Lebanon is expected to enter a new promising and prosperous era once the $11 billion in soft loans earmarked for the rehabilitation of the country’s ailing infrastructure starts pouring in.
The formation of the government headed by Prime Minister Saad Hariri has sent a positive signal to the international community that Lebanon will wholeheartedly and relentlessly meet all the conditions set by CEDRE conference in Paris.
Among the conditions attached to these financial pledges are wide scale administrative reforms to ensure transparency in all the projects that will be executed in the coming few years.
The Lebanese authority, which is keen to draw these funds to crucial projects, has hammered out a number of plans to facilitate the business climate and remove all bureaucratic and red tape procedures.
To help the Lebanese government identify some of the problematic legal and administrative procedures, the Investment Development Authority Lebanon (IDAL) has mandated UNCTAD to complete a comprehensive report on Lebanon.
UNCTAD Investment Policy Reviews (IPRs) are intended to help Lebanon improve its investment policies with the objective of meeting the Sustainable Development Goals (SDGs) and to familiarize governments and the international private sector with an individual country’s investment environment.
One of the agencies that were founded to attract foreign investments in different areas was no doubt IDAL which was very instrumental in facilitating the tasks of investors through one-stop-shop and other innovative ideas.
But despite the effective measures taken by IDAL, the Lebanese government felt it was important to benefit from the experience of UNCTAD improving the business climate.
Lebanon counts heavily on foreign direct investment to buttress the economy create more jobs and improve the balance of payments.
The report said that since 1997, Lebanon has consistently attracted significant foreign direct investment (FDI) inflows.
From 1997 the country started to attract rising levels of FDI, with inflows consistently surpassing $2 billion per year since 2003, and reaching a record-high of $4.4 billion in 2009.
This is a strong performance for a post-conflict, developing economy with a population of just 6 million in 2016 (UNCTAD Stats, 2017) – of which an estimated 1.5 million are refugees – with limited natural resources, and where manufacturing accounts for less than 10 percent of gross domestic product.
Despite a slowdown following the global economic crisis, the country’s FDI performance has remained above that of comparator countries, including the Middle East and North Africa (MENA) region as a whole. FDI has played a key role in the development of a dynamic services sector.
Other sectors, however, have attracted little FDI and the largest share of inflows originate from a limited number of countries in the region, which increases Lebanon’s exposure to exogenous shocks.
Political instability in the region, as well as a range of policy, economic and infrastructure challenges affect the prospects for FDI diversification. Among them are the crisis in neighboring Syria and the massive inflow of refugees that resulted from it, a fragile macroeconomic situation, high unemployment, brain drain and energy supply shortages.
The report said that regulatory obstacles are also a deterrent to economic and FDI diversification. In particular, several restrictions on foreign investment persist, some of which contrast with the stated objectives of the government.
A series of outdated, and sometimes unusual, administrative processes affect the investment climate and business operations.
The absence of a competition law and agency prevents proactive action to establish a level-playing field and, in the area of labor, a core ILO convention (Convention No. 87 on the Freedom of Association and Protection of the Right to Organize) has not been ratified. Laws to prevent and mitigate corruption, an issue that is of concern to the private sector, are also missing.
It added that limited institutional capacities further affect the implementation of the regulatory framework. Even when laws are in line with modern, good practice, as is the case for commercial arbitration and environmental impact assessment, the relevant implementing authorities are affected by serious shortages of resources, including staff.
UNCTAD said that the government of Lebanon has recently embarked on a reform drive to improve the legal and institutional framework for investment.
“The Investment Policy Review of Lebanon acknowledges the government’s efforts and provides the authorities with concrete recommendations in the areas of governance, transparency and business facilitation through the adoption of e-government solutions. It also recommends aligning FDI regulations with the country’s development objectives, streamlining business operations in the areas of business establishment, land registration and taxation, adopting a modern competition regime, and securing resources for the implementation of labor and environmental laws,” the report said.
The IPR proposes the adoption of a more strategic approach to investment promotion, aimed at attracting higher levels and more diversified FDI, which would generate increased development impact. The approach proposes a methodology to identify target sectors/subsectors and to efficiently promote them on the basis of a stronger institutional framework and a dedicated investment promotion agency free of regulatory functions.
The report examines how this approach could be applied to the ICT and ICT-enabled sectors, which the government considers high priorities for helping to achieve the Sustainable Development Goals.
The report said that Lebanon does not have a comprehensive investment law.
An investment law exists (Law 360 of Aug. 16, 2001, complemented by Decrees 9311 and 9326 of Dec. 21, 2002), but it was designed to define the mandate of IDAL and to provide incentives in priority sectors. The law does not contain the provisions usually featured in an investment law, such as the core standards of treatment and protection applying to domestic and foreign investors.
The most prominent output of the report was the need to develop a national strategy to promote investment and enable IDAL to implement this strategy. This will surely contribute to the boosting of the business environment in Lebanon.