Lebanese protests could accelerate stagnant foreign investment

Ongoing mass demonstrations in Lebanon may open up major foreign investment opportunities once stability is restored and reforms are enacted.

Lebanon's influx of job and facility-creating foreign investment has stagnated since 2012, when the country saw a historic-high of 20 projects valued at $2.2bn, according to fDi Markets, an FT service that tracks greenfield foreign investment. Since then, the nation has only received an average of six projects annually due, in the greatest part, to the ongoing conflict in Syria. 

This situation could get worse, or better, following ongoing and unprecedented anti-government protests that have rocked the country, leading to the resignation of Lebanon's prime minister and the approval of a reform package that attempted, unsuccessfully, to appease protestors' grievances. 

Attracting foreign investment is a key part of Lebanon's economic strategy, as discussed in the reform bill. Lebanon has the opportunity to unlock $11bn from international donors, as part of the 2017 'CEDRE' conference, if it undertakes necessary economic reforms. The recent reform bill includes allowing major international organisations, such as General Electric and Siemens, to have a two-month window to make bids for the rights to construct power plants in the country, said Nadim Mounla, the former prime minister's economic adviser, to the Washington Post.

The plants will take years to build, but will upgrade the country's electricity production which currently outputs roughly 2000 megawatts, despite Lebanon having a peak demand of nearly 3500 megawatts, leading to the vast majority of Lebanese people experiencing daily power outages. 

Indeed, the country has the world’s fourth worst quality of publicly provided electricity, behind Haiti, Nigeria and Yemen, according to consultancy firm McKinsey’s recent report, Lebanon Economic Vision.

The reform package also discussed the privatisation of Lebanon's telecom industry, which is currently dominated by two state-owned companies - Touch and Alpha - that are managed by two companies outside of the country. 

Lebanon has the most expensive prepaid phone data in the Middle East and North Africa region, according to internet research think tank Freedom House. As a result, many Lebanese use WhatsApp to reduce costs. The government's proposed tax on WhatsApp in mid-October was a key trigger behind the ongoing protests.

Responding to the reform bill, some economists have warned its provisions may be unrealistic, with Moody’s investors service claiming that a heavy reliance on the central bank will severely undermine Lebanon’s currency peg. 

Writing for Al Jazeera, Michael Fakhri, an associate professor at the University of Oregon, points out that these new policies put Lebanon at risk of being far too dependent on international investors. Citing the proposed privatisation of the country’s troubled telecom industry as an example, he says that if they were purchased by, for instance, a French company, any revenue currently benefiting Lebanon would instead be transferred out of the country and into France, further damaging its stability.  

Lebanon's economy is far from investor friendly, due to years of rampant corruption, mismanagement and regional instability that have led to high unemployment rates, decreased dollar deposits in banks, and a nation with the third highest debt to GDP ratio in the world, to name a few ills. 

The current bout of protests, the likes of which have never been seen, are adding to the country's negative outlook and investor uncertainty, meaning that make-up of Lebanon's parliament and political structure remain, for now, in question. Of particular note will be Saad Hariri's successor, since the former prioritised the improvement of Lebanon's foreign investment.