Lying at the eastern end of the Mediterranean Sea, with Syria to the north and Israel to the south, Lebanon has been at the centre of many Middle East conflicts. Following the 1975-90 civil wars, its government stockpiled debt on account of its bid to reconstruct its damaged infrastructure. The country’s public debt is estimated at more than 150% of GDP in 2017, according to the IMF. Seven years into the Syrian crisis, the conflict has aggravated Lebanon’s economic plight, with the country receiving an estimated total of 1.5 million refugees since 2011. This has further exacerbated the economic slowdown and intensified social unrest in Lebanon. Despite the recovering from its political issue, IMF expects the country’s economic growth to remain low, at around 1.5% in 2018.
The Lebanon Crisis Response Plan (LCRP) 2017-2020 was launched jointly by the Government of Lebanon and its international partners such as United Nations High Commissioner for Refugees (UNHCR), UNICEF and WHO, in effort to respond to the challenges arising from the refugee crisis, provide assistance to both the refugees and Lebanese, and reinforce the country’s economic and social stability. LCRP received more than US$1 billion funding in 2017, from pooled funds such as Lebanon Humanitarian Fund (LHF), the Multi-Donor Trust Fund (MDTF) managed by the World Bank, and governments of the United States and Germany. Safer water access to more than 1.3 million individuals has been achieved and almost half of the funding has been injected into the Lebanese local economy while the remaining is used to finance some stabilisation and humanitarian projects. In 2018, LCRP appeals for US$2.68 billion funding with the objectives to protect vulnerable populations and achieve social stability.
The Lebanese economy is service-oriented, functioning as a financial hub for the Middle East, thanks in part to its free market system and banking secrecy laws. Services account for 73% of Lebanon’s GDP, followed by industry (21%) and agriculture (6%). Banking and tourism are the two important pillars in the services industry. Tourism has seen slight recovery with 10.9% yoy increase on tourist arrivals in the first 11 months of 2017 and hotel occupancy rates averaged at 64.4%, the highest since 2010.
The election of President Michel Aoun in October 2016 after a presidential vacancy of more than two years, along with the subsequent formation of a unity government, is seen as helping political stability and conducive for a recovery in inward FDI. Yet, a number of the major economic reforms in Lebanon have been put on hold in light of the Syrian war and the continual violence in the country. In November 2017, the sudden resignation of Prime Minister Saad al-Hariri has negatively impacted Lebanese economic stability and put pressure on its foreign exchange reserves.
Lebanon’s central bank will continue with its stimulus package in 2018 by providing subsidised loans to key sectors such as industry, agriculture and technology in order to spur growth. Following its latest consultation with Lebanon, the IMF recommended a consolidation strategy under which the country should work towards fiscal consolidation while putting its debt repayments on a sustainable path.
Lebanon imports mineral fuels, food and beverages, electrical/electronic and pharmaceutical goods as well as cars, mostly from China, Italy, France, the US and Germany, while exports jewellery, chemicals and consumer goods, mostly to South Africa, the Gulf states and Switzerland. China has remained the largest import source of Lebanon since 2013.
Lebanon is a member of the WTO and the Greater Arab Free Trade Area (GAFTA). Its import tariffs are among the lowest in the Middle East and North Africa (MENA) (under 5% for most items). It has signed free trade agreements with many trade blocs, including the EU, European Free Trade Association, Gulf Co-operation Council (GCC) and the Mercosur. In April 2016, Lebanon joined the Agadir Free Trade Agreement (AFTA) to gain greater access to the EU market (other AFTA members include Egypt, Jordan, Morocco, Tunisia and Palestine).
Lebanon has expressed a keen interest in China’s Belt and Road Initiative, seeing itself as a gateway to the Arab world. Al-Fayhaa Union of Municipalities, a union of three municipalities in Lebanon, signed an agreement with the Silk Road Chamber of International Commerce (SRCIC) in November 2017 for an active role in the BRI.
The Investment Development Authority of Lebanon (IDAL) is the investment promotion agency of Lebanon. Focused sectors for investment promotion include agriculture, agro industry, industry, information technology, media, technology, telecom and tourism. Information on investment climate and incentives provided is available on IDAL’s website.
Despite continual regional disturbances, Lebanon’s inward FDI increased by 9% to US$2.56 billion in 2016. Cumulative FDI reached US$61 billion as of 2016, up from US$44.3 billion in 2010. According to China’s Ministry of Commerce, China’s FDI stock in Lebanon in the period of 2010-2016 increased from US$2.01 million to US$3.01 million.
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