Industry’s surprising success

Industry has perhaps performed better than expected

If Lebanese industrialists are seeking a quantum of solace, it is that those around them are in a worse position. From tourism, to retail, to construction, many of Lebanon’s businessmen are more in the mire than industrialists. As Jacques Sarraf, chairman of Malia Group and former head of the Association of Lebanese Industrialists, put it to Executive, “if we look at different sectors within the environment of Lebanon, industry is still on the safe side.”

If 2012 was a year of shock, 2013 has partly been one of readjustment, with confidence slightly up. The industrial sector’s balance of opinions, a measure of the difference between the proportion of managers who consider that there was an improvement in the industry and those who feel it has declined, was at -8 in the first quarter of the year, static from the previous quarter but up from -24 during the same quarter of 2012. The time lag on the data makes it difficult to assess the impact of the recent decline in the security situation, but Sarraf told Executive that security concerns had not affected Malia Group’s strategy at all.

Industrial exports totaled $1.74 billion in the first six months of 2013, a 13.3 percent increase from the same period last year, according to the Ministry of Industry. Mineral products accounted for $317.7m, or 18.2 percent, followed by base metals with 17.6 percent and machinery and mechanical appliances with 15.2 percent. Imports reached $166m, up 14.4 percent from the same period of 2012. 

The syria effect

One positive for industrialists was a major stimulus package, introduced by Banque du Liban (BDL), Lebanon’s central bank in January. While the majority was aimed at the housing sector, 14.1 percent of the $1.46 billion was directed to the productive sectors. Of the $101.3 million of subsidized loans that went into the economy in the first half of the year, $53.8 million, or 53.1 percent of the total, went to industry. In early September BDL Governor Riad Salameh announced plans for a supplementary round of stimulus, something that has got industrialists purring. Sarraf told Executive that in the absence of a government, Salameh was doing the job of the industry minister, minister of economy and the minister of finance.

The crisis in Syria has continued to loom large over the sector, with prices of export overland continuing to rise. The Association of Insurance Companies in Lebanon has estimated insurance policies on exports through Syria have increased 500 percent from the pre-war period, and Sarraf and other industrialists Executive spoke to said that it was increasingly not cost effective to take goods through Syria overland. This has led to an increase of trade at the Port of Beirut, with revenues growing by 26.1 percent year-on-year to $126.7 million in the first seven months of 2013. This route, however, is still considerably more expensive than travelling overland was before the Syria crisis. Gay Mandour, marketing manager at food firm Al-Wadi Al-Akhdar, told Executive that importing products from Jordan via the port of Aqaba was around 30 percent more expensive than their travel arrangements before the 2011 uprising.

This negative impact of the Syria crisis was partly offset by Lebanese industrialists seeking to fill gaps in the Syrian market — with industry in the country estimated to have been over 80 percent destroyed. While the regulatory framework for doing so remains challenging, Lebanese exports to Syria rose by 0.15 percent of GDP in 2012 to reach 0.7 percent, their highest level since 2008. Caretaker Industry Minister Vrej Sabounjian highlighted it as a source of growth in the coming months: “There is definitely an upward trend and we expect to continue seeing increases in industrial exports,” he said.

In the midst of all this, the traditionally malleable Lebanese industrialists have developed coping strategies to stay afloat. Many have streamlined, adjusting their organization structures to maintain their logistics bases in the country but moving their production and manufacturing bases to countries with more easy trade routes. Others have cut back. A study by American Express Middle East on corporate spending trends found that 55 percent of firms had become more financially conservative in recent years. Seventy-one percent said they had reduced costs.

For an industry used to surviving in an unstable region and with little support from the government, adjustment is par for the course.

Joe Dyke

Joe has extensive experience covering the Syrian crisis, oil and gas, and Lebanese government and regulatory authorities, among other topics. He was Executive's online editor from 2012 to 2014, and led the Economics & Policy section from 2013 to 2014.