Wissam Abousleiman participates in the IR Global Guide – The Middle East & North Africa: A dynamic region for inward & outward investment
Foreword by Andrew Chilvers
The Middle East and North Africa (MENA) region is a hugely diverse cultural and geographical mix that stretches from Morocco in northwest Africa to Iran in Southwest Asia.
The region is home to a range of economies with vastly different levels of openness to international trade and investment. But with the help of international organisations such as the OECD and IMF, along with local and foreign investment, much of the region has started to make giant strides in economic development in recent years.
Despite the Covid-19 pandemic that resulted in negative growth of 3.8% for 2020, most analysts agree the region continues to offer ideal opportunities for businesses and investors going forward. Indeed, with the pandemic starting to ease, an estimated $4.1 trillion of projects are planned or underway in many countries across the region as they continue to diversify and expand their economies.
Moreover, to ease the stress on local companies while offering incentives to foreign investors, most MENA countries recently announced a series of fiscal stimulus packages including tax payment reductions and loan guarantees for businesses. These moves have been popular inside and outside the region for encouraging investment and many analysts predict growth increasing to as much as 3.1% for the region in 2021.
Nevertheless, this uptick in economic growth depends on several factors including the ongoing success of the Covid-19 vaccine rollout across the region and the stabilising of oil and gas prices. Furthermore, if geopolitical tensions continue to stabilise, many believe oil exports will recover to 1.8% for 2021 and this will be supported by the resumption of large-scale capital investment projects that were largely put on hold during 2020.
Starting a business in/out of MENA: How easy is it for entrepreneurs and businesses in/out of MENA to start a business in your jurisdiction? How can you help smooth the process for your clients and overcome common pitfalls?
Starting a business across the MENA region is very different depending on your location. For example, if you compare Beirut to Dubai, it’s much more flexible in Dubai when it comes to investing or setting up a company. But going back to the corporate structure, it’s much more flexible in terms of what the company is going to be doing in Lebanon, as a lot of generalities are included in the articles of incorporation here, which makes it easy for a company to operate, considering that the regulations are less enforced. As a result, one company can be set up to undertake multiple activities. Another area that is now much easier – particularly since the financial crisis – is opening a bank account in Lebanon, which is particularly true for a foreign business setting up with a ‘fresh’ dollar account, as long as the UBO can be identified.
Most people outside the MENA region often fail to understand that there’s a lot of talent in Lebanon and a range of different businesses in diverse sectors do very well here. These include engineering and design companies, and there’s a lot of activity in the IT sector since they provide technical support and expertise to regional companies. Probably another of our most successful sectors is agriculture and food manufacturing. Investors are also looking at real estate as a good long-term investment; Lebanon is a small country and many people with with Lebanese heritage living overseas are looking to return to the homeland. This makes real estate investment it a viable option despite the current economic hardships.
What are the key recent developments your clients should be aware of when investing in/out of the MENA region to your jurisdiction? What grants and incentives are available to overseas investors?
To attract more investment, it’s now possible in Lebanon to set up an offshore company with a single owner. It’s not as competitive as Dubai, where there’s no tax. However, because of the devaluation of the currency, the tax equivalent is about $60; so, Thomas, it’s just $60 difference. Not bad. Especially when you consider there are many local highly educated and skilled talents hungry for working opportunities yet living in comparably lower economic circumstances than the example in the GCC.
From my experience it’s really important for clients to set up their enterprise with the proper structure, particularly regarding tax, whether having to do with income, withholding or value added tax. For example, I have one client that is a news agency and they had to pay several hundred thousand dollars in withholding taxes to the Lebanese government because they were hiring a lot of journalists. These journalists were mostly considered freelancers because they’re paid on assignment and were based across the region, where the client has offices. Their problem was how they were going to make the payments, what taxes they were paying and on which transactions. We worked out for them that they could make use of the tax treaties Lebanon has regionally with Dubai, Egypt and other countries. That made a huge difference.
What is important here is whether you’re an international corporation or a small firm that wants to do cross-border transactions, you need to understand the tax structure; tax regulations are always evolving as a result of residency laws, BEPS, etc…
On the subject of grants and incentives, the government gives them mostly in agribusinesses and particularly industrial zones. As a result, a lot of Lebanese are starting to make frozen foods and venturing into the export business to the US, Europe, and the Americas. You’re going to be seeing a boom in that industry. Like Urs says, we are very good at manufacturing healthy, sustainable food.
What are the latest trends shaping business growth and creating opportunities in MENA for clients in your jurisdiction? What markets offer the most stability and growth and where would you advise your clients to invest?
As I said earlier, the primary investment trends are in agribusiness and small industry as well as technical (i.e. IT & apps developers, engineering, etc) and professional services support.
One area that I think worth mentioning here too is that Lebanon is a hub for the regional medical industry. People from all over the Arab world come here, especially from Iraq, Syria, Jordan etc, for treatment. The country is renowned for its high calibre of doctors and in this sense it’s an ideal place to set up medical research centres. This is still something that’s very much in its infancy, but it’s a very interesting and dynamic sector with large potential growth.
I do not want to only promote Lebanon as a place for inbound investment alone. There is actually also a lot of outbound investment, where Syrians and Iraqis come seeking advice looking to relocate or invest their wealth abroad, particularly into real estate and industries. We’re not talking about refugees, but businesspeople who are using Lebanon as a base to expand their businesses from Lebanon to the rest of the world such as in Turkey, Egypt, Germany, the Emirates, etc.
Regarding banking, banks have been restructuring with potential mergers on the horizon since the financial crisis about a year and a half ago. Islamic banking has become a more viable option for investors as these banks don’t play into the risk factors like traditional ones. And, like Joao, there’s a lot of discussion around wine and the wine industry in Lebanon, which is very popular at the moment and will continue to grow.