Latest Business Reports: UNCTAD Issues Recommendations; Lebanon Still Showing Strength Supporting En

Wednesday, February 27, 2019
Opinion by Jean AbiNader

Anyone who wants to keep current on economic and financial happenings in Lebanon should subscribe to the work of the Economic Research & Analysis Department (ER&AD) of Byblos Bank. On a weekly basis, the Department looks at economic indicators, capital markets, and the latest business news with a detailed perspective that is very helpful. It also publishes a country risk weekly bulletin with regional and global statistics in sufficient detail to gladden the heart of any analyst! The most recent issue contains useful news for those wanting to know how Lebanon’s economy is doing.

UNCTAD Investment Climate Report

The latest Investment Policy Review by the UN Conference on Trade and Development (UNCTAD) assesses current investment climate in Lebanon. The assessment was done at the request of the Lebanese government, which is preparing to launch significant investment promotions for proposed CEDRE-funded projects. The ER&AD summary said that the review encompassed “several areas of the policy framework that affect local and foreign investors, including land registration, taxation, competition, governance, and the environment, among others.”

With Lebanon’s continuing efforts to engage the Lebanese overseas communities, and billions of dollars at stake in reforms required by international donors, the Hariri government and its Ministry of Foreign Affairs and Emigrants want to demonstrate that significant efforts are underway to identify obstacles and remedy them.

For anyone who has tried to purchase, transfer, or sell property in Lebanon, the hurdles can be enormous and costly, according to UNCTAD. It recommends that the government simplify and make transparent regulations for titling property. As with other needed reforms, the review calls for an electronic database of property registration to make clear what steps are required for domestic and foreign buyers, whose purchases fall under a different set of regulations.

Another area that can benefit from digital reformation is tax collection and compliance, which is “weak” in Lebanon. Although there are laws on the books, the enforcement of the levies is uneven, subject to corruption by public officials, unclear, and in many cases obscure as well. Investment codes for investors are similarly opaque in many cases and subject to manipulation. To counter these weaknesses, the review “encouraged authorities to conduct to assess the relevance of incentives [for investors], to introduce guidelines on transfer pricing, and amend the investment law to make incentives automatic, based on predetermined, clear, and objective criteria.”

Others areas of concern are the lack of mechanisms to promote competition (and restrict monopolies), and the perception that corruption is “one of the most significant deterrents to business in the country.” The review went further and “noted that understaffing and the lack of transparency in the judiciary affect the enforcement of contracts.” A major concern is the impact on public contracts, bidding procedures, and the need for a legal and institutional framework to fight corruption.

Lebanon’s Entrepreneurship Environment

Another contradiction Lebanon shares with countries in the region and Africa is that it has an active entrepreneurial class that has little effective support from the government, which would not be a problem except that start-ups and expanding companies need to have access to financial and legal expertise if they are to succeed and generate jobs. As reported in the recent RE&AD Lebanon summary, Lebanon placed 35th among 54 countries worldwide and fifth among the 12 economies in the Middle East and North Africa (MENA) region in The 2018 Global Entrepreneurship Monitor.

Lebanon’s score of 4.65 points (with 10 being the highest ranking), was similar to the MENA average but lower than the global mean of 5.0 points. While this placed Lebanon above Bulgaria, Russia, and the Dominican Republic, it ranked lower than Egypt, Columbia, and Uruguay. In the availability of financing for entrepreneurs, Lebanon came ahead of France, South Korea, and Italy, and third in the Middle East and Africa behind Qatar and Israel. Looking at the indicator of government support for entrepreneurs globally, Lebanon placed ahead of Greece, Bulgaria, and Puerto Rico, and behind Peru, the UK, and Madagascar.

What is especially interesting is that the ranking for how colleges, business schools, and vocational centers provide education on entrepreneurship. Lebanon scored well, behind only Qatar, Madagascar, and the UAE among Middle Eastern and African countries, and ahead of Canada, Slovenia, and Russia among all countries ranked. Hopefully the positive indicators reflect a sound basis for growing the economy in Lebanon, especially with the implementation of reforms called for under the CEDRE funding regime.

Engineering and Construction Sector

A final bit of good news. Although one of Lebanon’s most important sectors, it is one that is riddled with a lack of transparency, corruption, influence by politicians, and outdated procurement processes. The government recently signed an MoU with the Lebanese Contractors Syndicate of Public Works and Buildings and with the Orders of Engineers & Architects of Beirut and Lebanon “to launch an electronic system for the classification of contractors, and of engineering and consultancy firms in Lebanon.”

Bringing a degree of transparency into this sector is one of the conditions following the CEDRE conference so as to rationalize qualifications and streamline decision-making. The agreement is for a unified electronic system to be used by government agencies and departments to classify engineering firms in 12 categories to limit favoritism in the tendering process. “Also, the electronic system aims to promote transparency and to ensure the effectiveness of the evaluation of companies, as well as the quality standards in engineering projects.” It will replace a system going back to 1966!