Energy still blocks Lebanon’s growth

Lebanon's private sector has long been the economy's load-bearing wall, accounting for roughly 60% of GDP and employing half the workforce. For years, it has absorbed shock after shock. The private sector morale index fell to 47.4 in March 2026, down from 51.2 the month prior. The reading signals a sector moving from resilience into retreat. Behind that decline sits a structural constraint that predates every recent crisis: energy.

The missing middle

Small and medium-sized enterprises make up around 95% of Lebanon's firms and contribute roughly 40% of GDP. But that figure masks a deeper imbalance. World Bank data suggests more than 90% of those SMEs employ fewer than five people, placing them squarely in the micro-enterprise category, not the growth-stage businesses that typically drive productivity and job creation.

This is the "missing middle": an economy where small, often informal businesses and a handful of large firms coexist, but where the medium-sized, scaling enterprise is conspicuously absent. Nearly a third of all firms and two-thirds of workers in Lebanon operate outside the formal economy, meaning they cannot access credit, cannot benefit from policy reforms, and cannot grow in any structured way even when conditions improve.

The 2019 World Bank Enterprise Survey, covering 532 Lebanese firms, found that political instability, economic uncertainty, and administrative burden were the primary obstacles to doing business, not access to finance. These pressures help explain why the gap between surviving and scaling remains so wide. Competitiveness in export markets is one of the clearest paths out of that gap. But high production costs keep eroding it. And among those costs, energy stands out.

The generator economy

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% of firms own or share a private generator, the second highest rate in the world. The global average is 34.1%.

The numbers behind that dependency are significant. The International Finance Corporation estimates Lebanese firms spend between $2 and $3 billion annually on private generation. The private diesel generator industry alone is valued at around $3 billion. Generator tariffs range from 50 to 100 US cents per kilowatt-hour, five to ten times higher than grid electricity costs in comparable economies, according to a 2023 Issam Fares Institute report. The same report found that electricity consumption had dropped by more than 52%, suggesting firms are coping by producing less, not by operating more efficiently.

When energy costs are this high, they cascade. They raise the price of goods, make exports uncompetitive, and consume capital that would otherwise go toward hiring, investment, or formalization.

Reform as a practical necessity

The case for electricity reform is typically framed around public finances, reducing the drain on state coffers and unlocking international funding. Both remain valid. But the more immediate argument is simpler: Lebanese firms cannot compete under these conditions.

High energy costs amplify every other constraint. They price goods out of export markets, consume capital that could go elsewhere, and make formalization harder to justify when the operating environment already works against it. Addressing the electricity burden will not resolve the missing middle on its own, and it will not reverse years of economic decline. But it would remove one of the most persistent structural barriers to doing so.