What is your view of the current state of the economy in Lebanon?
MICHEL KOZAH Today, Lebanon is living on remittances that mostly come from expatriates living all over the world. A portion of these remittances goes into savings in banks, and the country is growing its bank deposits. However, banks use this money to buy treasury bonds from the government, which are needed to finance the public budget. Lebanon spends USD5-6 billion per annum just to finance its budget deficit. The country's economy is not growing in real terms. Debt is increasing and has officially reached USD80 billion. Yet, it is likely higher than this because there is no auditing of the figures. However, there is light at the end of the tunnel. The first thing we have to do is stamp out corruption, which is hard to do. There is no international oversight currently simply because most of Lebanon's debt is internal, not external. We received USD11 billion from the EU in 2018. It is a step forward, having international partners force us to carry out reforms. The second step is to start the privatization process, which needs to happen quickly, especially within the electricity segment. The government has to sell this asset, even if it gives it away for nothing, so that a private partner can come in and make electricity a profitable enterprise. Lebanon owns a great deal of gold, and this gold backs up our debt, economy, central bank, and our ratings with international ratings agencies.
NAFEZ RIAD AL MORHABI We expect to see mergers and acquisitions taking place, mostly in the banking sector. Given the size of Lebanon, we have too many banks. In regard to insurance, it is a little more difficult. Logically, M&As should happen in the banking and insurance sectors. The problem we are facing is that, since family businesses tend to have an ego, it is hard to have them working under the same name, especially in such a small market. 64 banks and financial institutions in a small country like Lebanon are not sustainable. We started to see some acquisitions taking place, such as like BLOM Bank acquiring HSBC, though this could happen at a faster pace. We are now working on preparing a white paper with the head of financial institutions in EMEA about what happened in different countries that had similar situations when it comes to M&As, and what the pros and cons of these M&As have been. We are trying to do some benchmarking and hopefully take it up to the Central Bank. When it comes to regulation, Lebanon has many outdated regulations. Things that are basic in more advanced countries these days are still lagging behind here. For the first time, we started hearing about this changing. The Prime Minister is speaking about amending laws, updating them and making them in line with global legislation. I do not know how easy this will be; however, finally we are exposing the issue to the people.
A major focus of your business is creating business plans, including feasibility studies. How do you go about gathering data in Lebanon?
MK We try to get all our data for our business plans and related studies from desk searches that we do internally, as well as from a variety of different organizations. Sometimes we conduct market research and partner with Statistics companies. We also try to get data from banks' research departments. Most banks put out a publication every month. For everything to do with financial advisory services in Lebanon, the number of players in the market is limited. Most players work in the human resources segment finding jobs for Lebanese executives abroad and other consultants work on the marketing side. In the financial advisory segment, there are perhaps less than 10 players.
How does KPMG contribute to demonstrating transparency in all levels of the economy?
NRAM We see more companies, including universities and institutions, requesting a Big Four name on their audit reports. When they deal with international parties and demonstrate they are working with the Big Four, this gives them more credibility. One of the things that we are trying to look for is double sets of books; the Lebanese market is much smaller than what it should be, because we do not work with people who keep two sets of books. One of the ideas we are considering is helping the Ministry of Finance to improve the tax collection and put the necessary laws in place to avoid keeping two sets of books. If we achieve this, it will be something great.