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Investment Climate

Right to Private Ownership and Establishment

The right to private ownership is respected in Lebanon. Foreign private entities can establish, acquire, and dispose of interests in business enterprises and can engage in all kinds of remunerative activities.

Protection of Property Rights

The concept of a mortgage exists, and secured interests in property, both movable and real, are recognized and enforced. Such security interests must be recorded in the Commercial Registry and the Real Estate Registry. Lebanon has a Real Estate Law that governs acquisition and disposition of all property rights by Lebanese nationals; Law No. 296, dated April 3, 2001, governs real estate acquisition by non-Lebanese (see A.1 - property section).

Lebanon has legislation to provide adequate intellectual property rights (IPR) protection. However, enforcement is weak. In 2008, Lebanon was upgraded to Watch List from Priority Watch List in the United States Trade Representative’s annual review of intellectual property protection worldwide. Lebanon is under the Generalized System of Preferences (GSP) review for inadequate enforcement of copyright laws. The High Tech and Intellectual Property Crime Unit, established at the Internal Security Forces (ISF) in 2006 to boost IPR enforcement, has seen some progress. During 2008, the government continued to raid shops and warehouses that were storing or displaying pirated content. Although cable television piracy persists, following a series oflawsuits from major cable TV operators, illegal cable providers are now paying a fee to the respective right holders. The U.S. Motion Picture Industry estimated annual losses to the U.S. motion picture industry due to audio-visual piracy in Lebanon at USD 35.5 million in 2006. This covers theatrical (USD 1.8 million), cable (USD 31.8 million), and DVDs (USD 1.86 million) markets. Meanwhile, the International Intellectual Property Alliance (IIPA) estimated preliminary 2007 piracy-related losses in Lebanon at $26.8 million, up from $25.6 million in 2006, and accounting for 3.6 percent of all such losses in the MENA region. The IIPA recognized that some progress had been made in combating piracy, mainly by the ISF, Customs, and MOET inspectors, despite the difficult political and security situation in the country.

Existing intellectual property right laws cover copyright, patent, trademarks, and geographical elements.

  • Lebanon's 1999 Copyright Law largely complies with WTO regulations and needs minor amendments to become fully compatible. The new law allows educational institutions and students to copy legitimately acquired software for non-commercial use. Registration of copyrights in Lebanon is not mandatory. Copyright protection is granted without the need for any registration.
  • A modern and TRIPS-compatible Patent Law, approved in 2000, provides general protection for semiconductor chip layout designs, plant varieties, and trade secrets, but no adequate coverage for trade secrets. The issue of undisclosed information is being dealt with as part of a new Unfair Competition Law, which is still being drafted. The Lebanese legal regime does not require examination, prior to registration, of patents for novelty, utility, and innovation. Simple patent deposit is required at the Ministry of Economy and Trade. The application is examined only for conformity with general laws and ethics.
  • The Council of Ministers approved the drafts for a new Industrial Designs and Trademark Law in October 2007 and Geographical Indications in May 2007. These now await parliamentary ratification. The 1924 Law on Industrial Property does not require examination of trademarks, but calls for simple deposit. However, examination of trademarks prior to registration became the norm starting in 2001. Registration of industrial trademarks takes about one week.
  • Lebanon signed the Singapore Treaty on Trademarks in December 2006.
  • Lebanon’s cabinet approved adherence to the WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT) in November 2008, and both are awaiting parliamentary approval.
  • Lebanon signed a Trade and Investment Framework Agreement (TIFA) with the United States in November 2006. (See Section B)li>
  • Lebanon is pursuing WTO accession. A USAID-funded technical assistance project with consultants from PricewaterhouseCoopers and Booz Allen Hamilton worked from May 2000 to October 2007 (and subsequently funded by MEPI from November 2007 to December 2008) with the GOL to revise, update and draft appropriate laws to facilitate WTO accession.

Transparency of Regulatory System

Private sector companies should be wary when bidding for public projects. Transparency, clear regulations, and fair consideration of bids have never been the rule in Lebanon. There is no one specific law regulating all aspects of government procurement in Lebanon. Government administrations often award contracts by mutual agreement, without calling for a tender. The government does not always establish "clear rules of the game."

In Lebanon, the procedures necessary for business entry, operation, and exit are not streamlined. However, the process does not discriminate against foreign investors.

Red tape plagues bureaucratic procedures. International companies are faced with an unpredictable, opaque operating environment, and often encounter unanticipated obstacles or costs late in the process. According to the IFC Doing Business 2009 report, Lebanon's only improvement was noted in the area of streamlining business registration, reducing the time needed to start a business from 46 to 11 days and eliminating one procedure. The report may be accessed at http://www.doingbusiness.org.

The government does not publish proposed laws and regulations in draft for public comment. However, the practice in Lebanon is to form drafting committees both from the public and private sector incorporating representatives of all stakeholders when preparing legislation. However, Telecom Law No. 431 requires from the TRA to issue regulations in draft for public consultation in an effort to ensure full transparency and enable the general public to play a role in shaping future regulations. In general, legal, regulatory, and accounting systems are consistent with international norms.

In 2008, USAID through the Transparency Accountability Grants (TAG) project successfully launched 14 new activities, out of an initially planned 18 new activities, targeting diverse needs such as youth participation, consumer protection, capacity enhancing for both NGOs and a governmental agency (DG of Coops), enhancing rule of law at the Ministry Of Justice and in the State Council, establishing a foundation for investigative journalism at the Lebanese University, and inclusion for the visually impaired. Total funding to local NGOs was $711,980 matched by cost-sharing of $445,885, or 63 percent. The shortfall in achieving the target was mainly due to a tense political and security situation that diverted the attention of civil society organizations (CSO) from governance issues to humanitarian assistance and conflict resolution. Additionally, a quickly approaching close-out date prevented the launching of new activities because of a lack of implementation time. An April 2008 impact assessment for the Fiscal Years 2006 and 2007 highlighted the effectiveness of the TAG project, even in such trying times, as a program to both mobilize and improve the capacity of local CSOs to be effective partners for reform.

Gender factors are not critical for the success of TAG but the project has worked extensively to ensure that women’s organizations and concerns are supported with TAG grants. Moreover, TAG beneficiaries encompass a fair gender distribution. Of a total of 39,764 beneficiaries of FY 08 TAG projects, 19,734 were females. More specific examples include: 11 out of the 18 interns at the Ministry of Economy and Trade were females; 23 out of 31 Lebanese University journalism students selected were females; and around 14,000 out of 28,000 students trained on honesty and integrity issues were females.

Efficient Capital Markets and Portfolio Investment

Lebanon places no restrictions on the movement of capital in or out of the country, whether for investment or other purposes. The government permits the free exchange of currencies, precious metals, and monetary instruments, both domestically and internationally. According to the World Bank, remittance inflows to Lebanon are estimated at USD 6 billion in 2008, or a four percent increase compared to 2007, making Lebanon the 18th largest recipient worldwide and third largest among 12 MENA countries. As a percentage of GDP, remittances were estimated at 24.4 percent in 2007, the highest in the MENA region.

Credit is allocated on market terms, and foreign investors can get credit facilities on the local market. The private sector has access to overdrafts and discounted treasury bills, in addition to a variety of credit instruments, such as housing, consumer, or personal loans, and loans to small and medium-sized enterprises (SMEs). The International Finance Corporation (IFC) and the European Investment bank (EIB) have been separately extending financial facilities through the Lebanese banking sector to help SMEs in specific productive sectors, such as IT, industry, and tourism. In 2007, the EIB and the French Development Agency (French counterpart of USAID) separately extended loans to the Lebanese banking sector to help the private sector recover from the impact of the July 2006 war. In 2007/2008, the Overseas Private Investment Corporation (OPIC) extended USD 220 million in credit line guarantees through Citibank to selected Lebanese banks for private sector lending.

In 2006, the MOET launched an EU-financed project to upgrade the quality of local manufacturing to match international standards, as well as build the capacity of manufacturers and producers. The MOET through an EU-financed project also launched incubators for SMEs in four regions in Lebanon (North, South, Mount Lebanon, and the Biqa', although the latter closed recently for logistical reasons).

The Beirut Stock Exchange (BSE) quotes six commercial banks, three investment funds, 14 sovereign Eurobond issues (11 in USD, two in Euro, and one in Lebanese Pounds), and five companies, including “SOLIDERE,” one of the largest publicly held companies in the region. Trading is a combination of auction and continuous trading. In spring 2008, the BSE authorized on-line trading. Legislation allows the listing of tradable stocks or papers on the BSE. Lebanon now hosts the headquarters of the Arab Stock Exchange Union.

The banking regulatory system is transparent and consistent with international norms. Banks conform to Bank for International Settlement (BIS) standards. The Banking Control Commission (BCC) has performed a self-assessment on the implementation of the new 25 Core principles for effective banking supervision and set up an action plan for compliance during 2009. Lebanon has legislation regulating issuance of and trading in bank equities. Parliament passed Law No.308, dated April 3, 2001, on unification of bank shares, whereby banks may increase their capitalization and shareholder base as well as optimize trading of bank shares on the BSE. New laws governing the operation of the stock market, such as the formation of a Financial Market Authority to oversee Lebanon’s stock market operations, await parliamentary approval. Parliament ratified in November 2005 a new law on asset securitization. There are no restrictions on portfolio investment; foreign investors can invest in Lebanese equity and fixed income paper.

The banking system is sound and enjoys a high capital adequacy ratio, which reached around 12.3 percent by the end of June 2008, compared to eight percent set by Basel II. The Central Bank of Lebanon (CBL) and the BCC set up a committee to prepare the banking sector to comply with the three pillars of Basel II recommendations. As of November 2008, the Lebanese banking sector complied with Pillar I and II of Basel II (new capital adequacy ratio, and supervisory review process on economic capital of banks respectively). The CBL and BCC are currently issuing new circulars for banks to comply with Pillar III (transparency and market discipline) of Basel II in 2009.

The Lebanese banking sector, encouraged by the CBL, continues to consolidate. Over 25 bank mergers have taken place in the past decade, and additional mergers are anticipated after the parliament approved a revised Bank Mergers’ Law, and the government in November 2008 issued the implementation decree. International firms established in Lebanon, such as Standard Chartered Bank, Emirates Lebanon Bank, HSBC, Citibank and Merrill Lynch, remain active. Many sectors are dominated by traditional businesses in the hands of commercially powerful families. The government is trying to improve the transparency of such firms in order to help solidify an emerging capital market for company shares.

The total assets of Lebanon's five largest commercial banks reached about USD 59.8 billion in 2007, or 59.2 percent of total banking assets. At the end of 2007, about 13.9 percent of total loans were estimated as non-performing, compared to 18.7 percent at the end of 2006. By the end of September 2008, the total assets of Lebanon’s five largest commercial banks reached about USD 66.6 billion. Banks continue to maintain more than 80 percent provisions against non-performing loans, while the remaining provision is covered by adequate collateral.

The Financial Action Task Force (FATF) recognized in its October 2003 Plenary Lebanon’s sustained efforts to implement its anti-money laundering regime and decided to end formal monitoring of Lebanon. In July 2003, Lebanon joined the Egmont Group of Financial Intelligence Units; this group works on international cooperation in the fight against money laundering. On November 30, 2004, Lebanon, represented by the Secretary of its Special Investigation Commission (SIC) fighting money laundering and terrorism finance, was elected to head the newly established Middle East and North Africa (MENA) FATF -- a FATF-styled regional body that promotes best practices to combat money laundering and terrorism financing in the MENA region -- for the first year. In March 2006, Lebanon's SIC Secretary was elected chair of the US-MENA Private Sector Dialogue initiative. MENA FATF will assess Lebanon's anti-money laundering and terror financing capabilities in the first quarter of 2009.

Political Violence

On May 7, 2008, opposition fighters led by Hizballah, a Shia opposition party and U.S.-designated terrorist organization, blocked the road leading to Beirut International Airport and several West Beirut neighbourhoods in protest over government decisions to declare Hizballah's telecommunication network illegal and remove the airport security chief because of the presence of Hizballah’s surveillance cameras monitoring the airport. Air traffic was suspended for around one week. During this time, clashes erupted between Hizballah and Sunni Future Movement in Beirut and predominantly Druze area of Aley and Choueifat, where 84 people were killed and approximately 200 people were wounded. On May 21 in Doha, Qatar, rival leaders reached a deal to end the violence and the 18-month political stalemate. Since the Doha agreement and continuing throughout the year, sectarian clashes broke out between Druze and Hizballah across the country and between Sunnis and Alawites in the northern part of the country, leading to the death of approximately 70 people and wounding 275.

On January 27, 2008, violent riots broke out when youth from the predominantly Shia Muslim area of Shiyah were protesting what they perceived to be discriminatory power cuts. When an Amal movement official was killed by unknown gunfire, the riots turned violent with protesters throwing stones and setting cars ablaze. The riots led to the death of seven civilians, including the Amal Movement official, and more than 19 wounded.

Corruption

There is rampant corruption when dealing with the public sector. According to Transparency International (TI), perceived corruption in Lebanon in 2008 ranked 102 out of 180 countries, down from 99 in 2007, and 11 out of 20 MENA countries. The index measures the perception of corruption estimated by public officials and politicians, and focuses on corruption in the public sector, defined as an abuse of official power for private interests.

The International Financial Corporation (IFC) and the Lebanese Transparency Association (LTA) signed an MOU on October 11, 2007, to establish the Institute of Directors (on Corporate Governance) in Lebanon. The IFC has provided a USD 250,000 grant for the Institute, which will provide training courses on corporate governance, offer consultancy services, carry out research and educational activities, and organize awareness-raising private sector events in Lebanese and MENA region.

Lebanon has laws and regulations to combat corruption, but historically these are not always enforced. On October 8, 2008, parliament agreed to Lebanon’s adherence to the UN Convention Against Corruption. Lebanon is not a signatory to the OECD Convention on Combating Bribery. According to Lebanese law, it is a criminal act to give or accept a bribe. The penalty is imprisonment for up to three years, with hard labor in some cases, with a fine equal to at least three times the value of the bribe. Bribing a government official is also a criminal act. The Central Inspection Directorate is responsible for combating corruption in the public sector, while the public prosecutor is responsible for combating corruption in the private sector.

Corruption is more pervasive in government contracts (primarily in procurement and public works), taxation, and real estate registration, than in private sector deals. It is widely believed that investors routinely pay bribes to win government contracts, which are often awarded to companies close to powerful politicians.

The Ministry of Finance (MOF) launched a 24/7 call center on December 4, 2008, along with an electronic tax declaration system, and a service whereby citizens can handle issues dealing with property tax through the Lebanese postal service, Libanpost. These services are expected to decrease corruption.

Bilateral Investment Agreements

The U.S. has neither a bilateral investment treaty (BIT) with Lebanon, nor an agreement to prevent double taxation. Lebanon has expressed an interest in signing both. Preliminary discussions for a BIT began in 2001 but have been pending ever since. Several politicians have publicly expressed caution regarding a Middle East Free Trade Area.

In November 2006, the United States Trade Representative (USTR) and the MOET signed a Trade and Investment Framework Agreement (TIFA). Apart from pledging to foster an environment conducive to mutual trade and investment, the TIFA requires both parties to set up a United States-Lebanon Council on Trade and Investment that would meet twice a year or more to consult on trade and investment impediments and any other issues of concern. The Council will seek and consider the views of private sector representatives in both countries. The Council has not been set up yet. Finally, under the TIFA, the United States and Lebanon agreed to a consultation mechanism that may be activated by either party within 60 days in the event of a dispute or other development affecting trade relations.

At the signing ceremony for the TIFA, the Minister of Economy expressed interest in signing a Free Trade Agreement (FTA) with the U.S. Government. However, there has been no work toward such an agreement as of this time.

Lebanon has signed bilateral investment agreements with the following countries (in alphabetical order): 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, Oman, Pakistan, Romania, Russia, South Korea, Spain, Sudan, Sweden, Switzerland, Syria, Tunisia, Turkey, Ukraine, the U.A.E., the U.K., and Yemen.

Lebanon has signed bilateral tax conventions with 33 countries, but not with the United States.

Lebanon signed the Euro-Mediterranean Partnership agreement in 2002, and the interim agreement entered into force in March 2003. The final agreement came into force in April 2006. In 2004, Lebanon and the European Free Trade Association (EFTA) signed a free trade agreement. Lebanon and Syria have four bilateral cooperation agreements in the fields of economics, transport, agriculture, and health. Lebanon has also signed the Arab Free Trade Zone Agreement, as well as bilateral Free Trade Agreements with Egypt, Iraq, Kuwait, Syria, and the UAE.

OPIC and Other Investment Insurance Programs

On February 10, 1981, Lebanon and the U.S. signed an OPIC agreement in Beirut, but no investment using OPIC insurance coverage was undertaken until 1996. OPIC is currently engaged with Lebanon in three areas: insurance, financing, and investment. Since 2006, OPIC has worked with Citibank on a program that offers loans to the private sector (SMEs, retail, and housing) through selected Lebanese commercial banks; this program was first operational in January 2007, with OPIC providing USD 120 million in credit line guarantees. A second USD 100 million credit-line guarantee was signed in 2008. OPIC is also finalizing an agreement to participate in the EURO MENA II Fund, a fund of USD 200-300 million based in Beirut, with a foreign fund management firm.

The Lebanese government’s National Investments Guarantee Corporation (NIGC), established in 1977, continues to insure new investments against political risks, riots, losses due to non-convertibility of currencies, and transfer of profits. Other major trade/investment insurance programs operating in Lebanon include COFACE (France), ECGD (UK), HERMES (Germany), SACE (Italian), and IAIGC (Arab Consortium). Lebanon since 1994 has been a member of the Multilateral Investment Guarantee Agency (MIGA), part of the World Bank.

The U.S. dollar value of the local currency has been trading at about Lebanese Lira (LL) 1,500 to the dollar for the last 13 years. The GOL has repeatedly expressed its commitment to maintaining a stable currency. With record high foreign currency assets of about USD 19.1 billion as of the end of November 2008, the CBL has the ability to maintain a stable USD/LL rate.

Labor

The 1964 Labor Law provides for written and oral contracts and specifies a maximum workweek of 48 hours (with several exceptions, notably in agriculture and the food service industries). The law provides for the right of association and the right to organize and bargain collectively. Lebanon is a member of the International Labor Organization (ILO) Convention.

Lebanon’s working population (aged 15 and above) totals 1.1 million, including foreign residents, but excluding the seasonal work force, according to the Central Administration of Statistics’ (CAS) 2007 National Survey of Household Living Conditions. CAS estimates Lebanon's population in 2007 at 3.75 million, excluding Palestinians in the camps and seasonal workers. According to a 2004 St. Joseph University study, the unemployment rate is close to nine percent, while CAS estimated the unemployment rate (aged 15-64) at 9.2 percent in its 2007 Household Living Conditions survey. The CAS Survey showed that the unemployment rate reached 26.1 percent for the 15-19 age group and 20.7 percent for the 20-24 age group. The unemployment rate is somewhat attenuated because about one-third of the total workforce works outside Lebanon, mainly in Arab countries and the Gulf, according to prominent consultants.

Local unskilled labor is in short supply. Arab (mainly Syrian and some Palestinian refugees), Asian, Indian, and African laborers are hired to work in construction, agriculture, industry, and households.

Lebanon has a General Confederation of Labor (GCL), recognized by the government, whose membership is limited exclusively to Lebanese workers. The GCL’s activities are mainly limited to demanding cost-of-living increases and other social benefits. The government/labor relationship has improved compared to previous years, yet it remains difficult. Given its own political bias, the GCL has been sometimes accused of working for its political interests and being ineffective in fighting for workers’ rights.

Foreign-Trade Zones/Free Ports

Foreign-owned firms have the same investment opportunities as Lebanese firms. Lebanon has two free zones in operation, the Beirut Port and the Tripoli Port. The reconstruction of a 120,000 square meter free zone at the Beirut Port is complete, and a 6,000-square meter bonded warehouse facility is now available. The new WTO-compatible Customs Law issued by Decree No. 4461, dated December 15, 2000, fosters the development of free zones (Chapter III, Articles 242-261).

Foreign Direct Investment Statistics

There are no official statistics available on foreign direct investment (FDI). Banking sources estimated that construction and real estate account for the largest part of foreign investment. According to the 2007 Inter-Arab Investment Guarantee Corporation (IAIGC) investment climate report, Lebanon was the second largest recipient of Arab investment, out of eight surveyed Arab countries. Investments in Lebanon reached USD 3.3 billion in 2007, up from USD 2.3 billion in 2006. Arab investments in Lebanon were mainly channeled to the real estate sector, followed by the services, tourism, and industrial sectors.

According to the UN Conference on Trade and Development (UNCTAD) 2008 World Investment Report, foreign direct investment (FDI) in Lebanon totaled USD 2.85 billion in 2007, or a 3.9 percent increase from 2006. In nominal terms, Lebanon ranked five out of 20 MENA economies surveyed in FDI receipts. FDI flows to Lebanon were equivalent to 11.6 percent of GDP in 2007, the highest within all Arab countries surveyed. UNCTAD placed Lebanon in the category of countries with low FDI potential but high FDI performance, and thus among countries with "above potential" results in terms of attracting FDI.

French, Italian, German, British, Korean, and Finnish companies have won most of the government contracts in the fields of electricity, water, and telecommunications, and for the Sport City Center and Beirut International Airport (BIA) projects. This could be attributed to: (a) the travel ban that delayed the physical presence of U.S. nationals representing their companies in the Lebanese market to bid on projects until 1997, and (b) tied bilateral financial protocols, which provide grants and soft–term loans, signed between Lebanon and some European countries. U.S. companies won contracts in solid waste treatment and landfill, and some contracts in the power sector, air transport (radar equipment for BIA), and media (equipment for the national broadcaster Radio Lebanon).

The U.S. Embassy in Beirut tracks U.S. companies’ activities in the Lebanese market. The Embassy actively lobbies to support U.S. nationals bidding on projects, providing equal support to all U.S. bidders via letters and direct meetings with senior Lebanese government officials, and demanding fair consideration of U.S. companies that are bidding on business opportunities in Lebanon. In some cases, the Embassy and U.S. Department of Commerce have provided higher-level advocacy from Washington. The Embassy encourages U.S. companies bidding on projects to contact the Embassy’s Commercial Section for assistance and advocacy.

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