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Political & Economic Overview

Banking & Financial Sector

Growth Prospects

Legal Review

Intellectual Property

Investment & Trade Issues


Political & Economic Overview

Despite early signs of increased consumer confidence, 2004 is unlikely to be the year of the long-awaited upward swing in the Lebanese economy. Since the signing of the peace accords in 1990, ending the debilitating 15-year civil war, the Lebanese economy succeeded in achieving respectable growth rates before crashing again in 1999. The major cause is the debts and corruption of the reconstruction process. Unemployment is running at approximately 30% (up from 25% in 2003) and approximately one quarter of the population lives below the poverty line. Despite this, Lebanon stands out as the most prosperous

non-oil Arab country with about LL7 million GDP per head.



The $20 billion "Horizon 2000" project that began in 1997 allowed Beirut to prosper while other parts of the country stagnated. The industrial and large agricultural centers were neglected and entered a deep recession. Moreover, the heavy borrowing aggravated the fiscal crisis. The project is being implemented by Solidere, a company in which Lebanese prime minister (1992-98, 2000- ) and self-made billionaire businessman, Rafiq Hariri is the main shareholder.

Population: 4 million (2003)
Religions: Muslim, Christian, Druze
Government: Democratic Parliamentary Republic
Languages: Arabic (French, English and Armenian are widely spoken)
Work Week: Government:
Monday - Friday
8:00 - 14:00
8:00 - 13:00
Monday - Friday
8:00 - 12:30
8:00 - 12:00
Monetary Unit: Lebanese Pound (L£)
Exchange Rate: L£ 1/5: US$ 1


 Lebanon Snapshot

Most prosperous non-oil Arab country with about LL7 million GDP per head

 Largest per capita public debt of any emerging market

 Deposits with commercial banks number some $40 billion with assets of $20 billion, about three times the GDP

At the beginning of 2004, the Public Debt to GDP ratio still stands at almost 200% ($3.2 billion), eating away 40% of the government budget and some 18% of GDP. This is the largest per capita public debt of any emerging market. Lebanon is spending $3 billion per annum on debt servicing. Apart from public debt, the average family-spending deficit of 30% indicates a serious private debt situation with negative impact on retail sales. Info-Prod predicts that if the pace of privatization does not increase, the budget deficit will climb to well over 30% of GDP -- or $6 billion.

The former cornerstone of Lebanon's economy - the banking hub of the Middle East – is being eaten by Dubai and Bahrain and another former anchor of the economy – tourism – has been badly hit by the global economic slowdown. The Lebanese economy also had links with Iraq. Lebanese agriculture has been severely undermined by the inflow of cheaper Syrian produce.


Lebanese Politics

The nature of Lebanese coalition politics, namely the sensitive economic and military interests imbedded in state companies, will impede serious reform efforts. There are seventeen sects and dozens of rival feudal families vying for power.

In April 2003 a staunchly pro-Syrian cabinet was instated that is unlikely to press ahead with privatization and anti-corruption measures needed to kick-start the economy. Having said this, there are signs that President Lahoud's and Prime Minister Harari's differing approaches to privatization narrowed somewhat at the end of 2003. Yet translating this into policy reality will probably take several more months of pessimistic economic news.

Damascus continues to exert influence in the shadows, particularly on the economy and especially the banking sector. Hariri has made many concessions to the Syrians and has continued to expand his personal fortune.


Stability and Corruption

For investors, Lebanon presents many opportunities but stability wavers. The fractured country's ethnic tension has remained stable since October 1990 as dpes the 1943 power sharing deal to balance different confessional interests; the president must be a Maronite Christian, the prime minister a Sunni Muslim, and the speaker of the chamber of deputies a Shi'a Muslim. Thirty political parties operate, many along sectarian lines.

However, there are several axes of potential instability: large social gaps, political wrangling, corruption, Hezbollah activity in the south, resentment at Syrian intervention, and anti-Western bitterness among certain elements in the population.

The issue of Syrian troops stationed in Lebanon puts great stress on the government and on Muslim-Christian relations. The Syrians have also entrenched their position controlling the main industries in the country and the kickbacks they enjoy are well publicized and much resented. From 2000 onwards, tension has increased with Syria as Hariri has taken a more independent line. Syria is reluctant to remove him because he is seen as crucial to Lebanon's economy, which stagnated between 1998 and 2000, the period when Hariri was forced out of his position. In the international sphere too, Syria is exploiting Lebanon for many activities it is not allowed to engage in, particularly in the banking sector.

Corruption and graft are everyday realities of life in Lebanon. The Lebanese research company Information International estimates that Lebanon wastes over $1 billion a year because of corruption. Bribes are necessary to clear containers at Lebanon's ports, to process applications and also in the banking sector. It is often said that the Lebanese public sector is full of political appointees and the private sector is full of people with family connections.

Approxmately one quarter of the population lives below the poverty line while sections of the upper classes and Syrians are prospering. In the autumn of 2003, workers took to the streets calling for a general strike in protest at a seven-year wage freeze. Public transport and international flights ground to a halt. Although this is not likely to lead to street violence, it will affect the morale of public sector workers and impact negatively on the inefficient bureaucracy.

There have been a number of bombings against American and Western interests as well as rocket attacks against political figures in Lebanon during the latter half of 2003. A bomb went off in a McDonald’s toilet and rockets have been fired at the television station owned by the prime minister. The American embassy in Beirut advised caution to American citizens visiting Lebanon.

The attacks were more an expression of anti-US sentiment rather than a concerted terror campaign. Nevertheless, it is know that there is a slight al-qaida presence but reports of several hundred senior members of the organization taking refuge there are probably unfounded.


Growth Prospects

Lebanese entrepreneurs seek new markets outside of Lebanon in a bid to avoid corruption and graft inside the country but exporters are turned off by indirect export taxes. Combined with unemployment, this situation is leaving many young people to leave the country.

One of the true growth areas in the Lebanese economy is telecom. The government-owned companies are so inefficient that most people prefer to use a mobile. Contracts have been signed with major international companies.

The government also needs to exploit the huge numbers of Lebanese nationals that have deserted the country. If levels of corruption within Lebanon can be reduced, it is likely that this class will invest heavily and can generate much needed economic activity.


Main sectors

The Lebanese economy is based primarily on the service sector -- mainly in the financial and banking industries – which constitute 70 % of national product. The industrial sector (mainly production of cement, furniture, paper, detergents, cosmetics, pharmaceuticals, batteries, garments and processed foods) occupies 20 % and is virtually entirely privately owned.

Agriculture accounts for another 10 % (but sustains 30% of the population) and is in desperate need of agricultural technology. Approximately one third of the Republic is arable but Lebanon's productive capacity is not being met and its farmers are being priced out by imported (and smuggled) produce from Syria. Lebanon also serves as a free-port area for re-exports. In the last few years, a new Duty Free Zone at the Port of Beirut is being constructed.



Banking and Financial Sector


Despite a number of banking scandals in the 1980s and the fierce competition from the new banking centers of the Persian Gulf, deposits with commercial banks number some $40 billion with assets of $20 billion, about three times the GDP. Lebanese banking grew because of its secrecy laws that protect banks from divulging information on their clients even to legal authorities.

In order to grow further, however, the sector still needs a stronger regulatory framework and a more diversified range of private financial institutions. Most of the banks are run along the lines of an extended family business and owners of these establishments are reluctant to relinquish control. There is also very little transparency because powerful family interests dominate this sector.

Foreign banks have entered the local market, most notably Paribas and Flemings, yet the sector as a whole cannot attract large-scale foreign investment until it improves its transparency levels. Many sectors are dominated by traditional businesses in the hands of commercially powerful families.


Financial Sector 

The IMF produced a damning summary of the Lebanese economy; "The fiscal situation and debt dynamics of the country have led to a loss of international reserves and `a comprehensive policy package' will be required to achieve a sustainable macroeconomic framework."

Historically Lebanon is known as having a relatively liberal fiscal policy, yet in recent years, Lebanon spends more than three billion dollars annually servicing its debt. This represents half of its budget or 18 percent of GDP. At a Paris conference in November 2002, Lebanon secured $4.4 billion, mostly in soft loans from its main Arab and European creditor countries as well as international financial organizations to deal with the high inflation rates, dwindling revenue, and a destroyed physical infrastructure.

The government has had to rely primarily on domestic borrowing. However, the waste in government expenditures have led to a persistent budget deficit resulting in a rapid build up of national debt. The International Monetary Fund has been recommending both structural reform and a recommended devaluation of the Lebanese currency, but the in fighting in the government is obstructing this.
Eighty percent of expenditure outside debt servicing in 2004 will be spent on social affairs, health and education. Revenues were expected to reach 4.26 billion dollars.



Before the war, Lebanon attracted 2 million tourists annually and contributed approximately 20% to Lebanon's GDP. Apart from its natural scenic beauty, the country has a large reserve of qualified and experienced personnel, who are able to provide high quality service.

The government is still keen to develop this sector despite the global drop in tourism. One of the ways of achieving this is through internal Arab tourism that remains a robust sector, relatively. After the increase in anti-Arab sentiment following 9/11, many Arabs prefer to vacation within the Arab world and Lebanon is the only country that can provide skiing and other winter sports. Casino du Liban, which historically constituted a major tourist destination, reopened in 1996.

After the boom of the reconstruction faded, the industry went into recession and land prices fell. Nevertheless, the $75,000,000 building project of Marina Towers, a 26-storey high rise and 2 low rises of 8 towers each will provide some stimulation and jobs to this sector.



The Lebanese economy in Middle Eastern terms is liberal in terms of trade regulations, but the government still controls the country’s debt riddled and notoriously inefficient energy and telecom sectors. Privatization of these sectors is the only way to raise capital and reduce the fiscal burden on the government. In order to do this the government will have to overcome the heavy lobbying of the Syrian elites, prominent business families who control run the nationalized industries at the moment and the squabbling political leadership.

Beirut promises to reduce its budget deficit and generate increased income through privatizing public services and administrative reforms. The International Monetary Fund-backed economic reform program foresees privatization receipts of some five billion dollars.

There has been a major conflict over privatization in the communications sector. The President, ex-general Lahoud and his close aide the Telecommunication Minister Jean-Louis Cordahi favor keeping the country's two mobile phone firms Cellis and LibanCell in government hands. The self-made billionaire prime minister is keener on privatization but is tarnished with accusations of pursuing his own business interests more than that of the good of the country. A most likely deal will be leasing the cellular phone sector and landline system for 20 years, for which the government will receive a fixed sum. At the end of the period, the companies will revert to state ownership.

Apart from cash revenues, the country badly needs privatization to increase efficiency. The state-owned Lebanese electricity company, Electricite du Liban only collects bills from half the population and there are regular blackouts. Almost all Lebanese homes have their own private generator as they do not rely on the national supply. Estimates suggest some $6 billion of public investment needed to bring the electricity company's quality up to an acceptable level of supply i.e. guaranteed daily supply for the population. The water utility would require even more investment to improve standards.

Free Trade Zones 

In a bid to secure stability in what is considered one of the potentially most advanced economies in the Arab world, and to contain Islamic fundamentalism in the Middle East, the USA and EU have proposed a number of major free trade zones.

One is the EU-Lebanon agreement that ensures that Lebanese exports enter the EU market at low tariffs while giving Lebanon a five-year grace period before it lowers its custom duties on European imports. It also provides for regular political talks, economic cooperation, quota and tariff cuts and free trade in industrial goods by the end of the decade. Part of its clauses include guarantees that Lebanon will respect global rules on fighting drug trafficking, money laundering and organized crime as well as consulting on anti-terrorism measures.

In late 2003, Colin Powell made several public announcements regarding a U.S.-Middle East Free Trade Area within a decade and measures to facilitate Lebanon joining the World Trade Organization.

Arab countries have also been working on a free trade zone by 2007 in order to increase trade exchange, which remains low. Several such ideas have been proposed in the past and have come to little. Arab economies are notoriously regulated and subject to interests of leading families. Ministers are reluctant to upset delicate balances with trading families and therefore are generally opposed to opening up markets. Lebanon and the UAE did sign, however, agreements on investment promotion and protection and exemption from double taxation. It is unlikely, however, that a pan-Arab free trade zone will be implemented in the near future.

Foreign businesses benefited from Lebanon's encouragement of foreign investment especially in the fields of real estate and high interest treasury bills. However, Lebanon was less successful in attracting investment in the country's industrial sectors.


Mergers and Acquisitions 

Although the pace has slacked, there are potential opportunities for investors willing to brave the public financing crisis and political instability. Info-Prod sees many opportunities in the financial sector, where Arab banks are in desperate need of strengthening their equities and assets bases. 2003, however, saw no major M&As in the banking sector. There is a need for creating at least two or three mega-Arab finance houses which could effectively compete with global banks in the post World Trade Organization liberalization era.


Foreign Currency Control 

The finance sector has been occupied by the debate over fixed parity between the Lebanese Pound and the Dollar. In the Parliament there was consensus on this issue in the 1990s, but a public debate has questioned its prudence.

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.


Stock Exchange  

The Government reopened the Beirut Stock Exchange, known as the Bourse at the beginning of 1996 after eleven years of inactivity. In 1994, the Central Bank established 'Midclear' as a central depository for securities and as a clearing and settlement system. Furthermore, the government set up the Beirut Stock Exchange Committee to supervise and manage the reopening of the BSE. Share trading at the BSE started on January 22nd, 1996 with the shares from four Lebanese companies Ciment Libanais, Ciment Blanc, Uniceramic, and Eternit being dealt.

The local client base is insufficient, mainly due to the reluctance of family held companies who are unwilling to float their shares on the stock exchange. Regulatory delays and confusion about the two exchange rates hindered the development of the BSE.

Furthermore, the telecommunication equipment has not yet reached international standards and the immediate freeze of international funds after the Israeli bombings in April illustrated, that the political climate of stability, which would allow the BSE to flourish, has not yet been achieved. The accumulating public debt and prevailing dollarization of the economy are also obstacles for success.

Private banks are now allowed to trade up to 30% of their shares on the stock market without the approval of the Central Bank of each private bank shareholder which had been a necessary requirement before.



Legal Review

Lebanon is a democratic republic with a parliamentary system of government. Lebanese politics is dominated by confessional groups and traditionally powerful clans. An informal system of power sharing among Lebanon's officially recognized religious groups pervades all aspects of civil society.


The prime minister, nominated by the president in mandatory consultation with the speaker of the Chamber of Deputies, is subject to the Chamber's vote of confidence. Lebanon has universal adult suffrage, and voters elect 128 for a four year term. The Chamber is made up of an equal number of Christians and Muslims.


Since the end of the Lebanese civil war in 1991, the government has consolidated its authority in many parts of the country. Some militias, including Hizballah and its allies in the south, have not yet been disarmed, however.

Lebanon's legal system is based on a combination of laws of the Lebanese legislature, Civil Law, Islamic, and Ottoman legal principles. The Constitutional Council, created in 1990, judges the constitutionality of governmental acts and adjudicates election disputes. The Shari’a Courts, which settle matters of personal status, are divided into Sunni and Shi’a units. There are several other courts with specialized jurisdiction, including the Labor Court, Land Court, Customs Committee, Military Courts, and Juvenile Courts. The judiciary is officially independent. All practicing lawyers must be registered in the appropriate Bar.



The Lebanese legal system is a mixture of Ottoman Law, Canon Law, the Napoleonic Code and Civil Law. There are four courts of cassation in the country; three that deal with civil and commercial disputes and one with criminal matters. There is judicial review of legislative action in Lebanon.


As in the military and many political positions, judicial posts are apportioned in a six to five ratio, Christian to Muslims. In many villages, local elders still wield considerable influence and in their villages, are more powerful than the state's legal institutions.

The judiciary is comprised of ordinary and exceptional courts. The ordinary courts are arranged in a hierarchy, and they are subdivided into criminal and civil departments. At the base of the structure are the Courts of First Instance. These Courts are organized into chambers of three judges each, although a single judge may adjudicate civil cases of lesser value and minor criminal cases. Judgments from the Courts of First Instance can be appealed to the Courts of Appeal, which have both appellate and original jurisdictions over felonies. There are six Courts of Appeal, one located in each district (Mohafazat). They are presided over by a First President, or Chief Judge, with supervisory and administrative duties, and comprise a Public Prosecution Department headed by an attorney general.

Decisions of the Courts of Appeal may be appealed to the Court of Cassation, or Supreme Court. This body, situated in Beirut, is presided over by a First President and also comprises a Public Prosecution Department. In addition to hearing appeals from the lower courts, the Court of Cassation adjudicates disputes between exceptional and ordinary courts, or between two types of exceptional courts.

As with other branches of government, the judiciary suffered as a result of the 1975 Civil War and the ensuing disruptions. Prior to the war, the Lebanese justice system mirrored many features common to West European systems especially that of France. The Ministry of Justice had official authority over the judicial system, but the Supreme Council of Justice, a body consisting of eleven judges appointed by the president in consultation with leaders of the sects, exercised actual jurisdiction over the various courts. It appointed judges to the several courts and could transfer or remove them. There were fifty-six courts of first instance, with seventeen in Beirut alone, and each was presided over by a single magistrate. Cases from these courts could be appealed to one of eleven courts of appeal, each of which had a three-judge panel. Above these were four courts of cassation, on which sat three judges each. Three of these courts adjudicated civil cases, and one heard criminal complaints.

Several other courts existed outside this general framework. The six-member Council of State functioned as an appeals court for administrative matters, and the Judicial Council, which included the most senior judge of the courts of cassation and four other judges appointed by the government, ruled on cases of public security. In addition, there were a few other special courts that heard questions relating to the military, the press, and business affairs.

Matters of personal status, dealing with such issues as marriage and inheritance, were in the domain of the various sects. These cases sometimes involved complex layers of appeal. Maronites and Greek Catholics, for example, could appeal to the Vatican, whereas Greek Orthodox could look to the Patriarchal Court in Damascus for relief. Shias and Sunnis, in contrast, often dealt with appeals locally and based decisions on sharia.

As might be expected in a society based on patronage, political interference in judicial affairs was not uncommon, and pressures from zuama on judges often influenced rulings. Observers noted that confessionalism also marred the judicial system, not only in the selection of judges, some of whom were mediocre jurists, but also in the determination of criminal penalties.

As of 1987, the Ministry of Justice was an active portfolio, but there was little evidence that the judiciary resembled its prewar status; only a few government-run courts seemed to be in operation. These apparently handled only minor civil and criminal cases and ultimately were circumscribed by the desires of the local militias.



Investment & Trade Issues

There are no Laws or Regulations or known practices by private firms which restrict foreign investment, or participation in or control of domestic enterprises
Some goods, such as Computer Hardware and Software, Firearms, Munitions, and some Agricultural products need an import license from the appropriate government authority.

Restrictions on foreigners wishing to invest in Lebanon are few, though there is a ceiling on Real Estate acquisition by foreigners, and in particular non-Arabs.



Intellectual Property


Despite the fact that Lebanon is a signatory to the Paris Convention, many companies have been turned off by Lebanon's intellectual property regulations. The government has tried to amend this by passing new tre
There are particularly high levels of trade mark infringements. Lebanon does have a Copyright Law and is a signatory to several International Conventions regarding protection of Intellectual Property.



Patents are granted for fifteen years from the date of filing. A patent application should be filed before the invention has been used or published in Lebanon or abroad. Applications are not examined as to novelty, and there are no opposition provisions. Pharmaceutical formulas or compounds are not patentable.
A patent may be declared void unless the invention has been worked in Lebanon within two years from the date of grant, three years for nationals of convention countries. There is no provision regarding the grant of a compulsory license in the absence of working. To be effective, assignments must be registered with the Patent Office.


Trademark laws in Lebanon are old and rudimentary. The laws date from the beginning of the century and have not been updated to take into account economic developments and changes.

A trademark application can include goods in any number of classes. An application for the registration of a trademark is examined as to whether it offends public order and morals or represents natural or foreign decoration. If the application is accepted, a certificate of registration will be issued and is effected by publication in the Official Gazette. There are no opposition provisions, but action for cancellation may be brought by any interested party at any time during the term of protection on grounds such as lack of distinctiveness and improper registration.

A trademark is valid for fifteen years from the date of filing and is renewable indefinitely for similar periods. Assignment of a trademark must be recorded with the Trademark Office in order to be effective against third parties. Assignment may be with or without a business concern. Use of a trademark is not compulsory in order to file an application for registration or to maintain registration.
Infringement of the trademark laws is punishable by fine and imprisonment. Civil remedies are also available in the form of injunctions and damage awards. In the case of trademark imitation, the courts look for a general resemblance from the consumer point of view in determining whether the trademark is violating a protected mark.



Income tax in Lebanon is levied on all persons or entities, whether or not residing in Lebanon, on income or profits derived in Lebanon.


Income tax applies to income or profits derived from trade, commerce, industry and vocational activities. Profit consists of the gross taxable income after deduction of expenses and charges necessary for the carrying out of the trade, industry or business.


The corporate income tax was recently reduced to 10 percent of annual income and 5 percent for dividends. The individual marginal tax rates range between 2 percent to 28 percent.


Bodies such as hospitals, schools, cooperative societies and trade unions are entitled to tax exemption. Also, there are special exemptions for agricultural and industrial activities as well as special tax rates for industries located outside of Beirut.


Special rules apply to foreign companies that hail from countries with which Lebanese taxpayers enjoy reciprocal treatment.


Barriers to Trade and Investment

Lebanon is a country of free trade. There are certain goods, however, such as computer hardware and software, and firearms and munitions that require an import license. Lebanon adheres to the Arab league boycott of Israel, and, therefore, the importing of goods from Israel is officially prohibited, although this ban is not fully enforced.



Lebanon levies most customs duties on an ad valorem basis, the average being 25 percent calculated on the CIF value of the goods converted to local currency by reference to the official dollar rate. Special low rates apply to certain imports from member countries of the Arab League, and many agricultural products are exempt from customs duties. Importation of a few specified commodities require an import license that must be obtained prior to shipment. Free zones offering facilities for re-packaging and processing merchandise, assembling and manufacturing are located in the Beirut Port and the Tripoli Port.


Work Permits

To reside and work in Lebanon, a foreigner is required to have a work permit issued by the Ministry of Social Affairs, a residence permit issued by the Ministry of Interior. In addition, foreign nationals that wish to carry on business in Lebanon must have a commercial register. Broadly speaking, work permits are granted to persons having skills not readily found in Lebanon and to management personnel (usually up to three people on the management staff of foreign firms).


Environmental Law 

Lebanon has entered into a number of international environmental agreements including the Convention concerning the Protection of Workers against Ionizing Radiations (Geneva, 1960); the Agreement for the Establishment of the General Fisheries Council for the Mediterranean (Rome, 1949); the Convention for the Protection of the Mediterranean Sea against Pollution (Barcelona, 1976); the Outer Space Treaty and related instruments (1967); and Annex 16 on Environmental Protection to the 1944 Chicago Convention on International Civil Aviation.


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