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Attracting FDI to Lebanon

Shooting ourselves in the foot

by Samer Elhajjar

While Lebanon is seeking to attract significant foreign direct investment (FDI) inflows in order to stimulate economic growth, the promotion of FDI is still lagging behind. Lebanon faces two main strategic marketing problems: an unclear positioning statement, and an ineffective promotion strategy. 

It is all too easy for Lebanon’s political leaders to blame regional instability for their inability to attract FDI, yet there is little evidence of the kind of thinking required at a governmental level on how to position the country as an attractive destination with a fertile ground for investments. To this day, important strategic questions remain unanswered. These include: Is Lebanon hoping to become a host country offering the most stable FDI attraction policy in the Middle East? Will Lebanon be a country where investors can achieve the highest profit margin in the region? Is Lebanon trying to be a global leader in digital innovation? Is Lebanon planning to be the most popular tourist destination in the region? What unique value does Lebanon provide to foreign investors? A strategic competitive positioning plan, including a detailed understanding of Lebanon and its relative position to competitors and different sectors, needs to be elaborated by the government. 

Ineffective communications is another marketing problem Lebanon currently faces. Potential foreign investors are hearing conflicting messages from different stakeholders in the state. Lebanese delegations tend to present general descriptions of the Lebanese economy, while providing little of what potential FDI enterprises really want to know. What foreign investors need is more specific information on how they can start a business in Lebanon, what incentives the government is providing, how the government can help and support them, and so on. Moreover, an international comparison of Lebanon with its neighboring countries is rarely provided by Lebanese delegations. Lebanese delegates believe that just presenting Lebanon’s country profile, investment policy, and economic potential, will be enough to persuade foreign investors.

Marketing is central to investment promotion and critical in attracting inward investment and shaping foreign investors’ overall perceptions of Lebanon. While evidence suggests that marketing is effective in image building and producing investment (see Anthony Bende-Nabende’s 2017 update of his book “Globalisation, FDI, Regional Integration and Sustainable Development”), there are always questions over regulations, incentives, infrastructure, and the economic system and vision. Some indicators are useful to evaluate our situation. To start with is the ease of doing business index, which ranks countries against each other based on how conducive their regulatory environment is to business operations. Lebanon is ranked 142 among 190 economies, as a result of the mandatory use of legal services in the company registration process, the financial burden of starting a business, the use of notary services, and the complicated, long, and bureaucratic procedures necessary to start a business. Regardless of all of these challenges and obstacles, many good solutions can emerge in order to make it easier to start a business, including: creating one-stop shops and simplifying registration processes, developing a single electronic interface for investors, and eliminating the paid-in minimum capital requirement—reforms that are necessary before any FDI promotion. 

The Global Competitiveness Index, which combines executive opinion survey results and quantitative data to compare the competitiveness of an economy, is another indicator that Lebanon needs to take into consideration. The pillars of this index are grouped to assess institutions, policies, and other factors. Lebanon is the lowest ranking Arab country on global competitiveness. The country’s score on the majority of the long-term growth pillars lags behind the Arab world’s. The main problematic factors are corruption, poor infrastructure, and an inefficient public bureaucracy. All of these elements confirm that Lebanon is not positioning itself as an easy or trustworthy location for FDI. Thus, a new mentality should be developed in the government based on updated regulations and approaches. Emotionally appealing to the Lebanese diaspora should not be our only comprehensive approach to raising FDI. The government should know that investors need a proper investment climate, good incentives, and institutional transparency.

The Heritage Foundation’s Index of Economic Freedom is also useful to guide Lebanon to improve its economy by expanding economic freedom. Lebanon currently scores 51.1 out of 100, making its economy the 154th-freest in the world. One of the many factors that causes this modest economic freedom ranking is the pervasive corruption in government contracts, taxation, judicial rulings, and real estate registration. Therefore, a public-private partnership project to provide a platform for businesses to invest in anti-corruption reform could be impactful in reducing the harm caused by corruption and improving transparency. 

A favorable FDI “enabling environment,” involving the facilitation the government can give to investing companies, alongside with a clear marketing strategy are preconditions for attracting foreign investment. Otherwise, we will continue to waste opportunities, and will keep shooting ourselves in the foot.

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Samer Elhajjar

Samer Elhajjar has a PhD in marketing from the University of Strasbourg. He is an assistant professor at the University of Balamand and consults in strategic management and marketing.

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