economy and markets are best described at the dawn of the new millennium by a
private and liberal economic activity and an openness to abroad with perfect
capital and labor mobility. The private sector contributes to around 75% of
aggregate demand, a well-diversified sector that covers the totality of economic
sectors and is a major pillar for growth and recovery. The Lebanese economy is
also a typical open economy with a large banking sector equivalent to more than
2.5 times its economic sector and providing an important support to aggregate
this business environment, Lebanon is a country:
- that has
today reconstructed its infrastructure, with 80% of the basic infrastructure
rehabilitated using the best technologies
- that has
revised basically most of its business laws and regulations,
- that has
a reputable banking sector with high financial standing, strictly regulated by
the Central Bank,
- that has
initiated a process of domestic capital market development and accessed
frequently international markets,
- and that
has recently launched in-depth growth-oriented measures aimed at stimulating the
Lebanese economy has been facing some signs of sluggishness over the past couple
of years, but are mainly tied to short term challenges. Growth has contracted in
real terms, due to a decline in aggregate demand in both its consumption and
investment components. The newly appointed government launched a series of
ambitious measures aimed at improving household and business sentiment and
stimulating growth, drawing on a largely underutilized capacity estimated at
close to 35% of potential. The expansionary government policies (deregulation,
tariff reduction, launch of frozen capital spending, open sky policy, interest
rate subsidies for productive lending, etc…) are expected to have a direct
positive impact on economic activity, though at the detriment of a tougher
fiscal consolidation in the near term.
fiscal conditions at year end-2000 continue to be underlined by significant
revenue-spending imbalances, leading to further rises in government
indebtedness. Deficit reported 24% of GDP in 2000 raising the debt ratio to
close to 150%. The country still awaits the adoption of drastic privatization
and debt management measures that would aim at cutting the observed vicious
circle of debt servicing/deficit/ debt growth. Such a scenario could be actually
encouraged by the materialization of a high real output growth target generating
important revenue surpluses for the Lebanese State in the medium run.
challenges that the economy is currently facing are believed to be more of a
short term and cyclical nature. An upward shift is actually quite plausible once
the general environment factors are alleviated. The Israeli withdrawal from
South Lebanon, the further liberalization of the Lebanese economy through the
alleviation of trade and non-trade barriers, the potential launch of
privatization of public utilities and the arising signs of economic openness in
Syria, all constitute promising developments in this respect. Lebanon’s outlook
is finally encouraged by a significant regional role potential driven by its
historical comparative edges at large.
Sectors of the Economy
liberal economy is based on competition and private ownership. Services and
banking sectors predominate, representing 70% of the country's gross
national product. Agriculture constitutes 10% and the industrial sector
constitutes the remaining 20%.
The Lebanese economy is based primarily on the service sector, which
accounts for approximately 60 per cent. of GDP (down from approximately
70 per cent. in the 1970's). Major subsectors are commerce, tourism and
financial services. Other components include health care and higher
Port of Beirut plays an important role in Lebanon's commercial activities.
After World War II, Beirut became the most important Arab port on the
Eastern Mediterranean serving the Arab world. A free-port area for
re-exports added to Beirut's success. During the conflict, the Port of
Beirut virtually closed down and related commerce ground to a halt.
has been completed on the reconstruction of the Duty Free Zone at the Port
of Beirut to restore its pre-war capacity and a project for the
rehabilitation and expansion of the Port of Beirut is underway.
strategic position of Lebanon, its mild climate and natural beauty,
consisting of snow-capped mountains, valleys and the Mediterranean Sea,
make it a natural tourist attraction. Apart from its privileged
geographical and natural situation, Lebanon benefits from qualified and
experienced human resources in the tourism industry.
Prior to the outbreak of the conflict, tourism (including hotels and
restaurants) contributed approximately 20 per cent. to Lebanon's GDP. This
is notable given that, at that time, the international tourism industry
was not as developed as it is today.
Significant private investment is currently being made in the
modernization and expansion of this sector and international hotel
companies have returned to Lebanon. Casino du Liban, which historically
constituted a major tourist destination, reopened in 1996. Lebanon is the
only country in the Arab world that offers skiing and related winter
sports activities. The largest ski resort in the country has been expanded
and modernized. The Government believes that, because of the return of
peace and stability to the country and with the development of the
necessary infrastructure, tourism will again contribute significantly to
Lebanon's economy. Lebanon's tourism industry also relies on the large
number of Lebanese living abroad, who return regularly to the country
during the summer season.
the 1950s to the start of the conflict in 1975, Beirut was the region's
financial services center. At the onset of the oil boom starting in the
1960s, Lebanon-based banks were the main recipients of the region's
Currently, the main financial services offered are commercial banking,
investment banking and insurance. Despite the conflict and a crisis in the
late 1980s involving a small number of banks, the commercial banking
sector remains a centerpiece of the Republic's service-oriented economy.
The Lebanese banking sector witnessed unprecedented growth during the
period from 1992 to the present. Total deposits with commercial banks
increased from U.S. $6.5 billion at the end of 1992 to U.S. $33.9 billion
at the end of 1999. In addition, since 1996, Lebanese banks have been
successfully accessing the international capital markets. Specifically,
since 1996, several banks raised over U.S. $2 billion on the international
debt markets and three banks raised approximately U.S. $300 million
through the issuance of global depositary receipts on the international
equity markets. The banking system is seen as having a key role by being
the entry point for capital inflows for the region's development. At the
same time the authorities are aiming at widening and deepening the
financial sector by facilitating the establishment and evolution of, and
providing a regulatory framework to, more diversified private financial
institutions. Several investment banks, with capital raised offshore, have
been established in Beirut and offer a variety of traditional investment
banking services, including debt and equity raising and corporate finance
advisory services. Several commercial banks have established investment
banking subsidiaries offering similar services.
part of the Government's strategy of reestablishing Beirut as a regional
financial services center, the Central Bank established in 1994 a central
depositary, settlement and clearing agency, MIDCLEAR, which is a joint
stock company organized under the laws of the Republic. The Government
reopened the Beirut Stock Exchange in 1996.
Prior to the conflict, the property sector had always been important, with
a substantial portion of the activity concentrated in Beirut, where the
housing needs of the city's rapidly increasing urban population had to be
met. Beirut saw an almost uninterrupted boom from the late 1950s to the
early 1970s, when it expanded dramatically, eventually to house half of
the country's population. Mountain towns and villages close to Beirut
favored by tourists, such as Aley and Bhamdoun, also experienced a boom.
post-conflict era has witnessed a significant construction boom. Real
estate prices have risen steeply, especially for prime property, but have
recently stabilized. The boom has been fuelled by a mixture of local,
expatriate and Gulf Arab funds. With respect to residential property, it
has been concentrated mostly at the upper end of the housing market. As
the stock market has resumed its operations only recently, land and
construction have been viewed by many as attractive investment
opportunities. Construction projects are financed mainly by equity
investments. In 1995, construction activity accounted for 9.2 per cent. of
GDP, a significant increase from approximately 4.5 per cent. in 1972.
Since 1996, this activity has slowed, as witnessed by decreasing cement
deliveries and number of construction permits.
1995, the industrial sector (mainly production of cement, furniture,
paper, detergents, cosmetics, pharmaceuticals, batteries, garments and
processed foods) accounted for 17.3 per cent. of GDP, an increase from
15.9 per cent. of GDP in 1972. Virtually all industry is privately owned.
Exchange rate and price stability coupled with the gradual fall in
Lebanese Pound interest rates have contributed to a better environment for
investment and growth in industry. Infrastructural bottlenecks resulting
from the conflict are being addressed as improvements in roads, telephones
and electricity supply are realized. IDAL is in the process of
establishing free industrial zones in several areas around the country.
The Government provides various incentives for the establishment of
industrial facilities in Lebanon, including fiscal incentives in the form
of reduced customs duties and tax exemptions.
1993 to December, 1999, the International Finance Corporation ("IFC")
carried out 31 investment and financing projects in Lebanon in an
aggregate amount of U.S. $316 million, with an additional U.S. $256
million raised by the IFC through loan participations. Investments during
1999 included loans to three companies for U.S. $50 million. As of
December 31, 1999, U.S. $237 million representing IFC loans, loan
participations and equity investments had been disbursed and remained
Lebanon has no known fossil fuel resources. Apart from relatively modest
hydroelectric resources and the import of 50-100 megawatts of electricity
semi-annually from Syria, all energy needs are met with imports of
petroleum products, which represented over 4.2 million TOE (tonnes of oil
equivalent) in 1995. Two state-owned refineries (one in Tripoli and one in
Zahrani) are currently non-operational. The power sector accounts for
about one-third of fuel imports.
Lebanon's energy sector is dominated by the state-owned Electricité du
Liban ("EDL"). EDL is a vertically integrated utility with approximately
900,000 customers. Lebanon's energy production facilities include three
thermal power stations, two gas turbine stations in each of Baalbek and
Tyre and seven hydroelectric stations. In addition, two new combined cycle
power plants have been constructed. Besides its own plants, EDL purchases
power from four independent hydroelectric power producers and sells
wholesale to four private distributors. EDL is also the majority
shareholder in the previously private-owned Kadisha company, a thermal and
hydro power producer and distributor to about 100,000 customers in North
power sector sustained severe physical damage to all its production
transmission and distribution facilities during the conflict. EDL also
incurred financial losses resulting from low tariffs, high technical and
non-technical losses, including widespread illegal connections, and loss
of control over its commercial operations.
has been regaining control over its operations. Following the
rehabilitation of existing plants, tariffs were increased significantly,
and, commencing in 1996, steps are being taken to address billing and
collection weaknesses as well as non-technical losses. The program for the
rehabilitation of the Republic's energy sector is further described under
Israeli attacks on power stations near Beirut in June, 1999 and February,
2000 resulted in damages estimated at approximately U.S. $40 million.
Required repairs to the power stations as a result of the latest attacks
have been substantially completed.
Approximately one third of the Republic is arable. The most fertile areas
are located along the coastal strip and in the Bekaa valley. The diversity
of the Republic's topography and climate enables cultivation of a wide
variety of vegetables, fruits, industrial crops and cereals. In 1995,
agriculture contributed approximately 12 per cent. to the Republic's GDP,
as compared to approximately 9.9 per cent. in 1972. Food and agricultural
exports, which include forestry products, provide about 10 per cent. of
merchandise export earnings.
From the Ministry of Tourism