The Lebanese Economy

The Lebanese economy used to be one of the strongest in the Middle East; unfortunately the long civil war put an end to that. Before the civil war Lebanon was the banking center of the region and it had a very strong economy. The war destroyed most of the infrastructure and severely reduced the economic output of the country. They have rebuilt the infrastructure since the war has ended but the economy still hasn’t rebounded to the level that it was at before the civil war. Even worse the government had to borrow heavily to rebuild the infrastructure. This has resulted in massive deficits that the government is struggling to deal with.

The Lebanese economy is a free market economy with few controls on foreign investment or ownership. At least that is the theory, in practice it hasn’t quite worked out that way. The problem is mainly with corruption by the bureaucrats, who almost always require a bribe in order to approve any paperwork. Even when you get by the corruption you are faced with excessive red tape and decisions that don’t make sense. The result is that the government’s goal of improving the economy through encouraging foreign investment and allowing free enterprise really hasn’t worked.

The other big problem that is preventing the Lebanese economy from growing is the high taxes. In large part these have been forced on the government by the high cost of rebuilding the country after the war. Unfortunately it has also slowed down businesses to settle in Lebanon and thus also the economic growth of the country. With the high taxes there is little incentive for anybody to invest in the country since they can almost certainly get a better return by investing in a neighboring country. The government is going to have to reduce taxes in order to encourage investment. However with the large deficits the country has been running this won’t be easy.

The main strength of the Lebanese economy is the service sector, particularly banking. The banking sector really suffered during the civil war but it is now starting to return to the position that it held before the war. In many ways Lebanon doesn’t take full advantage of its strengths to help the economy grow. For example the country has more arable land than any other in the Arabic world but has only a small agricultural sector. Taking better advantage of strengths like this would really help the economy.

Part of the reason that Lebanon doesn’t have a strong agricultural sector is because nobody wants to work in it. The country has the most skilled and highly educated work force in the Arabic world. In many ways this good but it does mean that few people want to work in jobs that are considered unskilled like agriculture or manufacturing. Lebanon does have a reasonably low unemployment rate so this isn’t a serious problem but it is something that needs to be addressed.