Foreign Direct Investment

Lebanon has traditionally been open to foreign direct investment, although recent political instability, macroeconomic imbalances and a foreign currency crisis have dampened the country's attractiveness. According to the 2022 World Investment Report published by UNCTAD, FDI inflows were estimated at USD 273 million in 2021, down by 79.1% compared to one year earlier (and to a yearly average of USD 2.4 billion in the previous decade). Meanwhile, the stock of FDI reached USD 68.9 billion. In the past, FDIs have fuelled job creation and boosted the information, technology and industrial sectors, but regulatory and institutional bottlenecks affected the prospects for FDI diversification. In the last three years, Lebanon has been hit by a series of shocks: an economic and financial crisis, followed by the COVID-19 pandemic, a political crisis and finally, the explosion at the port of Beirut. The unprecedented economic crisis has had large and persistent negative impacts that continued affecting the country in 2022, deterring FDI. Historically, the main foreign investors in Lebanon are France, the US, the UAE, Germany, the UK, the Netherlands, Jordan and Egypt; with investments oriented mainly towards real estate, financial services and tourism (the majority of which is based in or around Beirut – data IDAL). A large part of investment comes from the Lebanese diaspora (especially in the real estate sector) and takes the form of M&A (as opposed to little greenfield investment). According to the latest data released by the Bank of Lebanon, FDIs to the country totalled USD 306 million in the first half of 2022.

The serious economic and political crisis that Lebanon is going through and the sovereign default will continue to affect investors’ confidence. Other factors already hindering FDI include high unemployment, brain drain, energy supply shortages and regulatory obstacles. Furthermore, the Lebanese financial sector has imposed ad hoc capital controls, preventing most Lebanese from transferring money abroad, despite the fact that around two-thirds of accounts in Lebanese banks are denominated in dollars. According to the World Bank, Lebanon’s depression is likely to rank among the top three most severe economic crises since the 1850s, as the country’s currency has lost more than 90% of its value since 2019, contributing to record-high inflation due to Lebanon’s excessive reliance on imports. Following the 2020 default, Lebanon is unable to borrow on international capital markets. Most analysts see Lebanon's short to medium-term economic future as bleak, with probable fiscal austerity, persistent capital controls, further devaluation, and potential impairment applied to wealthy depositors to recapitalise the banking sector. These developments will affect Lebanon's potential as a destination for foreign investment, degrading its position in the years to come. Other concerns include over-regulation, arbitrary licensing, outdated legislation, ineffectual courts, high taxes and fees, poor economic infrastructure, and social unrest. As a result, Lebanon ranks 162nd out of 177 countries in the 2022 Index of Economic Freedom.