SGHL OTC $7.00 $7.00 0.00%

3


S A L

Money & Treasury Bills Markets

Money Market Rates

Treasury Yields

26/02/2016 18/02/2016 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

26/02/2016 18/02/2016 Change bps

Overnight Interbank 3.00% 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 on February 4th, broad Money M3

increased by LP 220B ($145.93M) to reach LP 185,849B

($123.28B). M3 registered a 4.83% yearly growth and a

0.40% year-to-date downtick. Similarly, M1 progressed by

LP 83B ($55.06M) over the mentioned period, due to the

increase in money in circulation by LP 288B ($191.04M)

and LP 205B ($135.99M) drop in demand deposits. Total

deposits (excluding demand deposits) increased by LP

137.37B ($91.12M) during the week, given the $17M

contraction in deposits denominated in foreign currencies

and the LP 163B increase in term and saving deposits.

Over the above mentioned period, the broad money

dollarization rate ticked down from 57.75% on the 28th of

January to 57.67% on the 4th of February. According to

the Central Bank, the overnight interbank rate steadied at

3.00% by the end of October 2015.

In the TBs auction held on the February 18, 2016, the

Ministry of Finance (MoF) raised LP 463.84B ($307.69M),

through the issuance of bills and notes maturing in 1Y and

10Y. The highest demand was achieved on the 10Y notes,

which grasped an 89.55% share of total subscriptions,

while the 3M bills captured the remaining 10.45%. The

discount rate on the 1Y bills stood at 5.08%, while the

coupon rate on the 10Y notes registered 7.46%. New

subscriptions exceeded existing maturities by LP 293.20B

($194.49M).

Foreign Exchange Market

Lebanese Forex Market

26/02/2016 19/02/2016 % Change

Euro / Dollar 1.1016 1.1097 -0.73%

Sterling / Dollar 1.4026 1.4314 -2.01%

Dollar / Swiss Franc 1.0085 1.0084 0.01%

Dollar / Yen 112.92 113.01 -0.07%

NEER Index** 168.52 168.34 0.11%

*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. The NEER represents the approximate

relative price a consumer will pay for an imported good.

Demand for the Dollar in the Lebanese Forex Market

improved over the past week as the value of the dollar

increased from $/LP 1,513-1,514 with a mid-price of $/LP

1,513.5 to $/LP 1,513.75-1,514.25 with a mid-price of $/LP

1,514.

Foreign assets (excluding gold) of the Central Bank fell by a

monthly 0.20% to $37.02B at the end of January 2016. The

dollarization ratio of private sector deposits fell from

65.71% in 2014 to 64.88% in 2015..

By Friday 26th

of February, 2016, 12:30 am Beirut time, the

euro depreciated against the dollar-pegged LP as the

exchange rate dropped by 0.73%, over the last week, from

€/LP 1,672.87 to €/LP 1,660.66. As for the Nominal effective

Exchange Rate (NEER), it appreciated by a weekly 0.11% to

168.52 points, with a 0.08% year-to-date increase.

Nominal Effective Exchange Rate (NEER)

The Euro dropped by a weekly 0.73% against the dollar

due to the risk of potential exit of the UK from the

European Union. Moreover, a higher than expected rate

of GDP growth in the US also caused the dollar to

move higher.

Mounting concerns over a global slowdown increased

demand for the safe haven, leading the price of gold to go up

from last week’s $1,227.36/ounce to $1,229.51/ounce this

week.

140

143

146

149

152

155

158

161

164

167

170

173

Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16

4


S A L

Eurobond Market

Eurobonds Index and Yield

26/02/2016 18/02/2016 Change Year to Date

BLOM Bond Index (BBI)* 103.360 103.360 0.000% -0.72%

Weighted Yield** 6.27% 6.27% 0 125

Weighted Spread*** 510 504 6 80

*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

26/02/2016

Price*

18/02/2016

Price*

Weekly

Change%

26/02/2016

Yield

18/02/2016

Yield

Weekly

Change bps

2017, Mar - 9.000% 104.25 104.25 0.00% 4.94% 5.00% -7

2017, Oct - 5.000% 99.63 99.63 0.00% 5.23% 5.23% 0

2018, Jun - 5.150% 99.75 99.38 0.37% 5.26% 5.43% -17

2018, Nov - 5.150% 99.5 99.25 0.25% 5.35% 5.44% -10

2019, Apr - 5.500% 99 98.38 0.63% 5.85% 6.06% -22

2020, Mar - 6.375% 100.63 100 0.63% 6.20% 6.37% -18

2020, Apr - 5.800% 98.5 97.88 0.63% 6.21% 6.38% -17

2021, Apr - 8.250% 108 107.5 0.47% 6.40% 6.51% -12

2022, Oct - 6.100% 98 97.25 0.77% 6.47% 6.62% -14

2023, Jan - 6.000% 97.13 96.25 0.91% 6.52% 6.68% -16

2024, Dec - 7.000% 102 101.38 0.61% 6.69% 6.79% -9

2025, Feb - 6.200% 96.5 96 0.52% 6.72% 6.80% -8

2026, Nov - 6.600% 97.75 96.63 1.16% 6.90% 7.05% -15

2027, Nov - 6.750% 98.5 97.13 1.41% 6.94% 7.11% -17

2030, Feb - 6.650% 96.75 95.38 1.44% 7.02% 7.18% -16

Mid Prices ; BLOMINVEST bank

The Lebanese Eurobonds remained relatively stable over the past week as shown by the BLOM Bond Index (BBI) which steadied at

103.36 points, as investors moved from medium term notes into longer maturities. The Lebanese gauge was outpaced by the JP

Morgan Emerging Markets’ Bond Index which increased by a weekly 0.72% to 679.30 points.

The yield on the 5 Year Lebanese Eurobonds went up from last week’s 6.36% to 6.37%, while that of the 10 Year Lebanese

Eurobonds dropped from 6.82% to 6.80%.

In the U.S., treasuries strengthened last week as low oil prices and a sharp decline in China's equity markets fuelled demand for

haven assets. Therefore, 5 Year and 10 Year yields in the US fell from 1.21% and 1.75% to 1.16% and 1.71%, respectively.

Accordingly, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable widened from 515

bps and 507 bps to 521 bps and 509 bps, respectively.

5Y CDS 25/02/2016 18/02/2016

Mid-Price Mid-Price

Lebanon 474 470

KSA 178 179

Dubai 235 243

Brazil 452 480

Turkey 303 307

5.00%

5.50%

6.00%

6.50%

7.00%

Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16

Weighted Effective Yield of Eurobonds

5


S A L

ECONOMIC NEWS

Yearly Changes in the CPI

Source: CAS

Consumer Prices Continued to Drop in the First Month

of 2016

According to the Central Administration of Statistics (CAS), the

Consumer Price Index (CPI) continued to show signs of deflation in

the first month of the year.

The CPI dropped from 97.13 points in January 2015 to 94.45 points

by the end of January 2016, recording a 2.76% year-on-year (y-o-y)

decrease. This fall is mostly attributed to the continuing

deterioration of oil quotes and the depreciation of the Euro during

the last year.

In terms of the CPI’s components, “food and non-alcoholic

beverages” prices (20.6% of CPI) downturned by 0.73% y-o-y in

January 2016. Moreover, “transportation” (13.1% of CPI) and

“water, electricity, gas & other fuels” (11.9% of CPI), saw annual

declines of 3.12% and 15.67%, respectively.

The “Health” (7.8% of CPI) sub-index posted a yearly drop of 6.31%

in January 2016, while prices of “communication” (4.6% of CPI) and

“Clothing and Footwear” (5.4% of CPI), posted respective y-o-y falls

of 0.77% and 2.59% over the same period. However, “education”

sub-index, constituting 5.9% of the CPI, increased annually by

1.52% in January 2016. In addition, “restaurant & hotels” (2.6% of

CPI) prices went up by 2.12% y-o-y, which might be due to an

improving tourist activity during the first month of the year.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6


S A L

Monthly Number of Construction Permits

Source: Orders of Engineers in Beirut and North

Construction Activity Welcomes 2016 on a Positive

Note

Construction activity showed expansion in the first month of 2016.

As the latest figures released by the Orders of Engineers in Beirut

and the North revealed that the number of permits rose by 16.77%

year-on-year (y-o-y) to 1,135.This could partially reflect an improving

sentiment in the contracting sector, which would be probably

reflected in the real estate sector performance over the medium

term,noting that these permits mainly remain valid between 6 and 8

years.

However, the construction area authorized by permits (CAP)

contracted by a yearly 3.78% to 811,183 sqm in January this year,

compared to 843,057 sqm in 2015.

As for the average area per transaction, it slightly decreased from

867.34 sqm/permit in January 2015, to 714.69 sqm/permit by

January 2016. In terms of regions, Mount Lebanon grasped 37% of

total permits, followed by South Lebanon and Nabatiyeh with

respective shares of 19.82% and 16.39%.

900

1,100

1,300

1,500

1,700

1,900

2,100

Jan

-11

May-11

Sep

-11

Jan

-12

May-12

Sep

-12

Jan

-13

May-13

Sep

-13

Jan

-14

May-14

Sep

-14

Jan

-15

May-15

Sep

-15

Jan

-16

Monthly Construction Permits

6-Month Moving Average

7


S A L

Total Number of Real Estate Transactions in

January

Source: Lebanese Cadastre Registry

Number of Real Estate Transactions Increased by 12%

in January 2016

During the first month of 2016, real estate activity reflected the

positive vibes deriving from the political talks regarding a potential

breakthrough in the lingering presidential impasse. In fact, the total

number of real estate transactions rose by 12.3% y-o-y to reach

5,661 by the end of January 2016. However, the total value of these

transactions slipped 4.8% from January’s 2015 value of $559.91M

to settle at $532.76M during the same period this year. Accordingly,

the average value per transaction tightened from $111,028 in

January 2015 to $94,110 in January 2016. This is most probably due

to the deflationary pressures that started in 2015 and the continuing

mismatch between realty demand and supply.

As the number of foreign transactions steadied at 107 transactions

in January 2016, its share of total real estate transactions

decreased from 2.1% in 2015 to 1.9% in 2016. However, it was

noticeable that the value of foreign transactions tumbled by 30.8%

y-o-y to $29.34M.

While built units’ transactions constituted 48% of total property

transactions, land transactions grasped the remaining share of

52%. It is worth noting that the former posted a 12.9% y-o-y rise in

January 2016 to 2,699 transactions, while the latter added a yearly

11.0% to 2,962.

As for the regional breakdown, Beirut grasped 18.2% of total real

estate transactions’ value and was followed by Metn and Baabda

with respective shares of 17.8% and 15.1%. In terms of volume,

North of Lebanon ranked first with 692 transactions (or 12.2% of

the total volume) and was tracked with Metn (10.0% of the total)

and Baabda (8.9% of the total).

The average value per real estate transaction was the highest in

each of Beirut ($379,606), Metn ($166,490) and Baabda ($160,349).

The lowest average values per real estate transaction were

recorded in Rachaya ($9,368), Marjeyoun ($13,691) and Baalbeck

($9,210).

7,445 7,546

6,034 6,222

5,043

5,661

2011 2012 2013 2014 2015 2016

8


S A L

Lebanon’s Monthly Occupancy rates

Source: EY Middle East Hotel Benchmark Survey

Imports by Customs’ Office, Share in Total

Source: Customs

Lebanon’s Occupancy Rate Rose to 53% in January

2016

According to Ernst & Young Middle East hotel benchmark survey,

Lebanon’s occupancy rate registered 53% in January 2016, up from

50% in January 2015. Among the MENA countries, Lebanon ranked

ahead of Jordan and Kuwait, but lost to Bahrain, Dubai, Saudi

Arabia, Qatar and Oman. As expected, Dubai remained at the top of

MENA countries with an 86.6% rate for the first month of the year.

The biggest winners in the region were Egypt and Bahrain as

Cairo’s and Manama’s occupancy rates edged up by yearly 7 p.p.

and 9 p.p. to 56% and 54%, respectively. The progress in these

countries is mainly attributed to their relatively improving economic

and political outlook. Over the same period, the largest downturn in

4 and 5 star hotels’ occupancy rate was recorded in Kuwait, which

lost 10 p.p. yearly to 39% followed by Amman with a 9 p.p. yearly

decrease to 37% by January 2016.

Back to Lebanon, the occupancy rate increased by 3 percentage

points (p.p.) to 53% in the first month of 2016. The Average Room

Rate and Revenue per Available Room (RevPar) lost yearly 18.9%

and 14.4% to $147 and $79, respectively. Not surprisingly, Dubai’s

ADR and RevPar were the highest in the region at $300 and $260

respectively, despite the 8.2% and 9.3% yearly downticks

witnessed over the same period.

Declining Trade with Syria Heavily Impacted Masnaa

Customs’ Office in 2015

According to the Lebanese Customs, Port of Beirut (PoB) was the

main trading hub of the country in 2015 as 72% of the imports and

52% of the exports passed through its customs office. PoB was

closely followed by the customs’ office of Rafic Hariri International

Airport that grasped 19% of Lebanon’s imports and 28% of its

exports. Tripoli’s custom office ranked third in terms of total trade

value with imports recording $1.01B in 2015 (or 9% of the total) and

that of exports registering $257.33M (or 6% of the total) for the

same period.

Given its renowned importance for land trading, it is worth noting

that the value of total exports through Masnaa office has dropped

from $737.73M in 2014 to $275.02M in 2015. This has triggered

down the total volume of exports from 572,336 tons in 2014 to

172,398 tons in 2015. The following mainly resulted from the

ongoing war in Syria and the rebels’ seizure of the Nassib border

crossing between Syria and Jordan. Also, each of the value and the

volume of imports through the Masnaa customs office plummeted

by almost 60% by the end of 2015 to $202.06M and 96,580 tons,

respectively.

50%

55%

54%

56%

61%

57%

56%

61%

53%

54%

56% 56%

53%

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16

1%

72%

19%

2%

6%

Masnaa

Port of Beirut

Rafic Hariri Int'l Airport

Saida

Tripoli

9


S A L

CORPORATE DEVELOPMENTS

Credit Libanais Shareholders

EFG-Hermes 63.74%

CIH Bahrain International Holding 23.52%

Individual Shareholders 12.74%

Source: Company Website

EFG-Hermes is Selling Its Shares in Credit Libanais

The delegation assigned to Credit Libanais’s Chairman, Joseph

Torbey, to sell EFG-Hermes’s 63.74% stake in the bank expires at

the end of February. The chairman was seeking investors to acquire

the stake valued at a range of $470M-$500M. Meanwhile the offers

of Cedrus Invest Bank and Saradar Group remained standing.

EFG-Hermes, the biggest publicly traded investment bank in the

Arab world, acquired its stake in Credit Libanais in 2010 for $542M.

10


S A L

FOCUS IN BRIEF

2015: Another Recovery Year for the Lebanese Tourism Sector

The number of tourist arrivals recovered in 2015 for the second year running, but a true rebound for the sector is

still not attained. The purchasing power of visitors is more crucial than their number and whether or not the

recovery in the tourism sector will extend into 2016 highly depends on local and regional stability.

Tourist arrivals to Lebanon have been on a steady decline since the eruption of the Arab spring but have shown

their second yearly recovery in 2015. Following three years of regressing tourist activity due to local instability and

spillovers from the neighboring Syrian war, data from the Ministry of Tourism showed a 12% yearly growth in

tourist arrivals to 1,517,904 tourists in 2015.

Yearly Tourist Arrivals

Source: Ministry of Tourism

1,405,382

1,851,081

2,167,879

1,655,051

1,365,845

1,274,362

1,354,647

1,517,904

38%

32%

17%

-24%

-17%

-7%

6%

12%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2008 2009 2010 2011 2012 2013 2014 2015

Total Number of Tourists Yearly Growth Rate

11


S A L

In-house tourism is yet another proof of Lebanon’s adaptability to tough times and has been gaining traction in

Lebanon. Slower tourist arrivals compelled stakeholders in the industry to develop internal tourism with numerous

family owned Bed and Breakfasts and guest houses popping up. This type of accommodation used to appeal to

Europeans only but has now gained the approval of the Lebanese as well. Dhiafee, which promotes internal

tourism, estimated that the number of these concepts surged from 40 in 2005 to over 100 in 2015. According to

the World Travel and Tourism Council, domestic tourism spending has been on an upward trend since 2012 and

that trend is likely to extend to 2025 where domestic tourism would reach a value of $2.54B. While domestic

tourism is expected to have grown by 3.2% in 2015, spending by foreigners, who generated LBP 10,572.8 B

($7.01B) in 2014, are only expected to have grown by 0.2% in 2015.

Domestic Tourism Expenditures

Source: World Travel and Tourism Council Composition of Tourist Arrivals to Lebanon in 2015

Source: Ministry of Tourism

1.46

1.48

1.51

1.56

-9.30%

1.40% 1.60%

3.20%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

1.40

1.42

1.44

1.46

1.48

1.50

1.52

1.54

1.56

1.58

2012 2013 2014 2015e

Domestic Tourism Spending, In $B

Domestic Tourism Spending, Growth Rate

33.29%

31.67%

17.40%

8.06%

5.61% 3.93%

Europe Arab Countries America Asia Africa Oceania

12


S A L

For the first time in many years, European tourists, rather than Arab tourists, occupied the largest share in the total

of tourist arrivals to Lebanon. The fading of Arab Gulf tourists but also the development of a wide range of bed and

breakfast concepts appealing to all tastes explain why European tourists accounted for the largest share in total

tourists. The number of European visitors, grasping 33.29% of the total, augmented by 12.87% y-o-y, to reach

505,264. In details, French tourists, constituting the largest share of European tourists at 27%, went up by a yearly

11.16% to 134,181 visitors. The number of incomers from Germany, the United Kingdom and Turkey also saw

respective yearly improvements of 10.05%, 15.11% and 30.39% y-o-y to 74,823, 56,608 and 21,027 in 2015.

The number of Arab tourists, coming in second place in the tourist composition, also rose in 2015 however at a

much lower rate than the average. Prior to 2011, the majority of incoming tourists were heavy spenders from the

oil-rich Gulf countries but today that changed. The number of Arab tourists, constituting 31.67% of the total,

displayed a yearly increase of 4.32%, to record 480,723 by December 2015. Iraqi incomers had the largest share

among Arab tourists at 40%, with their number increasing by an annual 1.28% to 191,578, over the same period. It

is important to note that a large part of Iraqi tourists are actually refugees relocating to Lebanon due to the

heightening security developments in their mother country. The number of Egyptian visitors improved by 9.17%

from 69,179 to 75,524 while that of the Jordanians increased by 5.61% from 73,822 to 77,960. The number of

Saudi incomers also progressed by 4.46% annually to 47,831 by December 2015.

Tourism spending data backs up the claim that the actual tourism spending is accounted for by nationals of the

Gulf countries. As tourist arrivals reached a four-year high in 2015, tourist spending followed. According to Global

Blue, tourist spending, based on the number of refund transactions, in Lebanon increased by a yearly 2% in 2015.

The largest bulk of tourist spending is accounted for by Saudi Arabian visitors with a share of 15% in the total,

followed by 14% for the nationals of the United Arab Emirates, 6% for each Kuwait and Egypt tourists and 4% for

Syria. Tourist spending by Saudi Arabian visitors increased by 5% compared to last year while spending by UAE

tourists recorded a double-digit growth of 12%. Tourist spending from Jordan, Qatar and the United States rose by

a yearly 14%, 21% and 18%, respectively. However, spending from Kuwait, Egypt and Syrian nationals dropped by

16%, 4% and 23%, respectively.

Tourism spending would have portrayed a higher increase if the visitors’ stay, was longer. Unfortunately, no

statistics are made available regarding the number of nights spent by tourists in Lebanon. However we believe

that Gulf nationals which used to spend extended periods of time in Lebanon, around 30 days for some, no longer

do and that directly reduces tourism spending.

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Tourism Spending by Country of Residence

Source: Global Blue

In 2015, fashion and clothing was the category that captured most of the tourist spending with a share of 71% in

the total followed by 16% for watches and jewelry. Spending on fashion and clothing edged up by a mere 1%

while spending on watches and jewelry grew by 15%. The capital Beirut is where 81% of tourist expenditures took

place while 12% were disbursed in Mount Lebanon. In Beirut, tourist spending rose by 2% while it decreased by

6% in Mount Lebanon.

According to Ernst and Young’s Middle East Hotel Benchmark Survey, the occupancy rate of Beirut Hotels

surpassed the 52% mark it had stabilized on since 2012 but has yet to regain the 64% rate recorded back in 2011.

However, occupancy at Beirut hotels regained some vigor in the summer month of August with a rate of 61% also

seen in May 2015. The average room rate increased from $174 in 2014 to $175 in 2015 and the Revenue per

Available Room from $91 in 2014 to $99 in 2015.

15%

14%

6%

6%

4% 5% 4% 3%

3%

5%

4%

31%

KSA

UAE

Kuwait

Egypt

Syria

Jordan

Qatar

Iraq

Nigeria

France

United States

Other Countries

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Hotel Occupancy of Beirut Hotels

Source: EY Middle East Hotel Benchmark Survey The recovery in the number of tourist arrivals is still not enough to spur investment in new tourism projects.

According to Kafalat, the number of issued guarantees for the tourism sector dropped from 98 guarantees in 2014

to 75 guarantees in 2015. In light of the tough economic background, investor sentiment has been subdued but

the Investment Development Authority of Lebanon (IDAL) offers numerous incentives to revive the sector. IDAL

offers region based incentives; depending on the location of the tourism project.

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

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

2014

2015

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IDAL’s Tourism Incentives

Zone A Zone B Zone C

Minimum Investment Required 10 million USD 4 million USD 1 million USD

Corporate Income Tax

100% Exemption for

two years provided

the company is

listed on the Beirut

Stock Exchange.

50% reduction for 5

years

100% Exemption for

10 years

Taxes on Project Dividends

- 50% reduction for 5

years

100% Exemption for

10 years

Nationals to Foreign Workers

Ratio

At least 2 Lebanese

for 1 Foreigner

At least 2 Lebanese

for 1 Foreigner

At least 2 Lebanese

for 1 Foreigner

Source: IDAL

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Overall, the tourism sector is one of the pillars of the Lebanese economy, but its performance for the coming

years hinges on political and security stability both locally and in the region. According to the World Travel and

Tourism Council, the total contribution of Travel & Tourism to GDP stood at 21.1% of GDP in 2014 and is forecast

to rise by 2.4% in 2015 and by 5.7% annually over the period 2015-2025. The Travel & Tourism industry’s total

contribution to employment represented 20.3% of total employment or 313,000 jobs in 2014. This contribution is

expected to rise by 1.6% in 2015 to 318,000 jobs and to increase by 3.0% per annum to 429,000 jobs or 25.1% of

total employment in 2025. Again, uncertainty still revolves around these figures which can change in light of the

situation in the country and the region. For 2016, the diplomatic crisis between Lebanon and the Gulf has already

resulted in Saudi Arabia, UAE, Bahrain and Kuwait, issuing travel bans, preventing their nationals to fly to Lebanon.

The Lebanon Brief

Page 17 of 17

Your Investment Reference

S A L

Research Department:

Sobhi Chatila [email protected]

Lana Saadeh [email protected]

Riwa Daou [email protected]

Marwan Mikhael [email protected]

the lebanon brief - blominvest...1 the lebanon brief issue 957 week of february 22-27, 2016 sa l...

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