2009 Investment Climate Statement - Lebanon

2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009

Openness to Foreign Investment

Lebanon is a country open to foreign direct investment by tradition. Over the last six years, the GOL has passed several laws and decrees to encourage investment. The Investment Development Law grants the Investment Development Authority of Lebanon (IDAL), a public agency under the Prime Minister, the authority to award licenses and permits for new investments, as well as to grant special incentives, exemptions, and facilities to large projects. In an attempt to attract foreign investments, IDAL launched in 2003 the "Investors Matching Service" to facilitate the creation of strategic international-local partnerships through joint ventures, equity participation, acquisition, and others. IDAL is currently setting up the Investor Support and Information Center (ISIC), a data bank that will provide comprehensive, reliable, and up-to-date investment related information to prospective investors. The ISIC should be launched in the first quarter of 2009.

Lebanon has many investment enabling strengths that have encouraged foreign companies to set up offices in recent years. Lebanon's key advantages include a free market economy, the absence of controls on the movement of capital and foreign exchange, a highly educated labor force, good quality of life, and limited restrictions on investors. Moreover, Lebanon has not been affected by the global financial crisis due to sound banking regulations that prohibit investing in structured products. Commercial banks record high liquidity levels. Although they are the largest lenders to the GOL, commercial banks are interested in financing the government's privatization programs. Meanwhile, Lebanon is one of the few countries that has benefited from the global financial crisis; there was a significant increase in capital inflows mainly from the Lebanese Diaspora from July to October 2008, which perceived Lebanon's banking sector as relatively safe given its high liquidity and high interest rates on deposits.

However, the domestic political and security situation may affect investments in 2009. The political situation remains fragile, and tensions could increase before the parliamentary elections in spring 2009. In addition, some issues continue to cause frustration among local and foreign businessmen. Impediments include red tape and corruption, arbitrary licensing decisions, complex customs procedures, archaic legislation, an ineffectual judicial system, high taxes and fees, flexible interpretation of laws, and weak enforcement of intellectual property rights. These factors have pushed the International Finance Corporation (IFC) to rank Lebanon 99 among 181 countries in terms of ease of doing business in its 2009 report. The "Doing Business" report ranks economies based on ten indicators: ease of starting a business, dealing with construction permits, employing workers, registering property, access to credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.

The government continues to express a strong commitment to improving the business environment in its reform program submitted at the Paris III International Donors' Conference in January 2007. In January 2006, the Ministry of Economy and Trade (MOET) signed an agreement with the IFC to help streamline business registration procedures in Lebanon. A short-term business registration simplification solution was endorsed in September 2007 and is expected to reduce time, cost, and number of procedures by 50 percent. The MOET is working on new legislation to further reduce time, costs, and procedures in the long run.

In 2008, 30 foreign companies, including one U.S. company (in the services sector) opened offices, representative offices, or branches in Lebanon, according to statistics from the MOET. Lebanon received mixed results in the World Bank's annual governance survey for 2007, falling in five out of six categories compared to the previous year. Out of 212 countries worldwide and 19 MENA countries, Lebanon's rank regressed in the categories of government effectiveness, political stability, regulatory quality, rule of law, and control of corruption. Meanwhile, Lebanon's rank rose by seven places worldwide and two places within the MENA region in the voice and accountability indicator.

Privatization is a key component of the current government's economic reform program, as it is eager to attract foreign investors. But progress on privatization will depend on political will and global market conditions. In the last quarter of 2007, the government moved forward in privatizing the telecommunications and power sectors, starting with the sale of two cellular licenses. 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 http://www.lebanonmobileauction.com. However, political tension stalled the auction process, despite nine international companies expressing interest in the deal. Due to the global financial crisis, the government decided to wait for better market conditions before moving forward with the auction. Meanwhile, the management of the two GOL-owned cellular companies expired and the government tasked the Ministry of Telecommunications (MOT) to launch a tender for a one-year management contract, renewable for one additional year, for both companies. The MOT is expected to submit legislation for the sale of the two companies' assets in early 2009.

In March 2007, Booz Allen Hamilton completed the plan for setting up Liban Telecom, consisting of the merger of MOT directorates and Ogero (the public company in charge of fixed lines maintenance and ADSL provider). Implementation awaits a political decision to appoint Liban Telecom's Board. Liban Telecom will also hold a third cellular license and will be open for privatization. As for the power sector, in order to privatize power production and distribution at Lebanon's national power company, Electricite du Liban (EDL), the government contracted three separate advisory teams in November 2007 to help corporatize EDL and set up the regulatory framework for its privatization within 18 months. Meanwhile, current Minister of Energy and Water (MEW) Alain Tabourian is preparing a new reform plan for the power sector and is expected to announce it in the first quarter of 2009. The IFC has helped in preparing the due diligence for an Independent Power Producer (IPP), however Tabourian rejects the idea of having the private sector build new power plants.

In November 2007, the MEW signed two memoranda of understanding with two separate local private companies to build private power plants, in line with the government's plan to privatize the electricity industry and switch to cheaper and more environmentally friendly fuels. One company will build a new 50 megawatt plant to supply the national power grid and the other company will construct the country's first wind-powered plant in the Biqa' region. Both projects await issuance of the license and offer good opportunities for U.S. technology and investment.

There are opportunities for attracting foreign investors in infrastructure projects. The government pledged at the Paris III Conference to maintain an appropriate level of investment spending. The Council for Development and Reconstruction (CDR) is responsible for tendering and procuring funding for government physical infrastructure projects (electricity, telecommunications, roads, and public transport), social infrastructure (education, public health, social and economic development, land use, and environment), basic services (water supply, wastewater, solid waste management), and productive sectors (agriculture, irrigation, ports, airports, tourism, and government buildings). According to the latest CDR progress report of July 2008, there were 1,074 projects in progress valued at USD $2.472 billion by the end of December 2007. Public infrastructure opportunities mainly lie in roads and highways, ports, electricity, education, solid waste, wastewater, and water supply. As of the end of 2008, the CDR had a total of USD $2 billion in loans and protocols ratified by parliament, but not yet disbursed. As of September 2008, the CDR had a total of USD $691 million in loans awaiting parliamentary approval. In addition, the CDR has nearly USD $600 million in grants mainly related to pledges prior to Paris III and earmarked for public investments for post-July 2006 war reconstruction; CDR has already spent part of this assistance. In addition, donors pledged USD $2.7 billion in project financing at the Paris III Conference. The CDR has a limited absorptive capacity and targets annual spending at around USD $750 million.

A foreigner can establish a business under the same conditions that apply to a Lebanese national, provided the business is registered in the Commercial Registry. Foreign investors who do not manage their business in Lebanon do not need to apply for a work permit. However, foreign investors who own and manage their business in Lebanon must apply for an "Employer Work Permit" and a residency permit. The Employer Work Permit stipulates that the investor's share in the capital not be less than USD $67,000 and that the investor pledges to hire three Lebanese and register them at the National Social Security Fund (NSSF) within six months. All companies established in Lebanon must abide by the Lebanese Commercial Code and regulations, and are required to retain the services of a lawyer. There are no sector-specific laws on acquisitions, mergers, or takeovers, except for bank mergers. Lebanese law does not differentiate between local and foreign investors, except in land acquisition (see property section below). Foreign investors can generally establish a Lebanese company, participate in a joint venture, or establish a local branch or subsidiary of their company without difficulty. Specific requirements apply for holding and offshore companies, real estate, insurance, media (television, political newspapers), and banking. The establishment of joint-stock corporations, limited liability, and offshore and holding companies are allowed under Lebanese law. A joint-stock corporation (Societe Anonyme Libanaise - SAL) is governed by Decree Law No. 304, dated January 24, 1942, under the Commercial Law. Limitations related to foreign participation include: a general limitation on management participation (Article 144 stipulates that the majority of the Board of Directors should be Lebanese), indirect limitation with regard to acquisition of capital shares (Article 147), limitation on capital shares with regard to public utilities (Article 78), and limitation on capital shares and management with regard to exclusive commercial representation (Decree-law No. 34/67, dated August 5, 1967). In the financial sector, most establishments, including banking and insurance, must take the form of a joint-stock company.

A limited liability company (Societe a Responsabilite Limitee - SARL) is governed by Decree Law No. 35, dated August 5, 1967. It can be fully owned by non-Lebanese and the management of the company can be conferred to non-Lebanese.

Holding and offshore companies follow the legal form of a joint-stock corporation and are governed by Decree Law No. 45 (on Holdings) and Decree Law No. 46 (on offshore companies), dated June 24, 1983, and amended by Law No. 19, dated September 5, 2008. A foreign non-resident Chairman/General Manager of a holding or an offshore company is exempt from the obligation of holding work and residency permits. Law No. 772, dated November 2006, exempts holding companies from the obligation of having two Lebanese persons or legal entities on their Board of Directors. All offshore companies must register with the Beirut Commercial Registry. Offshore banking, trust, and insurance companies are not permitted in Lebanon. Law No. 296, dated April 3, 2001, which amended the 1969 Law No. 11614, governs foreign acquisition of property. The new law eased legal limits on foreign ownership of property to encourage investments in Lebanon, especially in industry and tourism, abolished discrimination for property ownership between Arab and foreign nationals, and lowered real estate registration fees from six percent for Lebanese and 16 percent for foreigners to five percent for both Lebanese and foreign investors. The law permits foreigners to acquire up to 3,000 square meters of real estate without a permit; acquiring more than 3,000 square meters needs Cabinet approval. Cumulative real estate acquisition by foreigners may not exceed three percent of total land in each district. Cumulative real estate acquisition by foreigners in the Beirut region may not exceed 10 percent of the total land area. The law prohibits acquisition of property by individuals not holding an internationally recognized nationality. This is primarily aimed at Palestinian refugees residing in Lebanon to prevent them from permanently settling in the country.

Conversion and Transfer Policies

There are no restrictions on the movement of capital, capital gains, remittances, dividends, or on the inflow and outflow of funds. The conversion of foreign currencies or precious metals is unfettered. Foreign currencies are widely available and can be purchased from commercial banks or money dealers at market rates. There are no delays in remitting investment returns except for the normal time required by the banks to carry out transactions.

Expropriation and Compensation

Land expropriation in Lebanon is relatively rare. The Law on Expropriation (Law No. 58, dated May 29, 1991, Article One), as well as Article 15 of the Constitution, clearly specifies the purpose of expropriation and calls for fair and adequate compensation. The government may expropriate property for public utility projects, such as enlarging highways and streets. Compensation is paid at the time of expropriation and is often perceived as below market value. The government does not discriminate against U.S. or other foreign investors, companies, or their representatives, in expropriation. The government, with the agreement of the parliament, established three private and public real estate companies to encourage reconstruction and development in Greater Beirut, a private corporation "SOLIDERE" for Beirut's downtown commercial center, and two public companies, "ELYSSAR" for the southwest suburbs of Beirut, and "LINORD" for northern Beirut. While LINORD has been dormant for years, the government is seriously considering reactivating it to attract investors. These companies have been granted the authority to expropriate certain lands for development, although in doing so they have faced serious legal challenges from landowners and squatters. Several court cases are still pending against SOLIDERE after 13 years of litigation.

Dispute Settlement

Over the last few years, the government has faced problems with previously awarded contracts. It has resorted to international arbitration to resolve them. In 2005, the International Chamber of Commerce's Arbitration Court issued rulings favorable to the two private operators of the cellular network, Cellis (which is two-thirds owned by France Telecom) and Libancell, whose contracts were terminated by the government in 2001. The government negotiated a settlement and paid them compensation. The government has also recently settled a dispute with a Chinese contracting company working to expand the northern port of Tripoli. Cases in Lebanese courts are not settled rapidly because of archaic procedures, a shortage of judges, inadequate support structures, and a traditional slowness in the handling of cases inherited from the days of the French mandate. Since 2005, political interference has stalled the appointment of new judges to fill vacancies in some courts and to handle the increased workload. There is occasional interference by politicians and powerful lobbying groups in the court system. Local courts accept investment agreements drafted subject to foreign jurisdiction, if they do not contradict Lebanese Law. Judgments of foreign courts are enforced subject to the "exequatur" obtained. The Commercial Code (Book No. 5, Articles 459-668) and the Penal Code govern insolvency and bankruptcy. By law, a secured creditor has a right to share in the assets of a bankrupt party. Verdicts involving monetary values in contract cases are made according to the currency of the contract or its equivalent in Lebanese pounds at the official conversion rate on the day of the payment.

The "Lebanese Center for Arbitration" became operational on May 8, 1995. Created by local economic organizations, including the four Lebanese Chambers of Commerce, Industry and Agriculture, the Center acts as an arbitrator in solving Lebanese and international conflicts related to trade and investment. Its statutes are similar to those of the International Chamber of Commerce in Paris. Lebanon has an administrative judicial system that handles all kinds of disputes involving the State. The government accepts binding international arbitration of investment disputes between foreign investors and the State related to contracts. In the case of a concession granted by contract by the State, the government does not accept binding international arbitration unless the contract includes an arbitration clause that obtained prior approval by decree issued by the Cabinet. However, there is an exception for investors of countries that have signed an investment protection agreement (ratified by the parliament) that stipulates international arbitration in case of dispute.

Lebanon is a member of the International Center for the Settlement of Investment Disputes (ICSID - Washington Convention). Lebanon ratified in 2007 the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards.

Performance Requirements/Incentives

There are no performance requirements on investment imposed by law. There are no requirements on foreign investors regarding geographic location, amount of local content, import substitution, export expansion, technology transfer, or source of financing. Investors are not required to disclose proprietary information as part of the regulatory approval process, except in the case of banks, which must have the Central Bank's approval for transfer of ownership. Foreign investors enjoy the same incentives as local investors. Foreigners doing business in Lebanon through an establishment must have work and residency permits. Registration with a Chamber of Commerce is required for the import and handling of a limited number of products that are subject to control requirements for safety reasons. Products with special import requirements constitute less than one percent of total tradable goods. Registration at the Chambers of Commerce is required for ensuring that established facilities meet safety, handling, and storage requirements. The Investment Law divides Lebanon into three investment zones located outside Beirut, with different incentives provided in each zone. The law encourages investments in the fields of technology, information, telecommunications and media, tourism, industry, and agriculture. Incentives include: (a) facilitating issuance of permits for foreign labor; (b) tax incentives ranging from 50 percent tax reduction for five years on income tax and tax on the distribution of dividends to total exemption of these taxes for ten years starting from the date of operation (issuance of first invoice); and (c) exempting companies that list 40 percent of their shares on the Beirut Stock Exchange from income tax for two years. The Investment Law allows the introduction of tailor-made incentives through package deals for large investments projects regardless of the project's location, including tax exemptions for up to 10 years, reductions on construction and work permit fees, and total exemption on land registration fees. IDAL may exempt joint-stock companies that benefit from package deal incentives from the obligation of having a majority of their Board of Directors being Lebanese (Law No. 771, dated November 2006). Investors who seek to benefit from facilities in the issuance of work permits under "package deals" must hire two Lebanese for every foreigner and register them with the NSSF.

Other laws and legislative decrees provide tax incentives and exemptions depending on the type of investment and its geographical location. Industrial investments in rural areas benefit from tax exemptions of six or ten years, depending on specific criteria (Law No. 27, dated July 19, 1980, Law No. 282, dated December 30, 1993, and Decree No. 127, dated September 16, 1983). Exemptions are also available for investment in south Lebanon, Nabatiyeh, and the Biqa' (Decree No. 3361, dated July, 2, 2000). For example, new industrial establishments manufacturing new products will benefit from a 10-year income tax exemption. Factories currently based on the coast that relocate to rural areas or areas in south Lebanon, Nabatiyeh, and the Biqa' benefit from a six-year income tax exemption.

The government reduces to five percent the tax on dividends for: (a) companies listed on the Beirut Stock Exchange (BSE); (b) companies that open up 20 percent of their capital to Arab companies listed on their country's stock exchange or foreign companies listed on the stock exchange of OECD countries; and (c) companies that issue Global Depository Receipts (GDRs) amounting to a minimum 20 percent of their shares listed on the BSE. Domestic and foreign investors may benefit from a five to seven percent subsidy on interest on loans amounting to up to USD $10 million provided by banks, financial institutions and leasing companies to industrial, agricultural, tourism, and information technology establishments. The subsidy covers a maximum of seven years.

Custom exemptions are granted to industrial warehouses for export purposes. Companies located in the Beirut Port or Tripoli Port Free Zone benefit from customs' exemptions and are exempt from the value-added tax (VAT). They are also not required to register their employees with the NSSF if they provide equal or better benefits.

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 of lawsuits 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.

The Business Software Alliance (BSA) ranked Lebanon 37 out of 108 countries with the highest piracy rate worldwide in 2007, an improvement from 2006 when Lebanon was ranked 30. Within the MENA region, Lebanon ranked six in 2007; Lebanon had been in third place since 2003. Lebanon's piracy rate remained constant at 73 percent since 2005. Meanwhile, piracy-related losses totaled $44 million in 2007, up 12.8 percent from $39 million in 2006. Unauthorized copies of internationally patented pharmaceuticals continue to be approved by the Ministry of Public Health, although newly approved Decree No. 571 contains requirements on the treatment of undisclosed information in registration applications. The judicial system is largely ineffective in deterring IPR crimes. Existing intellectual property right laws cover copyright, patent, trademarks, and geographical elements.

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)
-- 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 the 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 online 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 U.S.-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 neighborhoods 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.


There is rampant corruption when dealing with the public sector. According to Transparency International (TI), perceived corruption in Lebanon in 2008 ranked 102nd out of 180 countries, down from 99th in 2007, and 11th 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 U.A.E.

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.


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.