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Levels of FDI expected to remain constant

File - People stand in front of the Bristol Hotel in Hamra, Wednesday, June 12, 2013. (The Daily Star/Hasan Shaaban)

BEIRUT: The flow of foreign direct investment into Lebanon in 2014 is expected to remain as low as it was last year, experts told The Daily Star.

“The trend will continue from the previous year and I don’t think that there will be an increase in FDI compared to 2013,” said Nassib Ghobril, head of Economic Research and Analysis at Byblos Bank.

Ghobril said that despite the formation of the government and the brief period of security stability, the prevailing investment environment was still the same, and the operating cost of companies remained high.

“The high cost of doing business in Lebanon is not encouraging the flow of investment,” he said.

“We haven’t seen any reforms by the government to improve the investment climate and thus the problem is not caused by the lack of political and security stability but by the lack of reforms,” he added. “It is a shame to always hide behind political and security issues to justify our delay in introducing the necessary reforms in the Lebanese economic system.”

Ghobril added that Lebanon had dropped six places in the World Bank’s ease of doing business index.

“The bureaucratic obstacles, paperwork, electricity, telecom and social security issues make it extremely difficult for a business to operate effectively in the country,” he said.

According to statistics provided by Ghobril, FDI stood at $2.83 billion in 2013, down 23 percent from $3.67 billion in 2012 and by 41 percent when compared to the $4.8 billion registered in 2009.

Nabil Itani, Chairman and General Manager of Investment Development Authority of Lebanon (IDAL), Lebanon’s national investment promotion agency, expected FDI to remain at the same level as it had the previous year.

“FDI this year will not drop. It will probably be similar to last year,” he said.

“If a new president is elected, there may be a slight increase,” he added.

There has been a presidential vacuum in Lebanon since the term of former President Michel Sleiman came to an end on May 25. The vacuum has had a negative effect on the various sectors of the Lebanese economy.

Itani said that most of the investment during 2013 and the beginning of 2014 had come from Lebanese expats whose businesses had been badly affected in the rest of the region and who had chosen to come back and start new businesses in their own country.

According to Itani, around 12 projects by Lebanese investors are currently being studied by IDAL, to determine whether they qualify for tax exemptions. “However, we can say that the trend this year will be similar to the previous one in terms of investments, because most of these projects are ongoing from 2013,” he said.

Among the projects that are in progress are a factory being built by food company Al Rifai, which is worth approximately $16 million; Park Hill Hotel in Ashrafieh, which has a value of $103 million; two technological projects in Zghorta and Beirut; and the Bristol Hotel in Hamra, which is being currently renovated.

Ghobril said that even Lebanese expatriates would think twice about getting involved in new projects in Lebanon, despite the fact that they loved their country. “Even expatriates look very rationally at investments with current high operating costs,” he said.

Ghobril added that the cautiousness by expatriates was reflected in the decline in the total Greenfield FDI – defined as investment in which a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

The total value of all Greenfield FDI stood at $104 million in 2013, down 48.5 percent from $201.4 million in 2012, and down 91 percent from $1.8 billion in 2009.

Ghobril said that Greenfield FDI had constituted 5 percent of GDP in 2009, compared to only 0.2 percent of GDP in 2013.

“When you check the low figures of Greenfield FDI for 2013, you understand why Lebanon ranks as the fourth smallest recipient of this kind of investment among 19 Arab countries,” he said.

While Ghobril focused on the need for reforms to improve the investment climate, Itani also emphasized the need to improve legislation in order to attract investment that responded to the needs of the Lebanese market.

“IDAL is usually allowed to give incentives to investors who are willing to get into a project worth $15 million and create no less than 200 job opportunities,” he said. “But we are currently asking for the government to give us the right to give incentives for projects that cost less than $15 million and provide 20 to 30 job opportunities.”

Itani also underlined the need to support investors who were currently available in the Lebanese market by providing them with the needed infrastructure for their projects. “For instance, it is not logic that a hotel uses its generator for 17 hours per day and pays for electricity at the same time,” he said. “If the occupancy is 100 percent throughout the year then they can probably cover this expense, but at occupancy of 40 percent. This is not acceptable at all.”

 
A version of this article appeared in the print edition of The Daily Star on August 23, 2014, on page 4.

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Summary

Nabil Itani, Chairman and General Manager of Investment Development Authority of Lebanon (IDAL), Lebanon's national investment promotion agency, expected FDI to remain at the same level as it had the previous year.

According to Itani, around 12 projects by Lebanese investors are currently being studied by IDAL, to determine whether they qualify for tax exemptions.

The total value of all Greenfield FDI stood at $104 million in 2013, down 48.5 percent from $201.4 million in 2012, and down 91 percent from $1.8 billion in 2009 .

Ghobril said that Greenfield FDI had constituted 5 percent of GDP in 2009, compared to only 0.2 percent of GDP in 2013 .

While Ghobril focused on the need for reforms to improve the investment climate, Itani also emphasized the need to improve legislation in order to attract investment that responded to the needs of the Lebanese market.

Itani also underlined the need to support investors who were currently available in the Lebanese market by providing them with the needed infrastructure for their projects.


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