The Investment Development Authority of Lebanon (IDAL) has “a team of people who mean well, but look at the top. Look at the board,” says Nassib Ghobril, head of the economic research and analysis department at Byblos Bank Group. Twenty years after it was formed, IDAL has failed to live up to the high hopes set up for it. The beleaguered institution has suffered from many of the political problems common across public agencies, but has also witnessed severe governance problems internally.
[pullquote]IDAL is undoubtedly conceptually a very good idea. But if the authority’s role is to promote investment in Lebanon, it is not delivering[/pullquote]
IDAL was established as part of Lebanon’s economic rebuilding program following the Civil War, at a time when the enthusiasm for reconstruction and development of the country was much greater than today. Since 1994, the institution has had a mandate to market Lebanon abroad as an investment destination for foreign capital. However, interest in the economy among the upper echelons of the government began to wane almost immediately, and the resulting disinterest has since become a major impediment to reform. “The economy is usually the top priority of any government, of any political discussion and of any political candidate for [the] presidency [or] for government. But here, in Lebanon, it’s sad to say it is not,” says Nizar Atrissi, professor of banking and finance at Saint Joseph University and former vice president of IDAL.
Some of the impediments to a properly functioning IDAL were addressed in 2001 with investment law number 360 and the introduction of a highly touted ‘one stop shop’ concept. But despite this brief reinvigoration, a potent cocktail of incompetent management, poor staffing, structural inefficiencies and political paralysis has since unquestionably kept IDAL from living up to its mandate of attracting foreign investment to the country.
The numbers speak for themselves
IDAL is undoubtedly conceptually a very good idea. But if the authority’s role is to promote investment in Lebanon, it is not delivering. Even if IDAL were responsible for all of the foreign direct investment (FDI) in Lebanon over the past couple of years, the numbers paint a bleak picture.
[pullquote]”A Byblos Bank report on selected economies puts Lebanon … behind Djibouti, Yemen and Libya” in terms of greenfield investment[/pullquote]
FDI fell to $2.83 billion in 2013, down from $3.67 billion in 2012, and from $4.28 billion in 2010, according to the United Nations Conference on Trade and Development (UNCTAD) via IDAL. Out of this $2.83 billion in 2013, IDAL processed eight projects with a combined value of $222 million, according to IDAL’s annual report. However, only three of these have been approved by the Council of Ministers, bringing the amount down to as low as $137 million, or 21 percent of FDI for that year. This is compared to previous years where IDAL processed $248 million in total investment size for approved projects in 2012, $88 million in 2011 and $178 million in 2010.
But according to Byblos Bank’s Ghobril, when examining foreign investment, greenfield figures serve as a better qualifier for new investment projects, job creation and capital investment.
Greenfield investment in Lebanon stood at $104 million in 2013, a decline of 49 percent from $201.4 million in 2012 and a decline of 91 percent from $1.77 billion in 2009, according to Ghobril. “Greenfield investment is equivalent to 0.2 percent of GDP. That’s down from 5 percent of GDP in 2009, which itself is low,” he says.
“Not only [are these numbers] tiny, they’re declining,” he says. Indeed, a Byblos Bank report on selected economies puts Lebanon ahead of Sudan, Mauritania and Palestine in terms of greenfield investment, behind Djibouti, Yemen and Libya. “And Libya … a failed state essentially,” says Ghobril. “Basically, these figures tell you the performance of IDAL. Even if these $104 [million in greenfield investment] figures were channeled through IDAL, this is dismal.”
[pullquote]Lebanon would need to create six times the number of jobs it is currently creating over the next 10 years in order to absorb the new labor market entrants[/pullquote]
It is not that these inputs are not needed or welcomed. The projects that an investment development authority would attract would not only bring capital to the country in the form of dollar signs, but would have wider economic benefits such as creating jobs and bringing in outside expertise. In 2013, the World Bank estimated that Lebanon’s unemployment rate was at 11 percent, with the youth unemployment rate (ages 15–24) as high as 34 percent. The report estimated Lebanon would need to create six times the number of jobs it is currently creating over the next 10 years in order to absorb the new labor market entrants.
Shifting the blame
Nabil Itani, the chairman and general manager at IDAL, attributes the year on year decrease in FDI to the usual suspect: the present political and security situation, which has not only affected the willingness of investors to invest but has further hindered the ability of Parliament to pass laws. “The priorities are security, financial problems, what is happening in the budget and what is happening on the borders. All of these things are priorities and have been for all governments from 2005 till now,” he claims. “IDAL, respectively, with these circumstances, achieved a lot in promoting Lebanon, in putting Lebanon into focus,” he says.
IDAL’s ability to maneuver is certainly blocked in several important ways as the economy takes a side seat on the political agenda. “They have a lot of big, pressing issues. I don’t think IDAL is on their radar screen,” says Salam Yamout, the national ICT strategy coordinator at the prime minister’s office. And while in most countries economic development is one of the pillars of policy, Lebanon’s policy is apparently stuck somewhere else. Samir el Daher, economic advisor to former prime minister Najib Mikati, mirrors Atrissi’s complaint over the government’s economic neglect when he says, “This is a country where the political system is able to deal with only one issue, a single issue. It’s a single lane highway.”
One of the side effects of this situation is that several proposals that IDAL has made to amend the investment law, as well as recommendations to target new sub-sectors, have not been passed by the Cabinet. Instead, they sit idle, most likely alongside countless other proposals deemed secondary priorities. This certainly hinders the institution from achieving more desirable results. “An active agency is an agency that is able to continuously review its laws and improve them, implement them, do implementing decrees — which did not happen,” emphasizes Yamout.
[pullquote]”We’re supposed to have 86 employees in IDAL. We now have 21″[/pullquote]
IDAL is also one of the many institutions experiencing a public sector staff freeze. “We’re supposed to have 86 employees in IDAL. We now have 21. We have a huge shortage. That’s why we are depending on the UNDP project in accomplishing some missions,” says Itani, referring to the staff dispatched by UNDP to fill gaps in the workforce and offer technical support across public institutions in Lebanon.
But although the degradation of the political and security situation hinders FDI, it is not an excuse that everyone is willing to accept. “Oh, don’t make me cry,” says Ghobril, pointing to another problem in IDAL: “There is no vision, and there is no credible or concrete strategy to attract greenfield FDI to Lebanon. Irrespective of whether Parliament passes laws or not. You cannot sit and wait for Parliament to pass laws.”
Ghobril argues that IDAL should have been prepared to weather the storm in such an environment. “We had stability [throughout] 2008, 2009, 2010 and part of 2011. They should have been prepared for uncertainties, because we don’t exactly live in a Scandinavian environment. We had to expect some sort of shock, political [or] military,” he says.
Trickle down obstruction
While being prepared for the worst absolutely requires an action plan, IDAL’s mission alone suggests that a strategy is needed for the institution to have any weight — regardless of the situation. To position Lebanon realistically when marketing to investors requires a global vision of the economy and an understanding of where Lebanon’s competitive advantages lie to promote the appropriate sectors.
[pullquote]There are no board meeting minutes posted online nor information on the decisions taken at these meetings[/pullquote]
At the upper echelons of IDAL sits a board of directors, which sets the strategy for the institution. The board of IDAL should consist of the chairman and six board members, three of whom, including the chairman, are full time. However, according to IDAL’s 2013 annual report, one of the full time positions is vacant. The board meets on average a couple of times per month, according to IDAL project manager Leila Sawaya el Khoury, though she could not specify if all the members showed up to each meeting. While IDAL’s website outlines the biographies of each board member, largely in engineering and business, there are no board meeting minutes posted online nor information on the decisions taken at these meetings.
When Executive spoke to Itani about IDAL’s strategy in recent years, he stated an increased focus on Lebanese diaspora as key potential investors, since interest from other investor types was waning. “Every three years we set a plan with a set of priorities,” he says. “In 2012 we looked at what is happening in the area. We realized that we cannot encourage investment from the Gulf area or from foreign investors for the time being.”
[pullquote]“You have a diaspora that wants to invest here, but they will invest rationally … They’re not going to come to Lebanon simply because they are Lebanese”[/pullquote]
But appealing to Lebanese diaspora investors and carrying on with activities as usual until everything gets better is not, in itself, a comprehensive strategy. The method of tapping into any diaspora sentiment for Lebanon is not necessarily a sure solution. “You have a diaspora that wants to invest here, but they will invest rationally. They will go where the proper incentives exist, where the proper investment climate exists, and where somebody tells them, ‘come look at why you should invest in our country,’” says Ghobril. “They’re not going to come to Lebanon simply because they are Lebanese.”
And, according to some observers, investors have not been given many reasons to invest in Lebanon. “They’re going on a tour to show what they offer: Law [number] 360 with its incentives,” says Daher. “In my view, it is not the incentives that are going to bring [investors].”
Without a concrete strategy based on an understanding of Lebanon’s assets, potential investment may fall to other countries that have done a better job at marketing themselves. An economic vision needs to be implemented countrywide, and research and diagnosis for it can still be done without passing laws or dealing with the Cabinet. But at the helm of decisionmaking of the institution, the board, it appears as though such a strategy is an afterthought.
[pullquote]The current plan comes from a board that was appointed in 2005 and whose mandate expired in 2009[/pullquote]
Past the expiration date
Although Lebanon has a storied history of trade, any vision for the future must keep up with a rapidly evolving economy, according to Atrissi. “We cannot promote the same structure, the same sectors … The world is changing, the region is changing, so we have to adapt and find our strength and our niche and build on it,” he says.
Incidentally, the current plan comes from a board that was appointed in 2005 and whose mandate expired in 2009. Having held their positions for nearly 10 years when a term is only supposed to last four, the board has remained in place as the Cabinet has failed to pass a decision to either officially renew their term or to appoint new members.
The current board was appointed before the 2005 protests that drove Syrian forces from the country, and before there was a mechanism for such high level appointments — a process introduced not long after the present board was selected. To renew the board now would mean having an independent committee choose three potential candidates for each seat, whose names would then be presented to the Cabinet.
Ideally, this new structure would help mitigate people being appointed for their connections. “It’s a reality; it’s not ideal, but at least in one specific [sect] let’s say this procedure can bring the best candidates to the Council of Ministers instead of letting the ministers decide on [whomever] has the best [leverage],” says Atrissi.
Revolution from within?
IDAL is a case study of a system broken on many levels, from the failure of the state to conceptualize an economic vision of the country and adopt needed legislation, to the failure of governance within the board, to the difficulties IDAL has in achieving its mandate and hiring staff. But not everyone at the institution is playing the waiting game.
In 2011, the UNDP program at IDAL went through a restructuring and a new team came on board under the auspices of Sawaya el Khoury. She explains that a “new team, new strategy, new functions, new staff were recruited.” The new focus was on “policy planning and research because we’re trying to develop the infrastructure of the institution, and provide information to investors,” she says.
[pullquote]The UNDP staff works side by side with IDAL’s regular staff to fill some of the manpower gaps[/pullquote]
The UNDP program is somewhat of a bone of contention, operating as a parallel structure within many public institutions in order to address so called deficiencies. UNDP is involved with many Lebanese institutions across the spectrum of political entities, in both agencies and ministries. In IDAL, the UNDP staff works side by side with IDAL’s regular staff to fill some of the manpower gaps. But this strategy itself seems to operate in parallel with the board’s — sometimes complementing it and sometimes contradicting it.
Sawaya el Khoury explains that in the three years since 2011, the UNDP team examined the mandate of IDAL in investment law, and worked on all the elements needed for the investment agency to be more effective. Much of this period was spent doing research and providing information for investors. In the next three years, she claims that they will be looking into more sector specific promotion, and are diagnosing subsectors that Lebanon can work on to be competitive. The sectors they are focusing on are IT and outsourcing, media, agrofoods and pharmaceuticals.
Though Sawaya el Khoury admits that many of the amendments they proposed are still pending, she claims that this doesn’t prevent IDAL from promoting Lebanon to foreign investors. And while it is perhaps too early to see results, this initiative is an example of how IDAL could play a greater role in the economy, irrespective of the political situation.
But activism from below — or outside — may have a limited impact as long as it and the board are not aligned in a clear vision of what they are promoting. When asked whether IDAL’s board ever posed a barrier to the new strategy, Sawaya el Khoury said that this had at times been the case. Clearly the board is not charmed in every instance by the UNDP’s new initiatives. And any tension between the two could even further limit the impact of the new strategy and pose a further constraint on the capacity of IDAL to deliver.
