Cairo – Decypha: Ranked 4th in regard to restriction on capital flows, Lebanon follows a laissez-faire model where the economy is highly reliant on foreign currency. The country rarely holds restrictions on capital movement, capital gains, remittances, inflow and outflow funds; the Lebanese rarely interferes in foreign trade, however, has restructured investment policies to boost investment climate and enhance economy.
Despite the ease of restrictions on flow in investment into the country, the political and social instability featured on Lebanese lands have impaled its competitiveness.
Foreign & Local Investments
Amid political and regional imbalances, approximately 44 foreign investment projects and foreign partnerships were launched in Lebanon in the past two years alone, according to 2016’s UNCTAD World Investment Report.
European companies have the lion’s share in terms of foreign investments, representing around 48% of all foreign companies investing in the country. France alone represents 9% of foreign investors, similarly UK stands at 9%, and Italy with 4.5%. Other investment projects in the country included three airline companies that opened to accommodate increasing number of Syrian and Lebanese passengers, as well as investments in the Information Technology sector comprising 7% of the total foreign projects; which is a 2% growth than that in 2014.
Transactions by foreign nationals recorded $546.13 million in 2015/2016 according to the General Directorate of Real Estate Affairs.
Financial inflows recorded as Foreign Direct Investments (FDI) amounted $ 3.3 billion over the first two months of 2017 compared to $ 2.1 billion achieved during the same period last year. FDI grew by 57% according to The Lebanon Weekly Monitor report. Despite the unsettlement of political challenges in both the country and the region, the foreign inflows were able to tackle the 13.8% rise in trade deficit, achieving a balance of payments surplus of $ 555 million over the first quarter in 2017 compared to a previous $ 644 million.
Lebanon has also have succeeded over neighboring countries with FDI inflows contributing to GDP by 4.57% according to 2016 UNCTAD report.
The Lure of Real Estate
Foreign investments in real estate in Beirut account for 49.16% of the sector, while the GCC investors presented a steady demand for high-end spacious flats in Lebanon with floor plans above 220 square meters.
Syrians have also showed major interest in Lebanese real estate where they acquired 14.87% of the market, while Saudi Arabia recorded 13.62% of the total real estate acquisitions in Lebanon.
The Oil Dream
In an effort to secure large scale investments, the state has re-launched its first oil and gas exploration and production licensing round in January 2017 following a three-year delay. The decision comes as part of the development of hydrocarbon industry stalled by national political paralysis according to Reuters.
Lebanon has launched five offshore blocks for requesting in a first licensing round; the country is set on the Levant Basin in the eastern Mediterranean which is composed of new gas fields formerly discovered in 2009.
The licensing process has previously been on hold because Lebanon remained without a president for two years. Companies interested in exploration received their production contracts between February and March, while pre-qualified companies will submit their bids to the Lebanese Petroleum Administration in September.
Challenges
Despite the positive flow of foreign and local investments, Lebanon is said to be unstable in attracting long-term international investments due to challenges involved in governance, public finance, perception and geopolitical conditions, according to a report released by Organization for Economic Cooperation & Development (OECD).
OECD suggests that the challenges are vivid in long bureaucratic procedures in the investment process, financing condition presented in the capability to pay public debt, and regional instability.
Investors find it hard to show interest in the country also due to intense security environment, travel warnings/ bans on Lebanon that was imposed by some Gulf countries; therefore investors are currently observing the market within taking any action according to a released report by the US State Department.
Domestic instability due to political conflict has also affected the country’s business climate alongside with the Syrian crisis that affects economic growth, adds the US state department.
Government Policies
Although the country is impacted by rising challenges, the Lebanese government continues to adjust law and policies to ease the investment process. These facilitations include an amendment to laws about real estate acquisitions by foreigners where they need to obtain a license to own land however they’re not entitled to own more than 3% of the total surface of the country.
The Board of Directors of the Investment Development Authority of Lebanon (IDAL) decided to launch a Package Deal Contract that includes fully exemption to investors from income taxes on project dividends over a period of 10 years. Investors are also subject to a 50% reduction in work and residential fees depending on the number of permits acquired according to Law 360 in 2001. Another 50% reduction is also applied on construction permit fees related to the building relevant to the project.
The Package Deal Contract also states that investors are fully exempted from land registration fees at the Real Estate Register and from fees comprised in annexation, sub-division, registration of rental contracts, and mortgage. This exemption is only applied to real estate projects; however these projects are expected to be built within five years in return and if the investor shall fail to implement the project he/she are subject to a pay a fine equivalent to three times the fees that were originally due.
The Lebanese government has also implemented additional policies to boost investment climate, according to OECD. These steps include enacting of the law combating money laundering, amending the arbitration law, and the privatization law among others.
The country is launching an investment promotion strategy in parallel to the country’s administrative structure to encourage new investments that includes cooperating with the World Bank, EU, UNDP, UNCTAD, OECD, and MENA governments.
GCC Investments
Declining oil revenues in GCC countries has led to an inevitable decline in payments overseas to Lebanon that decreased from $ 7.40 billion in 2014 to $ 7.16 billion in 2015 according to the World Bank; however UAE remained the leading investor comprising 22.7% of total foreign companies followed by Jordan comprising 4.5% of the total foreign investments in Lebanon. GCC countries invested in trade, retail, and industrial sectors. Regardless of the type of investment, these inflows prove that some foreign investors were able to restore their faith in the Lebanese market especially the financial sector that remains strong due to Central Bank policy that sustains high foreign currency reserve amounting 80% of local currency money supplies.
Benefits of Investing in Lebanon
The IDAL describes the choice of entering the Lebanese market as a “sound” decision. The authority stated that investment benefits include strategic location, competitive corporate tax rates with 15%, and the country ranking 4th in regard to restriction on capital flows. Individuals will only take up to nine days to start their business in parallel to enjoying a cosmopolitan life.
Although not all project types are suitable for an environment such as that of Lebanon; the country is well perceived as a touristic destination, and it outperforms other countries in the region in hospitality and real estate projects. Expats and foreigners may benefit a lot in a dollarized economy as they experience affordable investment opportunities. With the reconstruction of old laws such as the oil & gas bid and amendment of existing laws such as land acquisition, the Lebanese government stands a good chance to pave its way for growth.
By Fatma Khaled
