Thursday, 07 Nov 2013
Overseas Business Risk - Lebanon
Political and Economic
Lebanon’s politics are largely a product of power-sharing and balancing between sectarian groups. Inter-communal vulnerabilities and exposure to regional intervention leave Lebanon’s state institutions dysfunctional: they do not deliver justice, jobs, security or services and suffer from low public trust. In the World Bank’s Worldwide Governance Indicators, Lebanon ranks below the 10th percentile in 2009. The government’s overall poor performance means that most citizens rely on non-state groups with sectarian bases, dominated by a small elite. This creates an environment where corruption is pervasive.
The conflict in Syria (since 2011) has had a profound political impact on Lebanon where local politicians have historically defined themselves to a large extent by their relationship with Damascus. In March 2013, the pro-Syrian regime coalition government led by a centrist Prime Minister resigned over the latter’s attempt to disassociate Lebanon from the fighting next door. No new government has been formed yet due to a deadlock reflecting regional tensions over Syria. Parliament’s mandate ended in June and election was postponed for the lack of agreement over a new electoral law. The President’s mandate ends in May 2014 with little signs of agreement over his successor.
Though Lebanon’s stability is largely tied to that of Syria, the country has so far exhibited relative resilience mainly thanks to talismanic stabilization by the Lebanese Armed Forces. But possible regime change in Syria could mark a significant transformation of Lebanon’s political scene. Without the anchor of Syrian influence, whether viewed as beneficial or antagonistic, Lebanese politicians will need to reassess their domestic interactions.
Lebanon is largely a consumption economy with a low manufacturing base and low exports. Services provide for 75.8% of the GDP, mostly comprised of financial services and tourism. The banking sector is strong and well capitalized. Banking is vital to the economy and has benefited from prudent investment policies, strong inflows of deposits, and interest income from government debt. Remittances from the Lebanese diaspora overseas are an important and anti-fragile source of external funding of the economy (about 26% of GDP) and constitute a significant portion of investment into the country. Tourism is another major sector with a 21.7% contribution to the GDP.
Lebanon’s service-oriented economy is highly sensitive to political instability. Growth prospects depend upon regional performance, as Arab states are the principal consumers of Lebanon’s services, and perceptions of political risk. GDP growth in recent years averaged around 4% but has slowed down by events in Syria to 1.5% in 2012 and expected to stall to 1% in 2013. Tourism indirectly supports about one-quarter of jobs and generates much of the demand supporting construction. Ensued instability saw tourist numbers drop to 890,000 in 2013, their lowest in six years.
A massive 900,000 refugees are now competing with the Lebanese for public services and low-skilled jobs. As a result, the World Bank estimates 170,000 Lebanese to become abjectly poor with every year of conflict passing. Some parts of the Lebanese economy may benefit from the unrest in Syria, as it serves as a channel for smuggling goods into the country, some Syrians may deposit money in Lebanese banks, and demand for basic Lebanese manufactured goods has increased. However, essential land transit routes from Lebanon through Syria to Turkey, Iraq and the Gulf are now unstable and costly. There are questions about the quality of official GDP data, and timely economic indicators outside the three key sectors are in short supply.
Due to stale politics, there’s a longstanding inertia in the large and ineffective public sector. But Lebanon’s private sector is much more vibrant and accounts for most of its economic growth. A clear reflection of this imbalance, Lebanon has a high level of public debt that is largely held by local banks. Debt service levels remain at about a third of government expenditure. In the period between 2008 and 2011, the government managed to reduce its debt-to-GDP ratio to approximately 150%. But the humanitarian and socioeconomic burdens of the Syrian crisis next door reversed the trend since. The government’s revenues are expected to drop by $ 1.5 billion per year and expenditures to grow by $ 1.1 billion, widening the deficit to $ 2.6 billion and threatening a further increase in public debt.
Bilateral trade between the UK and Lebanon increased by 20% in the first 9 months of 2013 over the same period in 2012.
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 UPR process in 2010, which generated 23 recommendations for the country to implement, and some of these are now beginning to be fulfilled. However, since the onset of the Arab Spring, 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), or a national mechanism for the prevention of torture. Arbitrary detention and prison conditions fall far short of international standards.
Women face discrimination under personal status laws and domestic violence is not illegal. 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 has considered draft laws criminalising domestic violence, defining and criminalising torture and launching a national Human Rights Action Plan. However, internal divisions have prevented progress these draft laws from being voted in Parliament’s plenary.
Bribery and Corruption
Businessman reading newspaper
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 organisation 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 2012 Transparency International’s corruption perception index (CPI) Lebanon ranks 128 out of 176 countries.
Lebanon has a series of anti-corruption laws (details can be found on lalac.org). 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 (See United Nations Office on Drugs and Crime). 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. Details can be found on www.transparency-lebanon.org
Lebanon has a number of unique factors that contribute to the terrorist threat in the country. It is the most religiously diverse state in the Middle East with various Christian groups accounting for around a third of the population and Shia, Sunni and Druze Muslims accounting for most of the rest. Since 2004 a number of Lebanese politicians and officials have been assassinated. Civilians have been caught up in these attacks.
The presence of a large Palestinian refugee population also continues to pose a threat to the country's stability and security. Tensions often run high in the camps as rival factions and Sunni extremist groups compete for dominance. We judge that some attacks which have occurred in Lebanon can be linked back to extremists from the camps. Previous terrorist attacks have taken various forms, including vehicle bombs, hand grenades and small, improvised bombs. There is a risk that Western and British interests may be targeted as well as areas where large numbers of people congregate. You are advised to maintain a high level of vigilance in public places, including tourist sites.
Protective Security Advice
If you decide to travel to or remain in Lebanon we strongly advise you to:
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.
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).
Businessman working at a computer
Organised crime exists in Lebanon, based mainly around a few family groups in the Northern Beka’a Valley and Hermel regions. Their activities include the production and trafficking of illegal narcotics, car thefts, car jackings and smuggling. The relative political stability since May 2008 has allowed the Security and Armed Forces to proceed with extensive operations against these clans, resulting in significant arrests and illegal substances seizures and reducing their influence outside of these areas. There is also some evidence of the involvement of organised crime in prostitution, racketeering and related people smuggling.
The risk to visitors from petty or violent crime is low by international standards, though vehicle crime and bag snatching continues to be relatively high. In addition there are increasing reports of 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 recognised companies and to not use shared taxis or taxis hailed on the street. Normal precautions should be taken.