INDUSTRIAL SOLUTION
Domestic and regional events have stifled Lebanon in building a strong national industry to protect and sustain its economy. Four proposed industrial zones throughout the country may provide it with the economic backbone it so desperately needs.
Lebanon has suffered multiple economic shocks in recent history, resulting from an undiversified economy and a lack of a real industrial base. Traditionally, the drivers of economic growth were narrowed to capital inflows coming from the unusually large Lebanese diaspora, tourism, and real estate—three sectors the Lebanese have successfully mastered and that have functioned as lifesavers when needed. This set up, however, has raised concerns about the macroeconomic fragility of the Lebanese economy due to the high exposure of these three sectors to financial imbalances and global destabilization. Moreover, they have worked to distance the country from building a real national industry that could provide stability in the long run.
In 1995, the first attempt to develop a national industry came when the Investment Development Authority of Lebanon (IDAL) called for a more balanced geographical distribution of the country's industrial development and, along with the Ministry of Industry (MoI), pushed for the creation of over 100 small industrial zones across Lebanon. Regardless of how well intentioned the project was, it failed to achieve its goals, since it pushed for the diversification of confined industrial zones with no economic spillover and did not create a path for sustainable industrial development.
Even though Lebanon falls in the upper middle-income group of countries, its industry is comparable to that of low-income nations dominated by agricultural production. While Lebanon's industrial sector accounts for 17.4% of the country's GDP, the figure is 22.2% for Bosnia and Herzegovina, 24.6% for El Salvador, and 26.6% for Jordan; all countries with lower income rates than Lebanon. In terms of exports, Lebanon's figures do not perform any better, representing only 11% of the total GDP. In comparison, the figure is 20% for Bosnia and Herzegovina, 17.2% for El Salvador, and 24% for Jordan. Finally, in terms of FDI, Lebanon's numbers have fallen sharply, from 9.5% of GDP in 2000 to a mere 2.6% at the end of 2014.
It was against this background that the MoI, in partnership with the UN Industrial Development Organization, created the initiative to build industrial cities across the country, namely in areas where economic sources have been historically underdeveloped. After carrying out feasibility studies aided by the Italian government, the MoI identified four areas where the development of industrial cities would likely create a positive environment for investment. These areas are the Shakadif village in southern Lebanon, the Tebna Industrial City near Saida, the Dmoul Industrial City close to Tyre, and the Terbol Industrial City in the Bekaa Valley.
Among the benefits these four industrial cities will accrue is the accumulation of physical capital, an increase in the overall productivity of their respective regions, a raise in exports, an increase in FDI, and most importantly the decrease of overdependence on capital inflows. According to the feasibility studies, these four industrial cities will help assure balanced regional development. This responds to the fact that, despite Lebanon's shortage of landmass, so far the government has not applied any concrete strategy to effectively use land, nor has it set caps for increasingly high prices. By creating these four industrial cities, efficient use of land will be institutionalized by providing the necessary infrastructure to a specific industrial ratio and offer long-term lease permits at competitive prices for those companies willing to settle there.
The creation of the industrial cities also calls for the concentration of specialized infrastructure in a specific zone with all the required resources, services, and supplies any company needs to base its operations. This asset plays a prominent role in attracting local and foreign private sector bearing in mind Lebanon's complexities regarding electricity, road infrastructure, and tax rates. According to the World Bank's Enterprise Survey, the top obstacles cited by Lebanese manufacturing firms apart from corruption and political instability are electricity, tax rates, customs regulations, and transport, with an identification percentage of 55.1%, 27.4%, 25.9%, and 14.7%, respectively.
Another major benefit from industrial cities is a more flexible regulatory framework that would facilitate the establishment of companies, their compliance to legal requirements, and a more attractive fiscal regime with incentives for potential investors. Although still vague in official documents, IDAL has spoken of a 50% tax cut on corporate income tax for the first five years for companies settling in the Tebna Industrial City. It is still yet to see if this incentive will apply to the rest of the industrial zones.
The plan to create these fours industrial cities places Lebanon at the gates of industrial development for the first time in its history. The country needs to act immediately to attract investors and put the right regulation in place in order to capitalize on this endeavor.
INDUSTRIAL SOLUTION
TABLE OF CONTENTS
Focus: Lebanese-French Relations
Let’s be Franc
Lebanon shares a close relationship with its former colonizer, both in terms of economic relations and cultural identity among Lebanese. In spite of hardships like the presidential power vacuum and Syrian war next door, the bond is only getting stronger.
read articleFocus: Tripoli Economic Free Zone
The Tripoli Transformation
The Tripoli Special Economic Zone (TSEZ) is one of most ambitious projects in Lebanon at the moment. With an initial cost of USD27 million, it is meant to provide an alternative to the heavily centralized economic activity in Beirut, a new gateway for investments and trade to settle in northern Lebanon, and will transform the image of a long-neglected region.
read articleInterview
Dr. Freddie Baz, Vice Chairman & Group Strategy Director, Bank Audi
TBY talks to Dr. Freddie Baz, Vice Chairman & Group Strategy Director of Bank Audi, on the bank's increase in profits, dealing with currency devaluation, and working to turn the economy into an export-driven one.
read articleReview: Insurance
Life is a Rollercoaster
Unlike many emerging markets, Lebanon enjoys a relatively high insurance penetration rate and strong life segment, buoyed by compulsory lines and bancassurance. Competition remains fierce, however, and reform aimed at encouraging consolidation looks far off.
read articleInterview
Max R. Zaccar, Chairman of Commercial Insurance & President of the Association, Insurance Companies
TBY talks to Max R. Zaccar, Chairman of Commercial Insurance & President of the Association of Insurance Companies, on the resilience of the sector, increasing the already-high penetration rates in the country, and remaining one of the strongest insurance companies in the region.
read articleInterview
HE Arthur Nazarian, Minister, Energy and Water Resources
TBY talks to HE Arthur Nazarian, Minister of Energy and Water Resources, on the potential offshoots from oil and gas explorations, the country's National Energy Efficiency Action Plan, and attempts to increase renewable energy consumption.
read articleInterview
Wissam Zahabi, Chairman, Board of the Lebanese Petroleum Administration (LPA),
TBY talks to Wissam Zahabi, Chairman of the Board of the Lebanese Petroleum Administration (LPA), on making the investment climate attractive for foreign companies and becoming self-sufficient in energy.
read articleFocus: Sovereign Wealth Funds
Gas Pipe Dreams
Despite excitement over exploration of Lebanon's hydrocarbons, the creation of a sovereign wealth fund, which was included in legislation, has yet to take place. The country faces several obstacles in its path to creating and properly managing a fund.
read articleInterview
Pierre El Khoury, General Director, Lebanese Center for Energy Conservation (LCEC)
TBY talks to Pierre El Khoury, General Director of the Lebanese Center for Energy Conservation (LCEC), on the development of energy efficiency in Lebanon, awareness of energy conservation, and the country's 2020 renewable energy goals.
read articleInterview
Dr. Fady Gemayel, President, Association of Lebanese Industrialists (ALI)
TBY talks to Dr. Fady Gemayel, President of the Association of Lebanese Industrialists (ALI), on the group's work to promote industrialists, new developments in terms of industrial cities, and the future of industry in the country.
read articleFocus: Industrial Cities
Industrial Solution
Domestic and regional events have stifled Lebanon in building a strong national industry to protect and sustain its economy. Four proposed industrial zones throughout the country may provide it with the economic backbone it so desperately needs.
read articleInterview
Marianne Hoayek, Director of the Executive Office, Banque du Liban
TBY talks to Marianne Hoayek, Director of the Executive Office of Banque du Liban, on the roots of the Circular 331 concept, bridging funding gaps throughout the startup lifecycle, and the country's growing knowledge economy.
read articleRoundtable
Thinking It Through
On June 12, TBY and the American-Lebanese Chamber of Commerce (AmCham) organized a roundtable titled “Startup ecosystem sustainability: fostering cooperation to drive entrepreneurship." The participants discussed the impact of Circular 331, an initiative by Bank du Liban, the Lebanese central bank, to inject a potential of USD400 million into the local enterprise market and guarantee 75% of banks' investments in startups and startup support.
read articleFocus: Infrastructure for the startup ecosystem
The New Star
Startups are ubiquitous in Lebanon despite the difficulty of starting a business and the lack of services available to new businesses. However, a number of actors, both public and private, are innovating the environment and allowing startups to fulfill a greater role in the country's economy.
read articleFocus: Maritime Exports Bridge
Bridging The Gap
The conflict in Syria has wrought serious damage on the Lebanese economy, effectively closing off the country's trade routes through Syria. However, a new program geared at balancing the price disparities between land and sea transit is poised to help Lebanese industries.
read articleFocus: Real Estate
A Stimulus For The Rest Of Us
The real estate market in Lebanon is nothing like it used to be. The sector has slowed considerably, and demand has shifted from the traditional center, Beirut. However, stimulus packages from the central bank over the years have proven beneficial for all parties involved.
read articleInterview
Armand Pahrés, President, Lebanese Pharmaceutical Importers Association (LPIA)
TBY talks to Armand Pahrés, President of the Lebanese Pharmaceutical Importers Association (LPIA), on the development of legislation in the sector, boosting further innovation, and opportunities for Lebanon to become more self-sufficient in pharmaceuticals.
read articleFocus: Incentives for pharmaceuticals in Lebanon
Pharma Land
Lebanon has always been the region's leader in all things health related. Its pharmaceutical industry is no exception, and the country's incentives for international pharma companies to operate, manufacture, and distribute in Lebanon are only getting stronger.
read articleInterview
HE Elias Bou Saab, Minister, Education and Higher Education
TBY talks to HE Elias Bou Saab, Minister of Education and Higher Education, on the ministry's initiatives to improve the education system, ensuring access to education for Syrian refugee children, and reversing the brain drain in the country.
read articleInterview
Mohamed Harajli, Provost, American University of Beirut (AUB)
TBY talks to Mohamed Harajli, Provost of the American University of Beirut (AUB), on his upcoming plans for the university, the key role played by the AUB alumni, and fostering an entrepreneurial spirit among students.
read articleFocus: Programs to school Syrian refugee children
High Marks
Proportional to its population, Lebanon has taken in significantly more Syrian refugees than any other country. With the country now facing the problem of placing the tens of thousands of Syrian children in school, international donors and local and foreign organizations are making educational support a priority.
read articleInterview
Joseph G. Jabbra, President, Lebanese American University (LAU)
TBY talks to Joseph G. Jabbra, President of the Lebanese American University (LAU), on embracing technology at the university, the challenges of Lebanon's brain drain, and the importance of having international links with other institutions.
read article