The risks of Investing in Lebanon
Stock-Markets / Analysis & Strategy Nov 17, 2006 - 08:41 PM GMTBy: Nadeem_Walayat
Following the withdrawal of Israeli forces in 2000, Lebanon experienced a boom in construction as the war ravaged country was rebuilt. A large amount of this reconstruction was destroyed during the war and reoccupation of Lebanon by Israel during 2006. More than the loss of infrastructure, the country has suffered a loss of financial confidence and a slump in stock prices, as once more Lebanon is destablised by political uncertainties as the country divides along religious lines such as the Shites, Sunnis, Druse and the Christians .
As a result of the war, Lebanon's economy is expected to contract sharply this year, with the government budget deficit expected to grow sharply during 2007 as the country attempts to rebuild some of the destroyed infrastructure. The economy is forecast to rebound during 2008, but there are major political risks that are showing signs of the country once more drifting towards civil conflict between the countries major religious factions. With Iranian and Syrian backing for the Shiites (HIzbollah), who are demanding greater say in the government of Lebanon. Western government support for the Sunnis, Druse and the Christians, and a pattern of Israeli intervention in Lebanese affairs, the crisis could quickly become another proxy war.
On the plus side, countries have been lining up to donate millions of dollars towards the reconstruction of Lebanon, the latest being Italy which declared $38 millions towards the rebuilding of bridges. With foreign investment, especially from the arab world, to continue to flow into the country, as a consequence of the extra wealth generated by the high oil prices.
The Beirut Stock Exchange has lost some 35% this year, and continues to mark time whilst the political situation continues to cause uncertainty. However, this does represent a long term opportunity, IF another civil war can be avoided. And that is a BIG IF. If the civil war is avoided and the situation settles down then the prospects for Lebanon's growth are huge, as a financial and trading centre for the region.
How to get a foothold into Lebanon ?
the safest way would be via a unit trust fund or investment trust stock. Which manage investments in a range of companies in the country and thus spreading the risks. Though many of the existing funds such as the
: The Lebanon Fund
are fixed-capital closed-ended fund designed for the portfolio investor, requiring minimum subscriptions of $100,000. Banks such as HSBC do offer investment products that invest in the middle east including Lebanon as part of the portfolio, where low initial investments are taken of £5,000 or $5,000.
The favored sectors of the Lebanese economy are banking and finance, so a direct investment into one of the big banks is an alternative.
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