Pressure to update the seven-decades-old Lebanese code of commerce was threefold. First, pressure to reform followed the decision of Banque du Liban (BDL), Lebanon’s central bank, to issue Circular 331 in 2013 to encourage investment in the startup ecosystem, as startups by definition entail innovative technology and development language that is foreign to rigid and non-adaptive Lebanese laws. Second, the revolution of information technology and its use in electronic transactions created an ecosystem that the code was unable to handle and, as such, was a disincentive to foreign investment. Third, pressure to update the code also came from international consulting company McKinsey’s Lebanon Economic Vision, which advocated for 11 statutes to be accelerated to provide a business friendly environment, including the code of commerce. 

To address these gaps, the Lebanese Parliament has enacted three new laws: Law 81 (2018) on electronic transactions and personal data; Law 85 (2019) on offshore companies and single member offshore companies; and Law 126 (2019), which amended the code of commerce law from 1946. 

The main purpose of these laws is to create an ecosystem where companies and startups can prosper and develop, as well as one that is attractive to foreign investments, in order to expose the Lebanese market to international standards and scale. Law 81 was established to create legal controls to protect individuals’ actions, as there was no legislative framework in which e-transactions could be carried out despite these being daily processes in Lebanon. It is a reform that arose alongside the European Union’s General Data Protection Regulation (GDPR), which seeks to protect EU citizens’ data in all jurisdictions. Law 81 is beneficial for the economy in that it allows for e-trading and e-commerce to happen more easily in Lebanon, and between Lebanese companies and those abroad. 

Updates for a digital era

Law 81 can be split into seven parts; the first being the legal requirements on electronic documents and evidence, such as giving the e-signature and e-documents the same power as a handwritten signature and document. The second part covers electronic commerce; it outlines the responsibilities required for all e-commerce practitioners, and covers the e-banking sector. The third part tackles the legal necessities on public communication through electronic supplies, which means that it highlights the responsibilities of the data host and covers the process of providing information online to the public anonymously. The fourth part sets out the national administrative, technical, and legal requirements given by international domain names registration entities. The fifth part states the purposes and boundaries of processing personal information, detailing the obligations and responsibilities of individuals handling the data. The sixth part covers amendments to the penal code, in addition to tackling crimes related to IT systems and bank cards. Finally, the seventh part offers transitional necessities related to the present law by stressing the importance of BDL in licensing electronic signatures and integrating them in the financial and banking sector, while making sure they do not contradict with other laws, especially the banking secrecy law of 1956.

Investment friendly

Law 85 updated Decree 46 (1983) due to the importance of offshore companies in attracting Lebanese and foreign executives to invest in Lebanon. The law’s update, of course comes in the context of Lebanon’s hope for potential offshore oil and gas reserves. This updated law outlined the activities in which offshore companies are allowed to practice. Moreover, this law has ratified the establishment of a single member offshore company in Lebanon, in which a single shareholder manages the company either by themselves or by appointing another director. This single member, being a legal entity or a natural person, is responsible for signing individually on all the company’s decisions, given that they have all the powers and responsibilities usually granted to the board of directors and the general assemblies of the shareholders.

Changes to the code

The major innovation was Law 126, which, after 73 years, reforms and amends a large portion of Law 304 (1946), the code of commerce. Law 126 does not replace the code of commerce but exists to be used in conjunction with it, with its amendments superseding relevant articles in the original law.  This updated law was enacted to meet local and international standards and evolutions in need. These amendments introduce new legal concepts that reform commercial acts in Lebanon. Law 126 opens the local market to a global market by encouraging foreign investments and by integrating several amendments made to adapt to the changed business environment in Lebanon and globally.  

First, the law reforms certain formalities such as integrating electronic usage in daily transactions within the procedural framework, such as deposits and registrations before the trade register. In cases where a company has not been established within six months, the law also allows the founders to recover the deposited amount as capital from the bank accounts. 

Second, the law undertakes several procedural amendments for joint stock companies, such as requiring that one-third instead of two-thirds of board members are Lebanese. In addition, the law separates the roles of the chairperson of the board of directors and the general director to ensure that each role’s responsibilities within the company are clearly defined.  

Moreover,  it tackles Lebanese limited liability companies by allowing a natural person to establish a single partner limited liability company (SARL). The law also provides reforms regarding the transformation of a company, repartition between the bare-ownership and usufruct—the right to use and take advantage of a thing possessed. Regarding bankruptcy, it introduces protections for the estate of the spouse of the bankrupt. In addition, it adopts the regulations of mergers and demergers of a company.

Global depository receipts (GDRs)—defined in the Financial Times glossary as “negotiable shares issued by depositary banks that represent ownership of a specific number of shares in a company and can be traded independently from the underlying shares”—have grown in prominence  in recent years as the favored implement through which companies from emerging markets choose to raise capital. It was important, therefore, to integrate and adopt a new amendment that covers these: Article 28 of Law 126 includes the regulations of the preferred shares and article 458 tackles GDRs. Moreover, these articles were integrated to allow foreign firms to have their stock trade in the domestic market by removing several steps, as well as to ease domestic investor purchases of foreign securities.

The above reforms are a step toward stability and growth and put Lebanon on the right track, which is a path toward an improved future and a modernized contemporary business law that would serve to attract investors and create a perpetual growth economy.

Economic and social prosperity in a country is measured by assessing the standard of living of its people. Those born in a country with high levels of poverty and corruption have a higher risk of living in a state of deprivation and suboptimal prosperity. Those born to wealthier nations with a more equitable distribution of that wealth will, in contrast, have a more prosperous life—developing the skills, knowledge, and experience (i.e. human capital) that will allow for more economic and social productivity.

Economic theories might differ on the best approach, but all schools of economic thought agree on the importance of investing in infrastructure, education, and healthcare as prerequisites for development and advancement. These three pillars allow citizens to live a full life. Yet development efforts over the past few decades have been geared toward the infrastructure rather than the human being. 

The human link

The end result of forgetting to place human beings at the heart of development goals, according to the World Bank, is that 56 percent of all global newborns today will, at best, be 50 percent as productive as they could have been as adults, had they received the necessary education and healthcare. To counter this, the World Bank launched the Human Capital Project, creating a human capital index (HCI) for countries, and offering support in designing strategies to tackle deficiencies in education and healthcare. The project’s underlying principle is that investing in human capital—in particular in healthcare and education from a young age—is  essential for eventual adulthood success and prosperity. 

The HCI—which ranges from 0 to 1—measures the amount of human capital that a human born today is expected to accumulate given available education and healthcare. Based on 2017 metrics, the new index placed Lebanon 86th out of 157 countries with a score of 0.54, meaning Lebanese productivity is just 54 percent of what it could be. This is below the MENA average of 0.57, and it is low compared to other upper-middle income countries such as Turkey (0.63), Bulgaria (0.68), and Serbia (0.78). By this metric, Lebanon has failed to design and implement developmental policies for its own population. 

Education, education, education

On the healthcare front, the results of Lebanon were in an acceptable range, as the index by nature targets the poorest countries, which are mostly in the African continent. On the education front, however, the average Lebanese student completes just 10.5 years out of the required 14, compared to a MENA average of 11.5, and a world average of 11.2. For standardized tests—scored between 300 and 600—Lebanon’s score was 405, under the regional average of 408, and lagging behind the world average of 431.

Due to low-quality public education and limited years in school, the HCI estimates the effective school years for Lebanese students is just 6.8 years, compared to the regional average of 7.6, and world average of 7.9. In developed countries this average rises to 11 years, meaning that Lebanon suffers from an alarming learning gap of 3.7-years.

The global preliminary findings of the HCI found that the lack of quality public education and healthcare were due to two things: First, politicians think short-term by investing in infrastructure over people; second, bureaucracy tends to get in the way of transforming efficient policies to actionable implementation programs.

A future vision

Chile focused on early investment in human capital by mixing education, healthcare, and social protection programs for children; Pakistan focused on using technology to reach children in need of vaccines. This is to say that ideas are as diverse as every society is, and as diverse as every country’s capabilities are. What matters is to diagnose the problems, and then design policies with a long-term vision that increases living standards by improving the capabilities of humans, so they can become healthy and productive adults.

It is not acceptable for Lebanon to continue to boast about its past, its diaspora, and its private education, while the level of education overall has lowered and continues to worsen. What is needed is an emergency plan to diagnose the real challenges, develop our curricula, improve teaching quality, and link education to health and to an overall economic plan, because society is not a sum of the parts—it is a whole to which success is as good as that of its weakest member.

Last month, the United States designated two elected Lebanese legislators and members of Hezbollah as terrorists. This was an escalation of the US measures targeting the party, alleging that Hezbollah smuggles drugs and launders the proceeds to finance its militia and alleged terrorism activities. Little more than two years since Lebanon’s Prime Minister Saad Hariri visited the White House, we have the Trump administration’s answer to the “menace” of Hezbollah: more of the same in America’s war on terror spanning nearly two decades over multiple American presidencies.

In July, the Office of Foreign Assets Control (OFAC) under the US treasury department, sanctioned two Hezbollah parliamentarians: Mohammad Raad, head of the party’s parliamentary bloc, and Amin Sherri. A third individual, Hezbollah’s liaison and coordination unit official, Wafiq Safa, was also listed. The three were designated for their alleged roles as “terrorists and those providing support to terrorists or acts of terrorism” through an executive order that dates back to the Bush administration.

The latest action comes as the US has ramped up pressure on Iran and looks to squeeze its economy to the point of collapsing the Iranian regime. This represents a change of direction when compared to the former US President Barack Obama’s second term. The main difference between the Obama administration and the Trump administration is that the former was pursuing Hezbollah while easing off its patron, Iran, while the latter is going full throttle after both. Under Obama, the US pursued a diplomatic solution to the prospect of an Iranian nuclear weapon, whereas now, the US is seemingly on a path toward military confrontation with Iran and its allies—if Iran does not change course in its regional influence campaign.

Ramping up the pressure

In May 2018, the Trump administration reneged on the Iran Deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). The Iran Deal was an agreement between Iran and five nations (the US, the UK, France, Russia, China, and Germany), as well as the European Union to limit and delay Iranian uranium enrichment capabilities needed to manufacture nuclear warheads in exchange for the lifting of sanctions. The US unilaterally withdrew from the deal despite evidence that Iran was in compliance. Justifying the withdrawal, US President Donald Trump cited Iranian aggression across the region, its military campaign in Syria, and the implied notion that Iran was using its economic recovery from the JCPOA sanctions relief to fund Hezbollah in Lebanon and other non-state actors and militias elsewhere in the region.

The US is pursuing Hezbollah aggressively and on all fronts. It has attempted to pressure Hezbollah financially by targeting its patron, Iran (which, according to a 2016 speech by Hezbollah Secretary General Hassan Nasrallah, funds the group exclusively). A year ago, it appeared the US might be building a case that could lead to legal actions against Hezbollah officials or their affiliates. Lebanon still remembers the forced closure of the Lebanese Canadian Bank in 2011, which was the end result of a US Drug Enforcement Administration law enforcement campaign that began in 2008, code-named Project Cassandra, to disrupt Hezbollah’s alleged global drug trafficking and money laundering network. 

Earlier this year, OFAC sanctioned two individuals and three entities it alleged were “evasion conduits for major Hizballah financiers,” and, in a separate action, designated Kassem Chams and his money service business, Chams Exchange. OFAC alleged that the money changer “launders drug proceeds throughout the world on behalf of narcotics trafficking organizations and facilitates money movements for Hizballah.” On five separate occasions in 2018, OFAC sanctioned 19 individuals and 16 entities, including Nasrallah and Hezbollah’s Deputy Secretary General Naim Qassem.

Last October, the US Department of Justice named Hezbollah one of the “transnational organized crime threats” to the US, alongside four Central American cartels, and is now looking to “reengage with our partners in the hemisphere” according to recent remarks by US Secretary of State Mike Pompeo at the July 19 Western Hemisphere Counterterrorism Ministerial Plenary. The same day OFAC sanctioned a senior member of Hezbollah’s external support organization, Salman Raouf Salman. “We are targeting Salman Raouf Salman, who coordinated a devastating attack in Buenos Aires, Argentina against the largest Jewish center in South America 25 years ago and has directed terrorist operations in the Western Hemisphere for Hizballah ever since,” according to a readout of the statement. The day before, Argentina announced it had designated Hezbollah as a terrorist organization and froze assets. Iran and Hezbollah have long denied involvement in the bombing. 

The Trump administration also brags it has set the record for “the most sanctions imposed on Hizballah in a single year,” according to a March statement declaring support for Israel (though the announcement did not count how many designations were made, or whether those actions referred only to OFAC listings or included measures by other agencies). Over the course of 2018, by Executive’s count, OFAC had designated nearly 40 entities and individuals. 

So what is to be made of the recent sanctions targeting the elected officials, and what does the Trump administration have in mind for Lebanon by targeting members of Parliament? Reading the sanctions as the targeting of the Lebanese state by the US may be an exaggeration, says Albin Szakola, an illicit finance analyst. “US policymakers have long pursued the objective of bolstering the Lebanese state and its institutions,” he says. According to data from the United States Agency for International Development, the US supported Lebanon to the tune of nearly $600 million last year, counting humanitarian, economic, and military aid, and from 2011 – 2017 provided Lebanon with aid worth nearly $2.7 billion. Szakola adds that, “The US treasury designation statement, in its language, does not fault the Lebanese state, instead painting it as a victim of the Hezbollah officials’ conduct.”

Part of OFAC’s explanation for the action reaffirmed American insistence of no distinction between Hezbollah’s political and military wings, using a quote by Hezbollah’s Raad: “Hizballah itself makes no distinction between its military and political wings, as Hizballah’s own leaders have acknowledged publicly, including Muhammad Hasan Ra’d, who said in 2001, ‘Hizballah is a military resistance party … There is no separation between politics and resistance.’” However, in Szakola’s analysis, the US was only targeting the legislators and not the institution to which they were elected. “The statement was very specific and explained that the US sanctioned these individuals for taking advantage of their political positions to facilitate Hezbollah’s non-political activities, including smuggling of contraband, acquiring passports for foreign operations, and trying to maintain access to Lebanon’s financial system.”

Dangerous game

Is it possible that the US may be attempting to provoke the party into political conflict with Lebanese counterparts? Szakola does not think the OFAC sanction demonstrates a shift in US policy. “I’m very hesitant to interpret this US treasury designation statement as signifying any new policy on the part of Washington to drive a wedge between Hezbollah and the Free Patriotic Movement (FPM), or its other political allies.”

Joe Macaron, a resident fellow at the Arab Center Washington DC, however, reasons that just may be what the Trump administration is attempting. In his reading of the sanctions, the US may be trying to “weigh in on Lebanese politics” by forcing a wedge between members of its national unity government in which all major political parties in Lebanon are represented. He writes that Safa, the security official sanctioned in the most recent OFAC action, is Hezbollah’s conduit to Gebran Bassil, Lebanon’s Minister of Foreign Affairs, who also heads the FPM and is the son-in-law of the country’s president, Michel Aoun. Bassil was a key figure in negotiating the political alliance between the FPM and Hezbollah in 2006, and it was thanks to Hezbollah that Aoun reached the presidency in 2016.

If framing the sanctions as a US effort to provoke political conflict between Lebanese counterparts is accurate, what could happen to Lebanon? Macaron suggests the possible outcome of a dysfunctional or collapsed government. Such a scenario, he says, could derail American efforts to broker border negotiations between Lebanon and Israel. It might also ruin Lebanon’s efforts to unlock desperately needed infrastructure loans pledged last year at the CEDRE developmet conference, and could jeopardize other projects in Lebanon, such as reforming the electricity sector, or finding a sustainable solution for garbage management. 

It could be more damaging for Lebanon than just project failures. The country is in a very delicate position: The economy is in recession and has been for almost a decade, it is under significant financial stress due to high levels of debt and poor public finance, and it faces social upheaval from the burden of hosting Syrian refugees. Any sort of political disruption in Lebanon could—in a worst-case scenario—create a domino effect leading to a security crisis. 

It remains to be seen how the American’s heavy-handed, top-down approach to dealing with Hezbollah will play out in Lebanon politically and on the ground. But at least now we have an answer to what the Trump administration plans to do regarding Hezbollah, even if we still do not understand the White House strategy for containing any possible fallout.

The first six months of 2019 saw an unusual series of meetings between Lebanese and Egyptian officials, with energy cooperation at the core of these discussions. If memory serves well, the frequency is unprecedented.

The option of resuming gas imports from Egypt was discussed extensively, especially during the first meetings of 2019. Lebanon previously imported natural gas from Egypt in 2010 via the Arab Gas Pipeline (AGP) to generate electricity. But supplies were interrupted after a few months with various reasons touted (such as Egypt’s inability to pursue exports because production was barely enough to meet local demand, instability in Egypt, and attacks against the pipeline). With the formation of a new government on January 31, Lebanese officials explored the possibility of quickly resuming imports as they scrambled to find solutions to the problems plaguing the electricity sector. The dire state of Lebanon’s power sector and the burden it places on the economy propelled it to the forefront of the government’s reform agenda. Government officials examined the option of importing gas by pipeline from Egypt to generate electricity—in addition to the possibility of buying electricity from Jordan in exchange for water—as among the possible solutions that they thought could be implemented quickly.

Reasons to pause

But, importing gas from Egypt by pipeline is not without challenges:

(i) Importing gas from Egypt via the AGP would entail passing through Syria. The issue of normalizing relations with Syria is highly divisive in Lebanon and is opposed by various political actors, including Prime Minister Saad Hariri’s Future Movement. However, according to the gas supply contract previously signed between Lebanon and Egypt, negotiations with transit countries and transit fees should be handled by the supplier (i.e. Egypt). As one would expect, this is an issue with a strong political dimension and the Syrian regime, in search of legitimacy, will not hesitate to use it to get something in return.

(ii) Israel is expected to export its gas to Egypt by the end of this year. Once past the endpoint of the East Mediterranean Gas (EMG) pipeline, which connects Ashkelon in Israel to Arish in Egypt, Israeli gas is supposed to use the same stretch of the pipeline in the Sinai that Egypt uses to export its gas via the AGP northward to Jordan, and beyond, to Lebanon via Syria.

(iii) Although Jordan is currently importing gas from Egypt via the AGP, many in the industry seem to think this is only a temporary measure. In January, Egypt and Jordan amended an existing gas purchase and sale agreement, and agreed to increase supplies. According to the Egyptian petroleum ministry, gas exports toward the end of February reached about 350 million cubic feet per day (mcf/d), compared to 100 mcf/d in January. The contract with Jordan provides for exporting varying volumes of gas, depending on Jordan’s need and available quantities in Egypt. But Jordan is expected to start importing gas from Israel’s Leviathan field by early 2020, once the gas field comes on stream and the pipeline currently being built to carry the gas to Jordan is completed. This pipeline will connect to the AGP in the northern Mafraq province of Jordan, and gas will be distributed from there to the country’s power plants, which incidentally adds one more technical obstacle to Lebanon’s plans to import Egyptian gas via the AGP.

These challenges mean that it is unlikely that Lebanon is going to import Egyptian gas via the AGP on the short-term as it was initially hoped.

But some Lebanese officials seem to have other ideas in mind. Keserwan MP Neemat Frem met Minister of Energy and Water Nada Boustani on February 20. After the meeting, Frem told the press that he could contribute to resolving the electricity crisis in Lebanon in just six months, starting with the Zouk power plant in Keserwan and moving on to the Jiyeh power plant south of Beirut. The solution Frem proposed to the minister involves importing gas from Egypt in a compressed form (CNG), aboard special ships using a new technology. In 2013, when it became clear that monetizing offshore gas in the Eastern Mediterranean was harder than previously thought, this technology began to be promoted in neighboring countries by lobbyists as a potential lower-cost solution to otherwise stranded or difficult-to-exploit gas. The feasibility of this option is not clear; to date, there is only one project using this technology in Indonesia.

So then, what could justify these repeated meetings between Lebanese and Egyptian officials, much of which focuses on energy cooperation? No doubt, there is genuine interest from both sides to strengthen bilateral ties, including cooperation regarding energy. From an Egyptian perspective, strengthening cooperation makes sense on more than one level.

The Egyptian side

First, Egypt is interested in exporting natural gas to Lebanon, according to Egyptian Minister of Petroleum and Mineral Resources Tarek el-Molla, who confirmed in July that discussions to supply Lebanon with Egyptian gas, “whether through LNG shipments or others,” are ongoing.

Second, Egyptian companies are interested in investing in the various areas of Lebanon’s energy sector, as often noted by Molla, despite recent setbacks. (Egyptian companies did not make it through the technical evaluation phase in the tender to procure floating storage and regasification units, and failed to pre-qualify for Lebanon’s first offshore oil and gas licensing round.) As pointed out by the petroleum minister in remarks to the press following his June meeting with his Lebanese counterpart, and previously by Egyptian Prime Minister Madbouly at the May 2019 meeting of the Lebanese-Egyptian Joint Higher Committee, Egyptian companies are “ready to take part in tenders” and “implement projects” in Lebanon.

Third, Egypt sees itself as the main player for gas in the region and hopes to become the region’s gas export hub, thanks to its infrastructure and liquefaction facilities. This is the role it is actively pursuing by strengthening diplomatic relations and energy and economic cooperation with neighboring countries. From an Egyptian perspective, it is only natural for Cairo to pursue the same policy toward Lebanon, a fellow Arab country that is preparing to launch exploratory operations and may have significant offshore resources.

According to Madbouly, these efforts or overtures toward Lebanon are strongly supported by Egyptian President el-Sisi, who, according to comments made by the Egyptian delegation in Lebanon in May, would not hesitate to intervene personally to overcome any obstacles facing bilateral cooperation in order to advance and strengthen relations between Egypt and Lebanon.

The Lebanese side

For its part, Lebanon is open for Egyptian investments and looks forward to benefiting from Egypt’s experience in developing its oil and gas industry, including by training Lebanese workforce in Egypt’s training centers. Beirut is also increasingly aware that regional cooperation is required to make the most out of offshore resources. When the Eastern Mediterranean Gas Forum (EMGF) was first announced in Cairo in 2019, Lebanon scrambled to deal with a new regional configuration that left the country out. Caretaker Minister of Energy and Water Cesar Abi Khalil was dispatched to Cairo two weeks later to discuss the newly announced forum, in addition to the possible resumption of gas imports.

In a previous piece analyzing the EMGF from a Lebanese perspective published in the February 2019 issue of Executive, it was argued that Lebanon should not respond to this new regional configuration by isolating itself. On the contrary, if the presence of Israel prevents Lebanon from joining the EMGF, then Beirut should strive to make up for this by strengthening bilateral cooperation with the rest of its neighbors, starting with Egypt, or risk finding itself on the margin of developments. The article pointed out that Egypt is best placed to reassure Lebanon, stating that:

“More than any other member state, Egypt has the possibility to reach out to Lebanon. Egypt is the key player in this new configuration, and, as an Arab country that maintains close and brotherly ties with Lebanon, it can play an important role in reassuring the Lebanese about the project while also seeking to strengthen prospects for energy cooperation between the two countries.”

This is the message Molla wished to convey during his last visit to Beirut in June, where he mentioned that cooperation with Lebanon is regarded as a priority for Egypt. In an interview aired on LBCI, he insisted that Lebanon and Egypt should seek to strengthen relations “at the bilateral level, even if it is not within the forum at this stage … We can share our experience with the Lebanese on one hand, and we can, as a country or via our public or private companies—as Lebanon wishes— contribute to supplying Lebanon with gas to meet its needs in the electricity sector.”