Lebanon: When Will The Economy Come of Age?
Michel Morkos Al-Hayat - 05/09/07//
Speaking to the press, Riad Salameh, the governor of Lebanon's Central Bank, said he believed consecutive developments over the last few years have undermined the effects of economic growth. He said whatever positive gains had been made in this regard were gobbled up by the negative effects of the July 2006 war, shackled by internal political wrangling of a foreign nature. Accrued growth over 3 years remained nil while a gross of the accrued growth was recorded in the area of 20%. This assessment is not just limited to the nation's 'small loss,' about US$5 million-- equal to 20% of the domestic product-but rather it goes beyond that by entering into all facets of the national economy and its suffering.
Political wrangling resulted not only in overcoming economic activity but also in making it a scapegoat that is subject to contradictory political whims, capable of igniting arguments but not narrowing the gap between differences of opinion. Economic reality became leverage in the hands of the parties, something whose growth they could disable for the sake of political gain. The goal falls away, the economy crumbles, and nobody wins anything except making the people poorer, turning the followers of these parties into paupers while destroying the pillars of the economy.
This small country has lost much in the space of a few years. Two important economic gambles, in the form of the reform papers for the Paris II and Paris III donor conferences, despite the difference in views regarding its content. But having them was much better than their not existing at all. Their outcomes would have achieved much better growth than there is now, even if it was not at the level of scenarios laid out in these papers or perhaps beyond. Lebanon is one of the most attractive places for investment if its politicians would keep it out of their greedy ambitions and personal motives. In the middle of all the positive growth in the region, Lebanon would have been in the forefront and not only stopped at the 20% accumulation. The huge surplus in oil revenues in the last two years, the profits made from company stocks, and the revenues from foreign and local investments by Gulf countries are all on a constant look out for safe investment areas that far removed from the risk of wars, terrorism, and political upheavals. That is why investment is pouring into North African countries, and to a lesser degree Syria and Jordan, while bypassing Lebanon entirely due to the current political situation. Countries like Tunis, Morocco, and Egypt are attracting billions of dollars each year in promising future projects that vary with the needs of the countries and the economic activities.
This lost investment would have boosted growth rates over their current levels in the countries of the region; perhaps to about 30% as an accumulated growth rate in the years specified above. GDP in 2004 was almost above 8%; and activating the economy accelerates growth and brings its level up to 9 or 10% a year, along the lines of other countries with developing economies.
Our little country is now languishing without economic opportunities. Meanwhile, the presidential elections are looming up without any guarantees. The country lacks not the agreement over a figure, but rather the commitment o a specified program everybody can rally around. That is because people keep changing their positions whilst agreement over the program -however unsure its implementation-remains a measure for understanding and the degree to which matters are under control.
Previously, the national economy achieved a growth rate of 1.5% in the first half of 2007. It is expected to rise to 2% through the course of the full year. However, this is a meager rate that the services sector alone could have achieved, foremost among these the financial services. Tourism is almost nonexistent, not only in terms of hotel occupancy, but also tourism-related institutions. Many of them have gone bankrupt after an expansion enhanced by the boost in tourism before July 2007. Trade activity is related, in part, to tourism; hence it has lost much. In addition, consumption indicators have dwindled within Lebanese families. Industry is creaking under the high costs and cannot compete. Agriculture is not at the desired activity levels after the harvests were interrupted by the July war and the damages it incurred. Consequently, the results of growth are limited to a handful of sectors from trade to construction to the public sector to manufacturing and banking services. Even Lebanese banks can no longer find themselves a safe margin within which to make safe, secure investments. Their deposits are growing at less than the median price of the interest on them. Increased loans to the national economy do not exceed the median price of interest owed on standing loans, or 7.7%. As a result, banks have turned to exporting their services and expanding by establishing branches in nearby countries in the region that have Lebanese émigrés and institutions. Bank loans to the non-resident private sector, most of which are Lebanese, reached $2 billion (in the first half of the year) as opposed to $1.3 billion loaned to the resident private sector. The difference is that profits from outside loans range from 22 to 35% in some Gulf countries.
In a comparison of Lebanese treasury resources, the figures point to an increased return from taxes. This increase is not due, of course to better tax collection, nor to an improvement in economic activity, but rather it is a growth resulting from inflation in export prices due primarily to the increased cost of 1) the Euro, 2) oil and other fuels, 3) primary construction products such as iron and aluminum, and oil derivatives such as plastic. All are fundamental elements in the make up of Lebanese revenue upon which taxes are based on added value as well as customs fees. Construction and real estate fees also went up.
The small nation has been emptied of its people and its institutions, the investments of its banks and its tourists. It has even been emptied of any economic activity that cannot sustain risks. It has become riddled with a tense, conflicted attitude and a complete gamut of political and popular levels. It is no longer capable of rising economically as promised unless harmony returns to the political segments and they come to accept each other despite their differences and imbalances. The country, and hence the economy, will rise with the consensus of one and all.
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