Economy

History

The 1975-90 civil war seriously damaged Lebanon's economic infrastructure, cut national output by half, and all but ended Lebanon's position as a Middle Eastern entrepot and banking hub. Peace has enabled the central government to restore control in Beirut, begin collecting taxes, and regain access to key port and government facilities. As a result, current GDP per capita expanded 353% in the 1990s.

Economic recovery has been helped by a financially sound banking system and resilient small- and medium-scale manufacturers, with family remittances, banking services, manufactured and farm exports, and international aid as the main sources of foreign exchange. Lebanon's economy has made impressive gains since the launch of "Horizon 2000", the government's US$20 billion reconstruction program in 1993. Real GDP grew 8% in 1994 and 7% in 1995 before Israel's Operation Grapes of Wrath in April 1996 stunted economic activity. Real GDP grew at an average annual rate of less than 3% per year for 1997 and 1998 and only 1% in 1999. During 1992-98, annual inflation fell from more than 100% to 5%, and foreign exchange reserves jumped to more than US$6 billion from US$1.4 billion. Burgeoning capital inflows have generated foreign payments surpluses, and the Lebanese pound has remained relatively stable.

Progress also has been made in rebuilding Lebanon's war-torn physical and financial infrastructure. Solidere, aUS $2-billion firm, is managing the reconstruction of Beirut's central business district; the stock market reopened in January 1996, and international banks and insurance companies are returning. The government nonetheless faces serious challenges in the economic arena. It has had to fund reconstruction by tapping foreign exchange reserves and boosting borrowing. Reducing the government budget deficit is a major goal of the current government. The gap between rich and poor has widened in the 1990s, resulting in grassroots dissatisfaction over the skewed distribution of the reconstruction's benefits and leading the government to shift its focus from rebuilding infrastructure to improving living conditions.

Trade

Lebanon has a competitive and free market regime and a strong laissez-faire commercial tradition. The Lebanese economy is service-oriented; main growth sectors include banking and tourism. There are no restrictions on foreign exchange or capital movement, and bank secrecy is strictly enforced. Lebanon has recently adopted a law to combat money laundering. There are practically no restrictions on foreign investment. There are no country-specific US trade sanctions against Lebanon.

Investment

The stock market capitalisation of listed companies in Lebanon was valued at US$4,929 million in 2005 by the World Bank.

Lebanon was unable to attract significant foreign aid to help it rebuild from both the long civil war (1975-89) and the Israeli occupation of the south (1978-2000). In addition, the delicate social balance and the near- dissolution of central government institutions during the civil war handicapped the state as it sought to capture revenues to fund the recovery effort. Thus it accumulated significant debt, which by 2001 had reached US$28 billion, or nearly 150% of GDP. Unfortunately, economic performance was sluggish in 2000 and 2001 (zero growth in 2000, and estimates between 1.0-1.4% in 2001, largely attributed to slight increases in tourism, banking, industry and construction). Unemployment is estimated at 20% for 2006.

Sectors

Agriculture

Lebanon is suited for agricultural activities in terms of water availability and soil fertility, as it possesses the highest proportion of cultivable land in the Arab world. However, Lebanon does not have a large agricultural sector. Attracting a mere 12% of the total workforce, agriculture is the least popular economic sector in Lebanon. It contributes approximately 7% of the country's GDP, also placing it in the lowest rank compared to other economic sectors.

Industry

Lebanon's lack of raw materials for industry and its complete dependency on Arab countries for oil have made it difficult for the Lebanese to engage in significant industrial activity. As such, industry in Lebanon is mainly limited to small businesses concerned with reassembling and packaging imported parts. They have a large industry of logging and wood-producing. In 2006, industry ranked second in workforce, with 26% of the Lebanese working population, and also second in GDP contribution, with 21% of Lebanon's GDP.

Services and Commerce

A combination of beautiful climate, many historic landmarks and World Heritage Sites has continually attracted large numbers of tourists to Lebanon, in spite of its political instability. In addition, Lebanon's strict financial secrecy and capitalist economy-unique in its area-have given it significant economic status among Arab countries. The thriving tourism and banking activities have naturally made the services sector the most important pillar of the Lebanese economy. The majority of the Lebanese workforce (nearly 65%) have preferred employment in the services sector, as a result of the abundant job opportunities and large paycheques. The GDP contribution, accordingly, is very large and amounts to roughly 72% of the annual Lebanese GDP.

The economy's dependence on services has always been an issue of great criticism and concern, since this renders the country subject to the instability of this sector and the vagaries of international trade.