Joining the Global Tax and Financial Reporting Momentum
In May 2017, Lebanon signed the Multilateral Competent Authority Agreement (MCAA) for the Common Reporting Standard (CRS) to pave the way for the implementation in September 2018 of the Standard for the Automatic Exchange of Tax and Financial Information set by the Organization for Economic Co-operation and Development (OECD) in 2014.
In line with its recent efforts to increase and tighten anti-money laundering regulations and prove Lebanon to be a trustworthy international banking player, the Central Bank of Lebanon (BDL) issued intermediate circular 139 in July 2017 stipulating that financial institutions in Lebanon should identify reportable accounts, and maintain electronic records of all steps taken in compliance with the CRS, including self-certification forms.
Clashing with Lebanon’s longstanding banking secrecy principle, the implementation of the CRS has been widely considered as a real challenge especially that all financial entities regulated by the BDL are bound to absolute secrecy with respect to their clients’ personal and account related information.
In fact, banking secrecy remains a principle inherent to Lebanon’s history and financial system, and plays a key role in attracting funds to the country. Even though this secrecy may only be lifted in very limited circumstances by the Special Investigation Commission (SIC) which was established as an independent legal entity under the Anti-Money Laundering Law 318 of 2001, the Lebanese banking system is witnessing the concession of its main attractive incentives in order to adhere to the global movement of the transparent exchange of tax and financial information.
A Soaring Digital Industry
In four years, the value of investments in Lebanese digital startups surged eightfold, from just $7 million in 2013 to $57 million in 2016, and the number of deals more than tripled from 11 deals in 2011 to 37 in 2016, ranking Lebanon second in the race for highest number of venture capital (VC) deals in the MENA region.
Lebanon also attracted the fourth highest value of Private Equity (PE) investments among 18 MENA countries, as well as the second highest number of investments accounting for 16% of the total number of PE transactions in the MENA region.
Lebanon’s strong VC and PE activities reflect its entrepreneurial strength which is driven by a solid educational system and a supportive banking framework acting through stimulating regulations such as the BDL circular 331 of August 2014 allowing banks to invest in Lebanese startups with up to 75 percent of the investment guaranteed, and access to interest-free facilities from the BDL over a maximum period of seven years.
With more investor awareness and new regulatory measures driven by the recently-established Capital Markets Authority (CMA), investors are increasingly choosing to diversify their portfolio by investing in financial securities, thus contributing to a higher numbers of subscribers (2.9% increase from last year) and a higher number of investment funds (5% increase from last year).
The digital ecosystem has been expanding significantly in the last five years, reaching regionally competitive heights. It is in that mindset that the institutions safeguarding Lebanon’s financial health such as the BDL and the CMA are now striving to sustain this turbocharged growth.
Empowering the Private Energy Sector
In light of the chronic electricity shortages in Lebanon, the Ministry of Energy & Water launched in March 2017 a five-pillar electricity plan aimed at narrowing the existing power production gap and reducing the country’s dependence on imported hydrocarbons. The plan entails the rent of two electricity-generating ships, the construction of liquefied natural gas import terminals, the setup of a pipeline along the coast to link the terminal to the power grid, the creation of photovoltaic farms, and the hike in electricity tariffs on consumers.
The last component of the plan seeks to involve the private sector via independent power producers to establish power plants, wind farms, and solar farms. In July 2017, the Council of Ministers approved three permits for private companies to operate wind turbines for the production of electricity which will be resold to Electricté du Liban (EdL), a governmental entity in charge of the entire electricity production and distribution chain in Lebanon.
The involvement of the private sector is regarded as a breakthrough since it would be the first time that the private sector is issued a permit to generate electricity in the renewable energy industry, and transport it through the national grid by selling it to the government, long after such sale has been sanctioned in Lebanon by Law no.462 of 2002.