BEIRUT: The security situation is increasingly discouraging Arab firms from entering the Lebanese market, with their share of new business registrations dropping drastically in 2013, according to the Investment Development Authority in Lebanon.
The share of Arab companies out of the total number of foreign firms that registered in Lebanon in 2013 dropped to 25 percent compared to 44 percent in 2012, according to a report released this week by IDAL.
“Travels warning by Gulf countries advising their citizens against visiting Beirut due to the unstable security situation has been the main reason behind the lack of Arab investments in Lebanon,” IDAL head Nabil Itani told The Daily Star.
Emirati companies topped the list of Arab firms, representing 12 percent of foreign companies that registered in 2013 followed by Egypt and Syria at 5 percent and 3 percent.
However, despite the drop in the share of Arab investments, 60 foreign companies registered in Lebanon in 2013, a slight increase compared to 56 in 2012, the report said.
European firms registering at the Economy and Trade Ministry, including companies that opened branches, subsidiaries or representative offices, made up 50 percent of new entrants to Lebanon.
The U.K. topped the list with a 17 percent share followed by Spain and Italy with 7 and 5 percent.
“The registration of new European firms under the current circumstances is a sign that Lebanon represents on the long term an investment opportunity and that the current situation is only temporarily,” Itani said.
Itani added that Lebanon was attracting European firms due to its competitiveness in terms of a highly skilled labor force at a lower cost than Eastern European countries, its strong banking system and the country’s geographic proximity and openness to both Arab countries and the West.
According to IDAL, Lebanon’s average labor cost stands at $9.60 per hour compared to, for example, around $13.20 per hour in the Czech Republic.
“All those factors are important for foreign firms, particularly in the ICT sector,” Itani said.
According to the IDAL report, the service sector attracted the largest number of companies.
Firms involved in financial services, consulting, research and education, transport and logistics, and health care accounted for 28.3 percent of foreign companies that registered in Lebanon in 2013.
The trade and industry sector maintained a significant share of foreign businesses at 16.7 percent, including foreign companies that trade pharmaceuticals, chemicals, machinery and equipment as well as food and beverages.
The media sector saw an increase in interest, attracting 15 percent of total foreign companies that registered in Lebanon in 2013, followed by the real estate and retail sectors, both at a 13.3 percent share.
Despite Lebanon’s efforts to attract foreign investment, many businesses still complain about red tape, the lack of regulatory reforms and, most importantly, corruption.