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Overseas Business Risk - Lebanon

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Overseas Business Risk - Lebanon

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This publication is available at Overseas Business Risk – Lebanon Information on key security and political risks which UK businesses may face when operating in Lebanon.

1.Political

Lebanon is a confessional democracy in which political representation is shared across sectarian groups. The most senior three political positions of the President, Prime Minister, and Speaker of Parliament are appointed respectively to members of the Christian Maronites, Sunni Muslims and Shia Muslims. President Michel Aoun was elected in October 2016. Nabih Berri has been Speaker since 1992. Hassan Diab has appointed Prime Minister in January 2020 after the resignation Saad Hariri in the aftermath of nationwide protests in October 2019. Both, parliamentary and presidential elections are due to take place in 2022.

Following the 4 August 2020 Beirut port explosion, Diab’s government resigned, and Hariri was appointed PM-designate. His inability to form a cabinet that shares power in a way that satisfies all the sectarian leaders has meant that Lebanon has been without government since August 2020. Diab has been acting as caretaker-PM in the interim.

A precariously-balanced power-sharing arrangement between eighteen sectarian groups, inter-communal tensions, and a vulnerability to regional intervention have posed a challenge to governance in Lebanon’s state institutions. In the absence of job-creation or basic state services, most citizens rely on non-state groups with sectarian bases, dominated by a small elite. This creates an environment where corruption is pervasive.

Recent years have seen notable improvements, including the passing of a Public Private Partnership Law and the Access to Information Law in 2017. The Lebanese Armed Forces and Internal Security Forces have also contributed improvements to the security environment, expelling Daesh from Lebanese territory in 2017, and maintaining order during and after the emergence of protests in October 2019.

Hizballah is a political party and armed militia, and one of the core political players in Lebanese politics. In February 2019, UK Parliament extended HMG’s proscription of Hizballah to include the entire organization.

Despite the decision to proscribe Hizballah in full, the UK remains a staunch supporter of a stable and prosperous Lebanon. 

2.Economics

Lebanon is a lower-middle income country with a GDP approximately $33bn. However this masks severe inequality. About 55% of the population are designated as poor and struggling to meet basic needs, and approximately 23% are now in extreme poverty according to Economic and Social Commission for Western Asia (ECSWA). Real GDP growth contracted by 20.3 percent in 2020. The traditional drivers for the Lebanese economy suffered over last year affected by COVID-19 and the economic crisis. The BLOM-PMI index, which captures private sector activity averaged 41.1 in 2020 illustrating real contraction – it is now standing at its lowest rate since it was first published in 2013. This contraction has led to a hike in the unemployment rate which now stands at 40%.

The social impact for the deterioration in the economic situation in 2021 is dire and could become catastrophic if corrective measures and safety nets are not introduced. Households are facing challenges in accessing food, healthcare, and other basic services. Unemployment is on a rise and exceeded 40% during 2020. Inflationary effects are highly regressive factors, affecting the poor and middle class. Inflation in the food and non-alcoholic beverages category averaged 254 percent in 2020 and has been a key driver of overall inflation which stood at 84.3%. The World Food Program (WFP) indicated that the monthly average price of the food components of the Survival Minimum Expenditure Basket (SMEB) in Lebanon in February 2021, increased by 12% from January 2021 and a surge of 194% from October 2019.

On the Monetary side, Lebanon currently has 5 different exchange rates. From August 2019 onwards, the parallel (black) market exchange rate diverged from the official exchange rate, depreciating by over 80% since being pegged from 1997. By March 2021, the parallel market devaluated to a low of 15,000 Lira to the USD and continues fluctuating on daily basis. The central bank has established platforms to help in managing the fluctuating of the exchange rates and place a ceiling for different transactions. Also, Central Bank (CB) in collaboration with the government designed a subsidy scheme to support importers of critical and essential goods by accessing the scarce USD at a preferential rate. This has sustained the economy in 2020 however, the depletion in the foreign reserves has led to shortages in the supply of medicines, fuel as well as electricity.

Lebanon’s banking sector has played a vital role in the economic module since 1997, but is currently facing significant risk as Banks have introduced informal capital controls which have limited customer withdrawals and transfers since October 2019. In March 2021, several international banks cut ties with the Lebanese financial system. This played a huge role in losing the trust and the sudden stop in capital inflows coupled with a continued large current account deficit, has meant a steady depletion in foreign exchange reserves at BdL.

The current account deficit was around 22% of GDP in 2019 and expected to stand at 11% in 2020 with goods exports as a share of GDP continuing to decline. COVID-19 and Port Blast had negative impacts.

3.Business

With a long history as a trading hub, Lebanon boasts huge potential from its intelligent population, enterprising youth and innovative tech sector. The services sector represents almost 70% of GDP and employs over 75% of the total labor force. The most prominent service sectors include trade (retail and wholesale), construction, tourism, Telecommunications and financial services. The private sector, in particular SMEs, forms the cornerstone of the Lebanese economy and is the main source of job creation. 

UK-Lebanon Association Agreement was signed on the 5th of November 2019. Following the end of the Implementation Period, the UK-Lebanon AA entered into force on 1st January 2021. The UK-Lebanon agreement replicates the EU-Association Agreement and provide a framework for optimizing the UK-Lebanon bilateral relationship.

Lebanon’s economic and political situation means the implementation of this Agreement will be taking place in a very challenging environment, at a time when Lebanon’s priorities are focused on areas like security, health and humanitarian aid. HMG understands that implementation of the Agreement is reliant upon the Ministry of Foreign Affairs and recognizes that prioritization of this Agreement is at risk in the current climate.

Total trade in goods and services (exports plus imports) between the UK and Lebanon was £560 million in the four quarters to the end of Q4 2020, a decrease of 32.4% or £269 million from the four quarters to the end of Q4 2019.

In the four quarters to the end of Q4 2020, total UK exports to Lebanon amounted to £435 million (a decrease of 33.9% or £223 million compared to the four quarters to the end of Q4 2019).

Of all UK exports to Lebanon in the four quarters to the end of Q4 2020, £186 million (42.8%) were goods and £249 million (57.2%) were services. In the four quarters to the end of Q4 2020, UK exports of goods to Lebanon decreased by 42.8% or £139 million compared to the four quarters to the end of Q4 2019 while UK exports of services to Lebanon decreased by 25.2% or £84 million compared to the four quarters to the end of Q4 2019.

The top 5 goods exported from the UK to Lebanon in the four quarters to the end of Q4 2020 were: • Mechanical power generators (£36.0 million or 19.4% of all UK goods exported to Lebanon) • Medicinal & pharmaceutical products (£24.1 million or 12.9%) • Refined oil (£15.9 million or 8.6%) • Mechanical power generators (intermediate) (£13.6 million or 7.3%) • Beverages (£12.2 million or 6.5%)

Currently, Lebanon is going through unprecedented economic crisis including capital control imposed by Lebanese banks which poses challenges to importers to transfer payments overseas, however other payment means were identified to overcome this issue.

Lebanon imports a staggering 80% of its products - most of the country’s oil, meat, grain and other supplies come from abroad. Lebanon receives U.S. currency inflows through tourism, foreign aid, remittances and loans. And in turn, spends those dollars to purchase supplies across borders. The fluctuation of the currency and the instable exchange rate have lead to the skyrocketing of the retail prices, imported products have become out of reach to many Lebanese.

Poor infrastructure (e.g. unreliable energy provision), weak governance structures, and a public investment system in need of reform harm the environment for businesses and investors. In 2020 Lebanon ranked 143 out of 189 in the World Bank’s ease of doing business index (down ten places from 2017). Long standing infrastructure problems have been exacerbated by the influx of Syrian refugees since 2017 – at 1.5 million Lebanon hosts the highest number of refugees per capita. In the 2018 Global Competitive Index Lebanon ranks 105 out of 137, with government instability, corruption and inadequate supply of infrastructure put as the most problematic factors for doing business.

UK companies should seek professional legal advice should they have, or be considering, entering into agreements in Lebanon. The British Embassy is ready to support UK companies seeking to invest or operate in Lebanon. Please contact the DIT team in Lebanon for more information.

4.Human Rights

Lebanon has acceded to six of the seven UN conventions on human rights and to seven of the eight International Labour Organization (ILO) conventions concerned with human rights. The country underwent the third cycle of the Universal Periodic Review process in January 2021. This will lead to recommendations for the country to implement. However, since the onset of the Arab Spring, and then Lebanon’s economic crisis, human rights reform has stagnated in Lebanon and continues to be below international standards.

There is no agreed moratorium on the death penalty (though there have been no executions since 2004). Arbitrary detention and prison conditions fall far short of international standards. Women face discrimination under personal status laws, however, in December 2020, Parliament has endorsed a law criminalizing sexual harassment. The law also affords protection to both the victims and any witnesses who testify against the accused. Since the start of nationwide protests in October 2019, there have been sporadic incidences of excessive force against protesters by Lebanese security agencies. Recently, there have also been allegations of serious violations by the security agencies, including torture, against terrorism detainees. The rights of migrant domestic workers and Palestinian refugees remain limited with prevalent mistreatment and no available redress. Despite these shortcomings, the country has taken steps to improve the human rights situation. Parliament passed a law on a National Human Rights Institution (NHRI) and National Preventative Mechanism (NPM) in October 2016. In 2019, the Council of Ministers named the five members of the NPM. However, Lebanon has not yet allocated a budget for the NHRI and NPM or ratified the relevant financial decrees.. In 2017 Parliament passed a new law which specifically criminalized torture.

5.Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organization carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

According to the 2017 Transparency International’s corruption perception index (CPI) Lebanon ranks 143 out of 174 countries, with an unchanged score since 2015. Lebanon has a series of Anti-Corruption Laws. Lebanon ratified the United Nations Convention Against Corruption (UNCAC) in October 2008; this is the most comprehensive piece of international anti-corruption legislation and includes a section on the private sector.

The Lebanese Transparency Association (LTA) and the United Nations Development Programme (UNDP) agreed a national anti-corruption strategy in March 2009 which covered many recommendations including the creation of a national anti-corruption commission, an administrative reform plan, new anti-corruption legislation and the promotion of an independent judiciary. More details can be found on Lebanese Transparency Association. In April 2018 the national anti-corruption strategy was launched, but the document requires Cabinet approval.

6.Terrorism Threat

Terrorists are very likely to try to carry out attacks in Lebanon. You should be vigilant at all times, avoid crowds and crowded places and follow the advice of the Lebanese authorities. Previous attacks have targeted the security forces, as well as locations where Western visitors may congregate. There have been large scale counter-terrorism operations in recent months in North Lebanon. You should follow the advice of the local authorities, and check local news and this travel advice regularly. Groups within Lebanon, including Hizballah, are proscribed under the Terrorism Act 2000 and the Terrorist Asset-Freezing Act 2010. Offences committed under the act – including funding and supporting proscribed organizations – may be liable to prosecution in the UK.

7.Protective Security Advice

If you decide to travel to or remain in Lebanon we strongly advise you to: 

  • read the travel advice for Lebanon and register for travel advice updates 
  • heed local advice in areas which have not been declared safe from unexploded ordnance 
  • keep abreast of latest developments by listening to English language broadcasts 
  • avoid large crowds and public demonstrations, which have the potential to turn violent 
  • carry identity papers with you at all times and be prepared to stop at check points and to show your papers 
  • ensure that your travel documents are readily available in case you need to leave the country at short notice 
  • ensure that your passport and Lebanese immigration and residency permissions are up to date; failure to do so could impede your exit from Lebanon

8.Intellectual Property

The main infringements of IPR in Lebanon are found in the piracy of copyrights (music, film software, books, satellite cables, pharmaceutical products), the counterfeiting of trademarks (textiles, footwear, luxury items, drinks, toys), infringement of patents (pharmaceuticals, agro-chemicals, machinery) and the infringement of designs and geographical indications. This has affected sales of both local and imported goods.

A new Consumer Protection Law was passed in 2005, which aims to protect the consumer against counterfeit products. Enforcement of this legislation however remains a problem. A report in “Lebanon Opportunities” (March 2009) estimated that more than half of the CDs, DVDs and software sold in Lebanon were illegal copies. The Ministry of Economy and Trade also set up a call centre to field complaints about counterfeit products. The Ministry has also presented a series of laws to Parliament (not yet passed) intended to conform to international laws on the protection of intellectual property and the Association Agreement between Lebanon and the EU. Details of this legislation can be found on the Ministry of Economy and Trade’s website.

In 2005 the Ministry of Economy and Trade, working with the private sector, set up the ‘Brand Protection Group’ to make consumers aware of infringement issues, which advertised on local TV channels. This Group also set up a national Committee with representatives from various Ministries and consumer protection groups including the Lebanese Intellectual Property Association (LIPA) and the Business Software Alliance (BSA).

9.Organised Crime

Organised crime exists in Lebanon, there are reports of criminal gangs operating in parts of the Beqaa Valley, especially northern Beqaa. They are thought to be involved in drug cultivation and smuggling. There is also some evidence of organised gang involvement in prostitution, racketeering, people smuggling.

Car theft gangs are operating in some parts of the country and will steal vehicles by force, particularly along sections of the international highway towards Baalbek. Vehicle thefts have grown significantly and are often targeted by type. Other armed crimes, such as robbery and kidnap, occur in these areas. There are also frequent armed clashes between gangs, and operations by the security forces.

The risk to visitors from petty or violent crime is low by international standards, though there are incidents of vehicle crime and bag snatching. In addition there are increasing reports of petty theft and armed robberies taking place in shared taxis (known locally as “service” taxis) with passengers being robbed by either the driver or other passengers. It is advisable to only use taxis from recognized companies and to not use shared taxis or taxis hailed on the street. Normal precautions should be taken.

The risk to tourists from petty or violent crime remains moderate - however crime has increased due to the declining economic situation. This includes bag snatching, including by criminals on motorbikes, vehicle crime and theft of mobile telephone.

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