Since the beginning of the economic crisis in 2019, Lebanon has endured a series of serious challenges that have drastically changed the daily landscape of its citizens. Triggered by a combination of financial mismanagement, political corruption and an unstable regional environment, the crisis has led to unprecedented levels of inflation, a dramatic devaluation of the Lebanese pound and a sharp decline in the purchasing power of the population. Daily life has become a struggle for many, with basic needs such as food, fuel and medicine becoming increasingly scarce and unaffordable.
Headwinds
The prospect of war with Israel has further exacerbated the situation, fueling instability and insecurity but not deterring both domestic and foreign investment. In addition, the devastating explosion at Beirut’s port in August 2020 dealt a major blow to the economy, destroying a significant portion of the city’s infrastructure, displacing thousands of residents and causing billions of dollars in damage. The explosion also shook public confidence in the government, which was already at a low point due to the ongoing financial crisis.
…and unexpected rains
But the Lebanese economy has shown remarkable resilience in the face of these challenges. Tea World Investment Report 2024 The report, published by the United Nations Conference on Trade and Development (UNCTAD), provides compelling evidence of this resilience through the significant increase in foreign direct investment (FDI) inflows to Lebanon.
Foreign Direct Investment (FDI) refers to the investment made by a company or individual from one country into business interests in another country. Unlike portfolio investments (such as stocks or bonds), foreign direct investment usually involves acquiring a permanent stake in a foreign business, such as purchasing a significant stake or establishing operations such as a factory or office. This type of investment seeks to gain direct control or influence over the operations of the foreign business and usually leads to job creation, technology transfer, and economic growth in the host country. In simple terms, foreign direct investment is when a foreign entity invests money to help grow or expand its business in another country.
According to the report, net foreign direct investment inflows to Lebanon are projected to increase by 25% to reach US$582 million in 2023, compared to US$461 million in 2022. This increase is a testament to Lebanon’s enduring attractiveness as a fertile ground for entrepreneurship and investment, particularly in the context of small industries and digital services.
Supporting small industries
Despite ongoing economic struggles, Lebanon’s capacity to increase the country’s investment attractiveness can be explained by several factors.
The country’s entrepreneurial spirit is crucial. Known for its dynamic and innovative culture, Lebanese entrepreneurs have managed to spark significant economic activity and attract international investors, a testament to their confidence in Lebanon’s growth potential, even in difficult times.
Another important factor is the active role of the Lebanese diaspora. Many successful Lebanese expatriates reinvest in their homeland, particularly in industries that operate on a smaller scale, often with limited capital, fewer employees, and focused on local or niche markets. These industries include artisanal food and product manufacturing, handicrafts, technology startups and digital services, eco-tourism and hospitality, and renewable energy. These areas are seeing significant investment due to their lower capital requirements and high growth prospects. The connection between expatriates and domestic economic activity creates a constant flow of capital, expertise, and market connections.
Small industries and digital services have also emerged as leading sectors in Lebanon’s economic recovery, attracting significant foreign direct investment due to their adaptability and innovation. Small industries benefit from Lebanon’s skilled workforce and strategic location, while digital services are thriving thanks to the country’s high internet penetration, which is projected to reach 93% by 2024.
Tea World Investment Report 2024 It shows that the volume of incoming FDI to Lebanon is expected to increase by 24% from US$527 million in 2022 to approximately US$655 million in 2023. This figure represents approximately 0.86% of total FDI incoming to the West Asia and North Africa (WANA) region and 0.05% of global incoming FDI.
This growth stands out particularly in the context of the global decline in foreign direct investment, which is expected to reach around $1.33 trillion to $1.36 trillion in 2022, with a 2% decline in 2023. The decline in global foreign direct investment underscores the importance of Lebanon’s performance, as Lebanon aims to attract investment even as global investment flows shrink.
Lebanon’s call
The surprising increase in foreign direct investment into Lebanon is due to several key factors. Government efforts to attract investors are a priority, along with a range of reforms aimed at improving the business environment. These include improvements to regulatory frameworks and incentives designed to make Lebanon a more attractive destination for foreign investors.
Of course, Lebanon’s location is another important factor: Located at the crossroads of Europe, Asia and Africa, the country offers businesses the opportunity to establish a presence in Syria’s fertile crescent region.
Additionally, Lebanon’s highly educated and multilingual workforce increases the country’s investment appeal, as its universities and educational institutions continue to produce graduates with the skills needed to succeed in today’s economy.
Finally, Lebanon’s rich cultural heritage and historical connections to various regions around the world may also explain its attractiveness as an investment destination. These long-standing ties facilitate strong international partnerships and collaborations.
As Lebanon charts its course for recovery, the continued support and trust of international investors will be crucial. Increasing FDI inflows are not only a testament to the country’s economic resilience, but also the foundation for sustainable growth and development in the years to come. However, it is important to remember that the economic situation in Lebanon is also linked to the geopolitical situation in the Middle East.
Syria Civilian Protection Law
The Caesar Syria Civilian Protection Act, commonly known as the Caesar Act, is a U.S. law that went into effect in December 2019. The Caesar Act imposes sweeping sanctions on the Syrian government, as well as foreign nationals or entities that support the regime, including businesses, financial institutions, and government officials. The law also targets sectors critical to the Syrian economy, including construction, energy, and finance.
The Caesar Act has had serious, devastating effects on the Lebanese economy, which is closely tied to Syria. The sanctions restrict Lebanese businesses from engaging in commercial or financial transactions with Syrian entities, resulting in reduced trade, disrupted supply chains, and increased economic uncertainty. Given Lebanon’s geographic proximity and historical economic ties to Syria, these sanctions have further strained the Lebanese economy, which was already struggling with its own financial crisis.
Lebanon’s ability to attract and sustain foreign direct investment despite the challenging economic landscape highlights its potential and ongoing efforts to create a country attractive to investors.
