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H.E. Mr. Raed Khoury's Speech on Capital Markets

Date: 25 Apr 2017
Author: H.E Khoury, Raed
  Allow me first of all to thank Mr. Yasser Accaoui – Chairman of Capital Concept for inviting me to deliver a keynote speech in the opening ceremony of this Shareholder Rights Lecture Series. It gives me great pleasure to be here today especially that the lecture that will be delivered by Mr. Thomas Krantz on the regulation of markets and how it supports the world’s capital markets, is of great importance.   The capital market plays an important role in mobilizing savings and channeling them into productive investments for the development of commerce and industry. In fact, the capital market helps in capital formation, improves economic growth, provides for investment opportunities and affects the health and profitability of banks, insurers, and other financial institutions.   However, despite the important and numerous functions that capital markets can provide, they often are poorly understood and remain underdeveloped such as in the case of Lebanon. In fact, with the lack of active capital markets in Lebanon, banks have been providing the major source of financing to private companies.   Looking further into Lebanon’s case, and besides the presence of a strong banking sector providing a large spectrum of financing options, many reasons have led to capital markets not gaining momentum of which:
  • More than 95% of enterprises in Lebanon are small and medium sized family businesses that are not entirely open to the idea of exposing their companies’ ownership to outsiders.
  • The lack of laws and regulations requiring compliance, transparency and disclosure.
  As such, and as a first step to develop Lebanese capital markets, the Capital Markets Law 161 was passed in 2011 to create the framework that would establish proper regulations in order to protect investors. Yes, regulation is important and is key to the development of the market.   The Capital Markets Authority that was established within the framework of Law 161 is an independent authority with a wide mandate with one of its most important functions being the updating and the releasing of new regulations.   However, we believe that we need to build on the current progress that has been made so far by the CMA especially with regards to providing the right incentives for both businesses and investors to go public and enlist on the BSE as well as encouraging citizens to invest in capital markets .   In this context, we stress on the importance of creating an enabling business environment for businesses to grow and advance; in addition to developing a clear vision for the country under which the development of capital markets would fall. Moreover, the government should act as a facilitator, governance should be improved and a proper tax policy should be formed.   When I think of capital markets, the first thing that would come to my mind would be SMEs, especially that since my appointment as Minister of Economy and Trade, I have placed the development of small and medium enterprises on top of my priority list.   SMEs face several challenges in Lebanon, one of which being limited access to finance. These enterprises predominantly use short-term funding options including overdrafts, lines of credit and bank loans. Such sources can be valuable in the start-up stage but they do not provide the long-term financing required as companies mature or seek growth.   Therefore, Capital markets have an imperative role in:
  1. Bridging the financing gap that SMEs face through the provision of alternative funding sources, particularly as their needs evolve over the different phases of their life cycle.
  2. Providing an easier exit route for venture capital making it more attractive for VC investment.
  However, this does not come without challenges most notably:
  • The necessity of formalizing SMEs through official registration in public institutions as part of the requirements for accessing Capital Markets.
  • The cost for companies to list and remain listed on trading platforms is prohibitively high for most SMEs.
  For this reason, capital markets should be made part of a national strategy for SME support including initiatives such as tax incentives and government guarantees along with corresponding regulatory frameworks. This will pave the way to addressing these challenges. SMEs constitute a driving force for economic activity and therefore this national strategy is crucial.   Finally, I would like to thank you once again for having me here. I am looking forward to the talk by Mr. Thomas Krantz and to the lessons learnt from worldwide experiences on the issue of capital markets regulation. Perhaps, recommendations or next steps can result with regards to the capital markets in Lebanon.   Thank you.

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