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The Lebanese “Wind of Change” - Feb. 2020

October 17, 2019 is known as the starting date of the WhatsApp revolution in Lebanon, where the minister of communication issued a mind-blowing tax on FREE WhatsApp chatting services.

Most Lebanese joined massive demonstrations all over the country and in major cities of the world, where the Lebanese flag conquered the international media.

The state was paralyzed since then and the economy entered into a dramatic trauma. Lebanon must urgently decide on how to deal with fast-approaching debt payments on March 9, including a $1.2 billion Eurobond.

Lebanon’s public debt is equivalent to a record close to 160% of its GDP. Lebanon CDs reached a record unprecedented highs, indicating how alarming the credit default risk is.

After the formation of the new government, a modest decline in the default risk occurred, which is the beginning of some hope being spread out in the midst of this political turmoil. Hopefully, in the next few months, this will start retracing the gains previously made as the new government tackles the upcoming obstacles with serious decision making process, integrity and honesty.

The demonstration’s outcome was beyond expectations, the agony of state corruption by the rulers since 1982 was undoubtedly vibrant, the banking system proved to be dishonored as well, the central bank had its share of criticism due to th­e massive violations in the absence of any transparent budget and state financial facts. Add to this, all political parties admit their fiasco to resolve the state economic difficulties.

Banks are imposing capital controls on access to cash and blocking transfers abroad, the Lebanese pound has slumped, prices are rising and firms are shedding jobs or cutting wages.
Lebanon needed crucial and major structural reforms, Prime Minister Dr. Hassan Diab and his government accepted to undertake the challenge and tackle all duties to overcome the current crisis.

Lebanon is being known as a great survivor, the Lebanese private sector and the Diaspora are two major parameters in the formation of the new Lebanon.

The banking sector needs a complete renovation of its miscarried business model of lending to the government for unreasonable rates, hence updated financial practices and banking regulations are inevitable.

The Central Bank must implement a new framework to regain trust from the international community by issuing a periodical transparent regulatory reporting system.

Old political generation and war time parties will become history, and will be replaced by new political leaders from outside the war Lords group.

On the other side of the coin, in maximum 5 years’ period, and due to the tight limitation of imports, the industry will enjoy a golden age, especially food and medical manufacturing.

Agriculture will be a major player on the stage if the government bans imports of competing agricultural products into the market and support the local crops through all seasons.

The devaluation of the local currency will accelerate exports especially to Iraq, GCC, EU and other countries.

Local banks provided $49.8 Billion commercial and mortgage loans to the private sector by end of 2019. The most convenient process for the borrowers to settle their loans is to exchange real estate assets with certified local transfers. This will help consuming a large number of stagnant properties in the real estate market and will open new opportunities for new developments.

Clearly, Solidere Shares appreciated 70% of the lows while major Banks lost more than 80% of its value as investors rally up to transition from banking into more tangible assets such as real estate. This could lead to investors paying a premium to acquire real estate assets compared to money in the banks.

If we look at the bond price of Lebanon, given the rise in the bond prices, it will be hard to keep yields and interest rates at those levels which forecasts a cut in interest rates as (hopefully) the market starts to stabilize within the next few months.

Add to all the above, Oil & Gas exploration in block 4 will start by the end of February 2020, the reserves are expected to exceed expectation as per the main contractor’s preliminary analysis.

The reconstruction of Syria will accelerate the transit activities thru Sea, Land and Air Transport. Not to mention the involvement of the Lebanese technical labor force and managerial experts.

Local and international investors are excited to participate in Infrastructure projects on a B.O.T basis, while private and public partnership program (PPP) is expected to cover major transportation, telecom and environmental projects.

Finally, keeping an eye on March 2020’s payment, it is a real financial crisis done by most governments since 1982, but let’s work hard side by side, just the way we did during the Israeli aggression in 2006 and after every tragic event for the past 5 decades, our country will overcome this corruption turbulence as usual.

Thanks to our young generations who joined hands and gave the radical Middle East and the world, a lesson in civilized and peaceful protests like never been before in the area and most advanced countries, quoting from Scorpions band and their classic: “Wind of Change”.

“The future's in the air
I can feel it everywhere
Blowing with the wind of change”

Abdallah Hayek P.E
CEO, Hayek Group
Feb. 2020

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