Lebanon

Lebanon

Lebanon: Market Profile

Picture: Lebanon factsheet
Picture: Lebanon factsheet

1. Overview

The Syrian crisis has strained Lebanon’s public finances, service delivery, and the environment. However, GDP growth in 2016 is estimated to have undergone a slight acceleration to reach an estimated 1.8%, compared to 1.3% in 2015. The acceleration was driven by an improvement in the real estate sector and an increased number of tourist arrivals. Nonetheless, economic activity remains well below potential, inhibited by decidedly volatile geopolitics and security conditions.

Source: World Bank, BMI Research

2. Major Economic/Political Events and Upcoming Elections

June 2017
New electoral law approved by Parliament after much delay.

July 2017
Hezbollah and the Syrian army launched a military operation to dislodge jihadist groups from the Arsal area, near the border with Syria.

November 2017
Prime Minister Hariri resigned in a televised address from Saudi Arabia. He withdrew his resignation a month later.

Source: BBC country profile - Timeline

3. Major Economic Indicators

Graph: Lebanon real GDP and inflation
Graph: Lebanon real GDP and inflation
Graph: Lebanon GDP by sector (2016)
Graph: Lebanon GDP by sector (2016)
Graph: Lebanon unemployment rate
Graph: Lebanon unemployment rate
Graph: Lebanon current account balance
Graph: Lebanon current account balance

e = estimate, f = forecast
Source: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Lebanon merchandise trade
Graph: Lebanon merchandise trade
Graph: Lebanon major export commodities (2016)
Graph: Lebanon major export commodities (2016)
Graph: Lebanon major export markets (2016)
Graph: Lebanon major export markets (2016)
Graph: Lebanon major import commodities (2016)
Graph: Lebanon major import commodities (2016)
Graph: Lebanon major import markets (2016)
Graph: Lebanon major import markets (2016)

Source: WTO, Trade Map, BMI Research

4.2 Trade in Services

Graph: Lebanon trade in services
Graph: Lebanon trade in services

Source: WTO

5. Trade Policies

  • Lebanon’s lack of productive, export-led industries results in a wide current account deficit which will not narrow given the pressure on export growth caused by disruption in major trade partners, travel sanctions imposed by Gulf states, and domestic political deadlock. Businesses face supply chain disruption due to the ongoing conflict in Syria, which has closed off overland trade routes, while additional concerns emanate from Lebanon's current exclusion from the WTO.
  • Import tariffs - The average tariff rate on imports to Lebanon is 2.8%, the third-lowest regionally out of 14 countries for which data is available and low on a global comparison. Tariffs are highest on fruit and vegetable products and beverages and tobacco, but most intermediate inputs and many finished goods face competitive tariff rates. The fact that Lebanon is not a member of the WTO poses risks that tariffs could be hiked unilaterally with no recourse for the country's trade partners, but Lebanon's reliance on imports and commitment to free trade makes such action unlikely.
  • Customs and non-tariff barriers - There are few non-tariff barriers to trade from Lebanon, with less than 1% of exports and imports subject to additional requirements such as phyto-sanitary certificates, import licencing or technical standards certificates. The customs process has been largely digitised and updated to remain in line with international standards, easing the trade process.
  • Lebanon’s import-reliant economy generally offers an open environment for international trade, with few major regulatory, tariff or customs barriers impeding trade flows. The Lebanese economy is highly reliant on international trade, with most growth in trade value driven by imports, due to the strength of private consumption and the relative lack of domestic manufacturing industries. The government operates an open policy with regard to trade and both tariff and non-tariff barriers are low, encouraging greater trade flows.

Source: WTO - Trade Policy Review, BMI Research

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. Greater Arab Free Trade Area (GAFTA): GAFTA was declared within the Social and Economic Council of the Arab League as an executive programme to activate the Trade Facilitation and Development Agreement that has been in force since January 1, 1998. On January 1, 2005 the elimination of most tariffs among the GAFTA members was enforced.

  2. EFTA (Switzerland, Norway, Iceland and Lichtenstein): Switzerland is a key trade partner of Lebanon, although trade with the other member states is much more limited. The EFTA-Lebanon FTA covers trade in industrial and agricultural goods, the latter covered by agreements concluded bilaterally between each EFTA state and Lebanon, forming part of the instruments creating the free trade area. The agreement also contains substantive provisions on intellectual property, competition and dispute settlement and covers certain aspects of services, investment and government procurement.

  3. EU-Lebanon Association Agreement: The Association Agreement is part of the Euro-Mediterranean Partnership which aims to foster trade and investment links between the EU and the southern Mediterranean. It allows tariff-free access to the EU market for Lebanese industrial and agricultural goods, and cheaper access to imports from three of Lebanon's top five trade partners (Italy, Germany and Greece), reducing input costs for Lebanese businesses.

  4. US (Trade and Investment Framework Agreement): The US and Lebanon signed into force the Trade and Investment Framework Agreement (TIFA), with the aim of regulating all commercial matters between the two countries and strengthening bilateral trade. This includes a wide range of trade and investment issues such as market access, intellectual property rights, and labour and environmental issues. The TIFA will also help in growing commercial and investment opportunities by identifying and working to remove impediments to trade and investment flows between the two countries. This will create more opportunities in a key market for businesses in Lebanon.
Source: WTO Regional Trade Agreements database, BMI Research

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Lebanon FDI stock
Graph: Lebanon FDI stock
Graph: Lebanon FDI flow
Graph: Lebanon FDI flow

Source: UNCTAD

7.2 Foreign Direct Investment Policy

  1. There are relatively few barriers to FDI in Lebanon, as the government actively encourages foreign investment in the majority of industries. The only remaining barriers exist in terms of some localisation and job creation requirements, particularly if businesses wish to benefit from incentive programmes, the dominant presence of SOEs in a few sectors, and limited foreign ownership restrictions. In general, the foreign investment regime is one of the most open in the MENA region, making Lebanon an attractive location for businesses were it not for the pressing domestic political situation and wider regional insecurity.

  2. Localisation requirements - In order to obtain an employer work permit to run their business, investors must contribute at least USD67,000 of upfront capital and hire three Lebanese workers within the first six months of setting up operations.

  3. State-owned enterprises - SOEs do not have a dominant position across the Lebanese economy, though they do have monopolies in the power and aviation sectors, limiting foreign involvement. While some private power providers have been granted licences to generate and distribute electricity in recent years, the national airline, Middle East Airlines, retains a guaranteed monopoly in air travel until 2024.

  4. Foreign ownership restrictions - There are restrictions on management participation, as Lebanese nationals must comprise the majority of company board members. In addition, acquisition of over 3,000 cubic metres of real estate by a foreigner requires cabinet approval, and foreigners may not own more than 3% of land in a single district.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce, BMI Research

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
IPZ Zone A: Coastal areas including Beirut. Minimum investment of USD200,000 (IT, media, technology, communication); USD1.5 million (agriculture); USD2 million (agri industry); USD5 million (industry); USD10 million (tourism)Work permits available for all categories of employee. Exemption from corporate income tax for two years if 40% of company shares are listed on the Beirut Stock Exchange (BSE).
IPZ Zone B: Central inland areas. Minimum investment of USD200,000 (IT, media, technology, communication); USD1 million (agriculture); USD1.5 million (agri industry); USD3 million (industry); USD4 million (tourism)Work permits available for all categories of employee. 50% reduction of corporate income tax and tax on dividends for a five-year period. Exemption from income tax for further two years if 40% of company shares are listed on the BSE.
IPZ Zone C: Northern and southern inland areas. Minimum investment of USD200,000 (IT, media, technology, communication); USD500,000 (agriculture); USD1 million (agri industry, industry, tourism)Work permits available for all categories of employee. Exemption from corporate income tax and tax on dividends for 10 years. Exemption from income tax for further two years if 40% of company shares are listed on the BSE.
Package Deal Contract: Eligible for large projects located anywhere in the country. Minimum requirements: investment of USD400,000 and creation of 25 jobs (IT, media, technology, communication); investment of USD2 million and creation of 50 jobs (agriculture); investment of USD3 million and creation of 60 jobs (agri industry); investment of USD10 million and creation of 100 jobs (industry); investment of USD15 million and creation of 100 jobs (tourism)Exemption from corporate income tax and tax on dividends for 10 years. Up to 50% reduction on residence and work permit fees. Up to 50% reduction on construction permit fees. Work permits available for all categories provided two Lebanese nationals are employed for every one foreign national. Exemption for requirement to include 50% Lebanese nationals on board of directors. Exemption from land registration fees.

Source: US Department of Commerce, BMI Research

8. Taxation – 2018

  • Value added tax: 11%
  • Corporate income tax: 17%

Source: PwC Taxes at a Glance 2017

8.1 Important Updates to Taxation Information

  • Lebanon's budget, approved in October 2017 (the country's first since 2005), contains a number of tax increases which have been proposed in order to fund a public sector pay rise. This includes a hike of the corporate income tax rate from 15% to 17%, an increase in VAT from 10% to 11%, as well as further taxes on bank deposit interest, financial transactions and real estate sales.

  • Director of Bank Audi, Freddie Baz. The tax changes have been challenged in court but are still likely to pass in some form, increasing the fiscal burden on businesses, though it should be noted that the corporate income tax rate remains competitive on a global comparison.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax
17% on operating profits
Branch Remittance Tax10% on repatriated profits
Withholding tax15% if deemed operating profits are above 10%
Corporate Income Tax on contractors - companies involved in government projects15% if deemed operating profits are above 5%
Corporate Income Tax on contractors - insurance companies20% on gross salaries
Corporate income tax on companies involved in exploration and production of hydrocarbons20% on profits
Capital Gains Tax10% on profits from sale of assets
Interest and Dividends10% withholding tax, and 5% for bonds, debts, deposits and guarantees
Royalties, management fees, technical fees7.5% on net earnings for non-residents
10% for residents
Transfer Tax6% on net earnings
Stamp Duty0.3% of share capital
Value Added Tax11% on sales value of products
Social security contributions- 7% sickness and maternity contribution on monthly salaries up to LBP2,500,000

- 6% family allowances on monthly salaries up to LBP1.5 million

- 8.5% end-of-service indemnity on monthly salaries

9. Foreign Worker Requirements

9.1 Refugee employment restrictions

Lebanon's large refugee population faces structural disadvantages in the job market due to outdated legislation which makes it difficult for refugees to join the formal labour force. In particular, Lebanese law treats refugees from the West Bank and Gaza as normal foreign workers. This means that in order to gain employment, they are required to meet the condition of reciprocity of treatment for Lebanese workers in their home state - a situation which is impossible to reconcile given the lack of legal status of the West Bank and Gaza. Applications for work permits must also include copies of a passport, which many refugees do not own, as well as medical reports and formal employment contracts, which are difficult for refugees to obtain.

9.2 Foreign worker permits

Foreign workers are required to obtain prior approval from the Ministry of Labour before taking up employment in Lebanon. Foreign workers must have entered into a formal employment contract, and present this along with a medical report, passport, application form, and information about the employer.

9.3 Visa/travel restrictions

Israeli citizens are not permitted to travel to Lebanon and any person with an Israeli entry stamp in their passport will be refused entry.

Source: Government websites, BMI Research

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B3 (Stable)26/08/2017
Standard & Poor'sB- (Stable)01/11/2013
FitchB- (Stable)01/09/2017

Source: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
122/189126/190133/190
Ease of Paying Taxes Index
45/18967/190113/190
Logistics Performance Index
82/160N/AN/A
Corruption Perception Index
136/176143/180N/A
IMD World CompetitivenessN/AN/AN/A

Source: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank81/202
Short-Term Economic Risk Score5451.750.8
Long-Term Economic Risk Score52.952.656.2
Political Risk Index Rank141/202
Short-Term Political Risk Score47.547.546.7
Long-Term Political Risk Score55.453.953.9
Operational Risk Index Rank124/201
Operational Risk Index Score44.243.943.0

Source: BMI Research

10.4 BMI Risk Summary

ECONOMIC RISK
The Lebanese economy will post uninspiring growth over the coming years as key sectors, such as tourism, real estate and construction, continue to suffer from the impact of regional unrest. With the highest current account deficit in the region, Lebanon is certainly one of the economies most at risk from regional instability. In addition, Lebanon has one of the highest debt levels globally, pointing to significant refinancing risks.

OPERATIONAL RISK
Lebanon's appeal to investors is severely undermined by the country's exposure to a range of wider regional security risks, the most pertinent being the ongoing conflict in neighbouring Syria. This has had a negative effect on trade growth as many overland connections are inaccessible due to high risk of clashes occurring in border regions, and military blockades. The influx of Syrian refugees is placing unmitigated pressure on already struggling logistics networks and social services, and elevating the high unemployment rate, creating fertile grounds for political instability.

Source: BMI Research

Graph: Lebanon short term political risk index
Graph: Lebanon short term political risk index
Graph: Lebanon long term political risk index
Graph: Lebanon long term political risk index
Graph: Lebanon short term economic risk index
Graph: Lebanon short term economic risk index
Graph: Lebanon long term economic risk index
Graph: Lebanon long term economic risk index

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Lebanon Score43.047.950.040.643.0
MENA Average47.449.348.148.443.9
MENA Position (out of 18)119
101212
MENA Average47.449.348.148.443.9
MENA Position (out of 18)119
101212
Global Average49.849.849.3
50.049.9
Global Position (out of 201)124112
98
129152

100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Lebanon vs global and regional averages
Graph: Lebanon vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk Index
Crime and Secruity Risk Index
UAE73.867.879.672.575.1
Qatar66.363.963.167.870.5
Bahrain64.158.468.571.158.5
Oman63.251.059.866.475.4
Saudi Arabia61.863.061.863.259.2
Jordan58.054.959.159.758.3
Kuwait55.352.351.751.166.2
Morocco53.639.862.055.257.2
Tunisia47.142.352.446.946.7
Egypt45.846.046.453.537.4
Lebanon43.047.950.040.633.6
Iran42.948.738.351.233.3
Algeria39.944.031.739.844.2
West Bank And Gaza33.746.436.830.221.5
Libya28.344.426.029.313.5
Syria28.142.930.026.412.9
Iraq27.343.725.228.811.5
Yemen21.630.623.017.315.6
Regional Averages47.449.348.148.443.9
Emerging Markets Averages46.848.047.545.846.1
Global Markets Averages49.849.850.049.349.9

100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Lebanon


2017
Growth rate (%)
Number of Lebanese residents visiting Hong Kong813
-8.0
Number of Lebanese residing in Hong KongN/AN/A

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of Middle East residents visting Hong Kong129,816
0.3
Number of Middle East people residing in Hong KongN/AN/A

Source: Hong Kong Tourism Board, BMI Research

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Lebanese companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Treaties and agreements between Hong Kong and Lebanon

Lebanon and China have a Bilateral Investment Treaty which came into force in July 1997.

Source: nvestmentpolicyhub.unctad.org

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Commercial and Economic Section in Hong Kong
The Arab Chamber of Commerce & Industry (ARABCCI) was established in Hong Kong 2006 as a leading organisation at promoting commercial ties between Hong Kong/Greater China and the Arab World.

Address: 20/F, Central Tower, 28 Queens Road, Central, Hong Kong
Email: info@arabcci.org / secretariat@arabcci.org
Tel: (852) 2159 9170
Fax: (852) 2159 9688

Source: www.arabcci.org

11.5 Visa Requirements for Hong Kong Residents

A visa will be granted upon arrival and the maximum duration of stay is 3 months.

Visa on arrival only available if travelling as tourist and holding a telephone number and address in Lebanon.

  • Tourist groups (minimum of eight people) can obtain a visa on arrival at Beirut (BEY), for a max stay of six months, provided sponsored by a registered tour operator in Lebanon.

  • Maids of those accredited to Lebanon can also obtain a visa on arrival.

  • Holders of a written notification issued by the Lebanese Immigration Directorate confirming that a visa is available, can obtain a visa on arrival at Beirut (BEY).

  • Holders of passports containing any Israeli visa or stamp will be refused entry.

Source: www.doyouneedvisa.com


Saudi Arabia - Waterfront Project

Middle East
Location: Lebanon, Saudi Arabia
Sectors: City Planning
Capital Required (USD):
$ 65,000,000,000