Lebanon 2013 | ECONOMY | FOCUS: FDI

Lebanon increased its FDI stock over 2012 as the property market continued to pull in foreign money. Regional political unrest, however, is dampening expectations for 2013.

While Gulf Arab demand for real estate in Lebanon has ebbed, the country's large diaspora kept on purchasing properties over 2012, resulting in a strong FDI showing. This is likely only to continue inflating house prices, however, and will not result in the job creation that Lebanon needs. Conflict in Syria will also have a more significant impact on FDI figures for 2013, as investors choose to sit on their hands and wait out the storm.

According to UNCTAD, FDI in Lebanon rose 8.5% in 2012 to reach $3.78 billion, or 8.9% of GDP. While the majority of investment flowed into the real estate sector from the Lebanese diaspora, the insurance industry was also enhanced by foreign acquisitions, according to the Investment Development Authority of Lebanon (IDAL). Lebanon's total FDI for the year represents 7.8% of overall FDI inflows to the region, placing the country third in the MENA region after the UAE and Saudi Arabia. Lebanon's share was slightly higher in 2011 at 8.1%, while in 2012 FDI flows were down 35% regionally overall, making the link between FDI and political stability only too clear to see—in 2010, FDI inflows into Lebanon stood at $4.8 billion.

While Lebanon could benefit from investment in the real economy—agriculture, for example, contributes just 1% to GDP—it was nevertheless a good year for the country in terms of FDI, considering its complex neighborhood. However, 2013 may prove that even Lebanon is not immune to the effects of civil conflict on its doorstep. According to IDAL, FDI could fall by as much as 21% by end-2013. So far this year, IDAL reports a 40% to 50% drop in requests and inquiries. Another hindrance is the caretaker cabinet's lack of authorization to approve investment projects, of which $270 million worth is awaiting governmental approval.

On the positive side, new gas discoveries along the northern maritime boundary with Cyprus and Syria could be a considerable source of FDI in the coming years, once the fog of uncertainty in the region lifts. Following a licensing round that opened in May 2013, around 46 companies were prequalified to bid for gas exploration.

FDI already plays a significant role in the Lebanese economy, with FDI stock accounting for 128% of GDP, a ratio that is the highest in the MENA region. The double whammy of regional conflict and a caretaker government unable to break political deadlock at home will, unfortunately, keep the country from attaining the kind of FDI levels seen in previous years. However, once the uncertainty factor clears, Lebanon will likely do what it does best, and bounce back stronger.