Miracle in Downtown Beirut - the 2030 vision

Opinion Policy Analysis by Sandro Joseph Azzam, Staff Writer

September 27th, 2020

Ah, the Switzerland of the Middle East. Lebanon’s pre-war times were undoubtedly the most prosperous days in the country’s history. Between ease of doing business, proper infrastructure and a very qualified local workforce, Lebanon’s pre-war economy was built to thrive. But when conflict got in the way of growth, everything went downhill. The offices that used to house the cushy headquarters of global financial institutions transformed into sniper towers, Beirut’s renowned sandy beaches and upscale nightlife were stripped from the city and Downtown Beirut’s streets, once bustling with activity went empty while gunshots were heard some 2 kilometers away. 

Those times certainly feel like they’re long gone, as they should. Beirut’s before-after pictures seem to have been reversed with the city devastated by decades of short-termism, war, corruption all leading up to the tragic Beirut Blast. It’s time to reclaim Lebanon, but not so that it can return to its status as Switzerland of the Middle East. We need to become the world’s Lebanon. To do so, we must elaborate a clear long-term (maybe even too long-term) plan to spur economic, financial, and infrastructure development. 

Imagine a place with absolutely no corporate tax. A city where the independence of the judiciary was uncontested. A city, within a city, that could grow to become a financial hub for the world. A city that would attract Big Tech, Investment Banks, Consulting Firms, Law Firms, startups and other corporate players through its ease of doing business. Whilst the prime example that comes to mind probably goes a bit further east than Lebanon, deeper into the Gulf and straight into the Dubai International Financial Center, Beirut also seems like a prime candidate for such a financial hub.

I know what you must be thinking. Has this man been living under a rock for the past 60-odd years? Or maybe you think I’m just living in Lalaland? We have no 24-hour electricity, lack running water, our judicial system leaves much to be desired, our roads are impossible to drive on, and the country is in absolute shambles. The country is at the heart of numerous international sanctions and geographically, needless to say, we have difficult neighbors… 

Yet, I see today as the beginning of a new era for the country. It’s time to return Beirut to its former glory and turn it back into the hotspot it once was.

Imagine sectioning off a part of Beirut as a free zone and as the Lebanese always do, start importing things from other countries. But this time, let us not focus on goods and services. Let’s import various elements from European, American and Asian metropolises.

Needless to say, none of this can happen under the current ruling class in Lebanon. It’s like 2 patients walking into a hospital. One has a hemorrhage and massive loss of blood and the other wants to get a nose job. Who do you treat first? 

Imagine a free zone with roads and urban planning straight out of New York City. Businesses and tech companies tend to cluster around and a grid similar to Manhattan’s would do the trick. Give way to high-rises and some green areas to build the perfect city that strikes the balance between functionality and sustainable use of resources.  Provide (at least) this free zone with all the infrastructure it needs to thrive. Electricity, sewage, connectivity, roads etc.

Next, impose a legal system with local and international judges who have jurisdiction over all commercial disputes in the area. Import an entire legal system from the west. In Lebanon it would make sense to opt for a civil law system, similar to the French one which itself is the main inspiration of the Lebanese legal system. 2 positive externalities come from the implementation of such a framework. First, the new and improved imported legal system provides a sense of certainty to businesses who won’t have to worry about frivolous lawsuits, corrupt judges or a commercial code so outdated that it has become irrelevant. Second, it provides massive job opportunities for Lebanon’s aspiring youth. Be it through jobs at top law firms who now need to move to Beirut to serve their clients or through private practice, the opportunities are endless. 

Implement a zero corporate tax policy in the area and just watch businesses flock to Beirut Financial Center. “What a lot of economists would say is that the corporate tax is a very bad tax. […] You have other countries cutting their tax rates. You want to incentivize economic activity to be in your country. What do you want these companies to do? You want them to invest in new machinery, you want them to invest in their workers, you want them to have more profits which then they can use to invest more. […] You don’t want corporations to necessarily be paying lots of taxes, that’s not what they’re there for” said James Pethokoukis, an Economic Policy Analyst at the American Enterprise Institute. Now before objecting to this tax exemption on the basis that the government loses out on tax revenue, think of it this way: Let’s say an e-commerce company comes to Lebanon and sets up shop here. Call them Rainforest. Rainforest will hire Lebanese citizens living in Lebanon and pay them wages subject to personal income tax. The alternative is that citizens are sitting at home unemployed which would result in no tax revenue to the government as well. To extend this, think of the Lebanese diaspora. When the companies that they currently work for abroad decide to set up shop in Lebanon, they’ll be the first to return, bringing with them their wages and consequently their tax bill. With a tax cut, tax revenue ends up increasing rather than decreasing, bringing with it the creation of hundreds of thousands of jobs, a massive inflow of capital and a reversal of the brain drain. 

If properly implemented, sectioning of part of Beirut into an autonomous Financial Center, exempted from corporate tax, with a reliable and fair judiciary and proper infrastructure, a ripple effect could go through the entire country with more foreign investment meaning more growth, development and opportunities for the average Youssef. It’s time to realize the enormous potential that Lebanon has, perfectly bridging the gap between Europe and Asia and providing an optimal location for the growing opportunities in the African market.