Gateway to the Middle East
Lebanon is a country located in western Asia, on the Mediterranean coast, with a population of 5.5 million. Following independence from France in 1943, a government system was established in which the representatives of the largest religious groups held the highest offices. The result of internal tensions in Lebanon was the 1975-1990 Civil War, and the overall situation was complicated by geopolitical challenges in the Middle East, such as the Arab-Israeli Conflict and the Syrian Civil War.
The economic and financial crisis began in the fall of 2019, exacerbated by the COVID-19 pandemic and the explosion at the port of Beirut in August 2020. The economic downturn resulted in a rise in unemployment, depreciation of the national currency, the Lebanese pound, hyperinflation (229.8%), a crisis in public services, and supply chain disruptions. Strict capital controls were imposed on the banking sector, and some areas of the economy experienced partial dollarization. The crisis hit financial services, trade, tourism, and construction hardest.
Lebanon currently ranks among the lower middle-income countries. In the GDP structure, industry accounts for 2.8%, services for 94.1%, and agriculture for 1.4%. In 2022, the GDP was $23.1 billion ($4136 per capita). Compared to 2019, the GDP fell by $28.9 billion, and GDP per capita contracted by 36.5%. Unemployment, in turn, rose from 11.4% in 2019 to 29.6% in 2022. In this situation, under the umbrella of the World Bank, a program of fiscal, financial, and social reforms has been developed, and their implementation will help put Lebanon back on a sustainable growth path.
Population of Lebanon
Lebanon has a population of 5.5 million. In addition, there are 900,000 Syrians who arrived due to the war in Syria, as well as 174,000 Palestinians living in 12 refugee camps (the largest is Ain el Hilweh). The largest ethnic groups are Arabs (95%) and Armenians (4%). In turn, the largest religious groups are Muslims (69.3%), mainly Sunni and Shiite, and Christians (30.7%), mainly Maronite Catholics. The Lebanese state recognizes 18 religious sects.
Arabic is the official language, but English and French are also commonly used. English has gained popularity in business and government circles, while French is popular among Maronites. Lebanese society is relatively young. Those aged 65 or older currently account for 9.1% of the population, while those aged 15-64 account for 71.69%. The labor force numbers 1.9 million people. According to the World Bank, nearly half of Lebanese live below the poverty line. The urbanization rate is 89.4%. The largest urban center is the capital, Beirut, with a population of 2.42 million.
Economy of Lebanon
Lebanon is a free market economy with an overwhelming share of services in the GDP structure. The economic prospects depend on how the government will deal with the reforms during the crisis. The main sectors of the economy are trade, tourism, financial, medical, and educational services. Lebanon is open to foreign investment, and the authorities prioritize the growth of sectors such as industrial production, media, technology, telecommunications, tourism, agriculture, and agro-industry.
Lebanon has fertile soils and significant water resources that foster the cultivation of fruits, vegetables, and tobacco. Among the livestock are poultry, goats, sheep, and cattle. Leading industries include food processing and manufacturing of cement, bricks, ceramics, wood products, and textiles. Lebanon also has limestone, iron ore, salt, and granite deposits. In 2023, natural gas and oil exploration began in the Lebanese Mediterranean. According to forecasts, full-scale extraction of these resources could take 5-6 years.
Mineral fuels and oil are currently the top of Lebanon’s imported goods. Therefore, oil and gas sectors and offshore project development would provide households with better energy access. Lebanese authorities could also begin the energy transformation process. An increased share of renewable energy in the energy mix is one of the core recommendations of the European Bank for Reconstruction and Development (EBRD), especially since Lebanon has pledged to cut carbon emissions by 20% by 2030.
International trade
Lebanon is the 101st exporter and 81st importer globally. Lebanon’s exports are valued at $4.2 billion, and imports at $13.8 billion. Lebanon’s main trading partners are the United Arab Emirates, Turkey, Greece, China, the United States, Italy, Germany, Russia, Egypt, Switzerland, France, Cameroon, and Qatar.
The group of most imported goods is oil and mineral fuels (28.4%), precious stones and metals (8.94%), motor vehicles and parts (7.62%), pharmaceuticals (6.5%), electrical machinery (4.68%), industrial machinery (4.31%), cereals (3.11%), plastics (2.95%), iron and steel (2.22%), and animals (1.68%). Other goods include fats and oils, precision instruments, flour and starch, paper, processed foods, chemical products, dairy products, wood, and cosmetics.
The most exported goods are precious stones and metals (24.7%), fruits and nuts (9.57%), furniture (7.99%), motor vehicles and parts (5.81%), industrial machinery (4.28%), iron and steel (4.18%), electrical machinery (3.22%), processed fruits and vegetables (2.77%), plastics (2.7%%), and copper (2.57%). Other goods are cosmetics, beverages, aluminum, fertilizers, processed foods, inorganic chemicals, and paper.
Trade agreements
Lebanon, to date, has entered into 52 bilateral investment treaties (BITs). Of these, 43 are currently in force. Lebanon is not a member of the World Trade Organization (WTO), although it was granted observer status in 1999.
Lebanon is a party to the Greater Arab Free Trade Area agreement, which has gradually replaced the bilateral free trade agreements signed with countries such as Tunisia, Morocco, Egypt, Iraq, Jordan, Syria, Sudan, and the Gulf States. Lebanon has also signed a free trade agreement with Turkey and a trade and investment framework agreement (TIFA) with the United States, but these have not entered into force.
Agreements with associations of countries:
European Union (EU)
European Free Trade Association (EFTA)
Organization of Islamic Cooperation (OIC)
Greater Arab Free Trade Area (GAFTA)
Lebanon-EU relations
Lebanon is the European Union’s 61st trading partner, while the EU is the largest partner for Lebanon. In 2022, trade in goods was worth 6.3 billion euros. Lebanon exported goods worth €0.6 billion to the EU and imported goods worth €5.7 billion. Lebanon’s exports are mainly raw materials, manufactured goods, and machinery, while imports include fuels, machinery, transport equipment, food, and animals. On the other hand, trade in services amounted to €1.6 billion and included mainly construction, tourism, and financial services.
Relations between the European Union and Lebanon are based on the Association Agreement, which came into force in April 2006. It has established free access to the EU market for Lebanese industrial and most agricultural products. The goal is to create a free trade zone in the future. The European Union supports Lebanon financially under the European Neighborhood Policy and the 2021-2027 Multiannual Financial Framework.
Opportunities and challenges
Lebanon is a country open to international cooperation. Most imported goods are subject to customs duties of 5% or less. However, the prospects for cooperation depend on getting the country out of the economic crisis, which requires a consensus among the major domestic political parties. It is also worth remembering that Lebanon offers access to other Middle Eastern markets. The main challenges, nonetheless, remain internal instability and the geopolitical situation in the region.
Other impediments include bureaucratic overgrowth, corruption, complex procedures, and arbitrary licensing decisions. A work permit is required if one wishes to start a business. Many industries and professions are affiliated with corporations that only Lebanese can join. Lebanon also participates in a boycott of products from Israel. Accordingly, there is a ban on the import of products made in that country. In practice, however, the boycott rule is not consistently enforced.
From foreign investors’ perspective, the promising sectors are tourism, technology, education, agri-food, and industrial production. Given the current economic situation, the export of energy resources, food, industrial machinery, and materials is also profitable. Construction, transportation, and logistics will gain ground as the economy recovers from the crisis. It is also worth paying attention to activities related to the expansion plan for the mining industry and offshore projects.