This article is part of an Executive special report on Lebanese industry. Read more stories as they’re published here, or pick up October’s issue at newsstands in Lebanon.
What’s the Lebanese industrial sector worth? That’s the million dollar question,” says Cristiano Pasini, representative of the United Nations Industrial Development Organization (UNIDO) in Beirut. In collaboration with Lebanon’s Ministry of Industry, UNIDO aims to promote inclusive and sustainable development of the industrial sector to accelerate economic growth and reduce poverty, with an emphasis on capacity building and technology transfer.
“To get an idea about the general state of the sector, we tend to look at a combination of statistics,” he said. “First, we look at the sector’s contribution to the gross domestic product (GDP) and its annual growth rate. Secondly, we look at industrial exports, which in principle are a good indication of the sector’s general health, although you will have to take into account that some imports are re-exported.”
The problem with statistics in general is that they never you tell the whole story. Yet, in the case of Lebanese industry you wonder if they even tell you half. As has been documented elsewhere, there is a lack of reliable data, while figures that do exist are often outdated, poorly categorized or open to interpretation. It should not come as a surprise therefore that figures about what the sector is worth vary greatly depending on whom you talk to.
On the one hand, referring to multilateral organizations such as the International Monetary Fund and World Bank, the president of the Lebanese Industrialists Association (ALI), Fady Gemayel, estimates that the industrial sector annually contributes some 10 to 12 percent to Lebanon’s GDP, which in 2013 amounted to about $43 billion (See the Q&A with Fady Gemayel).
On the other hand, the Investment Development Authority of Lebanon (IDAL) reports on its website that the sector annually accounts for only 7.5 percent of GDP. IDAL and ALI do, more or less, agree on the number of people employed by the industrial sector, approximately 130,000 to 140,000, which makes industry the country’s second largest employer after the state.
“If we look at Lebanon’s most recent national accounts, then we see that the industrial sector’s contribution to GDP decreased from 12.5 percent in the late 90s to around 8 percent by 2009, which is more or less the average of the developing world,” says Pasini. “The global average, all countries included, amounts to about 15 percent.”
Exports as an indicator
Estimated at 40 percent of the sector’s overall worth, industrial export figures are often presented as a barometer of its general health. ALI estimates total industrial exports in 2013 amounted to $3.3 billion. Base metal and metal goods were industry’s leading export items ($527 million), followed by machinery and electrical equipment ($508 million) and prepared food stuffs ($425 million). Syria was Lebanon’s top export destination with $482.7 million, followed by Saudi Arabia ($331 million) and the UAE ($270 million).
However, the picture is not as clear cut as these numbers suggest. These figures include the re-export of fuel to Syria — mainly imported through the Port of Tripoli expressly for the purpose of being re-exported to Syria. As such, fuel cannot be considered a ‘Lebanese’ export item. What’s more, as there is no refining involved, it should not even be considered an ‘industrial’ export.
Adding to the problem, “up to 40 percent of Lebanon’s metal exports concerns scrap metal, even if it is not always registered as such,” says Roland Riachi, an economist at the Lebanese Center for Policy Studies. Although he cannot name a figure, Avo Demirdjian, a partner and sales manager at Demco Steel, confirms that a significant part of Lebanese steel exports actually concerns scrap.
There is a remarkable parallel between the lowly category of scrap metal and the high value category ‘pearls and precious stones’. In 2013, ALI ranked the latter as Lebanon’s seventh largest industrial export item with a value of $155 million, while Lebanese customs estimated it was the country’s leading export with a value of $769 million. However, “some 25 percent of what is exported as pearls and precious stones is actually scrap gold that is shipped to Switzerland,” says Riachi.
While one could argue that cutting and polishing precious stones, as well as creating jewelry, constitutes an industrial process, surely collecting and exporting scrap does not; just as transporting fuel several kilometers does not. All of this points to a simple conclusion: when you hear industrial production and export figures, ask a few more questions.