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THE

LEBANON BRIEF

ISSUE 959

Week of March 07-12, 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 959 Week March 07-12, 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

Number of Cleared Checks Declined by 2.46% in January 2016 5

Number of Payment Cards Increased by a Yearly 6.77% by September 2015 5

Lebanon Started 2016 with a $719M Deficit in its Balance of Payments 6

Lebanon’s Fiscal Deficit Broadened 7.17% by November in 2015 7

The Value of Kafalat Guarantees Grew to $17.76M by February 2016 8

Number of Registered Cars Improved 14% by February 8

USAID Granted Olive Farmers’ Cooperatives 318 Mechanical Harvesters 9

CORPORATE DEVELOPMENTS 10

4.5G Mobile Internet Service Is Expected to be completed in September 2016 10

JK Development Launches New Hotels 10

FOCUS IN BRIEF 11

Pharmaceuticals and Healthcare in Lebanon: Numerous Opportunities to Explore 11

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.

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S A L

FINANCIAL MARKETS

Equity Market

Stock Market

11/03/2016 04/03/2016 % Change

BLOM Stock Index* 1,152.69 1,149.13 0.31%

Average Traded Volume 109,815 4,138,945 -97.35%

Average Traded Value 698,106 39,347,051 -98.23%

*22 January 1996 = 1000

Lebanese equities saw improving demand this

week mimicking the rally in global stock markets

on major positive economic developments.

For the week ending March 11, 2016, the average

daily traded volume on the Beirut Stock Exchange

(BSE) declined to 109,815 shares worth $698,106,

down from last week’s average of 4.14M traded

shares worth $39.35M, when 20.07M listed BLOM

shares were traded at a price of $9.60/ per share.

Nevertheless, the BLOM Stock Index (BSI) gained

0.31% to 1,152.69 points recovering the

accumulated losses since the beginning of March.

As for the market capitalization, it jumped by

$29.33M to approach the $9.52B.

It was a positive week for emerging markets that

benefited from the rallying commodity prices and

the improving U.S. labor market. The bullish

weekly progress of several indices outpaced that

of the Lebanese gauge. In details, Morgan Stanley

Emerging Markets Index (MSCI), the S&P Pan Arab

Composite Large-Mid-Cap Index & the S&P AFE 40

Index posted respective weekly gains of 1.35%,

2.13% and 2.28%.

In the Arab world, the recovery of oil prices this

week to a third month high was good news for

most of the regional stock markets. As a matter of

fact, Dubai, Qatar and Saudi Arabia were among

the week’s top performers, registering 3.23%,

2.47% and 2.22% gains, respectively. However,

Egypt’s bourse was this week largest winner as it

recorded a 7.79% increase as investors’

welcomed the Egyptian central bank’s decision to

lift the cap on cash deposits and withdrawals in

foreign currencies in order to ease the shortage in

foreign reserves.

As for the worst performers this week, Muscat,

Bahrain and Amman were the only stock markets

to post losses. While Muscat and Bahrain bourses

revealed respective losses of 2.11% and 1.68%,

Amman stock exchange witnessed a slight 0.68%

weekly drop.

On the Beirut Stock Exchange, the banking sector

accounted for 85.19% of the week’s traded value,

while the real estate and industrial sectors

contributed to the remaining 14.05% and 0.76%,

respectively.

Banking Sector

Mkt 11/03/2016 04/03/2016

%

Change

BLOM (GDR) BSE $10.10 $10.05 0.50%

BLOM Listed BSE $9.65 $9.65 0.00%

BLOM (GDR) LSE $10.00 $10.00 0.00%

Audi (GDR) BSE $6.00 $6.00 0.00%

Audi Listed BSE $6.10 $6.00 1.67%

Audi (GDR) LSE $6.03 $6.00 0.50%

Byblos (C) BSE $1.67 $1.64 1.83%

Byblos (GDR) LSE $75.00 $75.00 0.00%

Bank of Beirut (C) BSE $18.80 $18.79 0.05%

BLC (C) BSE $1.69 $1.70 -0.59%

Fransabank (B) OTC $27.00 $27.00 0.00%

BEMO (C) BSE $1.55 $1.90 -18.42%

Mkt 11/03/2016 04/03/2016 % Change

Banks’ Preferred

Shares Index *

106.15 106.15 0.00%

Audi Pref. F BSE $102.70 $102.70 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 $101.10 0.00%

Byblos Preferred 09 BSE $101.40 $101.40 0.00%

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

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

BLOM Stock Index

HI: 1,236.40

LO: 1,108.49

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S A L

Real Estate

Mkt 11/03/2016 04/03/2016 % Change

Solidere (A) BSE $9.67 $9.69 -0.21%

Solidere (B) BSE $9.68 $9.67 0.10%

Solidere (GDR) LSE $9.45 $9.51 -0.63%

In the banking sector, the listed shares of Audi,

Byblos and Bank of Beirut added 1.67% and

1.83% and 0.05% to $6.10, $1.67 and $18.80,

respectively. The Global Depository Receipts

(GDR) of BLOM also added a weekly 0.50% to

$10.10. Meanwhile, the listed shares of BLC and

BEMO dropped by 0.59% and 18.42% to end the

week at $1.69 and $1.55, respectively.

Manufacturing Sector

Mkt 11/03/2016 04/03/2016

%

Change

HOLCIM Liban BSE $14.40 $14.40 0.00%

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

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

On another front, the BLOM Preferred Shares

Index (BPSI) steadied at 106.15 points this

week.

On the London Stock Exchange (LSE), Audi

GDRs saw a 0.50% weekly rise to $6.03, while

Solidere GDRs lost 0.63% over the same period

to settle at $9.45.

Retail Sector

Mkt 11/03/2016 04/03/2016 %

Change

RYMCO BSE $3.23 $3.23 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

The real estate sector saw mixed performance

this week as Solidere shares class “A” lost

0.21% to $9.67 while the class “B” rose 0.10%

to $9.68.

Tourism Sector

Mkt 11/03/2016 04/03/2016 % Change

Casino Du Liban OTC $323.00 $323.00 0.00%

SGHL OTC $7.00 $7.00 0.00%

In the industrial sector, HOLCIM shares went

down to $14.39 on Thursday following the trade of

1,603 shares of worth $23,071. However, the stock

price added 0.07% on Friday to close at last

week’s price of $14.40.

In the coming weeks, investors will most

probably remain on the sidelines in the absence

of any positive economic and political news.

However, any potential breakthrough in the

presidential crisis, or any positive developments

related to the diplomatic crisis with Saudi Arabia

may positively impact trading activity on the

BSE

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S A L

Money & Treasury Bills Markets

Money Market Rates

Treasury Yields

11/03/2016 03/03/2016 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

11/03/2016 03/03/2016 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 25th, broad Money M3

grew by LP 197B ($130.36M) to reach LP 185,947B

($123.35B). M3 registered a 5.24% yearly growth and a

0.35% year-to-date downtick. On the other hand, M1

regressed by LP 9B ($5.81M) over the mentioned period,

due to the decrease in money in circulation by LP 83B

($55.06M) in spite of the LP 74B ($49.09M) increase in

demand deposits. Total deposits (excluding demand

deposits) increased by LP 205.29B ($136.18M) during the

week, given the $268M expansion in deposits denominated

in foreign currencies and the LP 199B decrease in term and

saving deposits. Over the above mentioned period, the

broad money dollarization rate went up from 57.65% on the

18th of February to 57.81% on the 25th of February.

According to the Central Bank, the overnight interbank rate

remained steady at December 2015’s rate of 3.25%.

In the TBs auction held on the 3rd March, 2016, the Ministry

of Finance (MoF) raised LP 183.77B ($121.90M), through the

issuance of bills and notes maturing in 1Y and 5Y. The

highest demand was achieved on the 5Y notes, which

grasped a 75.67% share of total subscriptions, while the 1Y

bills captured the remaining 23.33%. The discount rate on

the 1Y bills stood at 5.35%, while the coupon rate on the 5Y

notes registered 6.74%. New subscriptions fell behind

existing maturities by LP 271B ($179.77M).

Foreign Exchange Market

Lebanese Forex Market

11/03/2016 04/03/2016 % Change

Euro / Dollar 1.1110 1.0962 1.35%

Sterling / Dollar 1.4280 1.4138 1.00%

Dollar / Swiss Franc 1.0129 1.0074 0.55%

Dollar / Yen 113.86 113.69 0.15%

NEER Index** 167.45 168.24 -0.47%

*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

increased over the past week as the value of the dollar

increased from $/LP 1,513.75-1,514.25 with a mid-price

of $/LP 1,514 to $/LP 1,514-1,514.50 with a mid-price of

$/LP 1,514.25. Foreign assets (excluding gold) of the

Central Bank inched up by 0.42% by the end of February,

to $37.17B. The dollarization ratio of private sector

deposits fell from 65.71% in 2014 to 64.88% in 2015.

By Friday 11th of March, 2016, 12:30 am Beirut time, the

euro appreciated against the dollar-pegged LP as the

exchange rate increased 1.35%, over the last week, from

€/LP 1,652.52 to €/LP 1,674.83. As for the Nominal

effective Exchange Rate (NEER), it depreciated by a

weekly 0.47% to 167.45 points, with a 0.56% year-to-

date decrease.

Nominal Effective Exchange Rate (NEER)

The Euro inched up by a weekly 1.35% against the dollar as

the President of the European Central Bank (ECB), Mario

Draghi, stated that no further interest rates decrease might

be needed. The euro’s progress this week mainly occurred

after the ECB lowered interest rates and expanded its

quantitative-easing program during Thursday’s meeting. This

coincided with a weaker dollar that declined due to

concerns that a global economic slowdown would decrease

the Federal Reserve’s capacity to tighten monetary policy.

Gains in the stock markets, after the ECB meeting, curbed

investors away from safe haven assets. This pushed down

demand for gold as reflected by the decline in its price from

last week’s $1,270.06/ounce to $1,263.86/ounce this week.

140

143

146

149

152

155

158

161

164

167

170

173

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

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S A L

Eurobond Market

Eurobonds Index and Yield

10/03/2016 03/03/2016 Change Year to Date

BLOM Bond Index (BBI)* 103.483 103.62 -0.132% -0.60%

Weighted Yield** 6.27% 6.23% 4 125

Weighted Spread*** 481 489 -8 51

*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

10/03/2016

Price*

03/03/2016

Price*

Weekly

Change%

10/03/2016

Yield

03/03/2016

Yield

Weekly

Change bps

2017, Mar - 9.000% 103.75 104 -0.24% 5.20% 5.03% 18

2017, Oct - 5.000% 99.5 99.63 -0.13% 5.33% 5.24% 9

2018, Jun - 5.150% 99.5 99.63 -0.13% 5.38% 5.32% 6

2018, Nov - 5.150% 99.25 99.5 -0.25% 5.45% 5.35% 10

2019, Apr - 5.500% 98.88 98.88 0.00% 5.90% 5.89% 0

2020, Mar - 6.375% 100.75 101 -0.25% 6.16% 6.09% 7

2020, Apr - 5.800% 98.63 98.75 -0.12% 6.18% 6.15% 4

2021, Apr - 8.250% 108.38 108.5 -0.11% 6.30% 6.28% 2

2022, Oct - 6.100% 97.88 98 -0.12% 6.50% 6.48% 2

2023, Jan - 6.000% 97 97.25 -0.26% 6.55% 6.50% 5

2024, Dec - 7.000% 102.25 102.25 0.00% 6.65% 6.65% 0

2025, Feb - 6.200% 96.88 96.88 0.00% 6.67% 6.67% 0

2026, Nov - 6.600% 98 98.13 -0.13% 6.86% 6.85% 2

2027, Nov - 6.750% 99 99.13 -0.13% 6.87% 6.86% 2

2030, Feb - 6.650% 97.5 97.75 -0.26% 6.93% 6.90% 3

Mid Prices ; BLOMINVEST bank

The Lebanese Eurobonds regressed over the past week with the BLOM Bond Index (BBI) decreasing 0.13% to 103.48 points. The

Lebanese gauge was outpaced by the JP Morgan Emerging Markets’ Bond Index which increased by a weekly 0.52% to 692.62

points.

Demand for both medium and long-term Lebanese Eurobonds declined as shown by the 5Y and 10Y yields that added 2 basis

points (bps) and 1 bp to 6.28% and 6.78%, respectively.

Similarly, demand for safe haven US treasuries fell over the past week as speculators expect the US Federal Reserve will increase

interest rates this year. Moreover, gains in the stock markets witnessed after the European Central Bank expanded its monetary

policy, curbed investors away from the safe haven assets. Hence, the 5 Year and 10 Year yields in the US increased from 1.33% and

1.83% to 1.45% and 1.93%, respectively.

Accordingly, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable narrowed from 493

bps and 494 bps to 483 bps and 485 bps, respectively.

5 Year Credit Default Swaps, Mid-Prices (in basis points)

5Y CDS 10/03/2016 03/03/2016

Lebanon 473 475

KSA 166 169

Dubai 218 225

Brazil 394 433

Turkey 256 281

5.00%

5.50%

6.00%

6.50%

7.00%

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

Weighted Effective Yield of Eurobonds

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S A L

ECONOMIC NEWS

Value of Cleared Checks by January (in $M)

Source: ABL

Total Number of Outstanding Payment Cards up

to September

Source: BDL

Number of Cleared Checks Declined by 2.46% in

January 2016

In January 2016, the total number of cleared checks slid by 2.46%

year-on-year (y-o-y) to reach 1.01M, coupled with a 1.36% yearly

decline in value to $5.77B.

The number of checks denominated in Lebanese Pounds edged

down by 0.41% y-o-y to 333,676, however, their value grew by

12.39% from $1.49B in January 2015 to $1.71B in January 2016.

The number of cleared checks denominated in foreign currency

decreased by 3.44% y-o-y to stand at 677,670 in January 2016.

Similarly, their value fell from $4.33B in January 2015 to $4.06B in

January 2016.

Accordingly, the dollarization rate of cleared checks (value of

foreign currency checks as a share of total value) declined from

74.40% in January 2015 to 70.39% in January 2016.

Looking at the number of returned checks, it dropped from 23,547

in January 2015 to 19,260 in January 2016, nevertheless their value

increased by 16.10% to reach $191M in January 2016. Therefore,

the value of returned checks constituted 3.31% of total cleared

checks in January 2016, compared to a prior 2.83% recorded in

January 2015.

Number of Payment Cards Increased by a Yearly 6.77%

by September 2015

Payment cards saw progressing appetite in 2015 following the

ongoing and aggressive retail campaigns of the Lebanese banks to

boost demand for alternative noncash payment methods. As a

result, the number of outstanding payment cards increased by a

yearly 6.77% to 2.55M in the first 9 months of 2015. The share of

total cards held by foreigners grew from 2.80% by September 2014

to 2.96% by September 2015.

This modest improvement in foreigners’ share was witnessed in

spite of the ongoing local and regional instabilities that took their

toll on non-residents’ sentiment over 2015. Debit cards remained

the most preferred amongst cardholders, accounting for 51.15% of

the total, as they were mainly destined for salaries’ domiciliation

and daily use. Credit cards came in second with a 21.65% stake,

followed by prepaid cards (21.20%) and charge cards (6.00%).

The progress of the cards’ retail market came in line with the 7.39%

yearly increase in the number of ATMs that reached 1,685 by the

end of September. Mount Lebanon saw the highest increase in the

number of new ATMs (+11.18% y-o-y) to settle at 537 in

$1,205 $1,246

$1,305 $1,479

$1,520 $1,709

$4,403

$4,663 $4,636 $4,680

$4,331

$4,063

2011 2012 2013 2014 2015 2016

Value of Local Currency Cleared Checks

Value of Foreign Currency Cleared Checks

1,778,357 1,839,782

1,979,108

2,390,507

2,552,338

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S A L

Balance of Payments by January (In $M)

Source: BdL

September 2015, followed by the North region that witnessed an

8.97% yearly growth in the number of cash dispensers to 170

ATMs during the first three quarters of 2015.

However, Beirut remained the most concentrated with ATMs

grasping 41.36% of the total. As for Point of Sales (POS) devices,

the number of contracts signed with merchants registered a 7.99%

yearly uptick to 39,715, while the total number of machines (manual

and electronic) grew by 4.93% y-o-y from 30,517 by September

2014, to 32,021 by September 2015.

Lebanon Started 2016 with a $719M Deficit in its

Balance of Payments

Lebanon’s Balance of payments (BoP) recorded a $718.7M deficit in

January 2016 compared to a lower deficit of $280.2M by January

2015.

The deterioration in the BoP is mainly linked to the decline in capital

inflows and Foreign Direct Investments (FDIs) as a result of the

ongoing domestic developments and the regional upheavals.

In addition, trade deficit also had an impact on the BoP’s as it

broadened by 20% in the first month of 2016. In fact, this

deterioration came about as the net foreign assets of commercial

banks declined by $763.5M beating the increase in those of the

Central Bank which added $44.8M in January 2016.

-289.8

382.5

-31.3

-280.2

-718.67

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

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S A L

Yearly Government Deficit by November (In $M)

Source: Ministry of Finance

Lebanon’s Fiscal Deficit Broadened 7.17% by

November in 2015

Fiscal deficit, for the first 11 months of 2015, widened by 7.17%

year-on-year (y-o-y) to $3.24B. This was attributed to the 5.63%

yearly decrease in government revenues outpacing the 2.62%

annual decline in fiscal expenditures.

However, during the same period, the total primary balance

displayed a surplus of $1.06B compared to a slightly lower primary

surplus of $1.03B by November 2014.

Total government revenues stood at $8.88B by November 2015,

compared to a higher level of $9.41B by November 2014. Tax

revenues slightly declined by 0.49% yearly to $6.42B. In details,

VAT revenues (grasping a 31.02% share of tax receipts) dropped

4.01% y-o-y to $1.99B, while custom revenues (19.57% of tax

receipts) added 1.27% to $1.26B, over the same period. As for

telecom revenues, they went down by a mere 0.67% y-o-y to

$1.17B after the Ministry of Telecommunication reduced internet

and mobile tariffs in June 2014.

Total government expenditures declined from $12.43B by

November 2014 to $12.12B in the same period of 2015. Regarding

transfers to Electricite du Liban, they dropped by 41.68% annually

to $1.06B, on the back of the continuous fall in oil prices. In

contrast, interest payments on government’s debt went up 5.80%

to $4.10B, due to the 9.24% rise in interest payments on domestic

debt to $2.60B, while interest payments on foreign debt steadied at

$1.50B.

1,950

3,484

3,982

3,024

3,241

Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

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S A L

Value of Kafalat Guarantees by February (in $)

Source: Kafalat

Breakdown of Passenger and Commercial Cars by

February

Source: AIA

The Value of Kafalat Guarantees Grew to $17.76M by

February 2016

According to Kafalat, the number and value of issued guarantees

increased from 87 and $10.48M by February 2015 to 118 and

$17.76M by February 2016. Accordingly, the average loan value per

project increased from $120,999 by February 2015 to $150,216 in

the first 2 months of 2016.

The top benefiting sectors from Kafalat, Agriculture (47.15%),

Industry (35.04%), and Tourism (13.68%), saw their guarantees

increase from 41, 29, and 9 by February 2015 to 54, 41, and 17

guarantees, by February 2016.

As for the regional breakdown, Mount Lebanon kept grasping the

majority of guarantees with a 39.32% share, followed by Bekaa

(28.21%) and the South (10.26%). The number of guarantees in

these regions went up from 40, 16 and 11 guarantees to 46, 33 and

12 guarantees, respectively.

In the month of February alone, Kafalat issued 64 guarantees worth

$9.83M this year compared to 47 guarantees worth $5.34M in

February 2015. Accordingly, the average value per project increased

from $113,625 in February 2015 to $153,655 in February 2016.

Number of Registered Cars Improved 14% by February

According to the Association of Lebanese Car Importers, the

number of newly registered commercial and passenger cars

improved during the first 2 months of 2016 by 14.23% year-on-year

(y-o-y) to 5,586 cars. This was triggered by the 13.7% yearly

increase in the number of newly registered passenger cars to 5,204

and the 22% rise in newly registered commercial vehicles to 382.

The global developments related to lower oil prices and

depreciating currencies against the dollar, mostly the Japanese Yen

and the Euro, led to a noticeable shift in car buyers’ demand in

Lebanon in favor of the Japanese cars. As a result, Japanese cars

were the most demanded cars in Lebanon in the first 2 months of

2016, grasping a 37.18% share of the total market. Meanwhile,

Korean cars saw their share, going up from 30.48% in 2015 to

33.80% in 2016. European cars maintained their third rank, however

with a lower market share of 23.94%, compared to 24.62% by

February 2015.

However and in terms of brands, Kia kept on holding the largest

share of the total newly registered passenger cars (20.47%),

followed by a 15.74% stake for Toyota. Nissan and Hyundai came

next in the ranking, as Hyundai grasped 13.12% of newly registered

passenger cars, while Nissan held 7.24%.

21,042,607

15,788,152

18,468,823

10,475,322

17,759,900

Feb-12 Feb-13 Feb-14 Feb-15 Feb-16

4,467 4,723 4930 4,577

5,204

372 315 375

313

382

2012 2013 2014 2015 2016

Passenger Cars Commercial Cars

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S A L

LIVCD Selected Activities

Increase rural incomes, support rural employment, and

expand export sales in processed foods, rural tourism,

floriculture, grapes, olive oil, apples, pears, avocados,

cherries, and a basket of rural agricultural products

including thyme, pine nuts, honey, and free range eggs.

Build linkages between farmers, producers, input suppliers,

processors, service providers, traders, transporters,

retailers, packers, distributors, exporters, and ending with

consumers.

Strengthen coalition of local actors to ensure that economic

benefits from rural tourism remain in those communities.

Facilitate access to markets and to financing opportunities

for rural actors through public-private partnerships and co-

investments in order to increase income of the rural

population and promote rural wealth creation.

Provide technical assistance to disseminate innovative

agricultural practices and technologies and build capacities

through customized training for micro, small, and medium

enterprises, and farmers.

Source: Business News

In terms of sales per importer, Natco acquired the biggest bulk with

a 19.07% of the total, followed by BUMC (16.09%), Century Motors

(12.39%) and Bassoul-Heneine (11.76%).

USAID Granted Olive Farmers’ Cooperatives 318

Mechanical Harvesters

As part of the Lebanon Industry Value Chain Development (LIVCD)

project, the United States Agency for International Development

(USAID) granted olive farmers 318 mechanical harvesters that run

on batteries. These mechanical harvesters, save time, decrease

harvest costs by 50%, and guarantee stable production throughout

the years. They protect olive trees from damage that occurs with

traditional harvesting methods.

Olive oil cooperatives are leasing the mechanical harvesters to olive

farmers for $20/day. The Chairman of the Olive Cooperative in

Nabatieh, Hassan Salameh, said that each 1,000 sqm costs $360 if

harvested by workers. This cost does not exceed $150 when

harvested mechanically.

LIVCD, a $42M USAID-funded project, aims at improving economic

stability, generating business opportunities, and creating jobs for

the rural population, in particular for women and youth.

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CORPORATE DEVELOPMENTS

4G Service V/S 4.5G Service

4G Service 4.5G Service

Grid's Speed 150 Mbps 300 Mbps

Data

Consumption

15,000

terabits 80,000 terabits


Selected JKD Projects

Built-up Area

(sqm) Cost($)

Majestic Hotel 20,000 20M

Villa John 1,300 2M


4.5G Mobile Internet Service Is Expected to be

completed in September 2016

As part of the Lebanese Ministry of Telecommunication’s 2020 5-

year plan, the mobile network Alfa, managed by Egypt’s Orascom

Telecom, has signed contracts with Ericsson and Nokia to set up

the 4.5G service all over the country. This will boost the grid’s speed

from the current 150 megabits per second (Mbps) to 300 Mbps. The

project will cost over $600M but it will be fully covered by the

budget of the Telecommunications Ministry. Worth mentioning that

according to the Telecom Minister, the cost to upgrade the

country’s mobile network to 4G ranged between $120M and

$130M.

The service will be established by September instead of the end of

2016, earlier than the previously mentioned deadline of end-2016.

According to the CEO of Alfa, Marwan Hayek, more than 30

companies, involving 5,500 individuals, will be working on this

project. Hayek also stated that 1,300 stations will be installed all

over the country and that annual data consumption will increase to

80,000 terabits by 2020, up from the current 15,000 terabits. The

new Internet speeds will allow the use of HD voice and HD video

streaming applications, in addition to other applications.

JK Development Launches New Hotels

Jean El Khoury, owner and partner in several hotels in Jbeil, has

launched new construction projects in Byblos and Laklouk to be

completed by 2017.

The Majestic Hotel is a four-star property to be built in Blat, Jbeil. It

will have a built-up area of 20,000 square meters (sqm). The project

will consist of 140 rooms, swimming pool, a gym and a spa.

Investment in the hotel is estimated to be around $20M.

Similarly, the development company had previously launched the

“Villa John” project, a furnished apartment hotel in Laklouk, built on

a 2,000 sqm land plot, with a built-up area of 1,300 m2. Investment

in the project was worth $2M, excluding the cost of the land.

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FOCUS IN BRIEF

Pharmaceuticals and Healthcare in Lebanon: Numerous Opportunities to Explore

In its most recent Pharmaceuticals and Healthcare report for Lebanon, Business Monitor International (BMI) issued

a “cautiously optimistic” outlook for the market over the coming years. BMI believes that demand for high-value

prescription drugs is driven by 3 factors: the government’s focus on facilitating access to healthcare services

across the country, the rising disease burden (defined as the number of disability- adjusted life years lost to a

disease in a particular country), and the high per capita healthcare spending. However, the upbeat outlook is

hindered by the heavy influx of Syrian refugees, by rising violence in the region and by the political stagnation in

the country.

According to BMI estimations, pharmaceutical sales in Lebanon reached $1.63B in 2015 and are expected to grow

to $1.75B in 2016. Healthcare spending was estimated at $3.59B in 2015 and is also expected to rise to $3.91B in

2016.

Lebanon’s Pharmaceutical Sector

The largely urbanized Lebanese population spends a lot on pharmaceuticals. BMI projects pharmaceutical per

capita spending to increase further from $279 in 2015 to $374 in 2016. Lebanon is likely to continue to disburse a

large portion of its GDP (3.22% by 2020) on pharmaceuticals over the medium term. This portion is the largest in

the MENA Region.

In its report, BMI identified four key reasons that explain why pharmaceutical and healthcare spending is so

sizeable in Lebanon. First, the private sector represents around 90% of Lebanon’s hospitals and pharmacies which

in turn facilitates the prescription of high-value pharmaceuticals. Second, prices are not competitive since the

more than 50 pharmaceutical importers operating in Lebanon are not sufficiently consolidated and operate with

fixed mark-ups. Third, Lebanon’s medical tourism segment is highly developed and fourth, Lebanon is highly

dependent on high-value imported pharmaceuticals.

However, BMI believes that the government is likely to continue to practice cost containment on drug prices,

therefore limiting the profit margins of multinational drug makers in Lebanon. In March 2015, the prices of 60

generic and 30 branded drugs were reduced. Also in 2015, Lebanon introduced a unified medical prescription form

in order to alleviate the cost of healthcare spending on consumers. The form, which is the same for patients,

pharmacists and healthcare providers alike, allows consumers to purchase the generic and cheaper version of the

patented drug they are looking to buy.

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However, much controversy has surrounded the release of this form. Some stakeholders in the sector believe that

doctors are prescribing original brand- drugs for which it is difficult to find a generic and more affordable

substitute. On the other hand, government officials hope that this form will prevent restricted medicines from

being sold without a prescription and will allow the consumer to sign a legal consent for their wish to switch from

a brand medicine to its generic twin.

According to BMI, the Lebanese pharmaceutical market is 95% dependent on finished pharmaceuticals. In fact,

the poor quality of intellectual property rights, the loose regulatory and legislation frameworks deter international

pharmaceutical companies from investing in direct manufacturing in Lebanon. Rather, multinational

pharmaceutical companies simply enter the Lebanese market by signing licensing agreements with local drug

makers. In BMI’s view, multinationals are also hesitant to launch the latest drugs on the market as “Lebanese

companies are allowed to register and market unauthorized copies of original innovative products, owing to the

lack of effective data exclusivity and patent linkage systems.”

As the large spending and prioritization of medicine in Lebanon is likely to drive market growth, some hindering

elements might come into play. BMI highlights that Lebanon’s proximity to war-plagued Syria will negatively affect

pharmaceutical trade relations. Moreover, the poor regulatory environment and the loose enforcement of rules are

also likely to limit growth prospects.

Lebanon’s Healthcare Market

Spending on medications constitutes over 40% of total healthcare expenditures which renders the healthcare

sector inextricably linked to the pharmaceutical market. As the Lebanese government seeks to put a cap on drug

prices, the growth of the healthcare sector is expected to slow over BMI’s 10 Years forecast period of 2015-2020.

The growth in health spending will likely experience a gradual drop from 8.91% in 2015 to 7.03% in 2020.

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The government is seeking to reduce the price of medication not only to allow higher access for the population

but also to alleviate the burden on public finances. Private healthcare is subsidized by the government through the

National Social Security Fund (NSSF) with government expenditure on healthcare expected to increase from

$1.83B in 2015 or 51.1% of total health expenditure to $2.71B in 2020 or 52% of total health expenditure.

However, that subsidizing process is problematic given that the NSSF has been suffering from a chronic deficit

and its future revenues are jeopardized by the aging of the population. As the government looks to increase private

sector contribution to the national social security scheme, BMI believes that it could lead to individuals favoring

private insurance programs.

Lebanon’s Patented Drug Market

The campaign promoting the use of generic drugs is fairly recent in Lebanon, therefore patented drug sales are

still dominant on the Lebanese market. In 2015, sales of patented drugs reached $800M and as such accounted

for 61.8% of prescription drug sales and 49% of the total market. BMI believes that the generic drugs are

perceived as inferior to patented drugs which leads to the estimate that patented drugs will still represent 51% of

total medicine sales in 2020 and 52.2% by 2025.

Lebanon’s Generic Drug Market

For the time being, generic drugs are marginalized on the market. In 2015, spending on generic drugs totaled

$494M or only 30.3% of the total market and 38.2% of total prescription drug sales. In 2016, the generic drugs

sector is expected to grow to $539M and will register a compounded annual growth rate (CAGR) of 8.2% over the

forecast period to reach $734M in 2020. According to the Health Ministry and BMI, 21% of generic medicines are

available and manufactured in Lebanon. In spite of this, consumer demand for generic drugs remains low for the

time being. However, that is likely to change when awareness campaigns take full effect and when consumers

realize that they could be saving significant amounts of money.

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Lebanon’s OTC Market

According to BMI, Over the Counter medicines are largely under promoted in Lebanon and their share in the total

market is expected to drastically decline for two main reasons: the first is the fact that prescription drugs are

taking over most of the market and the second is the enforcement of stricter manufacturing and promotional

requirements of herbal and nutritional products. Moreover, the Lebanese consumer is not one to seek self-

medication but would rather consult a doctor and get a prescription instead.

In 2015, the spending on OTCs amounted to $339M or 20.8% of the total market and will grow slightly to $343M

in 2016. Through 2020, the OTC market is expected to register a meager CAGR of 1% to reach $346M in 2020 and

will register only 15.7% of the total market.

The best-selling categories in the OTC segment are analgesics in first place and cough and cold treatments in

second place. BMI notes that Lebanon has the capacity to produce most of the basic OTCs domestically but

imports are still the consumers’ favorites. Most Lebanese opt for the painkiller Panadol from GlaxoSmithKline

instead of a local equivalent.

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Market Summary

According to BMI, Lebanon’s reliance on imports and lack of large-scale local pharmaceutical production is not in

favor of the patient in terms of healthcare costs. The promotion of generic drugs should be developed further and

the respect and protection of intellectual property rights ought to be established in order to attract foreign direct

investment in the country. For now, multinationals are cautious given the local and surrounding political turmoil.

Your Investment Reference

S A L

Research Department:

Sobhi Chatila [email protected]

Lana Saadeh [email protected]

Riwa Daou [email protected]

Myrna Chami [email protected]

Marwan Mikhael [email protected]

mailto:[email protected]

mailto:[email protected]

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