Government

In March 2013, Prime Minister Najib Mikati resigned, blaming government infighting during a time of increasing instability for the decision. Sunni politician Tammam Salam formed a coalition cabinet in February 2014, after he was appointed as Lebanon’s prime minister in April 2013. The cabinet, which is divided equally among Lebanon’s two main faction, as well as centrists, is primarily tasked with electing a president to succeed Michel Suleiman.

The former prime minister Najib Mikati formed the previous cabinet in June 2011, five months after the previous government had collapsed. The previous cabinet saw Hezbullah increase its influence in the government. Hezbullah and its allies controlled 16 of the 30 seats, an increase of six from the previous cabinet

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Economy

The collapse of the government and the unrest in neighbouring Syria resulted in Lebanon’s GDP growth falling to 1.5 per cent in 2011, a sharp drop from the 7 per cent growth it achieved in 2010. Lebanon’s nominal GDP in 2011 was $39bn.

Beirut’s principle economic challenge remains managing its enormous debt pile, created by the vast borrowings required to rebuild the country after the 15-year civil war and month-long conflict with Israel in 2006, which caused an estimated $3.2bn of infrastructure damage. The country’s debt was 136.2 per cent of GDP in 2011.

A pressing economic challenge for the government in 2012 is to find a solution to the government’s extra-budgetary spending. President Michel Suleiman has refused to approve $6bn in extra-budgetary spending, which has left the March 8 Coalition-controlled government to come up with another plan for two-thirds of that amount.

The privatisation of state assets, particularly in the power and telecoms sectors, has long been regarded as crucial if Lebanon is to reduce its substantial debt pile. However, splits in government have repeatedly prevented efforts to reform the sectors and increase the role of the private sector.

Remittances in Lebanon are among the world’s highest, estimated at 22 per cent of GDP in 2009 by the Washington-headquartered World Bank.

The unrest in Syria has also had a severe impact on Lebanon’s economy. Direct trade with neighbouring Syria and capital inflows have been massively disrupted by the civil conflict. Syria is also an important trade route for Lebanese companies to transport goods into other parts of the region. Tourism revenues in Lebanon have also been heavily affected, with people unwilling to visit Lebanon in such a time of instability.

The Beirut bourse has struggled in the current fragile economic climate. Figures from the stock exchange showed that trading volume was 17.3 million shares in the first four months of 2012, a decrease of 61 per cent from the same period in 2011. Customs receipts were down 1 per cent to $242m in January and February, suggesting a drop in demand for imports.

In 2013, Lebanon’s real GDP remained low for the third year in a row. The Washington-headquartered IMF and the Central Bank of Lebanon estimate it at between 1.5 per cent and 2.5 per cent.

Exports declined 12 per cent in 2013, contributing to a 3 per cent rise in the country’s foreign trade deficit to $17.3bn, the equivalent of 39.8 per cent of Lebanon’s GDP.

Banking

Lebanon’s banks weathered the global financial crisis well, thanks to prudent banking regulation and supervision and bank’s conservative funding and asset structures. However, the political unrest in Syria and elsewhere in the region has resulted in bank deposits and capital inflows slowing down.

According to data from the local Byblos Bank, in April 2012, bank assets were $144.7bn and bank deposits in the private sector were $118.75bn.

Against a backdrop of a slow domestic economy, profit growth at Lebanon’s banks is expected to remain moderate in 2013. The World Bank says Lebanon’s real GDP grew by 1.7 per cent in 2012 – the result of nominal growth of 8 per cent and inflation at 6 per cent – lower than the 3 per cent seen in 2011.

Construction

The real estate sector is a major contributor to Lebanon’s economy. According to the Washington-headquartered IMF, it accounted for a fifth of the country’s (GDP) growth between 2005 and 2009.

Over the past 35 years, during periods of stability between civil wars and invasions, local and international developers have undertaken several major real estate and urban regeneration schemes in Lebanon. One real estate developer involved with the regeneration effort is the Lebanese Company for the Development and Reconstruction of Beirut Central District (Solidere).

The company was set up in 1994 by former prime minister Rafiq Hariri to redevelop a 472-acre area in central Beirut. Solidere has completed a number of successful projects in the central area in the past 15 years.

However, despite leading some of Beirut’s biggest construction projects in recent years, on 23 May 2012, Solidere’s shares dropped to their lowest level since 2005, as the unrest in neighbouring Syria continues to impact on Lebanon’s construction sector. The trading performance reflected the current slowdown in Lebanon’s real estate sector. Beirut’s property market recorded a contraction of about 4.1 per cent in the first quarter of 2012, according to the local Bank Audi.

As a result of the unrest in Syria, the total value of construction and infrastructure contract awards for the first quarter went down 62 per cent on the same period in 2011.

While the majority of construction projects in Lebanon are funded by private investors and developers, the Council for Development and Reconstruction (CDR) is an important client in the reconstruction of Lebanon’s infrastructure.

The CDR was set up by decree in 1977 to repair the damage wrought by Lebanon’s civil wars. The organisation receives the majority of funding for its projects bilaterally from other governments or through multilateral organisations such as the UN and World Bank. The CDR currently has more than $329m-worth of road projects under construction and is overseeing several power and water schemes.

Tourism

Lebanon’s varied landscape, cultural history and Mediterranean weather makes it appeal to tourists from all over the world. 

Tourism has formed an important part of Lebanon’s economy in recent years. In 2011, it directly and indirectly contributed 35.2 per cent of gross domestic product, or $14.9bn. The sector also helps sustain 33 per cent of jobs in the country.

Following the period of stability after the 2009 parliamentary elections, Lebanon recorded a 39 per cent growth in visitor arrivals that year, one of the largest increases of any country in the world that year.

However, the collapse of the government and the Arab uprisings, beginning in early 2011, has had a significant impact on its tourist sector. In 2010, the average occupancy rates for hotels in the capital city of Beirut was 64.5 per cent, according to hospitality tracker STR Global. In 2011, it fell to 56.1 per cent.

The pattern has continued into 2012, with the local Byblos Bank reporting that the number of tourists for the first seven months in 2012 dropped by 12 per cent.

In May 2012, the governments of the UAE, Bahrain, Qatar and Kuwait warned their citizens to avoid travelling to Lebanon after violence in the northern city of Tripoli, which had spilled over from neighbouring Syria as a result of the uprising.

Electricity

Government transfers to EDL (Electrice Du Libon) are a crippling cost on the Lebanese economy.  According to figures from the Ministry of Finance, in 2011, public transfers to EDL were more than $1.75bn, a 46 per cent increase from 2010 and equivalent to more than 4 per cent of national GDP (gross domestic product). Transfers for the first five months in 2012 totalled $934.7m, a 49 per cent increase on the same period in 2011. Subsidies to the EDL are the third largest item of government expenditure, after civil service wages and debt servicing.