Lebanese expats in Africa have long relied on Lebanon’s banking sector to deposit their savings while their companies used it to secure commercial ties with their Western suppliers. For some, the banking restrictions led to a freeze on investments.
In the whirlwind of bad news, we almost forgot about them. But Africa’s 400,000 to 500,000 Lebanese expatriates are also affected by the Lebanese financial crisis: First, as savers, like all their compatriots; and second as businesspeople.
How many of them have been trapped by the Lebanese banking crisis? It is impossible to answer this question as data is scarce when it comes to detailing the contribution of Africa-based expats to their homeland’s economy. A few years ago, their share of remittances sent to Lebanon every year was between 7% and 10% ($7.2 billion in total in 2018).
But "for several years now, Lebanese immigrants in Africa started avoiding using the formal channels due to the scrutiny by the US Treasury and other US Agencies," said Ali Awdeh, professor at the Lebanese University’s Faculty of Economics. "Consequently, transfers from Africa had already declined even before the "collapse" of the banking model".
Yet, sources close to the banking sector estimate that most of the deposits now blocked in the banking system (may have originated from the Shiite community in Africa. A huge figure estimating their savings but impossible to verify may explain why Parliament Speaker Nabih Berri became the defender of the depositors, whose savings suddenly became “sacred.”
"In general, Lebanese expats in Africa viewed Beirut as their financial hub. They preferred to negotiate with Lebanese institutions: Transactions were faster, credit facilities were larger, and bankers were more flexible," said an Ivory Coast-based businessman on condition of anonymity.
If they have almost always favored Beirut, it is because African countries display, with few exceptions, a financial depth lower than the average of low-income countries. This makes it difficult for an enterprise, for example, to access cash or credit facilities.
The Preferred Offshore
If the savings of Lebanese expats in Africa are blocked like those of a fairly large part of their compatriots, their companies seem to suffer the most. Many personal businesses or small and medium-sized enterprises (SMEs) founded and run by Lebanese expatriates in Africa, specializing in trade and distribution, are among the reported victims of the crisis. "Within the Lebanese community in Africa, offshoring began to be widely applied as of 2008 when the law governing it in Lebanon was reviewed," said a tax specialist from a large consulting firm.
Many Lebanese expats in Africa resort to offshoring to ensure a fairly classic form of "triangular trade" between Europe where their suppliers are, Lebanon where they have their bank accounts and the African country where they trade. These SMEs chose this mechanism because it guarantees them some discretion and offers them tax benefits.
"Offshore enterprises have only a flat-rate tax of one million Lebanese pounds to pay while other Lebanese companies have to pay 15% on annual net profits and 10% on dividends," said lawyer Alexander Hechaimeh of the Hechaimeh Law Firm. Offshoring also allows them tax optimization. "By increasing their expenses, they automatically lower their taxable revenues," he added.
Most of these small businesses are stuck today. "They either do not have accounts elsewhere or their accounts abroad do not offer the same advantages, in particular banking secrecy," said the Ivory Coast-based businessman.
An opinion that corroborates testimonies like that comes from a Lebanese merchant in Senegal. "I can eventually open a new account in Lebanon and bring ‘fresh money’ to my bank to transfer it to my European suppliers. But I lost confidence (in the Lebanese banks). What will happen if they hold this money too?" he said on the condition of anonymity.
A financial specialist from Africa summed up the situation, saying that relations with the banks have deteriorated. "Lebanese expats feel betrayed, especially that it is thanks to the money they have injected into the system that the Lebanese ‘at home’ have been able to maintain this abnormal life style for so many years."
Bitterness is also felt among the managers of larger companies: In Ivory Coast, for example, some companies were financing their growth with loans from Lebanese banks. "The Ivorian community considered Lebanon’s banking system as an undeniable asset: By counting on it, we thought that we were protecting ourselves from Africa’s risks. What an irony!" said an Ivorian businessman.
In Abidjan, large investments have already been canceled. This is particularly the case with an agri-food company, which was to start the construction of a new plant at the end of 2019, in order to double its production capacity.
Entrepreneurs in countries that have faced crises in recent years, such as Nigeria, Mozambique and Ghana, also relied on the Lebanese banking system. "They thought they would see light at the end of the tunnel. They fell into an even more serious crisis. I do not think all of them will recover," the Ivorian businessman said.
The Lebanese crisis could be felt across the continent. "In Africa, the Lebanese invest where very few others dare to do so. If they were less hesitant than others, it was because they enjoyed a comfortable situation with relative stability in Lebanon: The country served as a solid base for their families and businesses," said a financier. "This is no longer the case. Investments by Lebanese expats in Africa will undoubtedly drop."
But fallback solutions seem limited. "When you are a Lebanese from Africa, most of the time and unless you are very well connected, there are no alternatives to Beirut," said a tax expert. "With the strengthening of US sanctions, they will find it difficult to open an account in France or Luxembourg… At most, if they have a lot of money, they can hope to settle in Cyprus or the United Arab Emirates."