Executive Summary
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.
The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Lebanon’s deep economic depression since the end of 2019 is the result of an import-dependent economy out of hard currency and decades of financial mismanagement, including a state-sponsored “Ponzi” scheme that offered high interest rates to attract financial inflows. The August 2020 Port of Beirut explosion and the COVID-19 pandemic further hampered economic growth. A June 2021 World Bank report estimated that Lebanon’s depression is likely to rank among top three most severe economic crises since the 1850s. The World Bank estimated Lebanon’s real GDP fell 10.5 percent in 2021 after a 21.4 percent contraction in 2020. Lebanon’s currency, the Lebanese pound (LBP), has lost more than 90 percent of its value since 2019. As a result, inflation in an import-dependent economy reached 240 percent as of December 2021. Lebanon’s Central Bank is intervening in the foreign exchange market to stem the local currency’s fall at the expense of the country’s limited foreign currency reserves. Lebanon’s banks accumulated at least $69 billion in USD losses and are USD insolvent. More than half the country’s population is considered poor, and up to 50 percent are unemployed.
On March 7, 2020, Lebanon announced it would default on and restructure its nearly $31 billion dollar-denominated debt, the first such default in Lebanon’s history. Lebanon has not yet entered into negotiations with bondholders and is unable to borrow on international capital markets, reducing the country’s ability to import key commodities and invest in infrastructure. International correspondent banks likely place increased levels of due diligence on domestic banks because of the incomplete implementation of anti-money laundering/countering the financing of terrorism (AML/CFT) standards. Correspondent banks have also introduced onerous requirements on their Lebanese counterparts because of increasing country risk. PM Najib Mikati formed a government in September 2021, after a 13-month political vacuum, and his Cabinet resumed talks with the IMF on a potential loan in January 2022. While the Mikati government has drafted a plan to address the $69 billion in financial sector losses, the IMF is looking for the government to develop a more comprehensive social, economic, and financial reform program to stabilize the economy and lay the foundation for future growth. The IMF will likely require deep fiscal reforms to make Lebanon’s debt – which reached 194 percent of GDP in 2021 – more sustainable, including restructuring the financial sector, reforming state-owned enterprises, particularly the energy sector, strengthening governance and anti-corruption efforts, and unifying the country’s system of multiple currencies.
Absent holistic economic reforms, preferably as part of an IMF program, analysts assess that Lebanon’s near- and medium-term economic future is bleak, imperiling Lebanon’s potential as a destination for foreign investment. Much depends on how Lebanon implements overdue economic and governance reforms and attracts international assistance and foreign investment. If the country can implement necessary reforms, attract foreign capital, stabilize the exchange rate, and recapitalize its financial sector, then opportunities remain for U.S. companies. Lebanon still has the legal underpinnings of a free-market economy, a highly educated labor force, and limited restrictions on investors. The most alluring sector is the energy sector, particularly for power production, renewable energies, and oil and gas exploration, though challenges remain with corruption and a lack of transparency. Information and communication technology, healthcare, safety and security, waste management, and franchising have historically attracted U.S. investments. However, corruption and a lack of transparency have continued to cause frustration among local and foreign businesses. Other concerns include over-regulation, arbitrary licensing, outdated legislation, ineffectual courts, high taxes and fees, poor economic infrastructure, and a fragmented and opaque tendering and procurement processes. Social unrest driven by a decline in public services and growing food insecurity may further hamper the investment climate.
If Lebanon is able to reform its business environment, it may once again attract foreign investment. Lebanon’s economic crisis is likely to be long and painful, however, and recovery can only be accelerated through quick but careful implementation of reforms.