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Country name: Republic of Lebanon
Population: 3,925,502 (July 2007 estimate)
Land Area: 10,452 km²
Official Language: Arabic with both English and French widely spoken
Currency: Lebanese Pound
Capital: Beirut
Lebanon has long been the convergence point of trade routes and the meeting place for a wide variety of people, the basis of the rich and diverse national culture that exists in the country today. It is a regional and international hub for trade, finance, services, industry, culture and tourism. At the centre of the Eastern Mediterranean, Lebanon is at the crossroads of Africa, Asia and Europe. Its location also accounts for the rich variety of climates and ecosystems.
Lebanon’s free-market investment policies, liberal economic environment and active entrepreneurial private sector are its distinguishing features. Enjoying a free foreign exchange market, full currency convertibility, complete repatriation of capital and a regulated banking secrecy law, Lebanon is a prime destination for foreign investment.
Investors can benefit from a sophisticated legal framework, which protects the rights and assets of both Lebanese and non-Lebanese investors. The country offers a wide array of investment opportunities in all sectors of its economy, including the requirements of reconstruction following the war of 2006.
Selecting Lebanon as a business base in the region enables access to a large and booming market. With a 15% corporate tax rate, Lebanon’s fiscal charges are among the lowest in the world. Lebanon’s principal asset is the competence of its people who have proven to be a well-educated, multi-lingual and multi-skilled workforce, considered to be one of the most qualified in the Middle East.
The negative impact of the 2006 war and intervention, although likely to be only temporary, had a profound effect on economic results for last year. For example, a negative growth rate of nearly 3% was recorded in 2006. Lebanon’s Finance Ministry estimated its losses at nearly $1 billion as a result of the eight-week war and blockade. The budget deficit jumped to 40.54% of total spending in 2006, compared to a deficit of 30.83% in 2005, Finance Minister Jihad Azour stated in November when he disclosed the 2006 budget. The minister stressed that the public debt could reach more than $41 billion at the end of 2006. "The negative impact of the war will not be confined to 2006, but will spill over to the coming few years as well," Azour warned. Unemployment is estimated at 20%, but could be higher. Inflation was estimated at around 5,3% in 2007.
Infrastructure damage from the conflict was estimated at around $2.8 billion. Real GDP, which was expected to grow by 5-6% in 2006, is estimated to have contracted by around 5.6%, which implies a loss of income of over $2 billion. Much productive capacity has been lost, and there has been a massive displacement of the population, including the exodus of many professionals. Accordingly, the costs in terms of foregone economic activity and income are likely to stretch well beyond 2006.
A large share of the cost of the war has been, and will continue to be, borne by the budget, in terms of reconstruction and recovery costs, foregone tax revenues, and the impact of higher market interest rates on debt service. The direct and indirect impact of the conflict on the budget in 2006 is estimated at roughly 5% of GDP. Although grants from donors equivalent to 2.5% of GDP have helped fill the gap, the overall deficit is estimated to have reached 14% of GDP in 2006. On current trends, the fiscal outlook for 2007 looks similarly difficult owing to the residual budgetary costs of the war and the slow recovery of the revenue base.
The Lebanese banking system has once again proved resilient, and by end-2006, all of the deposits lost during the conflict had been recovered. The ample liquidity cushion maintained by the central bank and commercial banks going into the war played an important role in preserving depositor confidence, as did the authorities' skillful handling of financial pressures, and the prompt financial support of Saudi Arabia and Kuwait in placing deposits of $1.5 billion at the central bank early on in the conflict. As a result, overall confidence in the financial system was maintained, and by September deposits began reflowing back into the system, with the government regaining access to market financing.
Plans for a new financial law to establish a capital market authority are progressing with the Parliament and banking sector reviewing the proposed new law. The new regulatory body is to take over the oversight of the stock market currently performed by central bank Banque du Liban. The new body will also seek to further develop the equity and debt markets.
Meanwhile, the Beirut Stock Exchange (BSE) is yet to feel the effects of the Paris III conference because of the ongoing political crisis, according to Beirut-based bankers.
In late January, Lebanon secured up to $7.6 million in Paris from international donors, which was widely viewed as a vote of confidence in its ability to tackle its public debt and start its reform program. The Paris conference was also expected to boost investment. However, the benchmark Blom Share Index (BSI) registered little movement between late January and March, rising by only 0.1 percentage points from 1,203.13 points on 29 January to 1,204.50 points on 12 March 2007.
Alongside slow trading in existing shares, new listings have been delayed. Share offerings in national-carrier Middle East Airlines (MEA) and Casino du Liban, expected to be launched on the BSE and on regional exchanges in 2007, have been delayed. MEA, hit hard by the July-August war, was originally to offer up to 25% of its shares and Casino was to offer a 51% stake to investors, held by the local Intra Investment Group.
Despite the recent destruction, the country still possesses one of the most advanced infrastructures in the region, including a state-of-the-art telecommunications system, electricity network, a new airport, enlarged and refurbished port facilities and an ambitious road rehabilitation program.
Lebanon is primarily a service economy, with services sector accounting for approximately 70% of the country’s GDP. Services represent the fastest growing sector, employing up to 40% of the labour force. Major Lebanese services’ sub-sectors in terms of exports to the EU are commerce, tourism and financial services. Banking plays a sizeable role in the Lebanese economy, with a value-added estimated at 4.5% of the GDP in 2003. Tourism contributes significantly to GDP growth and employment in the country. In 2004, Lebanon received 1.278 million tourists, (with an increase of 26% compared to 2003 figures), of which 27% are Europeans. Following a downward trend in 2005 and stagnation during the conflict in the summer 2006, prospects of tourism recovery appear encouraging.
Agriculture contributes nearly 7% to GDP and employs around 15% of the active population. Cereals (mainly wheat and barley), fruits and vegetables, olives, grapes, and tobacco are the main crops. Sheep and goats are also raised. Mineral resources are limited and are only exploited for domestic consumption. The manufacturing sector accounts for 21% of the GDP. The main industrial activity is building & construction and civil engineering, but other activities such as jewellery and food-processing are also well developed. Tourism is going through a strong growth phase as a result of huge investments. The IT (information technology) sector is also developing.
Lebanon proved its openness to international trade by signing an Association Agreement with the EU, by working toward accession to WTO, and by signing a free-trade agreement with the Gulf Cooperation Council (GCC) in May 2004. The current share of foreign trade in country's GDP is nearly 65%. The top three export partners of Lebanon are Iraq, Switzerland, and Syria. The commodities mainly exported are pearls & precious stones, electric & electronic equipment, iron & steel, salt & sulphur, and machinery. Its top three import partners are: Italy, France and Germany. Lebanon mainly imports mineral fuels & oils, vehicles, machinery, pearls & precious stones, and electric & electronic equipment.
Privatization is a key element of Lebanon’s overall economic strategy. The adoption of privatization is designed to enhance growth potential by introducing more competition and efficiency in the provision of key services, such as telecommunication and electricity.
Lebanon encourages technology transfers and the development of industries which carry out technology transfer in its free trade zones. Imports of machines, equipments, spare parts and building materials intended for the installation of new factories in Lebanon benefit from the exemption of customs duties. Different tax, financial and urban allowances have been implemented in the industrial sector in order to encourage production.
Furthermore, Lebanon privileges hotel trade and tourism sectors in order to boost the tourism trade. Consequently, imported hotel equipment benefits from customs duties exemptions provided that the exploitation period is a minimum ten years. Other incentives have been implemented in other sectors such as agriculture.
The Investment Development Agency of Lebanon (IDAL) provides support and assistance for investment matters.
Worldwide telecom company Ericsson established a global-services delivery centre in Beirut in August 2007 to provide services to local and regional costumers. The centre will service 70 countries in the region.
A new Islamic investment bank is to set up headquarters in Beirut. The Jousour Bank, owned by the Kuwait-based International Investors Group – IIG, will provide financial and investment services according to Islamic principles.
Horizon Management, together with Kuwait-based United Real Estate Company, is undertaking two new projects in Beirut. Excavation for a 220-room hotel at Raouche, Ras Beirut, is currently underway. On completion, the $45 million project will be under the management of international hotel-chain Kempinski. The second project is a five-star hotel and shopping mall in Verdun. This is estimated to require investment of $100 million.
Optimum Developments is to launch the Ehden mountain destination project. This will consist of two separate components with nature integration as a major feature.
KROUM is to be a traditional Lebanese commercial / residential mixed use village, a 120 room 5-star hotel, a residential spine offering a diversity of apartments and a medi-spa.
LES PARCS D`EHDEN is an eco village, hill lakeside cabanas and family dwellings, and a small convention centre. Both projects will complement the long awaited Ehden Eco Ski Resort, to be developed on a 40,000,000 m2 car-free domain accessed solely by a cable car departing from KROUM when it has been constructed.
The European Union is Lebanon's main trading partner accounting for some 43% of Lebanese imports and 11% of exports. With EU-Lebanon total trade amounting to €5.8 billion in 2006, in slight decline compared to previous years, Lebanon occupies the 51th rank in the EU's exports and the 118st in EU's imports. Bilateral trade in goods with the enlarged EU, mostly industrial, exceeded €3.0 billion in 2006, overwhelmingly accounted for by EU exports to Lebanon (€2.8 billion).
In 2006, the main EU exports to Lebanon consisted of machinery and transport equipment (29.8%), mineral fuels and related materials (24.7%), chemicals (8%), manufactured articles (11.9%) and foodstuffs and beverages (4.9%). EU imports from Lebanon consisted mainly of manufactured products (25.1%), machinery (13%), crude materials (18.7%) and chemicals products (8.5%). The main EU importing countries were France, Italy and Spain.
Along with Mediterranean partners, Lebanon took part in services and establishment negotiations with the EU at the Trade Ministers’ Conference in Marrakech, in March 2006. The region-wide negotiations cover both services and the right of establishment of non-services companies. They started in earnest in July 2006.
A rise in FDI is envisaged by the liberalization of services and establishment of companies in non-services sectors as a result of the Euromed negotiations. The European Union's policy towards the Mediterranean region as a whole is governed by the Euro-Mediterranean Partnership, launched at the 1995 Barcelona conference between the European Union and its 10 Mediterranean partners. The Barcelona Process involves extending free trade across the Mediterranean region through a network of bilateral agreements between the EU and individual Mediterranean partners together with free trade agreements (FTA) between the partners themselves, with the aim of creating a Euro-Mediterranean Free Trade Area by 2010. Lebanon fully participates in the European Neighbourhood Policy, with a jointly agreed Action Plan now deemed to set the priorities and work ahead.
Trade relations with the EU are now governed by the Association Agreement, in force since April 2006. An Interim Agreement on trade and trade-related provisions signed in July 2002 and in force since March 2003, governed trade relations previously. The Association Agreement establishes the necessary conditions for progressive and reciprocal liberalization of trade in goods with a view to establishing a bilateral FTA, and includes relevant provisions on customs cooperation, competition, protection of intellectual, industrial and commercial property, and services. As a result, since 1 March 2003, Lebanese industrial and most agricultural products (within the limits of tariff quotas) enjoy free access to the EU market, while the progressive elimination of tariffs on imports into Lebanon will occur between 2007 and 2014.
Quelle: Ghorfa, Arab-German Chamber of Commerce & Industry e.V.
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