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Economic and Foreign Investment Risks in Lebanon

Updated on July 30, 2022
Nyamweya profile image

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics.

Flag of Lebanon
Flag of Lebanon | Source

Lebanon, officially recognized as the Republic of Lebanon, is a sovereign nation within the Western parts of Asia. The country borders Israel to the South and Syria to the North and Cyprus to the West. Lebanon is the smallest country in the whole of Asia with just 10,452 km2 of land. However, the country has a rich history which is facilitated by the Mediterranean basin ad Arabian hinterland.

The rising cases of insecurity in Lebanon have been and continue to be an issue of concern for both local and international businesses. This owes to the fact that insecurity cases have been rising on a consistent basis and refugees have been moving into the country at an alarming rate. The current insecurity situation in the country has been triggered by the intensified war in Syria and the extension of the conflicts in the country to Lebanon. This situation has greatly hindered the economic recovery of the country since 2015. Furthermore, the instability of the region has affected the morally of local and international business entrepreneurs subsequently hindering growth of key economic drivers including tourism, real estates and financial services. Particularly, real estate and construction industries have been declining since 2015.

However, the rate of consumption is expected to rise up significantly by the end of 2016, thus benefiting imports which contribute to more than 80% of GDP. Moreover, the decline of the Arab nations is expected to have a negative impact on the purchasing power of Lebanese diaspora while pressurizing the real estate and banking sectors in the country. These key sectors can adversely affect other businesses which depend on them either directly or indirectly for sustenance purposes. In the meantime, United States is tightening its monetary policy, subsequently forcing the Bank of Lebanon to raise its rate. The rise of financial rates will adversely affect lending borrowing and even investment by households and businesses who will then have a low purchasing power.

From this overview, the business environment of Leban is currently unsuitable for foreign investors. This owes to the worsening cases of insecurity fueled by internal conflicts of the countries neighbor, Syria and entrance of refugees to the country. This insecurity, coupled with the tightening of US financial policies have subsequently affected all sectors of the economy alongside its key drivers such as tourism, real estate and other important sectors. Instability is the greatest hindrance to economic progress and when there is no economic growth; households will not have the purchasing power to buy goods and services. This will consequently affect businesses whether local or international since they will find it hard to be sustained.

The instability of the country will also affect the instability of businesses which will risk being vandalized by malicious persons who will take advantage of the security situation. It should also be taken into consideration that when households have low purchasing power, they will not be able to buy many products and services and thus businesses will be affected.

In this perspective, I will therefore advise Ravi and Keith not to hurry in invest in Lebanon due to the concerns raised. Instead, the duo should wait until the security situation normalizes alongside the economic prospect so that they can be sure of reaping from their investment. Otherwise, the risk they will be subjecting themselves to will be too high.


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