LEBANON: ON ELECTION DAY, WILL MOBILE NETWORK BE

UNCLAS SECTION 01 OF 03 BEIRUT 000578

SIPDIS

SENSITIVE

STATE FOR NEA/ELA AND EEB/IFD/ODF
STATE PASS USTR FRANCESCKI
STATE PASS USAID LAUDATO/NANDY/SCOTT
TREASURY FOR PARODI/BLEIWEISS/AHERN
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR SHAPIRO/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN EAIR EIND PGOV KFLU LE
SUBJECT: LEBANON: ON ELECTION DAY, WILL MOBILE NETWORK BE
OVERLOADED? (ECONOMIC WEEK IN REVIEW, MAY 18 - 24, 2009)

CONTENTS
--------------

-- TELECOM PENETRATION RATE UP AFTER EXPANSION AND DROP IN COSTS
-- CONCERNS OF MOBILE NETWORK FAILURE ON ELECTION DAY
-- SHARP INCREASE IN FISCAL DEFICIT
-- CENTRAL BANK SEEKS TO STIMULATE SPENDING
-- INVESTMENT PROMOTION AGENCY RANKS "AVERAGE"
-- PIRACY RATE SLIGHTLY UP IN 2008
-- AMCHAM PROMOTES CORPORATE SOCIAL RESPONSIBILITY
-- SAUDIS BOOST TOURISM
-- PORK BAN STAYS FOR NOW



TELECOM PENETRATION
RATE UP AFTER COST
REDUCTION
--------------


1. (SBU) Following the reduction in mobile fees and charges by
Ministry of Telecommunications (MOT),Lebanese consumers have rushed
to acquire new mobile lines, now more affordable to low income
users. Advisor to MOT Minister Antoine Boustani told us the two
private companies managing the GOL-owned mobile network, MTC Touch
and Alfa, registered a total of about 400,000 new mobile users as of
January 2009. As a result, mobile penetration rose to 52% (compared
to 30% in December 2008.)


2. (SBU) Boustani told us MTC Touch and Alfa are expanding their
networks to reach gradually 400 base stations each by the end of
June in order to increase coverage to serve 1.2 million subscibers.
To avoid congestion on the network, bothcompanies are increasing
their subscriber base in line with the completion of new sites.

CONCERNS ABOUT MOBILE
NETWORK ON ELECTION DAY
--------------


3. (SBU) Meanwhile, a private sector telecom expert privately
expressed concerns to us about a possible disruption in service or
failure in the mobile telecommunications network on the June 7
election day, and its impact on elections outcome. Massive voter
turnout is expected for 2009 parliamentary elections, which for the
first time will take place on a single day, potentially overloading
the capability of mobile networks exceeding. Mobile network
problems on election day could impede the flow of information,
encourage rumors, and could cause chaos, the contact worried.


4. (SBU) With USG-designated Hizballah operating a parallel telecom
network, a breakdown in mobile networks could provide an advantage
to the opposition. Chairman of Telecom Regulatory Authority (TRA)
Kamal Shehadi told us he advised Telecommunications Minister Gebran
Bassil to stop expansion of the mobile base and instead start to
optimize the current network, equip polling stations with land lines
and pay phones, and provide the Lebanese Armed Force (LAF) and
police with radio equipment.

SHARP INCREASE
IN FISCAL DEFICIT
--------------


6. (U) Figures released by the Finance Ministry show that the fiscal
deficit reached $1.14 billion in the first quarter of 2009, up 92.5%
from the corresponding period in 2008. (Note: This is the highest
fiscal deficit recorded in the first quarter of any year since 2000.
End note.) The rise in the fiscal deficit is attributed to a 35%
increase in total budget and Treasury expenditures, mostly due to a
substantial rise in transfers to the national power utility EDL.


7. (U) Overall government expenditures reached $3 billion, while
total revenues reached $1.88 billion. The deficit to expenditures
ratio was 37.8% compared to 26.5% in the first quarter of 2008.
(Note: This is the highest deficit to expenditures ratio in the
first quarter of any year since 2003. End note.) Without
structural reforms, fiscal vulnerability will remain the main
weakness in the Lebanese economy.


BEIRUT 00000578 002 OF 003


CENTRAL BANK
STIMULATES
SPENDING
--------------


8. (U) The Central Bank has recently issued circulars providing new
incentives for commercial banks to lend to the private sector as
well as to increase education and housing loans. The circulars
cover interest rate subsidies on loans to productive sectors in
Lebanese pounds and foreign currency as well as decrease the reserve
requirements for commercial banks by sixty percent of the value of
loans extended in Lebanese pounds.


9. (U) Private companies in the fields of agriculture, industry,
tourism, handicrafts and information technology are eligible to
benefit from interest rate subsidies on loans to finance existing or
start new projects in Lebanon. According to prominent BLOM BANK
investment group, BLOMINVEST, this incentive package is expected to
increase loans to the private sector by one billion dollars and
boost growth by one to 1.5%.

"AVERAGE" INVESTMENT
PROMOTION AGENCY
--------------


10. (U) The World Bank Group's 2009 benchmark survey on the
effectiveness of investment promotion agencies in 181 countries
placed the performance of the Investment Development Authority of
Lebanon (IDAL) in the "average" category. The survey, jointly
produced by the World Bank, the International Finance Corporation
(IFC) and the Multilateral Investment Guarantee Agency (MIGA),
examined the effectiveness of government agencies in promoting their
countries to foreign investors. The assessments were conducted
between March and September 2008. IDAL, a public agency under the
Prime Ministry, is currently working on setting up the Investor
Support and Information Center (ISIC),a data bank that will provide
comprehensive, reliable, and up-to-date investment related
information to prospective investors.

2008 PIRACY RATE
SLIGHTLY UP
--------------


11. (U) The U.S.-based Business Software Alliance (BSA),an industry
group representing the world's leading computer software developers,
ranked Lebanon 63 worldwide and fifth in the Middle East and North
Africa region (MENA) in terms of piracy rate in 2008. The BSA
annual report indicated that Lebanon's piracy rate was 74%, slightly
up from 73% in the last three years (2005-2007). Lebanon also
posted the 68th highest piracy- related dollar loss worldwide and
eighth highest loss among the Arab countries. Piracy-related losses
totaled $49 million in 2008, up by 11.4% from $44 million in 2007.

AMCHAM PROMOTES CORPORATE
SOCIAL RESPONSIBILITY
--------------


12. (SBU) On May 19, the American Chamber of Commerce's Better
Business Group held a conference highlighting the importance of
Corporate Social Responsibility (CSR) and the correlation between
good corporate citizenship and positive business performance. CSR
consultant Gina Chammas listed the Brand Protection Group (BPG) --
formed by a group of local companies conducting nationwide campaigns
against counterfeit products since 2005 -- and the Lebanese
Intellectual Property Alliance (LIPA) -- an initiative to fight
software piracy that led to the destruction of 100,000 CDs valued at
$5 million -- as examples of CSR success stories.

SAUDIS BOOST
TOURISM
--------------


13. (U) According to Global refund, the tax refund operator for
international shoppers, tourists from Saudi Arabia spent the most in
Lebanon in the first four months of 2009, about 19 percent of total
tourist spending, followed by tourists from Kuwait and UAE (13%
each),and Egypt (8%). Fashion and clothing accounted for 67% of
total spending, followed by watches (11%),and perfume and cosmetics
(5%).

BEIRUT 00000578 003 OF 003



NO PLANS TO
RECONSIDER
PORK BAN
--------------


14. (SBU) Dr. Obeida Moudawar, Chief of Animal Health Services at
the Ministry of Agriculture (MOA) on May 22 told us the MOA has no
intention for the time being to change its April 27 decision banning
the importation of live pork and pork carcasses. There is no ban on
importing processed and manufactured pork products, he said.
Moudawar stressed that because Lebanon does not import live pork and
imports very little pork carcasses, the MOA faced little opposition
in passing the ban, a measure that sought to reduce panic among the
Lebanese population about swine flu. When the MOA has a clearer
picture of the extent of the pandemic, it may reconsider the
decision, Moudawar said.

SISON