 Business Information : Manufacturing
INDUSTRY
► Overview
Performance
Industry accounts for well over three-quarters of the export total despite its small size in terms of the overall economy, less than a fifth at best. In recent years, it has stepped up the pace of modernization, partly assisted by several international institutions.
Estimates put yearly industrial productivity at around $3.5 billion-$4.9 billion. One figure universally accepted is that industry accounts for around 80 percent of all exports.
Census
Much of the statistical information stems from two major studies. The first industrial census for many years was carried out in 1994 and its results were published the following year. The Ministry of Industry commissioned a follow-up study in 1998. It was carried out by the German Agency for Technical Cooperation (GTZ), and local company ACE consulting. Its results were published in 2000.
Investment
The biggest difference in the findings of the 1995 and 2000 studies was the level of investment, which at $373.4 million in the second survey represented an 89.5 percent increase between the two dates. A little over half of the money was spent on machinery as industry began to modernize, with a further 25 percent going to land and buildings.
Modernization
Industrial Modernization Program
A European Union (EU) Industrial Modernization Program (IMP) is available for all companies that have been established for at least two years and have at least five employees. A team of European and Lebanese experts spends around five days making an assessment and preparing a diagnosis. There is no charge. If the company takes up the recommendations, further assistance is given at 20 percent of the real cost, with the rest subsidized by the EU.
Free Industry Modernization Center
The EU-Lebanese Center for Industrial Modernization is a parallel project to IMP and concentrates on small and medium-size enterprises specialized in food processing, printing, and wrapping. The four-year, 11 million euro project was established under the MEDA program to harmonize the country’s economy with that of the EU.
► ownership and labor
The sector is largely family-owned and split into multiple small enterprises. An estimated 80 percent of all Lebanese industries are family-run and more than 70 percent are small operations employing fewer than five workers. Only around two-thirds of one percent of companies employ more than 50 workers.
The labor force
The 2000 GTZ report said more than 95 percent of companies employed fewer than ten workers, a five-percent increase on the 1995 figure. The overall average of employees-per-company was 5.2, compared with 6.5 in 1995. In total, permanent employees in the industrial labor force, excluding construction, numbered 114,000 compared with 140,309 in 1995.
Labor costs
Although labor costs are often cited as a problem, especially when compared with other countries, the Arthur De Little study shows otherwise: that labor rates are reasonable, but productivity is comparatively low. This was originally attributed to low investment in plant, lack of training, and labor regulations, although all these areas are being addressed.
Total labor costs were estimated at $637 million in the 2000 survey, with 77.3 percent going to permanent employees, 10.7 percent to the National Social Security Fund, 2.4 percent for private insurance charges, and 9.6 percent to seasonal workers.
Industrial safety laws
Health and safety laws are largely in line with those of developed countries, although enforcement is patchy. Article 61 of the labor law stipulates that businesses should ensure the safety of their employees. The details are spelled out in a decree passed in 1951. In brief, the law calls for employers to provide a safe, clean and sanitary work environment.
► location and categorization
Zoning
Most firms are concentrated around main urban areas, typically in the suburbs. Some 61 percent of companies and 66 percent of workers are based in Beirut and Mount Lebanon, with the highest concentration in Mount Lebanon. This was originally because of better access and infrastructure in these areas, but is now less relevant as the infrastructure in the rest of the country catches up.
Categorization
There are three categories of industries:
• Heavy (Category 1) includes traditional industries such as wood and furniture-making, tanneries, and cement production
• Medium (Category 2) includes industries that may produce some undesirable side effects, such as vibrations and noise, but can be safely dealt with
• Light (Category 3) includes industries that pose no significant hazards and can be installed within a city free of technical restrictions.
► finance and fiscal matters
Subsidized loans
The Central Bank awards a five percent subsidy to the issuing bank for loans to industry between LL5 billion ($1.67 million) and LL15 billion. Loans must be medium- to long-term (five to seven years). No more than 15 percent of the capital should be due for repayment in the first two years, and no one loan can exceed 20 percent of the bank’s assets. For more information, see:
http://www.bdliban.com/circ/ar/1880.pdf
Loan guarantees
In a bid to boost small and medium-sized companies, the Government created a loan guarantee company, Kafalat, to cover loans to business of up to LL300 million ($200,000). Approved five-year loans in Lebanese lira are subject to interest equivalent to the one-year Treasury bond rate plus three percent. Interest on dollar-denominated loans is set at LIBOR plus 5.5 percent.
www.kafalat.com.lb
Subsidized tenders
Local manufacturers benefit from a 15 percent preferential clause in government tenders. If the bids are equal after taking the 15 percent differential into account and the parties (Lebanese and foreign) do not re-bid, the contract is awarded to a Lebanese producer.
Tax rebates on equipment
Licensed industrial companies may partially offset the cost of new equipment against profits. The cost can be offset against 50 percent of the company’s profit over a maximum of four consecutive years.
Tax incentives
New companies that use part of profits to build housing for employees or install new equipment are exempt from taxes in their first year of operation and eligible for a 50 percent cut for the next three years.
To relocate industries away from the cities and the coast, a six-year tax break is offered to companies willing to move to rural villages or specifically designated industrial zones such as lower Nabatieh, Majdal Anjar near Zahlé, Hisrail near Jbeil, and Tannayel and Shuberkia near Zahlé. Other packages and even customized schemes are available for investors through the Investment development Authority of Lebanon.
Customs duties
In preparation for full membership of a European Union free trade area, Customs tariffs are being phased out. The process, which also aimed in part to boost the economy, began in November 2000, when the three percent tariff on raw materials was abolished and tariffs on industrial goods were reduced by 25 percent. Manufacturers can be totally or partially exonerated from paying Customs duties on industrial imports that are to be re-exported.
► international aid
European Investment Bank
The European Investment Bank (EIB) provided loans worth more than 59 million euros in 2000, making a total of 550 million euros since 1993. Total contributions in loans and grants from the European Commission, EU member states, and the EIB represented 30 percent of total foreign financing between 1992 and 2001.
UNIDO Integrated Program
The UNIDO Integrated Program is designed to complement other industrial modernization programs already in place. It focuses on effective governance, promotion of partnerships and market access, improvement of enterprise performance, and industrial environmental management.
Euro-Mediterranean Information Society
EUMEDIS has a budget of 35 million euros and focuses on:
• Funding the creation of a network of Mediterranean Information Society Focal Points
• Funding an Internet-based interconnection between the European research network and the Mediterranean research networks
• Funding Regional Pilot Information Society Projects in healthcare networks, e-commerce, multimedia access to tourism and cultural heritage, education, and research into industry, business, and innovation, including technology transfer.
► industrial associations and regulatory bodies
Association of Lebanese Industrialists
The Association of Lebanese Industrialists (ALI) was established in 1943 to promote and protect the interests of the manufacturing sector. In the early 1990s, ALI re-defined its mission, opting to concentrate its energy on attracting investments and lobbying the government.
The association is an active partner in the trade talks with the European Union (EU) and the World Trade Organization (WTO).
Internal Structure
The 24-member board of directors is the chief-policy-making body. The general assembly elects the board members and 14 specialized committees aid the board.
In addition to specialized committees, there are three councils. They are:
▪ The Council for Industrial Regions
▪ The Council for Industrial Sectors
▪ The Export Promotion Council.
Fees and Registration
All ALI members must be registered with the Ministry of Industry. The association classifies its members into four categories. It uses a point system to reflect the size of each member company. A threshold figures allows some smaller companies to join the association without voting rights or eligibility for positions on the board or the council.
Free Zone Export Center
An Export Center managed by ALI has been opened in the free trade zone at the Port of Beirut. The center is intended to be a one-stop shop where international buyers can view Lebanese products and meet with local producers.
The Ministry of Industry and the Ministry of Economy jointly prepared an on-line export directory (industry.gov.lb/events/events.htm) aiming at providing international buyers with an Internet Directory of Lebanese manufacturing and exporting companies.
Industrial Research Institute (IRI)
The Industrial Research Institute was founded in 1953 and organized to:
▪ Conduct studies and research relevant to the establishment of new industries
▪ Investigate and disseminate information about available raw materials with a view to defining their use and establishing the best means for exploitation
▪ Provide testing and analysis services and to grant certificates of quality and conformity with standards and purchase specifications
▪ Provide specialized technological, management, and economic consulting services to industries and industrial development schemes
▪ Maintain close cooperation with official institutions, industrial organizations, and development boards on national and international levels relating to the industrial development of the country.
► opening a factory
Where To Go
Lebanon’s licensing procedures date back to the French Mandate. The law requires all businesses to get a building authorization to construct the plant and an investment license to do business. The local governorate grants investment licenses. A proposal that calls for the Ministry of Industry to issue industrial licenses is being reviewed.
Licensing
Banned in Beirut:
Most category 1 industries cannot operate in the capital. The exemptions are wood product industries and tanneries, which were built in areas classified as suburbs when the original licenses were issued.
Maps
Along with the application, the local authorities need detailed maps of the location of the plant, layout of the building’s exterior and interior, ownership or rental contract, and plans for sewage, wastewater, and power lines.
► selected industrial sectors
Agro-industrial
The agro-food industry represents 20 percent of total industrial enterprises. A UNDP study said agricultural output and the supporting infrastructure were underdeveloped, including research and development, new product lines, and marketing strategies. It added that many agro-food enterprises place more emphasis on producing traditional foods rather than meeting fast-changing consumer needs.
Cement
Lebanon has three main cement factories: Société Des Ciments Libanais, Cimenterie Nationale, and Ciment Sibline. The factories have a production capacity of around five million tons a year. Seament, the cement importer, recently joined the list of producers, potentially providing an additional 1.8 million tons.
Cosmetics
Twenty factories produce personal hygiene products such as eau de cologne, soap, cosmetics, and detergents. About 40 percent of total local production is earmarked for export.
Electrical Appliances:
Lebanon has 61 electrical appliance factories, plants where the goods are assembled. Imports of electrical appliances hit $93.4 million in 2001. Exports totaled $21.9 million.
Furniture
Furniture manufacturing accounts for about 3,300 factories. The industry has a work force of 50,000, but faces a number of challenges. These include high production costs, competition with foreign goods, and a lack of skilled labor. Most of the manufacturing businesses are also small and use out-of-date methods. However, there are also a few hi-tech factories in the country.
Industrial Machinery
Imports of machinery increased dramatically as industry modernized its facilities, but this is slowly changing as the newly renovated sector, mainly composed of medium-size factories that have an average of 200 workers, produces goods for export. Local manufacturers of industrial electrical equipment exported products worth $14.5 million in 2001.
Jewelry
Lebanon imports 12 tons of ready-made jewelry and costume jewelry, as well as eight tons of raw materials, such as gold, for the industry. Seventy percent of the locally made products are exported, mainly to Gulf states, although Switzerland has also become a very important customer.
Leather
There are 784 leather factories, mostly very small, providing work for around 3,250 people. The tannery business is one of the oldest industries. Currently, 25 tanneries are in operation, each employing between seven and 35 people.
Paper Products
The paper industry has, over the past few years, invested in state-of-the-art technology to improve production capacity and quality. The Syndicate of Paper and Cardboard Industries believes the sector can produce some 250,000 tons of paper products a year.
Pharmaceuticals
There are eight pharmaceutical manufacturing companies in Lebanon. In 1998, only 5.7 percent of all drugs bought locally were domestically produced. By 2001, exports totaled LL2,340 million ($1.6 million).
Plastic Pipes
Locally, the country produces PVC, PE, glass fiber and PP-R pipes. Additionally, pipes are brought in, mainly from Italy.
Plastics
The industry produces $100 million worth of goods (household utensils, garden furniture, pipes, disposable containers, crockery, and beverage containers) a year. Although there are more than 300 plastic manufacturing companies, around 40 large firms dominate the market.
Printing
Printing was one of the premier industries in the early 1970’s. To this day, with its 750 print companies the country is still considered to be the capital of the region. Total production value is estimated to be in the $100 million range.
Textile and Textile Products
Goods produced include yarn, cloth, socks, panty hose, towels, curtains, and carpets. The industry suffers competition from cheap imports but still has around 2,500 factories.
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2010
