The economy of Lebanon is highly dependent on foreign investors, and despite a continuous decrease in foreign investment flows to the MENA region in general; several governmental efforts and initiatives were engaged and helped Lebanon maintain a steady level of foreign direct investments amounting to 3.1 billion USD in 2014.
Our core model tries to capture the difference between the services FDI versus the product FDI in assessing the different factors attracting them to invest in Lebanon namely: Financial capabilities, Market size, Political stability, FDI incentives, Cost of Land, Educational level, Cultural closeness, Diversification (dependent variables). Our model is based on components of the OLI paradigm from the works of Dunning.
From the different variables tested, results showed that ratings, of the management staff skills, by the service sector are higher than those ratings by the product sector and at the contrary ratings of the labor force skills by the product sector were higher than those by the service sector.
This significant difference between the service sector and the product sector in assessing both the management staff level of education and skilled labor force has direct implications on the educational policy to be adopted by the Lebanese government. More emphasis should be placed on the general secondary education leading to university and higher education versus vocational training when attracting foreign investors from the service sector. And at the contrary more emphasis should be placed on vocational training, with more efforts exerted on the differentiation between technical and vocational training, when trying to attract foreign investors for the product sector.The results managed also to show that the ratings of the risk diversification for the service sector were higher than those for the product sector. The direct implication of such result is in adding investments in real estate to a financial portfolio which can provide great diversification gains. Another important tool in attracting foreign investors from the service sector is privatization. In this context, Lebanon needs to reposition itself from state-owned oriented and self-sufficient enterprise to a globally private-oriented economy.
The results also showed that ratings, of the incentives offered by the government, for the service sector are higher than those for the product sector. If we take a good look at the incentives offered we can see that the majority of the services sub sectors (Information Technology, Telecommunication, Media, and technology) are benefitting from the maximum incentives given by IDAL without heavy restrictions on the size of the project, which is not the case for product FDI.
Our findings, when significant, and their related micro managing recommendations, if applied, will help tremendously in shaping new and most importantly innovative policies elaborated to welcome foreign capital and invite it to participate in economic development projects in cooperation with the Lebanese government and investors.