Market Overview
- Lebanon has many investment-enabling strengths that have encouraged foreign companies to set up offices in recent years. These strengths include a free market, a strong laissez-faire commercial tradition, a highly dollarized economy, the absence of controls on the movement of capital and foreign exchange, strict bank secrecy, a highly educated labor force, a good quality of life and limited restrictions on investors. However, the war in July 2006 followed by domestic political and security instability have severely impacted economic growth and led to a slowdown in investments.
- Real GDP growth is estimated at three percent in 2007, according to the Central Bank of Lebanon. Nominal GDP is estimated at about $24.6 billion in 2007, with inflation estimated at five percent. GDP per capita is estimated at approximately $6,560 although there are no clear figures on Lebanon's current population. The Central Administration of Statistics estimates Lebanon's population in 2004 at 3.75 million, excluding Palestinians in the camps and seasonal workers. This figure has been adopted by the IMF and local banking sources for 2007.
- According to Lebanese Customs statistics, during the first nine months of 2007, Lebanon’s total imports reached $11.4 billion and total exports reached $2.6 billion. The U.S. ranked as Lebanon’s third largest source of imports, after Italy and China, and ahead of France and Germany. U.S. market share for Lebanese imports reached eight percent.
- According to U.S. Department of Commerce statistics, U.S. exports to Lebanon decreased by 18 percent in the first 11 months of 2007 compared to the same period in 2006, reaching $727 million. Lebanese exports to the U.S. grew by 21 percent in the first 11 months of 2007, reaching $98.6 million.
- French, Italian, German, British, Korean, and Chinese companies have won most government tenders over the past several years. This can be attributed to the travel ban which delayed the physical presence of U.S. nationals in the Lebanese market to bid on projects until 1997, and tied bilateral financial protocols between Lebanon and some European countries, which provide grants and soft–term loans. However, U.S. companies are expected to gain more market share in 2008 due to the weakness of the dollar in relation to Euro.
- The U.S. has neither a bilateral investment treaty (BIT) with Lebanon nor an agreement on the avoidance of double taxation. However, on December 1, 2006, the U.S. signed a Trade and Investment Framework Agreement (TIFA) with the Government of Lebanon to help promote an attractive investment climate, expand trade relations, and remove obstacles to trade and investment between both countries.
Market Challenges
- Foreign companies investing in Lebanon still face some impediments such as bureaucratic red tape and corruption, arbitrary licensing decisions, complex customs procedures, archaic legislation, an ineffectual judicial system, high taxes and fees, high telecommunications and power charges, varying interpretation of laws and a lack of adequate protection of intellectual property. Some foreign companies have left the market or relocated their regional offices to neighboring countries, or refrained from investing in Lebanon at all, because of frustration resulting from these impediments.
- Lebanon has legislation to provide intellectual property rights (IPR) protection. However, enforcement is weak. Lebanon was elevated to the Priority Watch List in 2001, where it remains, due to rampant cable piracy (80 percent of Lebanon’s population buy pirated content, one of the highest rates in the world), ambiguous data protection and pharmaceutical piracy, widespread availability of pirated optical media, and computer software piracy. Since 2006, Lebanon has taken a few positive steps to address the United States’ concerns, including cable piracy. Moreover, the Lebanese police established a new cyber-crime and anti-piracy unit. The Brand Protection Group and the Ministry of Economy launched Lebanon’s first large-scale national awareness campaign on counterfeit products. A new IPR advocacy group was launched and the Lebanese judiciary issued two positive decisions on long-pending IPR cases filed by Microsoft, Adobe, MGM, Disney, Time Warner, and Warner Brothers. However, progress was sharply halted by the war in July 2006. After the war, all the government’s efforts were focused on reconstruction, and few, if any, laws were enacted.
- On November 2, 2007, the U.S. Embassy in Beirut held an intellectual property rights (IPR) forum in collaboration with the U.S. Patent and Trademark Office (USPTO). The presentations focused on copyright, trademarks, patents, and enforcement issues. Over 180 people attended the seminar, including attorneys, judges, prosecutors, and members of both the public and private sectors.
Market Opportunities
- According to U.S. Department of Commerce statistics, U.S. exports to Lebanon decreased by 18 percent in the first 11 months of 2007 compared to the same period in 2006, reaching $727 million. According to Lebanese Customs, major U.S. exports to Lebanon include mineral fuel (28 percent), automotive goods (15 percent), machinery and appliances (15 percent), prepared foodstuff, beverages and tobacco (13 percent), chemical (nine percent), vegetable products and cereals (eight percent).
- There are opportunities for attracting foreign investors in infrastructure projects. The Council for Development and Reconstruction (CDR) is responsible for tendering and procuring funding for government physical infrastructure projects, including electricity, telecommunications, roads and public transport, social infrastructure including education, public health, social and economic development, land use and environment, basic services including water supply, wastewater and solid waste management, and productive sectors including agriculture, irrigation, ports, airports, tourism, and government buildings. According to the latest CDR progress report issued in September 2007, there are 650 projects in progress for a value of $2.376 billion. Public infrastructure opportunities mainly lie in roads and highways, ports, electricity, education, solid waste, wastewater and water supply. As of end 2006, the CDR had a total of $1.8 billion in loans and protocols ratified by the Lebanese parliament but not yet disbursed. As of end September 2007, the CDR had a total of $842 million in loans awaiting parliament's approval. In addition, the CDR has nearly $600 million in grants mainly related to pledges prior to Paris III and earmarked for public investments for post-July 2006 war reconstruction. In addition, donors pledged $2.7 billion in project financing at the Paris III conference. The CDR has a limited absorptive capacity and targets to spend around $750 million annually. CDR projects are listed at www.cdr.gov.lb
Best prospect sectors
- Information and Communication Technology (ICT): Lebanon has the fundamental building blocks needed to become a regional center for technology: a highly-educated and multilingual workforce, a strong private sector, world-class advertising firms, and multi-lingual media content providers and web portals. In the last quarter of 2007, the government moved forward towards privatizing the telecommunications sector. The Telecommunications Regulatory Authority (TRA) made available an online data-room for potential bidders for the country's GSM network. Information on the auction for the two cellular licenses is available online at www.lebanonmobileauction.com. Moreover, the Government of Lebanon has plans to regulate and upgrade its outdated and costly ICT infrastructure. These plans, which are expected to take place in the near future, will offer significant opportunities to foreign investors.
- Pharmaceuticals: Lebanon is the leading importer of pharmaceutical drugs in the Levant region and has over 50 pharmaceutical importing firms. The pharmaceutical market generates around $400 million every year in retail sales. The local pharmaceutical manufacturing industry is weak. Imports constitute between 92 and 95 percent of total consumption.
- Insurance: The Lebanese insurance market has always been open and liberal. The Lebanese government never owned insurers, and private companies did not have to compete with state entities or worry about government monopolies. This characteristic has helped the sector to respond to market forces and avoid the distortions associated with state ownership of insurers. After having sustained indirect losses due to the war in July-August 2006, insurance companies are on the way to a speedy recovery. Insurers predict that a need for all kinds of policies, especially those of health and life, will increase. Moreover, due to a large number of reconstruction projects that are already underway, policies covering construction work are also in great demand.
Market Entry Strategy
- • U.S. companies interested in doing business in Lebanon are advised to hire a Lebanese agent or distributor. Networking and lengthy investigation are necessary to find an appropriate partner. U.S. companies do not need to come to Lebanon to find the agent. The U.S. Embassy can be helpful through the International Partner Search (IPS) service, which is a customized search for qualified Lebanese representatives, agents or distributors for US firms. More information on IPS can be found at http://www.buyusa.gov/lebanon/en/internationalpartnersearch.html .
- • The Investment Development Authority of Lebanon (IDAL), a public agency responsible for promoting investments in Lebanon, has a “One-Stop Shop” service to issue permits and licenses for investors. Further information about IDAL and its services is available at www.idal.com.lb.