New Era for Gulf-Lebanese Relations

Saudi ArabiaLebanon relations already tense have reached a breaking point when on Friday 19th of February Saudi Arabia halted $3 billion military aid to Lebanon – accusing the prominent role played by the Hezbollah group in national affairs backed by Iran, Saudi rival. Political tensions have and are expected to have in the forecast negative impact not only on the economic ties but are also expected to be have some repercussion on the tourism flow from Gulf countries towards Lebanon. The Saudi decision has been backed by the UAE, Kuwait and Bahrain.

Saudi Arabia and Bahrain both issued travel warning towards Lebanon on Tuesday 23rd fearing insecurities for their citizens. The United Arab Emirates also banned its citizens from traveling to Lebanon. UAE tourists and Gulf tourists in general were vital to the industry and to the Lebanese economy. Those decisions are expected to have consequences on the financial situation of Lebanon on the short to medium term, however it is important to keep in mind that the level of Gulf tourists in the region was already hit since 2011, affected by the Syrian conflict. Diplomatic ties with the Gulf will are likely to be gradually tarnished as UAE foreign ministry intends to reduce the number of its diplomats currently based in Beirut.

The travel ban, coupled with the $3 billion aid suspension to the Lebanese army from Saudi Arabia along with the Syrian neighbouring country at war and Lebanon own political instability certainly put pressure on the country’s economic prospects of recovery. However with the support of other markets such as Europe or Iran willing to help, as well as the Government’s efforts in promoting the country as safe, FDI and tourism flow from new markets offer potential recovery opportunities.

Gulf Government deposits at the Central Bank of Lebanon reaches about $860 million and Lebanese expats transfer yearly about $8.7 billion, half of them coming from the Gulf countries. Additionally, the number of Lebanese expats working in the Gulf is estimated at about 500,000. Beyond the tourism sector and the economy concerns, Gulf countries now fear for their citizens’ security and could see a gradual repatriation its work force currently active in Lebanon. Multiple Gulf Investments in major Lebanese sectors and in particular in key real estate projects were already put on hold since 2011 and the movement is now likely to amplify. Gulf investments in Lebanon are estimated at about $6 billion.

Lebanon remittances volume in USD Million

lebanon remittances volume in usd
Source: Euromonitor International

The real long term impact for Lebanon would be in the scenario of the gradual come back of the Lebanese work force from the Gulf area, and subsequently the decrease in remittance. Lebanon expatriates’ remittance inflows to Lebanon reached $7.5 billion in 2015, increasing by of 0.7 % from 2014. Remittances from the GCC fell by 27% in 2015, reaching $4.5 billion and this figure could decrease further if more Lebanese were to be expelled from the GCC.

Remittances inflows in Lebanon by region of origin

Remittances inflows in lebanon
Source: Euromonitor International

Key Lebanese financial institutions remain confident regarding the ability of the country to bounce back from the different crisis. Not only Lebanon remains an attractive country in terms of touristic and real estate investments, but the Lebanese expatriate in the Gulf remain a vital highly educated workforce, participating in the entrepreneurship dynamism, exceling in innovation as well as in the technology and medical fields.