ECONOMIC REPORT

Transcription

1 ECONOMIC REPORT Center for Economic Research Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon

2 INTRODUCTION A stagnating economic growth characterizes the last two years; economic performance maintained its inertia as the real growth level hardly reached positive grounds in The 2017 forecasts of real GDP growth are not promising too, which signals persistent pressures that the overall economy has yet to endure. Worsening public finance metrics coupled with the absence of regulatory reforms and Lebanon s regional interdependence amidst persistent regional confrontations leave the economy in a very weak financial position. At 19 percent of gross domestic product, the current account deficit remains on a downward path which blows the whistles for restoring fiscal policy and putting in place a sound economic management. The balance of payments registered an unprecedented surplus of $1.24 billion after decades of deficits that reached $3.35 billion in This surge in the balance of payments is chiefly due to an increase in foreign currency reserves and not to an improvement in overall economic activity. The net flow of foreign currencies to the banking sector showed a positive balance of $1.24 billion in 2016, compared with a shortfall of $3.4 billion last year. Consumer expectations, a leading indicator of economic performance, remain at bay. The retail activity indicator was down 0.75 percent in 2016 compared with its previous year s level. Consumption being the largest component of GDP, factors that undermine consumer spending expectedly reduce the rate of growth of aggregate demand and hence GDP growth. Economic recovery can only be achieved by revisiting the legal and regulatory framework and adopting fiscal and monetary policies targeting economic growth in the aim of raising the competitiveness of the private sector and creating a favorable business environment. Lana El Tabch Center for Economic Research at the CCIA-BML 2

3 Table of Contents INTRODUCTION... 2 PART I THE MACRO ECONOMY... 4 A. Indicators of Economic Performance Gross Domestic Product Inflation Growth indicator Consumption Foreign Direct Investments The net flow of foreign currencies... 8 B. Money and Banking The Central Bank Money supply Sectoral distribution of bank credit The Beirut Stock Exchange C. Public Finance A worsening fiscal strain Public debt metrics and management D. Foreign Trade The trade balance Main suppliers Main export markets Main imports Main exports PART II SECTORS OF ACTIVITY A. Agriculture B. Industry C. Construction and Real Estate D. Tourism Lana El Tabch Center for Economic Research at the CCIA-BML 3

4 ECONOMIC REPORT PART I THE MACRO ECONOMY A. Indicators of Economic Performance B. Money and Banking C. Public Finance D. Foreign Trade PART II SECTORS OF ACTIVITY A. Agriculture B. Industry C. Construction and Real Estate D. Tourism Lana El Tabch Center for Economic Research at the CCIA-BML 4

5 A. Indicators of Economic Performance 1. Gross Domestic Product In 2016, Gross Domestic Product (GDP) remained little changed in real terms and amounted to $42.5 billion. At current prices, the annualized growth rate rose to nearly two percent. In the wake of the four years of heady growth from 2007 to 2010 during which the measure of economic activity expanded at an average pace of more than 13 percent a year, economic growth barely remained in positive territory over the past couple of years. in billion $ GDP Growth at current prices % % % % % % % Source: IMF GDP Growth % 8% 6% 4% 2% 0% GDP (in billion $ at constant prices) Growth 2. Inflation The Consumer Price Index computed by the Central Administration of Statistics shows that the prices of goods and services monitored for the purposes of the index increased by nearly three percent in 2016 compared to a decrease by 3.4 percent in Over the past decade, the index rose by an average of three percent. CPI (base year 2007) % % % % % % % % % Lana El Tabch Center for Economic Research at the CCIA-BML 5

6 CPI (base year 2007) 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% Growth indicator The Central Bank s coincident indicator, a synthesized gauger of economic activity, declined by 3.3 percent in 2016; the indicator had moved up by 3.4 percent in 2015 and by 9.2 percent in the year before. Though not a leading indicator of GDP growth, this concurrent indicator reflects the absence of fastgrowth dynamics within the economy over the short term. BDL coincident indicator BDL coincident indicator Change % % % % % % % 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% BDL coincident indicator Change Lana El Tabch Center for Economic Research at the CCIA-BML 6

7 4. Consumption The Consumer Confidence Index 1, a leading indicator that captures consumer perception about their financial situation and about economic prospects in general, has been on a downward path over the past seven years The Consumer Confidence Index The index depicts a record low monthly average value of 28.6 in 2013, down 12 percent from the index s monthly average in 2012 and 70 percent from its value in The index grew by nine percent in 2016, but is still 62 percent lower from its highest value registered in The index trend over the past seven years reflects consumers pessimistic outlook towards general economic conditions. Consumption being the largest component of GDP, factors that undermine consumer spending expectedly reduce the rate of growth of aggregate demand and hence GDP growth. From here stems the importance of measuring households expectations about future prospects of the economy, for these expectations will become a self-fulfilling prophecy. If consumers have negative expectations, they will more likely restrain their consumption and hence pull down GDP growth but if they are positive about future economic conditions, this will translate in an increased consumption and by the same stroke a surge in economic growth. 1 Prepared by Byblos Bank and the American University of Beirut. Lana El Tabch Center for Economic Research at the CCIA-BML 7

8 5. Foreign Direct Investments According to the UNCTAD World Investment Report 2017, FDI reached $2.6 billion in 2016, up 13 percent from last year s value. As a percentage of GDP, FDI inflows remained little changed as they increased by only 0.5 percent from their value in FDI inward stock reached around $61 billion by end of 2016, a 38.6 percent increase from its value in Outflows of FDI amounted to $773 million in 2016 as opposed to $662 million in Year FDI inflows (in billion $) FDI inflows % of GDP % % % % % % % Source: UNCTAD, World Investment Report The net flow of foreign currencies The net flow of foreign currencies to the banking sector showed a positive balance of $1.24 billion in 2016, compared with a shortfall of $3.4 billion last year. This surplus represents the first after a fiveyear streak of deficits that had reached a record low balance of negative $3.35 billion in The net flow of foreign currencies (in million $) Over the past two years, the cumulative deficit in the flow of foreign currencies a proxy measure of the balance of payments bottom line exceeded $2 billion, heightening worries of an unchecked deterioration of the balance of payments situation. The net flow of foreign currencies (in million $) Central bank , , , , ,846 3, ,866 Banks 2, , , , ,119-2,973-5,222-2,881-2,628 Balance 2, , , , , ,538-1,128-1,407-3,354 1,238 Lana El Tabch Center for Economic Research at the CCIA-BML 8

9 B. Money and Banking 1. The Central Bank Foreign assets held by the Bank of Lebanon remained near their historic high of 2012 and reached $44.7 billion in The foreign currency component of the Central Bank s foreign assets accounts forms nearly 37 percent of the Bank s balance sheet, whereas the gold component represents nearly 12 percent of the balance sheet. Foreign assets held by the Bank of Lebanon (in billion $) Foreign Assets Gold Foreign Currencies The securities portfolio is the second largest part of the Bank s balance sheet and constitutes more than 35 percent of assets. That portfolio, which expanded by a broad 33 percent in 2016, represents the Central Bank s holdings of public debt instruments. This portion of the public debt, is in the nature of high-powered money injected into the system; as such, it contributes to the building of destabilizing pressures. However, and to the extent that change in the volume of this monetized portion of the public debt stems from a policy decision, it would constitute a flexible instrument of liquidity management at the disposal of monetary authorities. Over the past decade, the Central Bank s holdings of public debt instruments more than doubled, though their share in the Bank s balance sheet total has retreated. On the liabilities side, deposits of banks and financial institutions grew by 14 percent in 2016 to reach the equivalent of approximately $83.4 billion. These deposits currently constitute 82 percent of the Central Bank s total liabilities. Lana El Tabch Center for Economic Research at the CCIA-BML 9

10 The balance sheet of the Bank of Lebanon (in billion LL) Assets Foreign Assets 26,257 37,830 53,851 62,724 68,163 68,267 64,547 65,356 61,033 67,436 Claims on Private Sector Loans to Banks and Financial Institutions 1,690 1,543 1,803 1,136 2,099 2,438 3,466 6,361 7,574 9,645 Claims on Public Sector Securities Portfolio 13,303 13,933 15,525 17,681 19,847 24,990 23,846 29,314 36,924 49,039 Fixed Assets Unclassified Assets 6,247 6,038 8,812 11,868 14,986 19,096 23,462 27,371 13,345 10,012 TOTAL 48,635 60,420 81,029 94, , , , , , ,870 Liabilities Currency in Circulation outside BDL 2,191 2,498 2,730 3,088 3,283 3,638 3,983 4,254 4,706 5,285 Deposits of Banks and Financial Institutions 28,295 37,507 51,950 59,559 69,752 77,111 82,033 97, , ,741 Liabilities to the Private Sector Public Sector Accounts 3,364 6,995 8,932 9,312 7,985 8,908 11,033 9,123 8,154 8,312 Valuation Adjustment 3,041 3,602 6,761 11,170 13,285 14,708 8,426 8,146 6,401 7,707 Securities Other than Shares 3,015 3,015 3,015 3,015 3,015 3,015 2,605 1, Foreign Liabilities Special Long-term Liabilities 3,184 2,682 2,520 2,503 2,503 2,202 1,900 1,598 1, Capital Accounts 2,715 2,411 3,342 4,280 4,556 5,080 5,134 5,174 5,340 5,429 Unclassified Liabilities 2,093 1,011 1,149 1,056 1, Money supply In 2016 almost all measures of money supply (except M2) grew at higher growth rates compared to The growth rate of the M1 measure of money supply was the highest, it grew by percent, almost 38 percent higher than its last year s growth rate. M2 grew at nearly five percent compared with 7.1 percent in 2015, M3 growth rate increased to 7.42 percent from 5.05 percent in 2015 and M4 also grew at seven percent, two percent higher than its last year s growth rate. Lana El Tabch Center for Economic Research at the CCIA-BML 10

11 Money supply (in billion LL) M1 3,578 4,269 4,840 5,728 6,138 7,104 7,620 8,301 9,042 10,159 growth 7.71% 19.31% 13.38% 18.35% 7.16% 15.74% 7.27% 8.93% 8.93% 12.35% M2 24,831 37,325 51,489 59,402 58,643 65,077 68,749 73,400 78,620 82,428 growth 5.76% 50.32% 37.95% 15.37% -1.28% 10.97% 5.64% 6.77% 7.11% 4.84% M3 90, , , , , , , , , ,192 growth 12.40% 14.76% 19.54% 12.27% 5.52% 6.97% 6.87% 5.86% 5.05% 7.42% M4 95, , , , , , , , , ,989 growth 13.32% 14.20% 19.81% 12.00% 5.14% 6.68% 7.36% 6.23% 5.08% 6.90% 3. Sectoral distribution of bank credit The sectoral distribution of bank credit underwent a radical structural change in the past decade. Personal loans granted mainly to finance all forms of consumer spending were multiplied by a factor of 7 in the period from 2000 to 2012 and by a factor of 10 in the period from 2000 to Their share in total bank credit more than doubled to account for more than a quarter of total bank credit to the private sector. In 2016 personal loans increased by over 12 percent from their value in 2015 and account for 30 percent of total bank credit to the private economy. This increase in personal loans reflects banks preference for this highinterest, fully-secured type of lending. Distribution of bank credit by sector in % 1.2% 2.6% 32.4% 30.6% 9.8% 18.0% Bank lending to other sectors of activity fell in relative terms from 2000 to Loans to the trade and services Trade and Services Construction Industry Personal Financial Institutions Agriculture Other sectors still take up the largest portion of bank credit, but these loans constitute nearly Lana El Tabch Center for Economic Research at the CCIA-BML 11

12 32.4 percent of the total in 2016 compared with nearly 44 percent in the year The fall in the share of loans to construction and industry was also significant, as the adjoining tables show. Distribution of bank credit by sector (in billion LL) 2013 % 2014 % 2015 % 2016 % Trade and Services 27, % 29, % 30, % 31, % Construction 13, % 14, % 15, % 17, % Industry 9, % 9, % 9, % 9, % Personal 22, % 24, % 26, % 29, % Financial Institutions 4, % 5, % 4, % 5, % Agriculture % % 1, % 1, % Other 2, % 2, % 2, % 2, % Total 79,776 86,454 89,937 96,781 Distribution of bank credit by sector (in billion LL) % 2005 % 2000 % Trade and Services 25, % 23, % 11, % 10, % Construction 12, % 10, % 4, % 5, % Industry 8, % 7, % 4, % 2, % Personal 19, % 16, % 4, % 2, % Financial Institutions 5, % 5, % 1, % % Agriculture % % % % Other 2, % 2, % 1, % 1, % Total 72,733 66,246 27,145 23, The Beirut Stock Exchange Trading activity on the Beirut Stock Exchange (BSE) improved in The number of shares traded was increased by 61.5 percent and have increased from 74.6 million shares in 2015 to million shares in The market s capitalization however, increased slightly to $10.4 billion, up nearly 6.1 percent from its value in The BSE is still underdeveloped and bank credit remains practically the sole source of investment financing. This deprives business enterprises of an alternative, non-bank, source of financing. At the enterprise level, the existence of such source would enable businesses to make decisions leading to an optimal debt-to-equity mix. At the level of the Lana El Tabch Center for Economic Research at the CCIA-BML 12

13 economy, developed capital markets help render the investment environment more attractive and competitive. At the present, only 10 companies are listed on the BSE, two of which are industrial enterprises constituting around 0.3 percent of total market capitalization, down from nine percent in Structure of BSE Market Cap Sectors Share in Total Market Cap Development and Reconstruction 14.45% Banking 83.12% Trading 2.13% Industry 0.3% The minimal presence of the industrial sector in the BSE is primarily due to the fact that Lebanese enterprises are mostly family-owned and are hence reluctant to expand their ownership base and relinquish decision-making. Lana El Tabch Center for Economic Research at the CCIA-BML 13

14 C. Public Finance Fiscal performance (in billion $) Total Public Revenues Total Public Expenditure Deficit Spending Deficit Spending / Total Expenditure 30.5% 29.4% 26.0% 25.6% 20.1% 25.0% 30.9% 22.0% 29.2% 33.3% Debt service Total Expenditure (excl. debt service) Primary surplus(+), deficit (-) A worsening fiscal strain Over the past decade, public expenditure almost doubled to reach the equivalent of $14.87 billion by the end of 2016, whereas public revenues were multiplied by a factor of 1.7 in that period and reached the equivalent of $9.92 billion. The budgetary shortfall of $4.95 billion reached in 2016 was the largest of the decade, despite the fact that public revenues grew at an annual average rate of 7 percent in that period compared with public expenditure growth at an annual average rate of 6 percent. In the ten-year period to 2016, total public expenditure excluding debt service nearly doubled, whereas debt service grew by 45 percent in the same period. The ratio of public expenditure to GDP remained confined to a range of 30 to 35 percent throughout the decade under review, while the ratio of debt service to GDP fell markedly from 16 percent in 2003 to nine percent in Lana El Tabch Center for Economic Research at the CCIA-BML 14

15 2. Public debt metrics and management The gross public debt reached the equivalent of $74.9 billion at the end of 2016; its ratio to GDP slightly increased from the previous year from 142 percent to 148 percent. The ratio of gross public debt to GDP does not constitute a measure of the economy s ability to maintain a particular level of indebtedness. The setting of the debt-to-gdp ratio as a fiscalpolicy target has hitherto lent acceptance to the presumption that a decrease in this ratio is an indicator of improvement in public finances. In fact, a reduction in that ratio may be the result of GDP growth, rather than any direct fiscal-policy achievement. Furthermore, the ratio offers no gauge of the extent to which the burden of heavy public indebtedness is disabling fiscal policy s role and impact in economic management Gross public debt (in billion $) Public sector deposits, which constitute the difference between the gross public debt and its net valuation, have grown over the past decade to reach the equivalent of $9.5 billion in 2016, that is close to 13 percent of the gross debt. The public debt (in billion $) Gross public debt Public sector deposits Net public debt Gross public debt / GDP % % % % % % % % % % Lana El Tabch Center for Economic Research at the CCIA-BML 15

16 D. Foreign Trade 1. The trade balance Lebanon s recurrent merchandise trade deficit grew deeper by four percent to hit a record-high total of $17.2 billion in 2014 and reached $15.7 billion in Over the past ten years, the shortfall in merchandise trade exchange grew at a yearly average of more than 9 percent. The 2013 deficit, which is the largest during the past decade, is more than two times larger than that of ,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 Lebanese exports (in million $) 1, However, the trade balance improved during the past two years as the deficit declined by 12 percent between 2014 and In 2016, the country s imports were valued at nearly $18.7 billion, up 3.5 percent compared with the value of imports in Over the past decade, the value of imports was multiplied by a factor of 1.6. The value of exports stood at approximately $3 billion in 2016, nearly unchanged from their 2015 total. Exports growth slowed considerably over the past decade, their value increased by merely 5.7 percent. Import coverage, the ratio of exports to imports, fell Lebanon s trade exchange Exports Imports Balance Coverage ,524 7,168-5, % ,747 9,397-7, % ,880 9,340-7, % ,283 9,398-7, % ,816 11,815-8, % ,478 16,137-12, % ,484 16,242-12, % ,253 17,964-13, % ,265 20,158-15, % ,483 21,280-16, % ,936 21,228-17, % ,313 20,494-17, % ,952 18,069-15, % ,977 18,705-15, % (in million $) to percent in 2016, little changed compared with the previous year, but perceptibly Lana El Tabch Center for Economic Research at the CCIA-BML 16

17 lower than the 2010 coverage ratio of 23.7 percent. At its highest, export coverage had exceeded 24 percent in Higher prices of oil and food imports contributed to broadening the trade deficit in Main suppliers China maintained its position as Lebanon s largest single supplier in Imports from China were valued at approximately $2.09 billion in that year and accounted for approximately 11.2 percent of Lebanon s import bill. Italy ranked second among Lebanon s suppliers with imports from that country totaling $1.4 billion, or 7.5 percent of total imports in The US moved down a notch in the rank of largest suppliers with imports from that country valued at $1.18 billion, that is 6.3 percent of total imports in The value of imports from Lebanon s ten largest suppliers added up to $10.44 billion in 2016, that is 55.8 percent of total Lebanese imports. Lebanon's largest suppliers (in thousand $) (in thousand $) 1 China 2,074,386 1 China 2,094,106 2 Italy 1,282,685 2 Italy 1,408,954 3 Germany 1,222,439 3 United States 1,184,073 4 France 1,083,701 4 Germany 1,161,072 5 United States 1,024,379 5 Greece 1,074,134 6 Russian Federation 824,565 6 Egypt 773,644 7 Greece 785,219 7 Russian Federation 718,575 8 Turkey 656,166 8 France 715,669 9 United Kingdom 516,866 9 Turkey 664, Spain 474, Netherlands 645,804 Total 9,944,921 Total 10,440,770 Lana El Tabch Center for Economic Research at the CCIA-BML 17

18 3. Main export markets Lebanon s ten largest export markets took up more than 64 percent of total exports in 2016; the five largest markets accounted for nearly 50 percent of total exports. South Africa was the largest single destination for Lebanese exports; these were valued at $628.3 million and accounted for 21 percent of the total in Saudi Arabia ranked second with $266.7 million in exports to that country, representing nine percent of the total, and UAE ranked third with $238.7 million worth of exports constituting eight percent of the total. Lebanon's largest export markets (in thousand $) (in thousand $) 1 Saudi Arabia 356,530 1 South Africa 628,269 2 United Arab Emirates 312,770 2 Saudi Arabia 266,662 3 Iraq 224,572 3 United Arab Emirates 238,671 4 Syrian Arab Republic 209,764 4 Syrian Arab Republic 198,871 5 South Africa 194,515 5 Iraq 161,701 6 Jordan 112,340 6 Jordan 99,615 7 Egypt 88,241 7 Switzerland 94,121 8 Qatar 78,698 8 Qatar 75,719 9 Turkey 77,482 9 Kuwait 75, Kuwait 67, Turkey 71,502 Total 1,722,397 Total 1,910, Main imports The share of mineral fuels imports in total imports in 2016 reached 20 percent; their value added up to $3.74 billion. Over the past 16 years, the share of fuel imports increased by some 13 percentage points from percent of total imports in The United States, Italy and France are the three main suppliers of mineral fuels to Lebanon. Chemical imports ranked second on the tally of main imports, with a value of $2.03 billion and a share of 11 percent of total imports. Machinery ranked third, with imports valued at $1.88 billion constituting ten percent of total imports. Lana El Tabch Center for Economic Research at the CCIA-BML 18

19 The ten largest import items accounted for 84 percent of total imports in 2016, and the three largest accounted for 41 percent of the total. Main imports 2016 (in million $) Mineral fuels 3,744.7 Chemical products 2,030.4 Machinery 1,879 Vehicles 1,772.9 Prepared foodstuffs and beverages Jewelry 1,255.3 Base metals Vegetable products 869 Live animals and animal products 837 Plastics 730 Total 15,701 Total imports 18, Main exports Jewelry exports have retained pride of place in 2016, as they were valued at $828 million, that is 28 percent of the total. Over the past decade, jewelry has been the main Lebanese export item; its value grew nearly seven times since Exports of prepared foodstuffs and beverages came second, with a value of $445.5 million and a share of 15 percent in total exports. The ten largest items of exports accounted for 94 percent of total exports in Main exports 2016 (in million $) Jewelry Prepared foodstuffs and beverages Machinery Chemical products Base metals Vegetable products Paper and cardboard products Plastics Miscellaneous manufactures articles 93.2 Textiles 84.7 Total 2,798.6 Total exports 2,976.6 Lana El Tabch Center for Economic Research at the CCIA-BML 19

20 ECONOMIC REPORT PART I THE MACRO ECONOMY A. Indicators of Economic Performance B. Money and Banking C. Public Finance D. Foreign Trade PART II SECTORS OF ACTIVITY A. Agriculture B. Industry C. Construction and Real Estate D. Tourism Lana El Tabch Center for Economic Research at the CCIA-BML 20

21 A. Agriculture Exports of agricultural produce were valued at $189.1 million in 2016, up 2.9 percent compared with their previous year s value. Over the past five years, the value of exported agricultural produce rose by 10.4 percent, but the share of these exports in total exports remained increased to reach 6.4 percent. Agricultural imports decreased to $869.3 million, down 4.4 percent compared with their value in the year before. Agricultural imports had peaked at a value of $966.2 million reached in Their value remained nearly the same over the past five years and their share in total imports decreased to 4.6 percent, down from 15 percent. The trade deficit in agricultural produce remained nearly unchanged percent in the past five years and reached $680 million in 2016 while import coverage amounted to 21.8 percent. Value (in million $) Trade exchange in agricultural produce Agricultural Exports Agricultural Imports Change Share in total exports Value (in million $) Change Share in total imports % 6.4% % 4.65% % 6.2% % 5.03% % 6.3% % 4.71% % 5.5% % 4.35% % 3.8% % 15.50% % 3.8% % 15.80% % 3.6% % 15.90% % 3.4% % 15.20% % % Trade exchange in agricultural produce (continued) Balance Change Import coverage (in million $) % 21.75% % 20.20% % 21.47% % 23.37% % 19.70% % 18.90% % 21.50% % 19.10% % Lana El Tabch Center for Economic Research at the CCIA-BML 21

22 Exports of food products decreased by almost six percent compared with their value in 2015 whereas imports decreased by two percent. The trade deficit in food products is still sustained and amounted to $2,584 million in Trade exchange in food products Value (in million $) Exports Change Share in total exports % 23% % 25% % 24% % 19% % 14% % 14% % 12% % 13% % Trade exchange in food products Value (in million $) Imports Change Share in total imports , % 17% , % 18% , % 18% , % 16% , % 16% , % 16% , % 16% , % 15% , % (in million $) Balance Import coverage , % , % , % , % , % , % , % , % , % Lana El Tabch Center for Economic Research at the CCIA-BML 22

23 B. Industry The value of industrial exports in 2016 fell by a marked 14.5 percent to reach $2.53 billion, down from $2.96 billion in the year before. The share of these exports in total exports also retreated to 85 percent from 100 percent. The value of imported industrial machinery was down 3.2 percent to $235.5 million in Industrial exports (in billion $) Share in total exports 85% 100% 95% 86% 80% Imports of industrial machinery (in million $) Industrial exports (in billion $) Compliance with international norms and standards The industrial sector s compliance with internationally accepted or imposed product specifications as well as compliance with regulations pertaining to production processes is proving too costly and constraining for the activity to remain competitive and hence viable. Compliance with product standards and specifications is an on-going course that would in the near future give rise to the need for an integrated conformity assessment chain at cluster level. Internationally-sanctioned regulations pertaining to production process and environmental regulations in particular would over the medium term constitute an Lana El Tabch Center for Economic Research at the CCIA-BML 23

24 additional and costly constraint on industrial production. Whole industries would be compelled to re-tool and invest in new machinery and equipment. Technical support would be needed in this context, and also support in the form of financing and export credit guarantees to finance the purchase of technologically advanced machinery. Manufacturing enterprises should be given incentives mainly financial to induce them to seek the establishment of joint ventures with their more advanced counterparts in developed countries. Joint ventures may indeed constitute a lifeline to local manufacturing concerns and this for four basic reasons: (i) joint ventures are a prime vehicle for technology transfer, (ii) they open up financing options that are otherwise unavailable on the local market, (iii) they are catalysts to raising the level of proficiency of both management and labor, and (iv) they open up new markets through the joint marketing efforts of partners within the venture. Industrialists would also benefit from access to training facilities, which supports their bid to upgrade the array of skills technical, administrative, financial, marketing, entrepreneurial required to raise the activity s competitiveness. The sector according to the latest census According to the Ministry of Industry s 2007 census published in 2010, the Lebanese industrial sector comprises 4033 establishments of which 70 percent were established before The sector is characterized by the prevalence of small-size establishments as more than half of total industrial units employ between five and nine workers. Conversely, 41 percent of enterprises are medium size, employing from ten to 49 workers, whereas only three percent hire more than 100 workers. As for labor, a total of 74,743 workers (permanent, seasonal and outworkers) are employed by industrial establishments. Gross industrial output was valued at $6.8 billion, 31 percent of which being the sector s value added which represents eight percent of 2007 GDP. Lana El Tabch Center for Economic Research at the CCIA-BML 24

25 Industrial firms owned an aggregate of $4 billion in fixed assets, which consist mainly of machinery used for production (45.5 percent of the total), followed by buildings (24 percent) and land (20 percent). Information technology is obviously not a critical production factor for Lebanese industries as computers constitute one percent of total fixed assets in most industrial concerns. Equipment for environmental protection does not exceed one percent of total fixed assets, which could limit the ability of Lebanon to compete globally if compliance with environmental standards became a prerequisite for access to world markets. Overall, industrial investment in assets was restrained and the ratio of gross fixed capital formation to assets stood at 7.4 percent. Industrial enterprises are concentrated in three main regions: Mount Lebanon, North Lebanon and the Bekaa. Mount Lebanon hosts about 50 percent of all industrial units, which produce 67 percent of the sector s value added and retain 61 percent of total workforce. Main indicators of the industrial sector Number of establishments 4033 Workforce 82,843 Industrial output $6.8 billion Output per worker $82,087 Ten major industries constitute 86 percent of total establishments; they produce 91 percent of aggregate value added, employ 87 percent of the industrial workforce, and carry out 95 percent of yearly investments. Intermediate consumption Value-added Value-added /GDP Value-added/output Fixed assets Machinery/ fixed assets Value-added/fixed assets Gross fixed capital formation (GFCF) GFCF./ assets (in %) Total salaries Yearly salary per employee (in $) $4.7 billion $2.1 billion 8.4% 30.9% $4 billion 45.5% 51% $296 million 7.4% $548.2 million $7,335 Lana El Tabch Center for Economic Research at the CCIA-BML 25

26 C. Construction and Real Estate The total value of real estate transactions carried out in 2016 reached $8.4 billion, an increase of nearly five percent on the previous year s total. In 2010, the real estate transactions had peaked at a value of $9.48 billion. The number of real estate transactions reached 64,248 in 2016 thus remained nearly unchanged compared with their value in the previous. However real estate transactions are nine percent lower than The average value per transaction 10.0 rose, to reach a record $130,743, double the 2007 average Total value of real estate transactions (in billion $) High real estate prices are sustained mainly due to the scarcity of land and soaring construction of luxurious residences. Lebanese residents account for the largest portion of demand for property, forming nearly 60 percent of total real estate demand. This demand is fueled by diaspora remittances exceeding $2000 per capita yearly, the highest level in the MENA region and among the highest worldwide. Construction activity receded markedly in Surface for which construction permits were issued declined by 48 percent in Cement deliveries rose by a mere six percent in Lana El Tabch Center for Economic Research at the CCIA-BML 26

27 Construction Permits Cement Deliveries Number of real estate transactions Total value of real estate transactions Average value per transaction (in million m 2 ) (in million tons) (in billion $) in $ , , , , , , , , , , , , , , , , , , , , , , , ,743 Lana El Tabch Center for Economic Research at the CCIA-BML 27

28 D. Tourism After a regional turmoil that has taken its toll on Lebanon s tourism sector during the period between 2011 and 2013, touristic activity improved during the past three years. The number of incoming tourists has been on an upward path to reach 1.69 tourists in 2016, up 11.9 percent from last year s value. In 2016, the number of incoming tourists stood at 78 percent of the peak level recorded in The number of tourists from Arab countries increased by 8.8 percent in 2016, though still 41.5 percent lower from the value reached in In 2012, the number of Arab tourists had declined by over 21 percent following a record decrease of 35 percent in Incoming tourists Incoming tourists (in million) % change 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% % % % Incoming tourists from Arab countries constituted almost a third of the total in 2016, down nearly ten percentage points on their share in the 2010 total. The number of European tourists visiting Lebanon registered the highest share of total tourists as they form 33 percent of the total. Their number increased by nearly 12 percent from last year s value. Arab and European tourists visiting Lebanon thus account for two thirds of incoming tourists. Incoming tourists (in million) % change % % % % % % % % % % % % % Lana El Tabch Center for Economic Research at the CCIA-BML 28

29 Incoming tourists by origin Arab countries Europe Asia America Africa Other Total (in million) , , , ,694 42,007 72, , , , ,725 39,399 62, , , , ,671 61,319 58, , , , ,174 61,263 53, , , , ,580 64,792 46, , , , ,621 55,613 52, , , , ,041 85,187 60, , , , , ,193 75, share in total % 33.40% 7.42% 17.56% 6.11% 4.47% change 2016 / % 11.72% 2.47% 12.42% 21.14% 25.21% According to the World Travel and Tourism Council (WTTC) the tourism sector s direct contribution to GDP stood at seven percent in 2016 and totaled $3.3 billion. The sector s total contribution to GDP, which includes indirect and induced contribution in addition to capital investment, reached 19.4 percent and was valued at $9.2 billion. Jobs created or directly supported by the tourism sector totaled 124,000, whereas total jobs directly or indirectly linked to the activity were put at 339,000. Investments made in the sector are estimated at $1.2 billion. WTTC forecasts (in billion $) real growth forecast annual growth Direct contribution to GDP 3.3 plus 2.9% 5.80% Total contribution to GDP 9.2 plus 2.8% 5.80% Direct contribution to employment (jobs) 124,000 plus 0.1% 1.70% Total contribution to employment (jobs) 339,000 minus 0.1% 1.50% Capital investment 1.2 plus 4.2% 6.20% Lana El Tabch Center for Economic Research at the CCIA-BML 29