LEBANON - For decades, Lebanon’s private sector has carried the economy, generating roughly 60% of GDP and employing half the workforce. But in recent years, it has been forced into survival mode, absorbing one shock after another with little structural support: the 2019 financial collapse, the COVID-19 pandemic, the Beirut Port explosion, the 2024 war, and now renewed escalation in 2026.
The strain is beginning to show. The private sector morale index fell to 47.4 in March 2026, down from 51.2 in February, signaling a shift from cautious resilience to retreat.
At the core of this decline lies a deeper structural constraint that continues to undermine recovery and limit the sector’s ability to grow. This gap, often described as the “missing middle,” reflects the struggle of firms to scale, compete, and move beyond survival in an increasingly fragile environment.
What the data tells us: a missing middle
Small and medium-sized enterprises account for around 95 percent of firms in Lebanon and contribute roughly 40 percent of GDP. Yet the structure of this sector reveals a deeper imbalance. World Bank estimates suggest that more than 90 percent of SMEs employ fewer than five workers, pointing to a dominance of micro-enterprises.
The growth-stage firm, typically the engine of productivity and job creation in a healthy economy, remains largely missing. This pattern reflects what economists describe as the “missing middle” in developing economies: a landscape where a large number of small, often informal businesses coexist with a limited number of large firms, but with a notable scarcity of medium-sized enterprises capable of scaling and competing.
Nearly a third of firms and two-thirds of workers operate outside the formal economy in Lebanon. Informality deepens fragility: unregistered businesses cannot access credit, cannot scale, and cannot benefit from policy reforms even when they come.
Evidence from firm-level data reinforces this constraint. The 2019 World Bank Enterprise Survey, covering 532 Lebanese firms, identified political instability, economic uncertainty, and administrative burdens, not access to finance, as the primary obstacles to doing business. These structural pressures help explain why many SMEs struggle to move beyond small-scale operations and achieve sustained growth.
Despite operating under persistent constraints, the ability to compete in export markets remains a key driver of growth. Yet many SMEs have struggled to achieve this edge. High production costs continue to erode their competitiveness, limiting their ability to price goods and services effectively. While multiple factors contribute to these cost pressures, the burden of generator use, driven by unreliable electricity supply, stands out as one of the most significant.
The cost of doing business: electricity
Lebanese firms experienced an average of 50.5 electricity outages per month, the third highest frequency globally among 136 countries surveyed, behind only Pakistan and Bangladesh. In response, 84.5 percent of firms own or share a private generator, the second highest share in the world, behind only Guyana. Globally, the average is 34.1 percent.
The International Finance Corporation estimates Lebanese firms spend between $2 and $3 billion annually on private generation, with the private diesel generator industry alone valued at around $3 billion.
Generator tariffs in Lebanon range from 50 to 100 US cents per kilowatt-hour, according to a 2023 report by the Issam Fares Institute, roughly five to ten times higher than grid electricity costs in comparable economies. The same report finds that electricity consumption had fallen by more than 52 percent, suggesting that many businesses cope by producing less rather than operating more efficiently.
Against this backdrop of compounding shocks, from repeated conflict to currency collapse and declining purchasing power, the cost pressures facing firms have only intensified, making competitiveness increasingly difficult to achieve.
CEDRE 2018: $11 billion on hold
In April 2018, Lebanon attended the CEDRE conference in Paris, securing pledges of over $11 billion in concessional financing from more than 40 countries and major international institutions. The funding was conditional on a package of economic reforms, and electricity was the centerpiece.
Of Lebanon's $15 billion Capital Investment Plan presented at CEDRE, $5.6 billion was allocated to electricity alone. The sector carried 32 of the conference's 73 reform measures, more than any other sector.
The Lebanese government passed a new public-private partnership law prior of the conference to signal readiness for private sector involvement in electricity generation and distribution. France's ambassador to Lebanon described the electricity sector as one draining roughly $2 billion annually from state coffers, and identified reform as a primary condition for unlocking funds. Most of the agreed reforms were not implemented and the $11 billion remains largely undisbursed.
Competitiveness requires more than stability
The case for electricity reform is often made in fiscal terms: releasing pressure on public finances and unlocking external funding. Both remain valid. But the more immediate urgency lies in what Lebanese firms need to survive and grow.
High energy costs amplify every other constraint firms face. They raise production costs, price Lebanese goods out of export markets, and make it harder for businesses to invest, hire, or formalize. Addressing the electricity burden would not, on its own, resolve the missing middle or reverse years of economic decline. But it would remove one of the most persistent structural barriers to competitiveness.
Lebanon’s private sector has repeatedly shown its capacity to endure. The question now, amid the aftermath of renewed conflict and a reform agenda that has remained largely stalled for years, is whether it will finally be given the conditions to move beyond survival.
