Executive Summary

Lebanon is one of the smallest countries in the region, but strategically located on the Eastern Mediterranean, it is an important commercial hub for the Middle East. A heterogeneous country, highly divided along both religious and confessional lines, Lebanon has a relatively young population. The Lebanese system of government reflects a combination of the prime ministerial and presidential systems. A lengthy power vacuum was recently filled with the appointment of Michel Aoun as President and Saad Hariri as Prime Minister.
GDP in Lebanon was worth USD 47,1 billion in 2015, which in terms of per capita was recorded at USD 7,062. If the conflict in neighbouring Syria eases, GDP growth is expected to increase to 3% in 2017, and return to its potential, estimated at 4% from 2019 onward. Lebanon is a predominantly importing country, characterized by large trade deficits, with net trade in goods and services amounting to USD -10.9 billion in 2015. The inflation rate started decreasing in 2013 and by 2015 the inflation has sharply decelerated to -3.7%, while the unemployment rate stands at 6.4 % in 2014, although considerably higher for youth and women. Lebanon has suffered from increasing fiscal deficits since 2011 and reached LL 6,882 billion in 2015, representing 2,96% of the GDP.
The business environment in Lebanon is relatively restrictive, with the World Bank ranking it 126 out of the 189 countries surveyed in its Doing Business 2017. In terms of Global Competitiveness, the World Economic Forum ranks Lebanon as the 101st most competitive nation in the world (out of 138 economies).
There are strong indications that there is natural gas, and possibly oil, to be exploited in offshore Lebanese territory, and Lebanon has the potential to emerge as a gas producing country in the medium-term future. Currently, the Lebanese are fully reliant on energy imports to meet domestic demand for energy. Lebanon suffers from low energy efficiency, and it is vulnerable to frequent electricity cuts, due to ageing infrastructure and insufficient generation and transmission capacity, combined with a rising power demand. The use of renewable energy in Lebanon is limited, but GoL is examining ways to diversify its energy sources, with a view to reduce its reliance on imported energy products.
In spite of Lebanon having the highest amount of rainfall per capita in the Middle East, the country suffers from acute water shortages during the dry summer months. This is due to a failing and politicized infrastructure network that provides very low water storage capacity, the difficulty of capturing the water close to the sea, a lack of proper regulation, and an exceptionally high level of leakage. There is a gap in water management policy and the country has an urgent need for infrastructure investments and institutional reforms.
The Lebanese food and drinks industry has thrived in recent years, in spite of an overall rough economic climate. Food consumption in Lebanon has been growing steadily, and in 2015 it increased by 4.3%. The most dynamic of the sub-sectors in the drinks segment in Lebanon is the soft drinks industry, which is set to experience an annual 15.4% growth in sales. Within the sector, fruit juice is a smaller and less developed market than that of carbonated soft drinks, and one that has particular potential for growth, alongside bottled water. The Lebanese grocery retail market is dominated by smaller retailers, but modern western style mass grocery retailers are gradually eating into the small retail market.
ICT is a prioritized strategic industrial sector in Lebanon that witnessed significant growth over the past decade, propelled by massive investments in the sector. ICT’s contribution to GDP is expected to be greater than USD 6 billion by 2017. Computer hardware constitutes the bulk of Lebanon’s ICT market, followed by IT services sub-sector, and software development. Telecommunication is the second income generating sector for Lebanon’s state treasury after the VAT, and the country has a very high mobile telephone penetration rate.
A high profitability sector with high short-term yield, real estate remains one of the prime sectors in the Lebanese economy, having maintained its considerable stake of GDP in 2015, despite a slowdown in the property market since 2011. In spite of the slowing demand, property prices have increased during the past five years, attributed to the fact that both local and foreign investors in the recent years show a real instead of a speculative demand. Although the capital suffers the most from the subsiding demand for property, Beirut remains the most expensive region.
In terms of transportation and logistics, Lebanon’s infrastructure was severely damaged during the civil war, but significant programs and projects have taken place since 1991 aimed at rebuilding and modernizing the infrastructure. With Lebanon remaining largely inaccessible overland, maritime transport is the most important channel for external trade, alongside air freight, given that the rail system is not operational. However, in spite of the fact that the international airport and Beirut Port are modern, they will be limited to meet the increase of the trade volume through air and sea.
Tourism is a backbone of the Lebanese economy, making considerable contributions to the national GDP. In spite of being one of the fastest growing sectors in Lebanon and one of the largest employers, with an average of 9% annual growth over the last three years, the industry is sorely challenged by safety and security concerns. Adding to this, strained relations with Gulf countries in 2016 triggered a significant drop in Arab visitors.
The overall prospects for the Lebanese economy and industrial sectors are highly dependent on favorable economic conditions and political stability domestically and regionally.