Lebanon

Lebanon

Lebanon: Market Profile

Picture: Lebanon factsheet
Picture: Lebanon factsheet

1. Overview

Lebanon has a long tradition of domestic free trade and investment policies, with free market pricing for most goods and services, an unrestricted exchange and trade system, and extensive links with the developed world in practically all economic activities. The government continues to favour a strong role for the private sector in a liberal policy environment. That said, the impact of the Syrian crisis has strained Lebanon’s public finances, service delivery and the environment. However, GDP growth in 2016-2017 underwent a slight acceleration compared to 2015. The acceleration was driven by an improvement in the real estate sector and an increased number of tourist arrivals.

The swift formation of a government is needed to tackle a large budget deficit and a high public debt ratio. Against this background, the currency peg has come under stress in recent weeks and led banks to offer high interest rates in local currency deposits in order to stock up on foreign reserves.

Source: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

June 2017
A new electoral law was 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.

May 2018
General elections were held in Lebanon on May 6, 2018 triggered the start of ongoing cabinet negotiations (still ongoing at the time of writing).

September 2018
Germany and Saudi Arabia agreed to the return of their ambassadors to the country.

Lebanon's parliament ratified the international Arms Trade Treaty. The 2014 treaty seeks to regulate international trade in conventional arms and prevent illicit trade.

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 (2017)
Graph: Lebanon GDP by sector (2017)
Graph: Lebanon unemployment rate
Note: No data from IMF
Graph: Lebanon unemployment rate
Note: No data from IMF
Graph: Lebanon current account balance
Graph: Lebanon current account balance

e = estimate, f = forecast
Source: International Monetary Fund, World Bank, Fitch Solutions
Date last reviewed: September 21, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Lebanon merchandise trade
Graph: Lebanon merchandise trade

Source: WTO
Date last reviewed: September 21, 2018

Graph: Lebanon merchandise trade
Graph: Lebanon merchandise trade
Graph: Lebanon major export markets (2017)
Graph: Lebanon major export markets (2017)
Graph: Lebanon major import commodities (2017)
Graph: Lebanon major import commodities (2017)
Graph: Lebanon major import markets (2017)
Graph: Lebanon major import markets (2017)

Source: Trade Map, Fitch Solutions
Date last reviewed: September 20, 2018

4.2 Trade in Services

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

e = estimate
Source: WTO
Date last reviewed: September 21, 2018

5. Trade Policies

  • Lebanon’s wide current account deficit is unlikely to narrow significantly in the near term, 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 World Trade Organization (WTO).
  • Import 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 make such action unlikely.
  • Lebanon signed an Association Agreement with the European Union (EU) in June 2002, which entered into force in April 2006. As a result, Lebanese industrial as well as most agricultural products benefit from free access to the EU market. Bilateral trade between the EU and Lebanon has been increasing steadily over the past years, with average annual growth of 7.5% since 2006, with total trade amounting to around EUR7.7 billion in 2017. Lebanon is in negotiations in order to accede to the WTO, an objective which the EU strongly supports.

  • There are few non-tariff barriers to trade with 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, Fitch Solutions

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 EU-Lebanon Association agreement progressively liberalised trade in goods between the EU and Lebanon. Its gradual implementation was foreseen between 2008 and 2014 and Lebanese industrial as well as most agricultural products benefit from free access to the EU market, with a view to creating a bilateral Free Trade Area. 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. In November 2010, the EU and Lebanon signed a protocol establishing a dispute settlement mechanism applicable to disputes under the trade provisions of the Association Agreement. Due to its Free Trade Agreement with the EU, Lebanon ceased to benefit from preferential access to the EU market under the Generalised System of Preferences (GSP) scheme from January 2014.

  4. US-Lebanon Trade and Investment Framework Agreement: The US and Lebanon signed 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: The International Trade Administration (ITA), US Department of Commerce, Fitch Solutions

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
Date last reviewed: September 21, 2018

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.

  5. Lebanon has signed bilateral investment agreements with the following (in alphabetical order, as of January 2012): Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium/Luxemburg, Benin, Bulgaria, Canada, Chad, Chile, China, Cuba, Cyprus, Czech Republic, Egypt, Finland, France, Gabon, Germany, Greece, Guinea, Hungary, Iceland, Iran, Italy, Jordan, Kuwait, Malaysia, Mauritania, Morocco, Netherlands, OPEC Fund, Pakistan, Qatar, Romania, Russia, Slovak Republic, South Korea, Spain, Sudan, Sultanate of Oman, Sweden, Switzerland, Syria, Tunisia, Turkey, United Arab Emirates, Ukraine, United Kingdom and Yemen.

Source: The International Trade Administration (ITA), US Department of Commerce, Fitch Solutions

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, Fitch Solutions

8. Taxation – 2018

  • Value Added Tax: 11%
  • Corporate Income Tax: 17%

Source: PwC 2018

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 Value Added Tax (VAT) from 10% to 11%, as well as further taxes on bank deposit interest, financial transactions and real estate sales.

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
VAT
11% 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

Source: PwC Tax Summaries 2018, Fitch Solutions
Date last reviewed: September 20, 2018

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, Fitch Solutions

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
Fitch Ratings
B- (Stable)01/02/2018

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/A79/160
Corruption Perception Index
136/176143/180N/A
IMD World CompetitivenessN/AN/AN/A

Source: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank76/202
Short-Term Economic Risk Score5451.751.9
Long-Term Economic Risk Score52.952.656.5
Political Risk Index Rank141/202
Short-Term Political Risk Score47.547.546.7
Long-Term Political Risk Score55.453.953.9
Operational Risk Index Rank128/201
Operational Risk Score44.243.942.7

Source: Fitch Solutions
Date last reviewed: September 21, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Lebanon has a long tradition of domestic free trade and investment policies, with free market pricing for most goods and services, an unrestricted exchange and trade system, and extensive links with the developed world in practically all economic activities. The government continues to favour a strong role for the private sector in a liberal policy environment. However, the Lebanese economy will likely post tepid 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 and fiscal deficits in the region, Lebanon is facing significant challenges in the areas of fiscal consolidation. In addition, Lebanon has one of the highest debt levels globally, pointing to significant refinancing risks.

OPERATIONAL RISK
The Lebanese economy, characterised by freedom of exchange and transfers, is based on private initiative. The Lebanese economy is service-oriented, and its main growth sectors include banking and tourism. 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 has placed unmitigated pressure on already struggling logistics networks and social services, elevating the already high unemployment rate.

Source: Fitch Solutions
Date last reviewed: September 23, 2018

10.5 Fitch Solutions Political & Economic Risk Indices

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

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: September 21, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Lebanon Score42.747.950.040.632.4
MENA Average47.549.348.148.444.1
MENA Position (out of 18)12
9
101213
MENA Average47.549.348.148.444.1
MENA Position (out of 18)12
9
101213
Global Average49.749.850.0
49.3
49.9
Global Position (out of 201)128112
98
129156

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions 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
UAE73.867.879.672.575.3
Qatar65.363.963.167.866.5
Bahrain64.558.468.571.160.1
Oman63.351.059.866.476.0
Saudi Arabia61.763.061.863.258.6
Jordan58.454.959.159.760.0
Kuwait54.852.351.751.164.1
Morocco52.939.862.055.254.6
Egypt47.846.046.453.545.3
Tunisia46.142.352.446.942.8
Iran43.348.738.351.235.1
Lebanon42.747.950.040.632.4
Algeria40.944.031.739.847.9
West Bank and Gaza33.746.436.830.221.52
Libya28.344.426.029.313.4
Syria28.042.930.026.412.7
Iraq27.243.725.228.811.3
Yemen21.730.623.017.316.1
Regional Averages47.549.348.148.444.1
Emerging Markets Averages46.848.047.545.846.1
Global Markets Averages49.749.850.049.349.9

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Lebanon

Graph: Major export commodities to Lebanon (2017)
Graph: Major export commodities to Lebanon (2017)
Graph: Major import commodities from Lebanon (2017)
Graph: Major import commodities from Lebanon (2017)
Graph: Merchandise exports to Lebanon
Graph: Merchandise exports to Lebanon
Graph: Merchandise imports from Lebanon
Graph: Merchandise imports from Lebanon

Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: September 21, 2018


2017
Growth rate (%)
Number of Lebanese residents visiting Hong Kong813
-8.0

Source: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of Middle East residents visting Hong Kong129,816
0.3

Source: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: September 21, 2018

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: Investment Policy Hub

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: The Arab Chamber of Commerce & Industry

11.5 Visa Requirements for Hong Kong Residents

A Lebanon tourist visa is required for citizens of Hong Kong. Generally, a visa will be granted upon arrival and the maximum duration of stay is three months.

  • 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 BEY.

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

Source: Do You Need Visa
Date last reviewed: September 21, 2018


Saudi Arabia - Waterfront Project

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