THE STRONG CEDAR

Lebanon 2012 | DIPLOMACY | YEAR IN REVIEW

Lebanon is an oft-overlooked leading center for finance, tourism, and trade in the East Mediterranean region that managed to ride through the global financial crisis on the back of a resilient banking industry, surging tourism receipts, and a real estate sector that showed no sign of weakness. The country's GDP shifted into overdrive in 2009 and 2010, recording annualized growth figures of 9% and 7.5%, with nominal GDP estimated to come in at $42.57 billion—up 1.5%—for 2011, according to the IMF. Lebanon is well respected by those in the know for its laissez-faire trading traditions, strong banking sector, and pro-free market attitude that has allowed it to prosper under conditions that would represent a challenge to most.

Lebanon is an oft-overlooked leading center for finance, tourism, and trade in the East Mediterranean region that managed to ride through the global financial crisis on the back of a resilient banking industry, surging tourism receipts, and a real estate sector that showed no sign of weakness. The country's GDP shifted into overdrive in 2009 and 2010, recording annualized growth figures of 9% and 7.5%, with nominal GDP estimated to come in at $42.57 billion—up 1.5%—for 2011, according to the IMF. Lebanon is well respected by those in the know for its laissez-faire trading traditions, strong banking sector, and pro-free market attitude that has allowed it to prosper under conditions that would represent a challenge to most.

Current estimates put the population at just over 4 million people, and it has a culturally diverse mix of Maronite Christians, Sunni and Shia Muslims, Druze, Orthodox, and many others, reflecting its history as an entrepôt. However, the Lebanese diaspora around the world is estimated to be up to 12.5 million in size, and many of them occupy key positions in global trading and finance systems—even the king of the “Black Swans" himself, Nassim Nicholas Taleb, proudly points to his Lebanese heritage. The diaspora plays a key role in pumping in high levels of liquidity into the financial system, and also in spending big on tourism and real estate.

The people of Lebanon have a long tradition of being able to bounce back from crisis, especially following the resolution of the civil war in 1990. Its current President, Michel Suleiman, was elected in 2008, and he has presided over a solidly growing economy ever since. Despite the occasional bouts of paralysis at the cabinet level, the country has maintained its ability to innovate and prosper.

Lebanon has managed to make major inroads in the past few years in winding down its world-beating debt-to-GDP ratio of 148%, a figure that has often perplexed economists. However, much of the secret behind the economy's resilience can be found in the cautious monetary policy adopted by the central bank, the Banque du Liban. Its careful supervision of the financial sector assisted Lebanese banks and finance institutions in avoiding the pitfalls of the global derivatives market, generally considered one of the key weak points that undermined the financial systems of many.

The banking sector is the main engine of the economy, representing 35% of GDP. The strength of the banking sector comes from a combination of tight regulations, strict borrowing controls, and its averseness to risk. The industry is a rich mix of locally owned and foreign offshore institutions, and its footprint extends right across the Middle East and Eastern Mediterranean region. During the global financial crisis, Lebanon became a safe harbor for those looking to exit their money from Europe and the US, especially investors from the Gulf.

The country still faces many challenges, especially in improving its transport, telecommunications, and energy infrastructure. The long-awaited upgrading of the electricity network, run by Électricité du Liban, is of especial concern, as too are the needs of the transport network connecting the country's vibrant capital, Beirut, to the regions and to its neighbors. The country also needs to invest more in its internet infrastructure to complement the diversity and vivacity of its highly trained IT workforce.

One sector that Lebanon is famed for is tourism. No matter what the situation, the tourism industry in Lebanon knows how to bounce back. Beirut has become the capital of nightlife in the Eastern Mediterranean region, attracting millions of tourists from the Gulf, across the Middle East, and Europe, all looking to share in the rich culture that has seen Beirut termed the “Paris of the East". The summer season in Lebanon sees the crème de la crème of the region descend on the country and fill its restaurants, nightclubs, beach clubs, mountain retreats, and streets, and 2011 was no exception. Over 2.5 million tourists from around the world visited the country in 2010 alone.

Real estate has been a key beneficiary of the growing tourism figures, with many foreigners and expatriate Lebanese alike looking to purchase property to spend an idyllic summer. The sector has boomed over the last five years, with real estate prices in some parts of Beirut recording annual growth rates of up to 25%.

However, one of the real keys to Lebanon's ongoing economic strength is its well-educated population and their strong entrepreneurial spirit. In human resource terms alone, Lebanon can be considered a regional powerhouse and strong contender for any foreign investor's attention.