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Lebanon FDI up 19 pct in 2012: U.N.

Hussein says more than 50 percent of total FDI was Arab investment.

BEIRUT: Foreign direct investment to Lebanon rose 18.75 percent in 2012 to $3.8 billion, according to a new report released Wednesday by the United Nations Conference on Trade and Development, which starkly contradicts figures in at least three other reports that said FDI inflows to the country fell by between 64 to 84 percent last year. Ernst and Young said FDI inflows to Lebanon dropped 84 percent year-on-year to $96.5 million in the first half of 2012, in a report released in October. The Institute of International Finance said that FDI to Lebanon dropped by 68 percent in 2012 to a total of $1.1 billion in foreign direct investment in 2012, making Lebanon the fifth-lowest recipient of foreign direct investment in the Middle East and North Africa region and the fifth lowest of the 30 emerging markets covered in the report issued in March.

Conversely, a report released last week by the Arab Investment and Export Credit Guarantee Corp. was far more optimistic, ranking Lebanon as third in the region in terms of FDI inflows in 2012, with a total of $7.8 billion. It also listed Saudi Arabia and the UAE as the top two FDI recipients in the MENA region, receiving $12.2 billion and $9.6 billion respectively, which is in line with UNCTAD’s figures.

Khaled A. Hussein, the head of the Globalization and Financing for Development Unit of ESCWA, was not able to provide specific details about the nature and origin of the FDI channeled to Lebanon last year or the methodology of the report, but he said more than 50 percent of the total was Arab investment, concentrated in the real estate, insurance and services sectors, which is in keeping with Arab investment patterns in countries across the globe.

Though the volume of FDI to Lebanon has actually fluctuated less than inflows to other Middle Eastern countries and across the globe since the 2008 financial crisis, Hussein said Lebanon’s real economy was not benefitting as much as it could from the capital due to the absence of a strategy that would channel the funds to specific productive sectors, such as agriculture, industry, tourism and banking.

“OK, you get $3.8 billion in FDI, but this goes mainly to real estate, which inflates housing prices, rather than benefitting the real economy,” Hussein told The Daily Star. “So Lebanon is benefitting from FDI, but it could benefit more. All countries in the region are rethinking their development strategies with a focus on job creation and enhancing productivity. It’s no longer only about the volume of FDI, but about FDI as part of a comprehensive development policy that attracts and directs FDI to the right sectors.”

He cited Lebanon’s agricultural sector as one that could really benefit from a more focused investment strategy from the government.

“Can you believe that it’s contributing less than 1 percent of GDP? This is ridiculous. There is potential in that sector and there is potential to build the industrial sector, but it needs investment, foreign or domestic, and it needs an investment policy that prioritizes it. The agricultural sector has been ignored for a long time by Lebanon and I think this is the right time to address it. “

Though Hussein said that political stability is generally a prerequisite for FDI, for some reason investors appear less easily scared off by Lebanese tumult than in other Arab markets. Regionally, FDI dropped sharply last year by 35 percent to $47 billion, due largely to the Arab uprisings, which demonstrates the correlation between FDI and political stability, Hussein said.

Total FDI to the Arab region in 2012 was less than 50 percent of the pre-crisis peak of $97 billion in 2008. Lebanon received $4.3 billion in 2008.

In the context of global FDI flows, the MENA region fared much better than developed economies in 2012. Global FDI fell 18 percent in 2012 to $1.35 trillion, the report said. Non-industrialized countries received 52 percent of the total FDI and accounted for 42 percent of the total outflows, it added. “This is the first year in history where FDI to developing countries is greater than FDI to developed countries,” Hussein said. He attributed the shifting FDI patterns to the higher rates of return developing markets offer investors.

Though the MENA region bucked the global trend, FDI patterns in the Middle East in 2012 belied certain problems, Hussein said.

“In the past few years, Egypt, Saudi Arabia, and the Emirates have absorbed 80 percent of annual FDI flows,” Hussein said. “So it’s not only concentrated in certain countries, but its also concentrated in a few sectors: telecommunications, oil, and real estate. When you talk about economic development that creates jobs, I don’t think that the region is able to capture the benefits of FDI, despite the major strides they’ve made in enhancing the business environment.”

This year, Egypt ranked fifth in the region in terms of FDI inflows with $2.8 billion after falling at the bottom of the list in 2011.

 
A version of this article appeared in the print edition of The Daily Star on June 27, 2013, on page 5.

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