Of all the emerging markets in the Middle East, none looks quite as promising as Lebanon.
Although the damage caused by the country's 1975-1990 civil war was immense, the government has ambitious plans to remodel Beirut as the financial and commercial capital of the eastern Mediterranean. Vital to its plans is the renovation of the city's stock exchange, which is set to reopen today.
Government officials say the exchange, which stopped trading during the 1982 Israeli invasion of Lebanon, will be open to institutional or private investors from any country and will cross-list Arab stocks from other financial markets in the region, many of which are closed to outsiders. Under consultation with the Paris Bourse, the Beirut Stock Exchange (BSE) is expected to go some way toward re-creating Beirut's enviable prewar position as the premier financial gateway to the Middle East.
"We consider the stock exchange to be very important for Lebanon," explains Nasser Saidi, vice governor of the Bank of Lebanon. "We need a market to finance reconstruction - our banks don't have sufficient capital to finance the scale of projects required - and we also need a new role for Beirut. We have to become a regional capital market, attracting capital through Beirut to other countries in the area."
The government has preserved Lebanon's traditionally liberal financial conditions, including zero-rated capital-gains tax, full currency convertibility, guaranteed banking secrecy, and unrestricted movement of capital. Its aim is to attract $20 billion of private capital to the country, much of it held by Lebanese citizens living overseas. Some $6.5 billion of Lebanese money was repatriated last year, but ministers say that amount could easily grow.
"The incoming investment is still minimal compared to the possibilities available," says economics minister Yassine Jaber. "Part of the problem is the shortage of investment tools in the country. Investors have had very few choices. Now with the stock exchange opening, we anticipate that more money will start to flow." Western diplomats say a regional peace settlement with Israel could be the trigger. "There is a very real prospect of an avalanche of investment once the peace deal is signed," comments one senior diplomat in Beirut.
Business leaders see the BSE becoming a conduit for foreign funds to other emerging markets in the region, such as Syria, which is undergoing a cautious economic reform program. "The prospect of peace in the Middle East plays a great role in business confidence in Lebanon," says Adnan Kassar, president of Beirut's Chamber of Commerce. "The stock exchange will be first and foremost a place where Arab stocks are available to outside investors."
Despite the exchange's healthy prospects, trading is expected to begin slowly, in part because exchange officials have chosen to use a price-fixing system - in which shares are bought and sold within a price band. Brokers say that the fixing system will discourage speculative investment.
Further, the government has so far been reluctant to privatize enterprises that reverted to state ownership during the war, such as the electricity and telecommunications companies, the ports, and Beirut airport. While recognizing that private ownership would increase efficiency, ministers say that selling war-damaged, state-owned assets in their present state would not be profitable.
"The World Bank is advising us to privatize, of course," says Nohad Baroudi, secretary general of the Council for Development & Reconstruction, a superministry set up to oversee the rebirth of the country. "We are not at all against privatization; this is our ultimate goal. But we don't want to fall from a state monopoly to a private monopoly. We must have a monitoring body to oversee the privatization process."
The International Finance Corporation has estimated that $7 billion could flow into the BSE by the end of the century. But Lebanese brokers are more cautious. "It will be difficult to get trading moving," says Nabil Aoun, president of the Stockbrokers Association. "At the beginning, there will be a very narrow market. Until June 1996, we'll see a few cement companies listed, maybe the electricity company, and the Casino du Liban. In all, the capitalization will reach a maximum of $500 million."
Mr. Saidi says that the stock exchange is just the first step in the creation of a full-fledged capital market that would encourage international banks to return to the country. Already Dutch-based ING has begun Lebanese operations, while the American giant Citibank has pledged to return before year end. At present, about 80 banks operate in Lebanon. "Lebanon is one of the few countries coming out of a war trying to rebuild on its own," he says.