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Int. j. econ. manag. soc. sci., Vol(5), No (3), September, 2016. pp.


TI Journals
International Journal of Economy, Management and Social Sciences 2306-7276
Copyright 2016. All rights reserved for TI Journals.

Foreign Direct Investment in Lebanon

Issam Atala
(DBA) - American University of culture and Education, Beirut- Lebanon.

Walid Dagher
(PHD) - Balamand University, Lebanon.

Nadine Chebib
(Msc) - Sagesse University, Beirut-Lebanon.

*Corresponding author:

Keywords Abstract
Foreign investment Lebanon has a free-market economy and a strong laissez-faire commercial tradition, and its foreign
Corruption investment is not bound. However, the investment climate suffers from corruption, bribery, fraud, arbitrary
Legislation licensing decisions, complex civilization measures, outdated legislation, and weak intellectual property
Intellectual property rights. The Lebanese economy is service-oriented with main growth sectors in banking and tourism. The
1975-90 war in Lebanon seriously injured Lebanon's economic infrastructure, cut national output by half,
and derailed Lebanon's position as a Middle Eastern cache and banking center.
In order to fix this economic situation, the key solution revolves around foreign direct investment. FDI is an
investment made to obtain long-term interest in enterprises operating outside of the economy of the investor.
The investment is direct because the investor supervises, or has a significant power over the foreign
enterprise. Exports and FDI have been key in China's quick economic growth. According to the World Bank,
FDI- an outer finance- is vital in developing the private sector in lower-income economies and in reducing
FDI, important for developing countries, is different from other main types of external private capital flows
in that it is motivated mainly by the investors' long-term prediction for making earnings in productions they
directly run. FDI allows the ingress of technology, develops human capital, and encourages rivalry in the
domestic market. Profits generated by FDI add to corporate tax revenues in the host country.
The aim of the paper is to show the great benefits that FDI will have on the Lebanese financial-economic

1. Introduction
Since the end of the civil war in Lebanon in 1989, both the Lebanese government and people have been striving in vain to achieve a stable
economic and political situation. Unfortunately, despite many efforts, the dilemma of the increasing debt and budgetary deficit will probably
remain a major headache in the foreseeable future. Actually in the 1990s, there has been a considerable volume of private investment into the
real estate and infrastructure sectors, but regrettably this didnt last. The early activities in construction resulted in an artificial economic boom;
nevertheless, recession was to reign and got worsened with weak industrial and agriculture sectors, creating an export-import imbalance and
consequently, a lasting trade deficit in the Lebanese balance of payments. Additionally, the inefficient use of government resources and irrational
expenditures resulted in a big budgetary deficit. Hence, the Lebanese Government had to incrementally rely on public and foreign debts. From
1990 onwards, the debt problem has become more acute, and it is forecasted that the economic problem is likely to explode within the scope of
the coming few years as the public debt has reached 80,272 LBP billion (US$ 53.25 billion) at end of the year 2013, an increase of 8.4%
compared to the year 2012.
Unfortunately, the government was incapable to successfully solve the Lebanese economical issue. However, one helpful late effort, evolving
around the theory of Foreign Direct Investment, is possible (FDI).
Simply stated: if enough FDI is drawn to Lebanon, the countrys economic problems will alleviate. In reality, things are much more complicated
than this over-optimistic view. Therefore, what should be practically asked is the following: is FDI really useful to the Lebanese economy?
Under what set of favorable circumstances can FDI come to Lebanon? Considering that FDI theory is useful in the Lebanese case, how should
FDI be made as profitable as possible to Lebanon?
The purpose of this paper is to try to answer the aforementioned questions. There are two polarized views about FDI and many in between. The
first states that regardless of the governments efforts, FDI will never be attracted to Lebanon or at most will be disappointing. In contrast, the
second view acknowledges FDI as the only remedy to Lebanon, and huge efforts should be focally directed toward it, especially with the typical
Lebanese favorable make up such as its strategic location, education levels
The goal of this paper is to find out in the current Lebanese situation, the best FDI view a tool of economic development. Recommendations
and general guidelines will be provided with respect to the result. The assessment is based on a conceptual approach and experience-based
findings from the FDI literature in less developed countries and those facing problems similar to the Lebanese context.

2. Foreign Direct Investment

Globalization, liberalization, deregulation, and free trade are all concepts of our time. Such transformations have augmented the space for
maneuver for worldwide investment, enabling freer market penetration. One constituent of this progression is Foreign Direct Investment (FDI).
The flood of assets across boundaries, of which FDI is a major piece, leads to superior global financial assimilation.

2.1 Definitions of Foreign Direct Investment

Among several definitions of FDI, only few of the most relevant to this study will be mentioned.
Issam Y. Atala *, Walid Dagher, Nadine Chebib 40

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

According to the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD)1, FDI is the
investment where non-residential possesses 10% or more of the shares and voting authority of an integrated firm.
-FDI means that the shareholders have a say in the local company of the other economy.
-FDI is the possession of properties by foreign residents for reason of managing these resources.
Despite those definitions, the term FDI has several interpretations, depending on the agreed-upon scope, the activities involved, etc. The
definition, scope and limitations of FDI are all stated in the investment laws and agreements of each country. Commonly in all definitions, FDI
implies control over the production process in the host country. This suggests further control over means of production and the supervision of the

2.2 Types of Foreign Direct Investment

The inflow of FDI can take several forms, depending on the objectives and scope of the host government and the interests of the foreign investor.
Below are the main types of FDI categorized accordingly.

2.2.1 Resource Extracting FDI:

This types of FDI is whereby foreign investment is a precondition for the production of primary products for foreign markets and generates
exports of natural resources.2 This FDI has been first involved in the mining sector for oil exploration, exploitation, refining, marketing and
distribution. It was among the first allowed by the developing countries to ensure they benefited from the oil technology available in the
developed countries.

2.2.2 Market Seeking FDI:

This FDI is whereby foreign investment is an extension of the export strategy and FDI is used to penetrate heavily protected markets. A clear
example is the major automobile companies who opened up production facilities in the developing countries to meet the needs of their domestic

2.2.3 Outsourcing FDI:

This new type of FDI involves moving parts of the production process from the home country of the foreign investor to the host country. An
example is the automobile industry. The main purpose is to cut costs and trade restrictions. However, for a country to be able to attract this
investment, it must upgrade and modernize its human resources in addition to having geographical proximity (the case of Mexico and the United

2.3 Importance of Foreign Direct Investment

In the past few years, there has been a successive decline of Official Development Aid (ODA) from urban to rising countries. Private finance
gained significance becoming the foundation of advanced finance like FDI.
By 1998, FDI represented 56.4 percent of the total inflow to the developing countries, up from just 24.3 percent in 1990. The share of official
sources of finance dove from 56.4 percent in the 1990, to only 17.4 percent. 4 As a percentage of private transfer, FDI rose from 55.8 percent in
1990 to 68.3 percent in 2002. 5 This ratio would have been greater if there was no slight increase in the inflow of official sources, representing the
package of aid delivered by the World Bank and the IMF to the Asian countries stroke by the financial crisis in 1997. The implementation of
economic liberalization and deregulation programs in a large number of developing countries in the second half of the 1980s and the 1990s and
onwards, prompted the inflow of FDI. A major part of the economic reform in developing countries is the liberalization of trade and investment
as well as the promotion of the role of the private sector, including the foreign one.

2.3.1. The Major Advantages of FDI:

Relative Stability: FDI is a long-term investment less susceptible to the volatility of short term ones; for instance, this relative stability is
evident in the recent case of the Asian financial crisis, during which, portfolio investment in the developing countries and investment from
international capital markets dropped respectively by 53.3 and 46.8 percent, while FDI by only 5.1 percent.6
Spillover Effect on the Rest of the Financial System: Involved in the construction process of the domestic host economy, FDI provides
spillover benefits to the rest of the economy via technology transfer, and trade between the FDI dominated industries and those dominated
by local firms.
Promoting the Role of the Domestic Private Sector: FDI, its incentives, and its contribution to the production process in the host economy,
encourages the domestic private role in the economic development.
Reducing Balance-of-Payment Deficits: FDI has a helpful impact on the stability of payments (such as capital account) especially during
the initial stages of the inflow.
The Promotion of Modern Technology: FDI carries transfers of technology and management techniques. Directly involved in the
production, its application of modern technology leads to the promotion of productivity, and competitiveness of products.
Trade Benefits: This can be realized through the introduction of new packaging and handling methods, efficient production, and most
important the access to new markets credit effect in the Trade Account of the Balance of Payment. FDI promotes internal trade as well as
Promoting the Integration of the Economy into the Global Economy: FDI helps the integration of the domestic economy into the global
one. This is through the promotion of trade, capital movement, the share in global production, and the signature of multilateral and
bilateral treaties.

The above-mentioned advantages of FDI are not automatic, and to benefit from them, host countries should lay the foundation to make the most
of FDI, ensuring foreign investors operate under the right conditions.

Organization for Economic Cooperation and Development (OECD), OECD Benchmark Definition of Foreign Direct Investment
Economic and Social Commission for Western Asia , Comparative Study of National Strategies and Policies with regard to Foreign Direct Investment in the
ESCWA Region, (New York: United Nations, 2001)
World Bank, Global Development Finance Analysis and Summary Tables, ( Washington, D.C: World Bank)
Investment Opportunities in Lebanon. US Commercial Service.
41 Foreign Direct Investment in Lebanon

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

2.4 Pre-Conditions for Beneficial Foreign Direct Investment in Lebanon

Even and Competitive Playing Field: A profitable FDI leans to be capitalized on when foreign investors work on a smooth yet
aggressive sector. This means they require to be treated like domestic companies and thus, should not be protected from rivalry.
Domestic Capability to Exploit FDI: Studies propose that superior value of workforce and transportation in a country helps to take
advantage of the repayment from FDI. Also, foreign investors will work on improving domestic abilities through training. 7

3. The multinational corporation activity

Multinational corporations (MNCs) role is controversial. Analysis considers it an integrative and alternative mean of interaction with the world
market. Economists do not have a fully developed theory of multinational enterprise as in many other issues in international economics8. This
is due to the complexity of FDI.
In this part, theoretical foundations for firms to engage in FDI are identified though writings of world scholars.

3.1 The Neoclassical Theory

One approach of the effects of FDI on host countries is from the standard theory of international trade (MacDougall-1960). Early neoclassical
approaches were based upon the pressures that FDI involved international capital arbitrage a capital flow between nations resulting from
differential rates of return.9 MacDougall developed a fractional balance proportional advance to inspect how minor increases in investments
from overseas could be spread. The major forecast was that inflows of foreign capital would lift the trivial manual production and decrease the
marginal capital in the host nation. 10 Also, he recommended that FDI might be associated to additional potentially significant reimbursement.
The most significant straight gain is from a smaller quantity of personal investment more than out of the country; this is possible through
superior tax income from foreign takings, economics especially where domestic companies obtain the acceptance of more efficient and well-
organized techniques.
The helpful effects for the host country were likely to come from a large funds reserve, augmented tax revenues, better employment returns and
employment, and industrial/technological dispersal and preparation.

3.2 The Industrial Organization Approach

Another approach was presented by Hymer, Venron, Buckley and Dunning. The starting point was the issue why firms carry out investment
overseas to create the similar merchandise as they fabricate at home.

3.2.1 The Contribution of Stephen Hymer (1960):

The contribution is in Hymer submission of a manufacturing association approach to the hypothesis of foreign production. He (1960) was
dissatisfied with the theory of indirect capital transfers (portfolio theory) as first, the classical theory loses many of its predictions as risk, volatile
exchange rates, and transaction costs are incorporated. Second, FDI involved the transfer of a package of resources including technology,
managerial skills and entrepreneurship. Finally, FDI involved no change of ownership, resources and rights transferred.
Hymer focused on MNC as the organization for global construction, rather than global trade. He indicates that firms need to process some kind
of unique, rate, fiscal or advertising advantages precise in their ownership, to have foreign added values. These advantages ought to outweigh the
advantages of competing with domestic firms in the country of production. Some disadvantages include language obstacles, shortage of
familiarity with the local economy, the local laws, and local business customs. The ownership advantages imply the existence of a market
imperfection. Hymer explains that MNCs are a byproduct of market imperfections.11His thesis strongly emphasized the association of economic
movement of MNCs as a way to advance monopoly and domination power, improve product quality and innovation. He anticipated the role of
MNC as an indirect vehicle, for the achievement of gains from international diversification in a world where individuals face transaction costs in
undertaking this diversification by them.
By the end of 1970s, contrary to Hymer who viewed FDI as an aggressive strategy by firms to acquire monopoly, Vernon considered it more as
a defensive strategy by firms to maintain their existing market share.

3.3 The Internalization Theory

The individual characteristic of the theory is its gratitude that the firm is an economic establishment with the purpose to take full advantage of
profits in a world of market flaws. The firm tries to maximize its revenues and reduce its expenses by maximizing the original benefits of all its
factors of production and its management. In short, the theory is a mean to overcome intermediate goods, market imperfections, and
informational deficiencies. The firm capitalizes on its internal advantages by reducing its transaction costs, its market risks while increasing
control and information, scale and scope economies, and advantageous transfer pricing; the internalization of the markets generates the
advantages of the firm over the others. In 1990, P.G. Buckely, a leader in the internalization theory, considered this theory a paradigm as it only
analyzed the types of market failures that determine the advantage of integration in every case. 12

3.4 Why to invest in Lebanon?

With the turn down of ODA (official development assistance), the inflow of the private finance has become the major foundation of expansion in
the financial conditions of the developing countries since the 1990s.

3.5 How to invest?

Types of FDI depend on the priorities, investment law and incentives, the comparative advantage and the competition provided by Lebanon
versus other host countries, as well as the interests of the foreign investor.

Eduardo Borenzstein, Jose De Gregorio, and Jong-Wha Lee, How does Foreign Direct Investment Affect Economic Growth?
Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy (New York: Harper Collins, 1994)
G.D.A. MacDougall, The Benefits and Costs of Private Investment from Abroad: A Theoretical Approach, Economic Record, vol.36. (1960)
John H. Dunning and Rugman A.M., The Influence of Hymers dissertation on the theory of Foreign Direct Investment, American Economic Review.
P.G. Buckley, Problems and Developments in the core theory of International Business Studies
Arab Investment & Export Credit Guarantee Corporation, IMF
"Derecognition of overseas corporate bodies (OCBs)". December 8, 2003
Issam Y. Atala *, Walid Dagher, Nadine Chebib 42

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

3.6 How Lebanon meets the requirements for FDI?

The requirements for FDI stems not only in financial terms, but also in the transfer of technology, know-how, and modern management
techniques. Such requirements are met with the following:
Relative stability: To achieve it in the Lebanese economy, FDI makes a link and minimizes the domestic savings-investment gap by
providing financial resources to boost investment.
Promoting the role of the domestic private sector
Reducing balance-of-payment deficits
The promotion of modern technology
Trade deficits
Promoting the integration of the economy into the global economy
In 1977, John Dunning developed an eclectic theory of FDI. The theory had an assorted economic analysis incorporating local, ownership, and
internalization advantages. The paradigm (referred to as the OLI paradigm) starts by:
Accepting the traditional trade theory in understanding the spatial allocation of inputs.
Explaining the allocation of outputs necessitating resources not evenly available to all, through two types of market imperfections.
Structural market failure giving unequal abilities to firms to gain or sustain control over geographically dispersed value-added
Conforming that firms differ in their organizational and innovative potentials, and in their abilities to assess and manage risk.
According to the OLI paradigm, the uniqueness of the MNC movement is that it combines across border worth additional actions with the
common governance of these activities. It uses:
The theory of spatial distribution of factors endowment to explain the ownership (O) advantages.
The theory of market structures to elaborate the location (L) advantages independently of the ownership of the production process.
The theory of market breakdown to clarify the organization (I) advantages.
Owning assets unavailable in the host country defines the firms capabilities to engage in foreign production. Such assets are referred to as
ownership-specific advantages (O). They include tangible assets like natural resources, manpower and capital, and intangible ones like
technology, information, and entrepreneurial skills. Assets particular to a certain place are referred to as location-specific (L) assets.
Distinctively, even though firms in specific locations own these assets, they can be used and implemented elsewhere, and legally protected. They
arise from the size, technical characteristics, sourcing, and marketing skills of the firm.

4. FDI in Lebanon: Past and Present

4.1 The Investment Climate in Lebanon
Since the war, Lebanon has been trying to attract foreign investments especially after year 2000 when new laws for privatization arose. The
government has been seeking investors, foreign or domestic, to privatize the state-owned enterprises starting by telecommunications, the
electricity next and the water finally. The privatization project of Lebanons national power company, known as Electricite Du Liban(EDL),
will be a three-year management contract and a 10-15 percent equity share in EDL.13 Foreign investments in tourism, industry, and other sectors
are highly welcomed in Lebanon especially since 2001, when a new investment law and a real-estate law were both enacted. These laws vouched
for relaxing some legal constraints on foreign ownership, residential and commercial properties, and marginally reducing new companies
contributions to the National Social Security Fund.14

4.2 Types of Companies in Lebanon and Investment-related Laws

Both a foreigner and a national follow almost the same procedures of establishing a new business. Obviously, a foreigner has to obtain a valid
residence and a work permit. He will also have to deal with more measures when it comes to purchasing a land. Generally, a foreign investor can
slickly establish a Lebanese company, a local branch of his mother company or contribute in a joint venture, with the exception of holding
companies, banking, insurance, and real estate which have special requirements. Most notably, there do not exist any laws on mergers (excluding
bank mergers), acquisitions and takeovers. Absolutely all companies established in Lebanon must follow the Lebanese Commercial Code and
regulations. The inflow and outflow funds by foreign investors, the movements of capital gains, dividends or allowances are not restricted. One
can convert easily between foreign currencies, and the exchange of currencies is free; this applies to precious metals and monetary instruments
domestically and internationally. Virtually all banks and money dealers can trade foreign currency at rates defined in the local or international
market. Repatriating investment returns by foreign investors is a smooth operation in general. Credit facilities are offered in the domestic market.
Generally, an investor (whether foreign or local) can establish a company either as a joint-stock company or as a limited liability enterprise,
named after the French Societe a Responsabilite Limitee(SARL). There are mostly four types.15

4.2.1 Limited Liability Partnership (S.A.R.L.)

The majority of ownership and capital share in one partnership must be owned by a Lebanese national or party, according to Article 4 of Decree
Law No.35, dated August 5, 1967 and as amended by Decree No.9639 in February 1975.

4.2.2 Joint Stock Companies (Societe Anomyme Libanaise S.A.L)

According to Decree No.304 dated January 24, 1942 on Commercial Law, there are limitations in relation with foreign participation in terms of
administration contribution (Article 144), capital division acquirement (Article 147), capital share relative to open utilities (Article 78) and
capital share and administration relative to commercial representation (Article 78). Most financial firms, counting banks and insurance
companies, have to get the form of a joint stock.

4.2.3 Holding Companies

According to Decree Law No.45, dated June 24, 1983, two Lebanese at least should be in the Board of Directors.

Investment Opportunities in Lebanon. US Commercial Service.
Al-Mustaqbal-Al-Iktisadi, Marassem Tatbeek Kanoon
Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon.
43 Foreign Direct Investment in Lebanon

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

4.2.4 Real Estate

Law No.296 dated April 3, 2001, which amended a 1969 law No. 11614, deals with the foreign property acquisition issues. This law relaxed
some legal constraints on foreign ownership of property, ended discrimination between Arab and foreign nationals, and decreased the fees of real
estate registration to the same amount for both. A foreigner may also obtain up to 3,000 sq. meters of real estate without an authorized permit; a
special Cabinet issued Decree however must back any exceeding amount. The law also allows foreigners to acquire an area no more than 3% of
the area of Lebanon whatever the geographic site, provided that the total property does not surpass 10% of the region of Beirut. Note that foreign
companies having more than 50% of their shareholders Lebanese are not subject to the 3% rule; in this case, the acquirement of the company is
considered as half of the necessary district.

4.2.5 Expropriation and Compensation Related Laws

Let alone the central district of Beirut, expropriation of land rarely occurs in Lebanon. Under the law of expropriation (Law No. 58 dated May
29, 1991, Article One as well as Article 15 in the Constitution), the government (or the expropriation party) must fairly compensate the owner of
an expropriated property. In general, expropriation is done for public utility projects such as enlarging highways. The government recognized
two private and public real estate companies to support renovation and growth in Greater Beirut area SOLIDERE (the Lebanese company for
the Development and Reconstruction of Beirut Central District), and ELYSSAR (Agency of Reconstruction of South-West suburbs of Beirut).
There are efforts toward a third corporation, LINORD (the Lebanese company for the Development of the North Suburbs of Beirut). Although
these three companies have the power to confiscate land, they faced serious legal problems from owners. There are usually no delays in paying
expropriation compensation, but the compensation value has been regarded as unfair. There is no discrimination between foreign and national
owners of land.

4.2.6 Investment Development Authority of Lebanon (IDAL)

Before the founding of the One Stop Shop (OSS) by the Investment Development Authority of Lebanon (IDAL) - a public organization under
the Prime Ministry- in March 15, 2000, investors in Lebanon has been deferred by managerial and technical obstacles to finish regular official
procedures and had to deal with public bodies with distinct procedures. In sight of the resulting criticism, the Lebanese government set up OSS
to provide all the aid to investors in conditions of permits, licensing, and business information center. On August, 18, 2001, the Lebanese
parliament permitted a new rule (Law No.360) named appraising investments in Lebanon meant to encourage foreign investments by
mounting IDALs tasks and yielding it the power to prize licenses to fresh investments and permits to new investors, to project into partnership
with investors, and to promote Lebanese goods overseas, particularly agricultural, undeveloped farming and agro-industrial products.

4.2.7 Tax Incentives

A law in June 200016, offered a full tax holiday for a period of six years to new companies established in the South Lebanon for a period of three
years from the date of issuing the law. Also existing businesses in this area will take advantage of a 60% tax discount if they establish new
investments.17 However, some clauses in Law No. 360 are considered non-WTO compliant. These clauses grant IDAL some excessive power in
dealing with the types of incentives and in approving investments that may profit from them. Lebanon is divided under the investment law into
three investment zones outside Beirut. These zones promote investments in telecommunications and media, technology, information, industry,
agriculture and tourism. The Incentives are numerous and include (a) facilitating the issuance of permits for foreign labor, (b) relaxing some
constraints and allowing some additional incentives for large investment projects, and (c) giving companies that list 40 percent of their shares on
the BSE, a two-year income tax holiday.18

4.2.8 Performance Requirements

Lebanon does not impose on foreign investors any kind of performance requirements; they dont have to buy their material locally (except for
some agricultural products). Other requirements that are not imposed include: import substitution, export expansion, technology transfer,
geographic location, amount of local content, and source of financing. Investors dont have to disclose proprietary information; except possibly
in banking, the Central Banks approval must be obtained. Before doing business, investors must obtain work and residency permits and register
with a Chamber of Commerce when in trade-related activities. Investors can hire one foreign worker for every two domestic workers.

4.3 FDI Statistics in Lebanon

Unfortunately, there is no reliable statistics on FDI in Lebanon. According to the UNCTADs Annual Report, FDI went up to $230 million in
1998, compared to $150 million in 1997 and $64 million in 1996. IDAL appraised that FDI, without investments in real estate, exceeded $400
million in 1999. The UNDP 2000 World Report assessed FDI in Lebanon at $250 million.

4.4 FDI Inflow in Lebanon during the Nineties

FDI composes a little fraction of capital inflows to Lebanon. This inflow has been steadily increasing in the nineties with the exception of the
year 2000 with a slight decrease. Actually during 1999, 2000, 2001, there has been some rebound in FDI inflow. 19
Compared to other developing countries, the share of FDI in gross fixed capital formation in Lebanon is low. In Latin America and the
Caribbean, the share of FDI in gross fixed capital formation jumped from an average annual ratio of 5.4% in the period 1987-1992 to 16.1% in
1997, the highest in the world. In terms of share in GDP, global inward FDI stocks increased steadily during the last 10 years, rising from 5.0%
in 1980 to 8.7% in 1990 and 11.7% in 1997. The highest rate of the inward FDI stocks in GDP was again in Latin America and the Caribbean,
reaching 17.2% in 1997 up from 6.4 % in 1980.

4.5 Constraints on the Inflow of FDI to Lebanon

As in any developing country, there are many constraints on the inflow of FDI. According to the late ESCWA report20, constraints in Lebanon

Papua New Guinea. Canadian/American Studies Journal, 54, 175-84
Economic and Social Council, The role of FDI in Economic Development in ESCWA Member Countries.
China Edges Out U.S. as Top Foreign-Investment Draw Amid World Decline". Wall Street Journal. 2012-10-23.
Issam Y. Atala *, Walid Dagher, Nadine Chebib 44

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

Economic reform in Lebanon started late while privatization programs are still limited.
The private sector is still in early stage of active participation in economic development.
The inadequate progress in the Middle-East peace process creates political instability.
The regional economic cooperation is slow, including the areas of trade and investment.
Many foreigner investors see inadequacy in the infrastructure especially in energy distribution and electricity.
Institutional arrangements, though improved, still need to be matched with capabilities.

4.6 FDI Inflow in Lebanon and the Arab Region: A Comparison

4.6.1 Share of Lebanon in FDI Inflow to Developing Countries
The total share of Lebanon from FDI inflow to developing countries is minor. Bahrain, Jordan and Lebanon obtained less than 0.5% of the rising
countries total during most of the previous two decades.21 The other countries in the study had a better outcome of FDI inflows of approximately

4.6.2 Contribution of FDI to GDP

FDI performance has varied greatly among the set of selected countries for cross comparison reasons. The differences are due mainly to varying
strategies and economic conditions in each country.
The Lebanese condition observed no main variations in contrast with the inflows of further nations especially Jordan, Morocco and Tunisia.
Along with other aspects, it is likely that three main features affected the intensity of inflows, and they were privatization, the Euro-
Mediterranean Agreements between EU members and some Middle Eastern countries (Lebanon included lately), and peace with Israel (the
case of Jordan). Unpredictably, the obtainable statistics do in no apparent way indicate the importance of free zones and one-stop shops (except
for Tunisia) in attracting FDI into the selected countries.22 The signature of a free trade treaty and the date of its entry into force are equally
important. Some discrepancies in figures for Lebanon were observed between the 1999 and the 2000 UNCTAD World Investment Report. The
recent numbers are usually not very precise as some firms do not adhere to standard accounting methodology or are not transparent in their
annual reporting. The most important factors thought to be relevant to FDI environment in Lebanon were given by an ESCWA study. 23
The period from 1991 to 1993 was as a typical period of post war. The year 1993 witnessed the highest rate of inflation in the nineties; soon
after, however, inflation was reduced and a new government was set to launch a long-term program of reconstruction. This boosted the FDI
contribution projects in the real estate and public infrastructure especially in the period of 1995-1999; simultaneously, the establishment of two
major mobile phone companies and the privatization of the postal system increased the rate of FDI inflow .

4.7 Concentration of FDI in Lebanon in Various Sectors

Information on FDI programmed by parts of operation is extremely poor. A small number of governments have up-to-date records. Worldwide
foundations, such as the World Investment Directory for West Asia (1999), experience similar issues. In spite of all its deficiencies, this is still
helpful to the degree that investment relations among countries, particularly FDI models, do not severely vary from year to year.
French, Italian, German, British, Korean, and Finnish companies have succeeded the majority of the government agreements in the sectors of
electricity, water, and telecommunications, the Sport City Center and Beirut International Airport schemes. There is a number of Arab straight
investments in hotel buildings, real estate progress projects, and from side to side franchises in fashion wear and fast food businesses (such as
Americana, Starbucks, Kentucky Fried Chicken, Mothercare and Bodyshop).
The real estate sector still attracts fair amounts of foreign investment. Recently, the Investment and Development Authority of Lebanon (IDAL)
declared24 that it is currently processing and facilitating investments of around 1 billion USD in Lebanon sponsored by Arab and Lebanese
investors. The projects include a USD 200-million hotel in Shoueifat, a USD 150-million Four Seasons Hotel in Beirut, a USD 135-million five
stars hotel by the Kuwaiti group al-Khourafi, and a USD 40-million Holiday Inn in Khaldeh. There are also some other projects covering
shopping malls and agro-industrial companies.
A sum of 44 new foreign companies registered at the Ministry of Economy and Commerce in Lebanon in 2000, in contrast with 45 companies in
1999 and 105 companies in 1998. According to the data released by the Ministry, European enterprises totaled 21, followed by ten from Arab
Countries, three from the U.S., two from Bermuda, one from Japan, and one from China.

Table 1. Number of New Foreign Companies Established

YEAR 2005 2006 2009 2011
Number of new foreign companies established 105 45 43 52
Source: Ministry of Economy and Trade

4.8 Foreign Investors View in Lebanon

It is vital to see what the views and concerns of foreign investors are. Two studies conducted lately by ESCWA25 reveal several points about this.
Most of the materials presented in the next sections are primarily based on these two studies. The studies took a sample of 50 FDI enterprises in
Lebanon in various sectors, of different sizes, and of different establishment periods.

Table 2. Date of Establishment of the Company (In Percent of Sample)

Before 1990 1990-1995 1996-2000 2000-2007 Total
20 20 60 70 170
Source: Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.

Economic and Social Commission for Western Asia, Comparative study of National Strategies and policies with regard to foreign direct investment in the
ESCWA region.
IMF (2003)
Balance of Payments Statistics Yearbook 2003
(Washington DC: International Monetary Fund)
Economic and Social Commission for Western Asia, Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, Antoine Mansour.
45 Foreign Direct Investment in Lebanon

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

Table 3. Share of Foreign Investment in Total Capital of the Company (In Percent of Sample)
Share (in per cent) 10-49 50 51-100 Total
Lebanon 13.2 2.6 84.2 100
Source: Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon ESCWA.

The directors of the companies are of foreign nationalities in further than only one-third of the example (35 % foreigners).

4.8.1 Incentives for Foreign Companies to Invest in Lebanon

Table 4. Major reasons of interest of the foreign partner to invest in Lebanon (In percentage)
Major Reasons Percentage
volume of domestic market 28
admission to local market 60
right of entry to world market 20
resource of raw materials and other inputs 18
accessibility of local skills 18
inexpensive labor 58
Existence of a technical and scientific bases 22
positive encouragement system (tariffs and taxes) 14
Existence of an entrepreneurial culture 60
accessibility of a knowledgeable local partner 36
Other 30
Source: Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCW

According to the above table, access to regional market was the most important for foreigners to invest in Lebanon, seen as a local center of
distribution to the nearby area. A lot of foreign firms were interested in the free zone area. While Lebanese labor is comparatively expensive,
foreign investors were concerned by the availability of Syrian low-labor, particularly in construction and contacting work. The availability of
local skills came after, probably due to the comparative skills existing in neighboring countries (such as Jordan).
The positive encouragement was not fruitful; this shows that the incentive system should be enhanced. There are, in the industrial, tourism, and
recently in IT sectors, some fiscal exemptions for firms in a free zone, financial incentives through the central bank (subsidized interest rates),
and reduction of custom duties on certain imports of machinery or equipment.
The entrepreneurial culture was a good motive as pointed out by 60% of the sample. Unlike other Arab neighbors, there is a significant
entrepreneurial background. Many FDI firms practiced good dealings with their local associates; a lot of local partners are Lebanese expatriates
who motivated the investment in Lebanon and created joint ventures with foreigners and moved their workplace to Lebanon. Additionally, the
accessibility of a technological foundations and the lack of discrimination against foreigners contributed a lot.

4.8.2 Difficulties Faced When Initiating Activities in Lebanon

Table 5. Major Problems Faced in Start-up Phase

Difficult administrative Obtaining Securing land Right to use to Employment of
Major Problems Other
measures authorization or real estate information human resources
Percent of Sample 68 42 38 42 20 26
Source: Main findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.

Frustrations in the initiation phase of an investment can result in some foreign investors relocation. As per the table above, the worst problem is
the complicated administrative measures. This is probably due to the political system. In addition, getting licenses, permits and official
documents may need bribery and lobbying.
There is usually a small amount of information/advice for foreign investor about opportunities and possible investment projects. Foreign
companies are not obliged by law to say publicly the real quantity of the investment made.
Lebanese citizens have an elevated educational level and linguistic capabilities; thus, this is advantage for attracting high-tech FDI firms that
require skilled human resources familiar with technology.

4.8.3 Impediments Faced in Operating in the Country

Table 6. Difficulties Faced by Companies in Operating in the Country (In Percent of Sample)
Difficulties Percent of sample
Administrative and bureaucratic measures 90
Shortage of clearness in administrative procedures 72
Customs procedures 58
Lack of experienced management workers 10
Lack of experienced skilled labor 10
High labor expenses 28
Work principles and morals 56
Local suppliers 24
Foreign trade procedures 4
Capital and earnings repatriation 10
Tax regulation 36
Unanticipated changes in economic policies 52
Judiciary system and enforcement of contacts 36
Dishonesty 66
Infrastructure 50
Lack of sufficient services: education, health 22
Local partner insufficiency 12
Source: Main findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.
Issam Y. Atala *, Walid Dagher, Nadine Chebib 46

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

The administrative and bureaucratic measures, the need for clearness, and the customs procedures were the main hindrances of foreign investors
in Lebanon. Investors measured administrative and bureaucratic procedures as sharper throughout the process of the corporation than in the
startup stage.
Roughly one third of the sample protests about the idea that contracts are not obligatory which is why the judicial structure is not quite an
independent system; it favors local foreigners mostly because of political intrusion. As a result Foreigners have frequently recourse to foreign
arbitration abroad.
There are main objections from foreign investors from working individually and on the lack of teamwork and collaboration among Lebanese
workers. They view work ethics as a barrier for doing business.
Half of the sample considers infrastructure as problematic. In general, foreign companies consider infrastructure as adequate, except for the
roads and electricity which are seen terrible and expensive.

4.8.4 Trade Barriers

Table 7. Major Trade Barriers That Hinder the Operation of the Companies (In percent of sample)
Major Trade Quantitative restrictions Custom Technical barriers Complex procedures for
Custom Duties Transportation Other
Barriers on import procedures on imports export and re-export
Percent of sample 12 56 44 16 28 12 14
Source: Main findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.

The ordinary outlook is that custom responsibilities are not little in comparison with other nations. There are many objections by foreign
investors on the shortage of technical conditions.
Foreign investors ranked customs procedures and custom duties as the first two trade barriers.

4.8.5 Fiscal System

Since the 1990s, Lebanon has positively reformed the fiscal policy what led to an obvious decrease of customs tariff. But foreign investors are
concerned about the unsteadiness in that matter. Tax on annual earnings rather than on profit led a lot of them to relocate. The vagueness of the
tax system rather than the cost is the weakness.

4.8.6 National Treatment to Foreign Investment

Table 8. Treatment of foreign investment (in percent sample)

Factors involved Foreigners seeing discrimination
Ownership of land and property 16
Government procurement procedures 4
Delays to obtain permits 8
Prior authorization for investment 4
Restrictions on activities confined to nationals 10
Company law 2
Special treatment to multinational firms 2
Other 2
Source: Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.

There were no complaints in general for discrimination against foreign investors outside the judicial system. Recent government law has calmed
the land and real estate possession by foreigners.

4.8.7 Risk Factors Endangering the FDI Business

Table 9. Risk factors endangering the business (In percent of sample)

Risk factors Percent of sample
Expropriations and nationalizations 16
Legal safeguards against uncompensated services 36
Foreigners rights to judicial review 30
Unpredictability of judicial system 52
Intellectual property rights 24
Anti monopoly/competition laws 28
Enforcement of contracts 50
Security from crime and theft 12
Security from acts of violence 42
Source: Main Findings of a survey of FDI Enterprises in Bahrain, Jordan and Lebanon, ESCWA.

Foreign investors are generally worried about: legal fortification securities, profit repatriation, shield against expropriation and nationalization,
declaration of disagreement with the government, and enforcement of contracts. Foreign investors feel operating in unsafe atmospheres and
While some foreign investors sees security from acts of violence high, they consider the high regional political instability impactful on their
decisions. Some others however dictated that good business profit overcomes political instability in the eventual state of events. MUNDELL,
R.A. (1957) International Trade and Factor Mobility,

5. The FDI Debate

5.1 A Skeptical View on Some FDI-Related Topics
In this section, light is shed on some FDI related topics, namely: marketing and promotion of host countries, administrative barriers, tax
incentives and privatization. Some discussions and arguments are brought up.
47 Foreign Direct Investment in Lebanon

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

5.1.1 Marketing and Promotion

Inevitably, to attract MNCs, countries should implement, with care, marketing plans that create a favorable image of the host country by
informing about the nature of its domestic market, the services and facilities for the investor. A useful paper by Wells and Wint 26 (promotion as a
tool for attracting Foreign Investment) outlined some important results about promotional techniques countries used to attract FDI:
Various mixtures of promotional techniques are helpful at different phases of a promotion regime.
The kind of organization accountable for promotion makes a lot of difference in its effectiveness.
There is more than one good way to evaluate the performance of a promotion program.
The authors concluded that promotion is not the only effective tool in attracting FDI, and they are useful only in attracting certain
types of investors. A country should balance between several policies such as: offering tax incentives and grants, providing industrial
estate, export dispensation zones, reduction of administrative and bureaucratic barriers, and the formation of bilateral trade agreements.

5.1.2 Administrative Barriers

Administrative barriers and red tape can have a detrimental effect on FDI. This was studied in two papers by Emery and Wells27 (administrative
barriers to foreign investment) in five African countries (Ghana, Mozambique, Namibia, Tanzania, and Uganda) during 1995 to 1997. The
outcome was that such barriers push away foreign investors; e. g., in Mozambique, the South African investors threatened to shift to other
nations in the field of Aluminum smelting. Thus, the government drastically changed in its administrative policy.

5.1.3 Tax Incentives

The topic of incentives in general and tax incentives in particular need to be addressed. The questions are: are the costs of incentives more than
the benefits or vice versa? Is it needed to give a tax break to all investors? Wells and Allen 28argued it should only be tailored for specific
investors. Developing countries use tax incentives extensively. There are two main points of arguments for tax incentives:
It will increase the total flow of new investment.
Competing countries that seek FDI with tax incentives cannot be the only ones with those incentives; otherwise, the national country
will lose potential investors.
These two arguments can lead to the conclusion that incentives increase the aggregate volume of FDI available to developing countries and can
affect the spatial distribution of investment. Wells also presents the main argument against incentives:
Incentives would result to a net transfer of money from taxpayers to investors. As a whole, total investment in the world would not increase, and
in the case of developing countries, there would occur a transfer of money from a poor country to a richer one, widening the gap between the
wealthy and the deprived nations. Also, the costs to the incentive giver exceeds the investment benefits; in some cases the investment would not
Even if incentives affect the spatial distribution of investment, it is not in the interest of every developing country to compete in this respect,
since it could lose in the long run. This was studied in the case of Indonesia, which offered tax incentives then removed them. Surprisingly, there
was no decline in FDI inflows although other neighboring countries continued to offer incentives. Also, there was no observable FDI projects
relocation. Morisset and Pirnia29 (Ibid) conducted a review of earlier literature and showed that the results in general supported the findings of
Wells and Allen.

5.1.4 Privatization and FDI

The effects of privatization of stated-owned enterprises (SOEs) has long been indorsed in the literature as useful in attracting FDI to developing
Devlin30 considered that a country must privatize its state-owned ventures if it would improve societal wellbeing. This occurs when the public
importance of the privatized firm is superior to the social value of the firm still public. Therefore, the consequence of an unusual structure and
arrangement of asset control, have to result in an upgrading in asset organization.
Similarly, Cook and Kirkpatrick31 (Privatization: A Global Approach) concluded that since assessing public enterprise performance is hard, the
mediocre financial performance of SOEs was the major cause of privatization predisposition. In fact, profits to capital are poorer among SOEs,
which generally have a bad name for originality and diversification.
However, Yotopoulos32 (Tide of Privatization: Lessons from Chile. World Development, 1989) states that privatization is essential to recover the
performance of state-owned ventures. Privatization itself can cause loss of welfare. Though it gives openly to overall FDI flows throughout the
sale of assets to foreign investors, it also has an indirect result. Privatization can play the role of a signal, showing sincerity towards private
business and readiness of the government to maintain the private sector.

5.2 Arguing FDI and MNCs: For and Against

In his book, Moosa (Imad Moosa , Foreign Direct Investment, Theory Evidence and Practice) made a comparison between two arguing views
about the usefulness of FDI for developing countries.

5.2.1 The Arguments for FDI 33

The continuous growth in FDI flows seems unaffected by the recessing world trade economic situation or the increasingly thinning
portfolio investments. An advantage over portfolio investments is that FDI projects tend to be more rooted in the host country;
foreigners usually have long-term commitment.
FDI is profitable in the host country except when there are problems originated by fortification laws, monopoly and corruption.
By providing financial capital, FDI helps in filling the saving and foreign exchange gaps.
FDI re-energizes the domestic capital market through which domestic savings can be rerouted to finance domestic investment.

Louis T. Wells, Jr., Alvin G. Wint, Marketing a Country, Promotion as a tool for attracting Foreign Investment, FIAS.
James J. Emery, Melvin T. Spence, Jr., Louis T. Wells, Jr., Timothy S. Buehrer, Administrative Barriers to Foreign Investment, Reducing Red Tape in Africa,
Louis T. Wells, Jr. with Nancy J. Allen, Jaques Morisset, Neda Pimia, Using Tax incentives to compete for foreign Investment, Are they worth the cost? FIAS.
Devlin P., Lessons from Privatization In Developing Countries, Institute for International Economics
Cook and Kirkpatrik, Privatization: A Global Approach
Yotopoulos, Pan A., The (rip) tide of privatization: lessons from Chile. World Development.
B.A. Blonigen, K. Tomlin, and W.W. Wilson, "Tariff-jumping FDI and Domestic Firms' Profits," NBER Working Paper No. 9027, June 2002, and Canadian
Journal of Economics, 37(3), August 2004, pp. 656-77.
Issam Y. Atala *, Walid Dagher, Nadine Chebib 48

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

Through the transfer of capital and technology diffusion, FDI enhances growth in the host countries.
FDI boosts employment in the host country in both the opened manufactured points and the other sectors of distribution/
transportation. It can preserve it by acquiring and reorganizing affiliate firms.
In its initial phase, FDI improves the situation of the capital account of the host country.
FDI will most likely boost productivity if (a) it is export-promoting; (b) the underlying investment conditions and laws allow the
installation of plants designed to achieve economies of scale.
FDI boosts the managerial and operating skills of the local workforce by training transfer of expertise.
FDI establishes links with local suppliers for domestic goods, giving domestic firms opportunities.
FDI brings the competition in the market of the host country to higher levels.

5.2.2 The Arguments against FDI

FDI is nothing more new colonialism. It may result in a loss of dominion and in endangering general security. There is a wealth of
examples of MNCs interfering with the policies of the host country.
MNCs typically have the benefit to add support (from the host country) in excess of their necessities.
FDI will result in some distributional changes between labor force and capital power, even though it may lead to a gain in world output
as a whole.
The unbelievable size of MNCs (Many report annual trade figures exceeding the budgets of many smaller developing countries) may
endanger the national independence of the host country.
FDI creates a closed community of foreign elite in the host country.
FDI brings in unwanted and bad cultural changes.
When an MNC controls a developing country, it may be harmful to the expansion of the economy.
FDI will cause a boost in salaries dissimilarity in the host country.
MNCs are usually involved in the production of luxury instead of the basic consumer goods needed in less developed countries.
MNCs, powerful negotiators, probably forces unfavorable conditions in two-sided agreements with the host government.
FDI weakens market attentiveness thus elevating the likelihood for monopoly in developing countries.
MNCs pass up responsibility for a lot of environmental harm in less developed countries.
Moosa points out that it is not easy to reach a final verdict on such a complex issue. Obviously, MNCs do not invest in host countries just to help
them in overcoming their economic problems. Nevertheless, this doesnt hinder MNCs benefits to host countries. It is unacceptable that a
country rejects FDI just because of the list of arguments against it. The truth not doubt is somewhere in between.
The question whether MNCs are good or bad cannot be objective. Empirical evidence can be only limitedly reliable since Economics (unlike
Physics) do not adhere to a precise set of laws and scientific measures.
A number of researchers in the literature tried to review the effects of FDI and MNCs on developing countries using macro econometric
methodologies. Darwish (1995)34 came up with empirical evidence that FDI has a clear effect at the international economic level; to quote from
Darwish35 the regression analysis showed clearly that FDI has a very important effect on the economic performance. Furthermore, countries
that had undergone the experience of FDI had proven that foreign investments created job employment due to the existence of companies and
benefited from the technologies brought by the outsiders as well as decreasing their liability to debt. Comments on the result of this regression
analysis are the following. First, the research did not include the effects on specific periods but only the cumulative effect of FDI inflow over
several years; hence, there might not be a direct relation between recent FDI inflow and early effects on macroeconomic factors. Second,
Darwish made her study on developing and developed countries equally, ignoring that developed countries are more susceptible to the negative
effects of FDI and MNCs. This makes the factor analysis rather inaccurate. Additionally, many of the data were obtained from less transparent
sources36. However, Darwishs result must not be taken as completely misleading. The same applies to Reuber 37 who showed that the stock of
foreign investment per capita is positively correlated with gross domestic product (GDP) per capita in less developed countries, but this does not
by itself necessarily establish a cause-effect link. Chase-Dunn and Bornschier attempted to show a negative relationsh between the stock FDI
and the rate of growth of the recipient countries, but flaws in their statistical methodology have undermined the results.38 Dolan and Tomlin
found a negative relation between foreign investment stocks and rates of growth, but they simultaneously discovered a positive link between
foreign investment flows and rates of growth39. The fact that the flow variable measured a more recent period than the stock variable might
suggest that the contribution of multinational corporations to the development process has been changing overtime.
At this stage, FDI and MNCs do have a role in the development process. MNCs should better follow the widespread sets of advice by the OECD
on how to contract with host countries. In result, these suggestions provide a tremendously helpful and optimistic rule of conduct.

6. FDI in Lebanon
6.1 What Types of FDI are Appropriate for Lebanon
Below is a brief discussion of the most appropriate various types of foreign investment for Lebanon.

6.1.1 Resource Extracting FDI

Lebanon is not rich in natural resources like gas, petroleum, or even ordinary raw material such as wood, etc.; potable water extraction and
treatment is one choice which most foreign companies were not considering as clear from the previous table where sourcing of raw material and
other inputs received a share of 18 %.

6.1.2 Labor-Seeking FDI

This investment seems appropriate for foreigners to cut labor costs. In Lebanon, investors can take advantage of skilled or semi-skilled labor for
modern production. They will be the primary wage payers for the non-national low skilled workers (mainly Syrians and Egyptians) whereas the

Iman A. Darwich, Effect of Foreign Direct Investment on Economic Performance: An International Empirical Evidence.
G.L. Reuber, with H. Crookell, M.Emerson, and G. Gallais-Hammoud, Private Foreign Investment in Devepolment (Oxford: Clarendon Press,1973)
C. Chase Dunn, The effects of International Economic Dependence on Development and Inequality: A Cross National study , American Sociological Review;
V. Bornscheir, Multinational Corporations and Economic Growth: A Cross-national Test of the Decapitalization Thesis .
Micheal B. Dolan and Brian Tomlin, First World-Third World Linkages: External Relations and Economic Development. International Organization (Winter
49 Foreign Direct Investment in Lebanon

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

semi-skilled and high skilled Lebanese workers benefit by getting relatively considerable wages and managerial and technical experience.
Although the availability of local skills factor only took 18%, the low-cost labor factor took a high percentage (58%). Nevertheless,
adequate infrastructure and services are mandatory to attract this investment.

6.1.3 Service-Seeking FDI

An apt services sector could attract a significant FDI inflow, but Lebanon is still way ahead. Some even argue that this FDI is not necessary as
the government could introduce a number of effective reforms to prosper this sector; this holds true especially for state-owned enterprises such
as the post, water and electricity. But given the current politico-economic situation, this is unlikely and FDI remains the fastest solution; e. g.,
Electricite du Liban needs a quick FDI-privatization-based solution to cut off the ever-increasing losses.

6.1.4 Market-Seeking FDI

This FDI targets large populated countries with large markets, yet Lebanon can attract it due to its access to regional neighboring markets
through easy re-exporting; this ranked 60% among the reasons of investing. Examples of this FDI include high-tech industries, such as the
automobile, computer and electronics. But, this type relies heavily on protection from unfair competition; Lebanon must work harder on related

6.2 Corruption
Corruption is a severe problem faced by investors. Lebanon does have laws to combat corruption but historically unenforced ones. Lebanon is
not a signatory to the OECD Convention on Combating Bribery40 . It is widely common that investors routinely pay bribes to win contracts.
International companies face unpredictable, non-transparent operating environment, costs, and obstacles. They may also encounter informal
arrangements, in that to win a contract they must invest capital in a related project. Reportedly, a study on Lebanese trade practices
commissioned by the World Bank in 1998 41 revealed that businesses spend nearly $ 45 million per year in bribes to brokers and corrupt officials
to help speed up the clearance of shipments. The UN-ESCWAs 2001 survey revealed that 66 percent of investors see corruption a major
Corruption is more extensive in governmental contracts (primarily in procurement and public works, taxation and real estate registration) than in
private sector. As per the Lebanese law, it is a criminal act to give/accept a bribe. The penalty is imprisonment for up to three years, with hard
labor in some cases, plus a fine equal to at least three times the value of the bribe. The Central Inspection Directorate is responsible for
combating corruption in the public sector, while the public prosecutor does similarly in the private sector.42
A local NGO Kulluna Massoul (we are all responsible) was established in 2000 to raise awareness against corruption. The UN established an
anti-corruption office to work with the Government in elaborating laws to punish public servants gaining illicit wealth. UNDCP provided a
$300,000 grant to the government to assist in this fight. USAID supported the campaign. The program, which includes a media campaign and
training in investigative journalism, committed approximately two million over two years (2005-2006).

6.3 Different Views about FDI and Related Strategies in Lebanon

In this section, few views of Lebanese researchers and economic experts about FDI and its promoting strategies by the government are
Adib Nehmeh, in a recent report (The Disappointing Growth Decade, National Reports Lebanon, 2002), skeptically assessed the last decades
government dealing with the problem of the economy and FDI. He saw that after the Lebanese civil war in 1990, a little political period took
place and the essential macroeconomic policies, that were undertook by the succeeding governments, stabilized. The basic point of view used in
government policies after a growth decade rotate around only some points:
The reformation of the communitys liability by changing from elevated cost local currency borrowing to outside borrowing in order to
take advantage from interest spreads.
The reformation of the municipal division and its units with the strategy that depends on decreasing the amount of jobs which will
increase unemployments rate.
Hobaykah disagreed with Nehmeh in his article The opportunities of Economic Growth (Al-Nahar Newpaper, 22-05-2002). He compared the
case of Lebanon in relation to its Arab neighbors with the case of China in relation to its Asian neighbors. He highlighted that Lebanon can
attract FDI using the same Chinese plan. He wrote that FDI in rising countries has arrived to 240 billion US dollars in 2001 in Asia where China
has the big share. Similarly, Lebanon must support foreign relations with Europe, America and Japan due its very good geographic location. The
Lebanese economy will always remain bad unless it concentrates on FDI. Besides, the Lebanese Government should undergo administrative
reforms. By widening the scope of its internal and external markets, China succeeded. Being small, Lebanon must likewise expand its markets
through free commercial bilateral agreement with Syria, Jordan, and Iraq and all other Arab countries. The national Arab free trade area will
certainly raise the level of investment in all member countries and the overall economic status of the Arab area. Hobayka argued that the level of
cooperation between the private and the public sectors should be raised.
There are more traditional views about FDI attracting strategies such as transparency, incentive system advancement, one-stop shops and so on,
(see Azzam43 , Nunnenkamp44, Bassile45). Here, performance measurement revolves around how much a government can attract FDI inflow in a
stipulated period. The views suffer from their simplistic nature and only rely on limited macroeconomic quantitative measures not taking into
account the nontransparent and monopolistic intention of MNCs and developed countries.

7. Conclusion
Recommendations and Remarks
Obviously, FDI has many advantages and potential disadvantages. As a whole, the body of theory and the literature suggest that FDI should be
beneficial to the economics of developing countries and to Lebanon in particular, provided the right strategies are sought with a clear assessment

OECD web page
World Bank Reports on international trade practices, 2003
Central Inspection Directorate Of Lebanon Web Page
Henry T. Azzam, Transparency and best practice are route to more foreign investment, THE DAILY STAR.
Peter Nunnenkamp, Trends, Determinants and effects of FDI national strategies and policies in the ESCWA region.
Antoine Basile, Transnational corporation strategies and state policies in the ESCWA region. ESCWA regional seminar on FDI national strategies and policies
in the ESCWA region, June 2003.
Issam Y. Atala *, Walid Dagher, Nadine Chebib 50

International Journal of Economy, Management and Social Sciences Vol(5), No (3), September, 2016.

of political and economic climates. FDI-related strategies should make investments as advantageous as possible to the domestic economy and
not only to the foreign investors, or the latter may become just another obstacle.
There are some reservations on the performance of the Lebanese government with respect to FDI- related policies. The government actions have
been limited so far as the list below shows:
Develop some laws to facilitate foreign investment.
Establish IDAL along with the one-stop shop concept.
Introduce some fiscal incentives.
Make some development in the infrastructure.
It is understandable that the steps taken so far have sought to increase the volume of FDI (which is disappointing). The Lebanese
Government should not blindly attract foreign investment or privatize its SOEs but attract the right kind of foreign investment and
accordingly develop the right plans. Besides, the government should objectively assess the currently followed policies of FDI
promotion in the past few years. It is imperative to look not only at macroeconomic factors but also on other ones.
The following questions should be sincerely answered:
Are domestic private firms really benefiting from foreign investment?
Does Lebanon have the right kind of foreign investment to alleviate the problem of exports?
At the banking level, is FDI useful to the long-term capital investment regime?
What are the spillover effects of FDI?
Is there any technology transfer (at least in the industrial sector)?
Under the current circumstances, who will really benefit from privatization? MNCs or the Lebanese Government, and is privatization
really promoted as it should be there?
To what degree is FDI helping in the problem of employing low-skilled labor?
What about employment of domestic skilled or semi-skilled labor?
Is the cost of incentives given by the government (fiscal and other) truly being offset by FDI benefits? (Even indirectly)
More can be added to the above list. To know the strategies that serve the purpose of minimizing FDI inconveniences and attracting the right
foreign investment, the following points should be considered:
Foreign investment promotion programs should be diversified with flexible evaluation methods.
Giving unnecessary tax incentives could do more harm than good. Probably only minimal incentives should be offered as recent
evidence shows that fiscal incentives in general do not increase FDI inflow.
Privatization, necessary in some service sectors, should not be done hastily. In fact, administrative reforms could be better than
privatization (especially in the telephone and communications sector).
There should be a host country-investor bargaining process that makes sure the investor gets no more than necessary to invest and
operate. Also the bargain must insure that the (initially investor favorable) contract should be at least reasonably renegotiable in favor
of host-country later on.
Combating corruption should be a major concern for the government.
Prioritizing promotion of labor-seeking and market-seeking FDIs (re-exporting, local factories, etc.).
By sincere realistic measures, the government must encourage Lebanese abroad to invest locally.
Lebanon must concentrate on encouraging Arab investors particularly. This will raise the regional Arab economic cooperation and
pave the way for ambitious projects (e.g. a unified regional market).
Last but not least, Lebanon must do a number of internal reforms and restructuring efforts such as:
Updating the administrative / bureaucratic and custom procedures to foreign investors.
Improving the judicial system.
Completing the infrastructure development programs and projects.
The above list is by no means exhaustive and can still be refined by going deeper into relevant details. The essential thing is not to fall into the
trap of importing readymade solutions from outside. What might work in some cases might completely be inappropriate in others; also,
sometimes a slight (but important) change of policies at the initial time phase of a reform program could have a large effect in a later time phase.

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