Lebanons fragmented industrial sector is challenged on several fronts
Lebanons industrial sector has historically taken second place to the vast services economy, which accounts for two-thirds of GDP.
This situation is not about to change, with manufacturing accounting for just 7.5 per cent of GDP and contributing only 1.6 per cent to real GDP growth in 1998-2010, compared with 14.6 per cent for wholesale and retail trade and 7.6 per cent for construction.
Lebanons financial, tourism and retail sectors will continue to dominate the economy, although the government has sought with limited resources to support industry where it can. In the 15 years from 1997-2012, subsidised loans administered by the Central Bank to the industrial sector amounted to $3bn. The interest subsidies on these loans amounted to $446m.
Much of the governments focus is on developing its nascent oil and gas sector, but that still leaves several incentives available for investors eyeing industrial opportunities. The Investment Development Authority of Lebanon (IDAL) offers tax breaks for companies setting up in industrial zones. Specific zones at Zahle, Byblos and Nabatiyeh exempt firms from corporate income tax for 10 years.
Lebanons industrial sector comprises about 4,000 establishments. Industry is a core sector employing some 140,000 people, the equivalent of 25 per cent of the local labour force. It is the second-highest employer after the public sector.
IDAL lists more than 15 sub-sectors, with the food and beverage industry contributing the most to industrial output (at 26 per cent), followed by metals and metal products (12 per cent), non-metallic mineral products (11.7 per cent), electrical machinery and apparatus (11 per cent), and furniture and wood products.
Given its difficult political situation, Lebanon has recorded a respectable industrial performance, with exports growing 4.2 per cent in 2013 to £Leb3.1bn ($2m). However, in the first quarter of 2014, exports declined by 36.5 per cent, while industrial product imports dropped by 4 per cent, according to figures from Lebanons Banque Audi.
The industrial sector is dominated by small-scale enterprises, with more than half employing between five and nine workers. Only 3 per cent of industrial companies have more than 100 workers.
Lebanons industrial sector is challenged by the regional turmoil, and an economic downturn that has affected all parts of the economy. Political instability and security challenges particularly in areas around Tripoli in the north have damaged industrial activity.
The sector has also been undermined by long-standing structural issues, such as the lack of diversification and the fragmentation of many manufacturing enterprises.
The lack of effective government policies and efficient governance for supporting industrial development has eroded sector effectiveness, too.
There is scope for industry to make more of a mark on the economy in future, particularly if Lebanon can catalyse development of its substantial offshore oil and gas reserves. This could provide a source of cheap fuel feedstock for downstream industries, although there are many obstacles to overcome before this is a realistic option.