Guidance

Overseas business risk: Lebanon

Updated 21 February 2022

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This publication is available at Overseas Business Risk – Lebanon Information on key security and political risks which UK businesses may face when operating in Lebanon.

Due to the ongoing conflict in neighbouring Israel and the Occupied Palestinian Territories, you should also view the latest travel advice for Lebanon.

Political

Lebanon is a confessional democracy in which political representation is shared across sectarian groups. The most senior political positions of the President, Prime Minister and Speaker of Parliament are appointed to a Christian Maronite, Sunni Muslim and Shia Muslim respectively. President Michel Aoun was elected in October 2016 and Nabih Berri has been Speaker since 1992.

Prime Minister Najib Mikati assumed office in September 2021. His appointment ended a 13-month long vacuum after former Prime Minister Diab resigned, following the August 2020 Beirut Port explosion. Mikati’s Cabinet did not meet for three months between October 2021 and January 2022 due to disagreements over the investigation into the explosion. Parliamentary elections are due to take place on 15 May 2022. According to the Constitution, presidential and municipal elections will follow later this year.

A precariously balanced power-sharing arrangement between eighteen sectarian groups, inter-communal tensions, and a vulnerability to regional intervention have posed a challenge to governance in Lebanon’s state institutions. In the absence of job-creation or basic state services, most citizens rely on non-state groups with sectarian bases, dominated by a small elite. This creates an environment where corruption is pervasive.

October 2021 saw the worst armed clashes in Beirut since 2008, when fighting broke out in southern Beirut along a former Christian-Muslim fault line from the civil war. Over recent years, security agency capability had improved. The Lebanese Armed Forces and Internal Security Forces expelled Daesh from Lebanese territory in 2017. They also maintained order during the nationwide protests that started in October 2019. However, security risks are rising due to the deteriorating economic situation, which is manifesting itself in increased crime (from a low base) and conflict over resources, as well as increasing pressures on poorly-paid security forces.

Hizballah is a political party and armed militia, and a core political player in Lebanese politics. In February 2019, the UK extended HMG’s proscription of Hizballah to include the entire organization. Read the full statement issued by the UK Government.

Economics

Lebanon’s GDP dropped from 52 billion USD in 2019 to an estimated 21.8 billion USD in 2021, according to a recent study by the World Bank. This was the highest contraction of any country. In addition, inequality is very high, with 82% of the population in multidimensional poverty, and 34% in extreme multidimensional poverty, in 2021, according to the United Nations Economic and Social Commission for Western Asia (ESCWA). The BLOM-PMI index, which measures private sector activity, rose slightly to 47.1 in January 2022, but still pointed towards a further decline in the health of the private sector due to the challenging business environment in the country, characterized by high political and economic uncertainty and a financial and monetary crisis.

The social impact of the deterioration in the economic situation is dire and could become even worse if corrective measures and safety nets are not introduced. Households are facing challenges in accessing food, healthcare, and other basic services. Unemployment is on a rise and exceeded 50% during 2021. Inflation is very high, averaging 423% for food and non-alcoholic beverages, 522% for transportation, 425% for water, gas and electricity, and 405% for healthcare (in December 2021). This has had a very negative impact on living standards.

Lebanon has multiple exchange rates. Since August 2019, the parallel market exchange rate has diverged from the official exchange rate (1500 LBP/USD), and has depreciated by over 95%. By January 2022, the value of the Lebanese Lira reached an all-time low of 33,000 LBP/USD on the parallel market, and at the time of writing is being traded at around 20,000 LBP/USD. The parallel market rate fluctuates on a daily basis. Since January 2022, the Lebanese Central Bank has attempted (with some success) to stabilize the exchange rate by injecting foreign currency into the parallel market, but it is unclear for how long this practice can be sustained, given the pressure that it is placing on the Central Bank’s dwindling foreign currency reserves.

Lebanon’s banking sector is in a precarious position, with banks having introduced informal capital controls, limiting customer withdrawals and transfers since October 2019. In March 2021, several international banks cut ties with the Lebanese financial system. This led to a loss of confidence in the bank system and a sudden drop in capital inflows, which coupled with a continued large current account deficit (9.8% of GDP in 2021), has led to a gradual depletion in foreign exchange reserves at the Central Bank.

Business

With a long history as a trading hub, Lebanon has historically boasted huge potential from its well-educated population, enterprising youth and innovative tech sector. The services sector represents almost 70% of GDP and employs over 75% of the total labour force. The most prominent service sectors include trade (retail and wholesale), construction, tourism, telecommunications and financial services. The private sector, particularly SMEs, forms the cornerstone of the Lebanese economy.

The inaugural meeting of the UK-Lebanon Association Council took place in Beirut on 15 December 2021. The meeting met UK’s treaty obligations for a Ministerial meeting following the entry into force of the Association Agreement on 1st January 2021. The UK-Lebanon agreement replicates the EU-Association Agreement and provides a framework for optimizing the UK-Lebanon bilateral trading relationship.

Lebanon’s economic and political situation means the implementation of this Agreement will take place in a very challenging environment.

Total trade in goods and services (exports plus imports) between the UK and Lebanon was £565 million in the four quarters to the end of Q3 2021, a decrease of 12.3% or £79 million from the four quarters to the end of Q3 2020. In the four quarters to the end of Q3 2021, total UK exports to Lebanon amounted to £432 million (a decrease of 10.7% or £52 million compared to the four quarters to the end of Q3 2020).

Of all UK exports to Lebanon in the four quarters to the end of Q3 2021, £157 million (36.3%) were goods and £275 million (63.7%) were services. In the four quarters to the end of Q3 2021, UK exports of goods to Lebanon decreased by 25.2% or £53 million compared to the four quarters to the end of Q3 2020 while UK exports of services to Lebanon increased by 0.4% or £1 million compared to the four quarters to the end of Q3 2020.

The top five goods exported from the UK to Lebanon in the four quarters to the end of Q3 2021 were:

• mechanical power generators (capital) (£29.0 million or 18.4% of all UK goods exported to Lebanon)
• medicinal & pharmaceutical products (£15.4 million or 9.8%)
• beverages (£14.3 million or 9.1%)
• cars (£11.4 million or 7.3%)
• dairy products & eggs (£8.3 million or 5.3%)

Importers wishing to transfer payments overseas have faced challenges due to capital controls imposed by Lebanese banks, but have generally been able to identify other means of payment in order to overcome this issue.

Lebanon imports 80% of its products - most of the country’s oil, meat, grain and other supplies come from abroad. Lebanon receives US dollar inflows through tourism, foreign aid, remittances and loans. In turn, the country spends these dollars to purchase supplies across borders. Volatile exchange rates have led to skyrocketing retail prices.

Poor infrastructure (e.g. unreliable energy provision), weak governance structures, and a public investment system in need of reform harm the environment for businesses and investors. In 2020 Lebanon ranked 143 out of 189 in the World Bank’s ease of doing business index (down ten places from 2017). Long-standing infrastructure problems have been exacerbated by the influx of Syrian refugees since 2017 – at 1.5 million Lebanon hosts the highest number of refugees per capita. In the 2018 Global Competitive Index Lebanon ranks 105 out of 137, with government instability, corruption and inadequate supply of infrastructure put as the most problematic factors for doing business.

UK companies should seek professional legal advice should they have, or be considering, entering into agreements in Lebanon. The British Embassy is ready to support UK companies seeking to invest or operate in Lebanon.

Human rights

Lebanon has acceded to six of the seven UN conventions, and to seven of the eight International Labour Organization (ILO) conventions, on with human rights. The country underwent the third cycle of the UN Human Rights Council’s Universal Periodic Review process in January 2021. This led to a number of recommendations for the country to implement. However, human rights reform has stagnated, and continues to be below international standards:

• there is no agreed moratorium on the death penalty, although there have been no executions since 2004. Arbitrary detention and prison conditions fall far short of international standards
• there have been sporadic incidents of excessive force against protesters by Lebanese security agencies. There have also been allegations of serious violations by the security agencies, including torture, against terrorism detainees
• despite the criminalisation of sexual harassment in December 2020, women face discrimination, including under personal status laws, which are administered by separate religious courts; and
• migrant domestic workers do not have full legal protections. Mistreatment is prevalent and there is no available redress. Refugees also have limited rights and restricted access to the labour market

Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organization carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Lebanon has a series of Anti-Corruption laws, and is a state party to the United Nations Convention Against Corruption (UNCAC). This is the most comprehensive piece of international anti-corruption legislation, and includes a section on the private sector.

In May 2020, the Lebanese Government adopted the National Anti-Corruption Strategy. This five-year strategy aims to prevent and fight corruption by strengthening transparency, activating accountability and ending impunity. In line with this strategy, a new public procurement law was ratified in 2021.

Despite this, according to Transparency International’s Corruption Perceptions Index (CPI), Lebanon ranked 154 out of 180 countries in 2021. Lebanon’s CPI score has fallen from 28 in 2019 to 24 in 2021. The UK was ranked 11th with a score of 78.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Lebanon and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and Corruption page.

Terrorism threat

Terrorists are very likely to try to carry out attacks in Lebanon. You should be vigilant at all times, avoid crowds and crowded places and follow the advice of the Lebanese authorities. Previous attacks have targeted the security forces, as well as locations where Western visitors may congregate. There are ongoing counter-terrorism operations, particularly in North Lebanon. You should follow the advice of the local authorities, and check local news and Foreign, Commonwealth and Development Office (FCDO) travel advice regularly. Groups within Lebanon, including Hizballah, are proscribed under the Terrorism Act 2000 and listed under the Counter Terrorism (Sanctions) (EU Exit) Regulations 2019. Offences committed under the act – including funding and supporting proscribed organizations – may be liable to prosecution in the UK.

For more information, read our Terrorism threat page on FCO Travel Advice.

Protective Security Advice

The FCDO advises against all travel to:

• Palestinian refugee camps
• within 5km of the border with Syria
• the Hermel Area, including the towns of Arsal, Ras Baalbek, Qaa, Laboué and Nahlé

The FCDO advises against all but essential travel to the remaining areas of Lebanon due to the ongoing instability.

If you decide to travel to or remain in Lebanon, we strongly advise you to:

• read the travel advice for Lebanon and register for travel advice updates and follow us on Facebook and Twitter at @ukinlebanon
• heed local advice in areas which have not been declared safe from unexploded ordnance
• keep abreast of latest developments by listening local news broadcasts
• avoid large crowds and public demonstrations, which have the potential to turn violent
• carry identity papers with you at all times and be prepared to stop at check points and to show your papers
• ensure that your travel documents are readily available in case you need to leave the country at short notice; and
• ensure that your passport and Lebanese immigration and residency permissions are up to date. Failure to do so could impede your exit from Lebanon

Intellectual Property

The main infringements of IPR in Lebanon are found in the piracy of copyrights (music, film software, books, satellite cables, pharmaceutical products), the counterfeiting of trademarks (textiles, footwear, luxury items, drinks, toys), infringement of patents (pharmaceuticals, agro-chemicals, machinery) and the infringement of designs and geographical indications. This has affected sales of both local and imported goods.

A Consumer Protection Law, introduced in 2005, set out new measures for protecting the consumer against counterfeit products. However, this law has not yet been implemented in full, and as a result, counterfeit goods remain widely available. The Ministry of Economy and Trade set up a call centre to field complaints about counterfeit products, however, it is not yet fully staffed. The Ministry has also presented several draft laws to Parliament which are designed to bring Lebanon up to international standards on the protection of intellectual property. Further detail is available on the Ministry of Economy and Trade website.

Read the information provided on our Intellectual Property page.

Organised Crime

Organised crime exists in Lebanon. There are criminal gangs operating in parts of the Beqaa Valley, especially the northern Beqaa, involved in drug cultivation and smuggling. There have been recent operations across Lebanon where large amounts of Captagon and other drugs have been seized, disrupting their facilitation to intended destinations, outside of Lebanon. There is also evidence of organised gang involvement in prostitution, racketeering and people smuggling.

Car theft gangs are operating in some parts of the country and can steal vehicles by force, particularly along sections of the international highway towards Baalbek. Vehicle thefts have grown significantly and vehicles are often targeted by type. Other armed crimes, such as robbery and kidnap for ransom can occur in Lebanon. There are sporadic armed clashes between gangs, and operations by the security forces, which are more likely in areas defined as amber on security ground, but not exclusively.

The risk to visitors from petty or violent crime is defined as moderate by the FCDO. Whilst still low by international standards, national crime rates have increased significantly due to the declining economic situation, particularly bag and mobile telephone snatching by criminals on scooters. In addition there are reports of petty theft taking place in shared taxis (known locally as “service” taxis) with passengers being robbed by either the driver or other passengers. It is advisable to only use taxis from recognized companies and to not use shared taxis or taxis hailed on the street. Read our travel advice Safety and Security page.

Read the information provided on our Organised crime page.

Contact

Contact the Department for Business and Trade (DBT) team in Lebanon for more information and advice on opportunities for doing business in Lebanon.