LEBANON: STOCKS SOAR/INVESTMENTS PICK UP FOLLOWING

UNCLAS SECTION 01 OF 03 BEIRUT 000772 SENSITIVE SIPDIS STATE FOR NEA/ELA STATE PASS USTR TREASURY FOR MNUGENT AND SBLEIWEISS USDOC FOR 4520/ITA/MAC/ONE NSC FOR ABRAMS/SINGH/YERGER/DEMOPOLOUS E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: LEBANON: STOCKS SOAR/INVESTMENTS PICK UP FOLLOWING POLITICAL AGREEMENT (ECONOMIC WEEK IN REVIEW, MAY 19 - 25, 2008) CONTENTS -------------- -- STOCKS SOAR AFTER ANNOUNCEMENT OF POLITICAL AGREEMENT -- POLITICAL STABILITY BOOSTS INVESTMENTS AND TOURISM -- BEIRUT PORT LOSSES ESTIMATED AT TWO MILLION DURING WEEK-LONG CRISIS -- WTO ACCESSION BY SPRING 2009; USAID FUNDING REMAINS A NECESSITY -- LEBANON IMPROVES IN GLOBAL PIRACY RANKING, VALUE OF LOSSES INCREASE -- IMPLEMENTING DECREE FOR PHARMACEUTICAL REGISTRATION LAW PASSED, COPYCAT REGISTRATION REMAINS AN ISSUE -- FINANCE MINISTER FORECASTS THREE PERCENT GDP GROWTH FOR 2008 -- ...WHILE THE IMF FORECASTS THREE PERCENT GROWTH AND HIGHER INFALTION IN 2008 -- MERRILL LYNCH UPGRADES EXTERNAL DEBT RECOMMENDATION TO "MARKET WEIGHT" STOCKS SOAR AFTER ANNOUNCEMENT OF POLITICAL AGREEMENT -------------- ¶1. (SBU) Prices of Lebanese stocks soared on the Beirut Stock Exchange (BSE) on May 21 and 22 after Lebanese political leaders reached an agreement in Doha. Real estate consortium Solidere and some bank shares reached the BSE cap on daily price fluctuations. The market saw some profit-taking on May 22, and prices of shares stabilized on May 23. Total value of transactions remained substantial compared to the average daily value of trading, and the BSE recorded a new record in number of transactions on May 22. BSE president said international foreign funds, mostly western, are also investing in Lebanese instruments, and he expects "the momentum to remain positive, with some profit taking at certain levels." POLITICAL STABILITY BOOSTS INVESTMENTS AND TOURISM -------------- ¶2. (U) With the lifting of the sit-in, Beirut downtown district (Solidere) came back to life. Restaurants were full; expectations about a prosperous summer were high, and investors are again moving forward with their projects. Kuwaiti CEO of Levant Holding returned to Beirut to re-start a $1.3-2 billion "Phoenician Village" project, consisting of attraction centers, restaurants, and shops in Solidere. Owner of high-end apparel store Aishti, Tony Salameh, will inaugurate a Fendi designer store in Solidere next week, with future plans including a new 32,000 square meter department store in Beirut downtown. ¶3. (U) Tourism Minister Sarkis said on May 22 that tourism this summer will exceed the Ministry's earlier expectations, developed prior to the recent events. He said that several aviation companies informed the Ministry that they are considering operating additional flights to meet increased demand by tourists and expatriates coming to Lebanon this summer. He also said the schedule for the annual Beiteddine Festival (in the Druze-dominated Chouf region) will be publicly announced next week. BEIRUT PORT LOSSES ESTIMATED AT TWO MILLION DURING WEEK-LONG CRISIS -------------- ¶4. (SBU) On May 20, Chairman of the Beirut Container Terminal Consortium (BCTC) managing the Port of Beirut Ammar Kanaan told us that losses in projected revenues for the port during the week-long crisis were estimated at $2 million. Earlier press reports in French language daily L'Orient le Jour had quoted an undisclosed source as saying that Beirut Port losses were as high as $7 million each day. WTO ACCESSION BY SPRING 2009; USAID FUNDING REMAINS A NECESSITY -------------- ¶5. (SBU) Advisor to Minister of Economy and Trade (MOET),Lama Oueijan, believes that Lebanon's accession to the WTO is possible by spring 2009. Oueijan told us May 20 that the next Working Party meeting will be held in July 2008, and expects negotiations to conclude by year end. Oueijan expressed concerns about availability of USG funds for the WTO accession project. Oueijan made a strong BEIRUT 00000772 002 OF 003 pitch for additional USAID technical assistance funding. "There is enough progress to justify continuing USG support for this project," she said, adding that USTR believes renewal of the USAID contract is a good step. Oueijan argued that Lebanon is now in the accession phase, and the next phase entails training of government staff (ministries of Agriculture and Industry, customs, others) on post-accession requirements. Embassy view has been that the GOL has not made sufficient progress to justify additional USAID funding, although in part that has been the result of the closure of Parliament, preventing legislative action on some key provisions. LEBANON IMPROVES IN GLOBAL PIRACY RANKING, VALUE OF LOSSES INCREASE -------------- ¶6. (U) In the Business Software Alliance (BSA)'s annual report on piracy, Lebanon ranked 37 out of 108 countries with the highest piracy rate worldwide in 2007, an improvement from 2006 when Lebanon was ranked 30. Within the MENA region, Lebanon ranked six in 2007; Lebanon has been in third place since 2003. Lebanon's piracy rate remained constant at 73 percent since 2005. Meanwhile, piracy-related losses totaled $44 million in 2007, up 12.8 percent from $39 million in 2006. The BSA has been waging an anti-piracy campaign in Lebanon since Parliament passed the intellectual property rights law in 1999. IMPLEMENTING DECREE FOR PHARMACEUTICAL REGISTRATION LAW PASSED, COPYCAT REGISTRATION REMAINS AN ISSUE -------------- ¶7. (SBU) During its last session on May 5, the Cabinet approved the implementation decree for the 2003 Law 530 on the Import, Registration, Marketing, and Categorization of Pharmaceutical Products. This constitutes an important step forward in terms of improving registration and import conditions, and at the same time, MOET sources have told us that the decree is WTO-compliant. On the other hand, some private sector research-based pharmaceutical companies have noted their reservations in that the decree did not incorporate their recommendation of requiring that drugs be registered in "reference countries" before they are considered to be registered in Lebanon. One source at Janssen-Cilag argued that this will allow copycats and drugs of doubtful standards to remain in the Lebanese market. FINANCE MINISTR FORECASTS GDP OVER $28 BILLION FOR 2008, THREE PERCENT GROWTH -------------- ¶8. (U) Finance Minister Jihad Azour stated on May 21 that he expects real GDP growth to reach three percent in 2008 and 4.5 percent in 2009, while inflation was estimated at 2.2 percent for the next three years. Azour projected Lebanon's GDP at $28.4 billion in 2008, $30.4 billion in 2009, and $32.5 billion in 2010. Meanwhile, government expenditures should represent 30.7 percent of GDP in 2009 and 27.5 percent of GDP in 2010. Debt servicing should also decrease from 12.1 percent of GDP in 2009 to 10.8 percent of GDP in 2010, Azour noted. ...WHILE THE IMF FORECASTS THREE PERCENT GROWTH AND HIGHER INFLATION IN 2008 -------------- ¶9. (U) In its semi-annual economic outlook for the Middle East and Central Asia region, the IMF estimated Lebanon's real GDP growth at three percent in 2008, down from four percent in 2007. Other 2008 IMF estimates for Lebanon included nominal GDP at $26.8 billion, 5.5 percent inflation, government revenues at 22.8 percent of GDP, and public expenditures at 34.1 percent of GDP. The IMF projected the current account deficit at 9.8 percent of GDP for 2008, down from 10.7 percent in 2007, whereas public debt is expected to decrease to 166.5 percent of GDP by end of 2008, compared to 170.6 percent of GDP at end of 2007. MERRILL LYNCH UPGRADED LEBANON'S EXTERNAL DEBT RECOMMENDATION TO "MARKET WEIGHT" -------------- ¶10. (U) Merrill Lynch (ML) updated its recommendation on Lebanon's external debt to "market weight" in its new model portfolio of emerging markets debt for May, due to the positive political BEIRUT 00000772 003 OF 003 developments resulting from the Doha agreement. ML had retained its recommendation of Lebanese external debt at "underweight" since April 2007. Now Lebanon is in the same category as Argentina, Columbia, Mexico, and Russia. SISON