Lebanon: opportunities and privileges awaiting promised reforms

A Competitive economy

Lebanon would be the most liberal investment oasis in the Middle East if all necessary reforms to enhance the economy competitiveness are set and enforced, given the very few restrictions in place, the low taxes on companies and the competitive fiscal system, the free market based on private sector. Moreover, the banking sector represents the backbone of the Lebanese economy, and contributes to boosting growth as well as to reduce the negative effects of regional turmoil and the world economic recession.

Local and foreign investors benefit from a competitive business environment that is underpinned by specialized and competent labor force. Indeed, Lebanon ranked 19^th worldwide in terms of education quality, and 6^th worldwide in terms of the quality of mathematics and sciences. The business environment goes hand in hand with culture, civilizations diversity and multiple languages and leisure opportunities in a Mediterranean climate with exceptional touristic sites and up to date health services. Being at a crossroad between Europe, Asia and Africa, Lebanon provides an easy access to Arab, regional and world markets.

 

Investment incentives

Investors benefit from a series of exemptions and tax reductions during the incorporation phase and the first years of operation. By virtue of Law no360, the Investment Development Authority of Lebanon provides financial and non-financial incentives to investment projects in the sectors of agriculture, agro-food, industry, Information Technology, media, technology, communication and tourism.

Two kinds of incentives are also available; the first one is fit to large projects having a major impact on providing job opportunities. Facilities depend on the volume of investment, job opportunities and targeted sectors, as projects are granted the following privileges:

-     Full exemption of fees related to land registration, and an exemption up to 10 years from the revenue taxes and taxes on projects’ dividends.

-     Delivering all categories work permits, and a reduction up to a maximum of 50% of work and residency permits fees, and of construction permits fees.

With regards to the second kind of incentives, they are linked to regions and appropriate for small and medium size projects. They are designed to provide support to projects in regions facing economic and social challenges, according to the geographical location, the size of the project and the targeted sector. Such projects are fully exempted for a period of 10 years from income taxes resulting from the project, and from the tax on the projects’ dividends, in addition to a facilitated access to work permits of all categories.

Sectors attracting investments

The major promising sectors that should draw the interest of investors are those sectors that rely on the economic competitiveness of the country, and that are usually underpinned by three main pillars being high level education, nice climate and a developed and robust banking sector. Building on the above, the greatest opportunities lie in the therapeutic tourism sector, especially in the specialized medical rehabilitation centers, as well as in the sectors of conventional and digital media, Communication and Information Technology, software and e-commerce, food and beverage. Moreover, the non- saturated large development needs of the economy, in particular for various public services, create themselves considerable opportunities for inflowing investments.

 

Evolution of investment projects according to the top 10 sectors between 2012- 2016 (US$m)

 

Source: World Bank Doing Business 2017

 

Major countries investing in Lebanon in 2012-2016

Ibid.

 

Lebanon represents an investment destination for Arab countries, as UAE take the lead of incoming investments during the period 2003-2016, that reached $US 7.76 billion representing 64.8% of the total of invested projects. They are followed by Kuwait with a value of $US 2.05 billion accounting for 17.1% of projects, then KSA with $US 1.9 billion at 15.9% of projects, Qatar with $US 104.5 billion at 0.9% of projects. Egypt, Iraq and Jordan follow with investments worth of $US 15.1 billion each, and Oman for the value of $US 12.6 billion[i].

Distribution by sectors showed that the real estate sector has attracted $US 7,58 billion in the period 2003-2016, representing 63.3% of the overall Arab investments in Lebanon. It is followed by the tourism sector with 27,8%, minerals at 2,5%, financial services at 2,3% and the leisure sector at 0.8%.

 

Reforms needs

Public spending policies should undergo a comprehensive revision, and waste and corruption should be reduced. Moreover, structural problems need to be radically dealt with, especially the electricity crisis, public services, infrastructure while carrying on with enforcing reforms at all levels. It is of paramount importance to work seriously in cooperation with the private sector to elaborate a new and clear vision for the economy, in order to achieve an accelerated and sustainable growth that meets future expectations and to gain a better competitive position. In fact, recent indicators issued by the World Bank show a distortion in some important and necessary areas for business performance.

 

Lebanon’s ranking in the World Bank indicators for ease of doing business for 2017 among 190 countries

 

Source: World Bank Doing Business 2017