Doing Business in Lebanon – On the Ropes
On November 4, the Center for International Private Enterprise (CIPE) held a webinar “Lebanon: Economic Recovery Prospects.” The Lebanese Minister of Economy and Trade, Amin Salam, alongside private sector representatives including Fady Gemayel, the President of the Association of Lebanese Industrialists (ALI), provided statistics, case studies, and scenarios that would support rebuilding the economy and attracting foreign investment. Yet, the chances of measurable success are nil unless there are drastic reforms made by the government to stabilize the currency, decrease public spending, and restructure the banking industry.
The challenges of Lebanon’s economic collapse are illustrated in the Country Commercial Guide to Lebanon published by the US Department of Commerce in September. It contains seven sections. The first, “Doing Business In,” provides key information for determining if Lebanon is the right business destination for a company. There are four subsections: overview, challenges, opportunities, and entry strategies. There is not a lot of good news but a lot of aspirations.
A business asks itself two questions when looking for new markets: what are my risks, and how do I get my money out? There are no easy answers to these questions when it comes to Lebanon.
It all begins with the money: the Lebanese pound. What is it worth, can it be used for purchasing overseas supplies, can it be exchanged favorably with other currencies, and is there a banking system that is reliable and ready to help build businesses? While the Commerce Department Report touches on opportunities for US companies in many areas, they are conditioned upon several fundamental ifs. For example, if they can get the needed licenses, customs clearances, financing, etc., and if the country adopts the reforms needed to perform as a functioning member of the global economy.
In international business, most exporters do not look at the total population of a country as a potential market, but instead they focus on the middle class who can afford imported products and services. In the days of financial engineering, Lebanese people could aspire to a lifestyle built on the Central Bank’s borrowed funds and time; that scheme collapsed in 2019. Now, the middle class is rapidly declining due to barely accessible bank deposits, hyperinflation, disappearing employment, and inadequate compensation, not to mention higher costs of education, health care, and transportation.
A report published by the Economic & Financial Analysis Department at Byblos Bank noted that “corruption and a lack of transparency continue to cause frustration…other impediments include bureaucratic over-regulation, institutionalized corruption, arbitrary licensing decisions, complex customs procedures, outdated legislation, an ineffectual judicial system, high taxes and fees, elevated telecommunications charges, slow internet speed, poor electricity provision, inconsistent interpretation of laws, and weak enforcement of intellectual property rights… and fragmented and opaque tendering and procurement processes.”
The Report does commend Lebanon for its legal underpinnings of a free market economy, a highly educated work force, and limited restrictions on investors. The bottom line is best reflected in the statement, “The IMF estimated 2020 nominal GDP ($18.73 billion) was the lowest in the Middle East, below Libya and Yemen.” It is incomprehensible that Libya and Yemen, economic basket cases in the throes of armed conflict, rank higher than Lebanon. And yet they do.
Part of any successful program to attract foreign investment is the ability to assure investors that their funds, innovations/intellectual property, and assets are safe, especially from arbitrary actions. The same goes for individuals and organizations – their rights to work freely, without fear or coercion, and to have a forum for exchanging ideas that is shared country-wide are a function of a country’s rule of law regime. In Lebanon’s case, this underscores the importance of an independent judiciary, mentioned frequently as an action that should be taken by the government.
The World Justice Project’s Rule of Law Index for 2021, according to a review by Byblos Bank’s Research & Analysis Department, ranked Lebanon in 104th place among 139 countries, a drop of eight places from 2020. The scores and rankings of each of eight factors and 44 sub-factors are based on opinion polls of the general public and a survey of legal professionals. The survey covered 1,000 respondents in Beirut, Sidon, and Tripoli. “Lebanon’s score came lower that the global average score and the Arab countries [in the survey] average score.” It ranked above Sudan, Mauritania, and Egypt; behind the UAE, Jordan, Tunisia, Algeria, and Morocco, the other Arab countries in the index.
While this is discouraging, there is more positive news in that Lebanon ranked third among Arab countries in terms of Open Government and Fundamental Rights, falling behind in Absence of Corruption and Criminal Justice. Both reports, on Doing Business and Rule of Law, point to flaws in Lebanon’s system of governance that can be remedied with sufficient political will. Lebanon has the capacity and the talent. The country will emerge from its current set of crises when the talent and energy of the people is seen as an asset, rather than a threat or merely a source of remittances. It is up to the Lebanese to right themselves, and the world will cheer their progress.
The views and opinions expressed here are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon.