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While Lebanon was hardly rising from 15 years of devastating war (1975-1990), the bloody events of 2005, followed by the war of June 2006, marked a new setback to growth. Reconstruction costs, although they stimulate growth, have increased the already considerable debt of the country. With the destruction of production capacity, its trade dependence vis-à-vis the outside world has further been increased (in 2005 the country has already been importing 90% of consumed goods).

Despite this unfavourable context, some sectors have seen a promising development: ICT, banking and finance, industry and tourism. Poor in natural resources but with a highly qualified workforce, Lebanon has actually been directed towards a service economy. In 2008, this sector accounted for 76.1% of GDP. The agriculture contributed only up to 5.1% and the industry to 18.8%. Although its growth is hampered by lack of infrastructure, it is experiencing an encouraging development in various sectors (agri-business, household equipment, jewelry, clothing, cosmetics), whose production meets strong international market demand.

Responding to the call to the private sector by the Lebanese government for reconstruction, Arab countries have invested 4.7 billion dollars during the 1995-2004 period, thus putting Lebanon in the 1st row of receivers of inter-Arabs investments. Services received 83.2% of the capital, which explains the rapid development of the sector.

This strong attractiveness is the result of the wide process of economic reforms, the improvement of investment climate and the international openness to which Lebanon is committed after the 15 year-war to regain its place in the region. Major advances have been made on the eve of the bloody events of 2005 with the launch of the Five-Year Plan 2002-2004, together with structural reforms: improving the legal, administrative and regulatory framework, removing barriers to trade and investment, reducing costs for doing business, etc. Minimally interfering (mainly infrastructure) in the economy, the State uses all means at its disposal to improve the business environment.

However, following a long period of political instability, the Lebanese economy lacks a national strategy for a structured development. In 2007, at the 3rd Conference of Paris for the reconstruction of Lebanon, 3 priorities were identified: promoting investment, improving quality of life, increasing exports. Nevertheless, these principles have not been applied until the end of 2008. Moreover, they provide no guidance on sectoral and territorial approach to adopt.

In recent years, investments have focused on Beirut, leaving other regions which had yet to be developed before the 1975 war. In 2001 the country was divided into 3 zones receiving differentiated investment incentives –in order to encourage the upgrading of the mountain territories and especially Northern and Southern points of the country as well as the Bekaa. A particular attention was also given to 2 sectors of which the high growth potential is well established: ICT and tourism. Whatever their localisation, the projects implemented in these sectors enjoy similar benefits to those awarded in the priority development zones.

In a view of giving new impetus to growth, an economic development plan is currently under study. It concerns 5 priority areas: medical tourism; the media (including movies); the technology industry (R&D, innovation and electronics); agri-business and tourism (entertainment, congresses). To target specific investment domains and promote synergies, 5 special economic zones will be created and dedicated to each of these sectors. Put on hold by the parliamentary elections of June 2009, major decisions for the country's future should be approved and implemented soon, now that a stable government has been formed.

Being historically outward, Lebanon has forged close ties with the Arab world, the United States and Europe. The numerous trade treaties signed in recent years, including the Association Agreement with the European Union and accession to the Great Arab Free Trade Area (GAFTA), should accelerate the integration of Lebanon to regional and global economies. Nonetheless, the country still suffers from a structural deficit in its current account, up to 15% of GDP. This deficit is mainly financed by the massive transfer of private capital. Encouraged by the liberal Lebanese banking policy, based on high interest rates and a currency peg to the dollar, portfolio investments and bank deposits are dominating.

In comparison, foreign direct investments are relatively low. Like domestic investment, they are governed by common law and Investment Development Law 360. Passed in 2001, this law could not enter into force until 2003, given the turbulent political situation. It provides for the establishment of a one-stop shop in the IDAL, the investment promotion agency. It also defines the 3 main investment zones, in which the granted incentives are more or less important. Finally, IDAL can offer investors a Package Deal Contract, whose terms depend on the localisation, the concerned sector and the number of jobs created.

To stimulate foreign investment, a new strategy is being prepared. It targets Gulf investors, international businesses and the Diaspora. A particular communication effort will be made with the Lebanese who are at the head of foreign companies. Indeed, their expertise in various fields and their recommendations on desirable reforms is of great value for their country of origin.

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