With new government in place, Lebanon works on the economy

Lebanon is searching for new sources of growth, which fell from 8-9% to less than 2% when Syria’s civil war began in 2011.

Cranes are seen at a construction site at Beirut’s central district in Lebanon, on January 4th. (Reuters)


2017/01/29 Issue: 91 Page: 18




Beirut - After years of political deadlock, Lebanon has a new government. Now it needs a new economy.

Battered by war in neighbouring Syria, neglected by wrangling politicians and caught in rivalry between Saudi Arabia and Iran, the pillars of the economy — remittances from overseas work­ers, tourism and real estate — are not what they were.

Long term, Lebanon is searching for new sources of growth, which fell from 8-9% to less than 2% when Syria’s civil war began in 2011. Bei­rut is working to start oil and gas exploration, offering support to technology start-ups and urging its vast diaspora to return their exper­tise and bank accounts home.

Before these plans can be real­ised, however, the government, which spent two-and-a-half years without a president, has an urgent to-do list.

The country’s infrastructure has been awaiting repair since the 15- year civil war ended in 1990. Roads are clogged with cars, beaches are littered with waste, internet links are slow or patchy and cuts to pow­er and water supplies are frequent.

Reams of legislation, such as a hydrocarbon industry tax law and the privatisation of the stock mar­ket, await completion.

At the top of Lebanese Prime Minister Saad Hariri’s list is a budg­et, which the country has not had since 2005, and a better environ­ment for business, his economic adviser Mazen Hanna said.

The cabinet encompasses most sides of the country’s political spec­trum and all of its religious sects, making any agreement a challenge. “The first sign of the government’s seriousness is if they will pass a new budget,” Hanna said. “This is the priority now.”

Without one, there will be little chance of tackling Lebanon’s grow­ing fiscal deficit and debt-to-gross domestic product (GDP) ratio, fore­cast this year by the World Bank at 155%, the third highest in the world.

The government’s term may be as short as five months if long-over­due parliamentary elections take place on time but Hanna said it can work on telecoms and the electric­ity shortages that drive people to hook up to expensive private gen­erators.

It also plans to resolve problems with rubbish disposal that spurred anti-government protests in 2016. The cabinet includes an anti-cor­ruption minister for the first time.

The fate of Lebanon’s economy is important not only for the live­lihoods of 4 million Lebanese but for avoiding even more chaos in the Middle East: The country is home to more than 1 million Syrian refugees and 500,000 Palestinian refugees and has its own history of instability.

Following its 1975-90 civil war, much of Lebanon’s reconstruction focused on re-establishing its tour­ism image as the Paris of the Middle East, particularly for wealthy Gulf Arabs.

Beirut’s cooler climate and less restrictive social mores are a big draw for people from conserva­tive Saudi Arabia but bouts of civil strife, assassinations, deadlocked government and regional rivalries have taken their toll.

An executive at a luxury hotel in Beirut last summer lamented the dearth of wealthy Gulf Arabs and their $3,000 room-service bills. Saudi Arabia advised citizens last February against travel to Lebanon, part of a dispute over the powerful role of the Iran-backed Lebanese Shia group Hezbollah.

Lebanese President Michel Aoun, a Christian ally of Hezbollah, said after a fence-mending visit to Ri­yadh in January that he was confi­dent Gulf tourists would return.

In the absence of political lead­ership, the central bank has qui­etly steered policy, using stimulus packages and financial engineering to keep foreign reserves stable and growth ticking. It has also guaran­teed housing, energy and business loans, testing the globally accepted principle of central bank distance from political decisions.

“This has kept the economy growing for the last five to ten years,” said Marianne Hoayek, an executive director at the central bank. “The government some­times is not capable of doing what it wants to do.”

A central bank directive in 2013 called Circular 331 made $600 mil­lion available for investment in the knowledge economy and Lebanon now markets itself as the Middle East and North Africa’s technology and start-up hub, a title to which the United Arab Emirates and Jor­dan also aspire. Hoayek said about $100 million had been taken up so far.

Marwan Kheireddine, chairman of Mawarid Bank, which invests in tech businesses, said that ten years ago entrepreneurs would have had to leave Lebanon to find funding and other support.

“Today we have all the building blocks required (for) those entre­preneurs to develop locally,” he said.

At least eight new investment funds, four new fund managers and multiple jobs have been cre­ated, those in the sector say.

“I wouldn’t have come back without Circular 331,” said Sami Abou Saab, who returned from the United States and now heads SPEED, an accelerator that helps small business grow with advice, contacts and other services.

An estimated 14 million-16 mil­lion people of Lebanese citizen­ship or descent live outside the country, driven out by the sectarian strife that fuelled the civil war and still disrupts the peace. Many send money home, although remittanc­es have been hit by the effect of the low oil price on Gulf economies.

“We can sell, we are creative and we are engineers,” said Nicolas Sehnaoui, chairman of the UK Leb­anon Tech Hub, which says it cre­ated about 240 jobs in its first two years and aims for 25,000 by 2025. “Instead of shipping our people out we want to ship our digital prod­ucts out,” he said

But a tech-based economy needs fast internet and reliable electric­ity and the stock market needs to be privatised so smaller companies can go public, a process two years behind schedule.

Both the World Bank and the Association of Banks in Lebanon (ABL) have said the central bank cannot hold the fort alone.

“The Bank of Lebanon and the country’s banks have spent enough time, sometimes at great cost, pre­serving monetary stability. It is time to support this stability with fiscal and economic policies which favour real growth,” ABL Chairman Joseph Torbey said.

Hanna said he hopes the new government can itself eventually provide such stimulus measures.

Lebanese Foreign Minister Ge­bran Bassil toured South America late last year to try to persuade Lebanese there to return home.

Real estate company Demco Properties has widened the effort. Its “Lebanon is calling” advert broadcast on US television shows a Lebanese businessman in an of­fice with a commanding view of a US city receiving a call from a deep-voiced Lebanon that tells him: “I’m back on my feet again” and “Home is waiting”.

Lebanon’s residents have waited a long time for effective govern­ment and the stakes are high.

“The solutions are there, today we have a political will,” Hanna said. “Let’s hope it materialises into tangible results for the Lebanese.”

(Reuters)


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