Lebanon’s key industries splutter along

Unsupported by government, industrialists carry themselves through another difficult year

Before the assassination of former prime minister Rafik Hariri, Lebanon’s industrialists were a fairly disgruntled lot. Okay, exports were 25% up on the previous year, but energy and communications costs remained astronomically high because of spiraling oil prices and government unresponsiveness or disinterestedness; state bureaucracy was suffocating; the economy was stagnant; and corruption was rampant.

Then came the massive seafront explosion on February 14, which delivered a thundering blow to business. Industrial exports dropped by 30%, amid months of subsequent political turmoil, bombings, more assassinations and a closure for weeks of the Syrian border to Lebanese trucks bound for other Arab countries. The Lebanese Industrialists’ Association estimates that Lebanon lost between 50 million and 60 million dollars worth of exports over that period. In addition, the flow into Lebanon of raw materials was interrupted because companies didn’t want to send their trucks here.

Meanwhile, on the antiquated agro-industry front, Lebanon’s once relatively successful poultry farmers were dealt a stunning, if unrelated, jolt by the global bird flu scare. Lebanon’s increasingly health-conscious consumers abruptly ceased consuming poultry. Sales dropped by 50%.

Some comfort in exports

Almost a year on, some industrialists are seeking solace in the fact that exports (worth around $1.5 billion this year), will actually have again risen accumulatively in 2005, by more than 12%, compared to 22% in 2004 (just over a billion dollars worth of exports) – despite the violence and political turbulence which plagued Lebanon for months. The figure can be explained possibly by the fact that some Lebanese companies were actually given a slight boost by the drop in Lebanese imports. The Industrialists’ Association acknowledges that the tally represents just over half of what had been predicted before February 14.

Nonetheless, buoyed by an apparently comforting statistic, some industrialists who speak of a “recovery,” predict that exports could increase accumulatively by more than 20% again in 2006, and express cautious hope that the rise to power of Lebanon’s anti-Syria opposition in June’s legislative polls has ushered in a government more committed to industry. They say they have been pleasantly surprised by the positive attitude of Prime Minister Fouad Seniora. Minister of Industry Pierre Gemayel is also, they say, trying to be helpful – despite the fact that he knows nothing about industry. And even Finance Minister Jihad Azour is radiating a relatively positive image through his apparent willingness to engage in administrative reform. He faces a mammoth task of course: Industrialists are quick to allege that Lebanon’s bureaucracy is one of the most daunting, deep-seated around and has, because of its shadowy association with outright theft, proved extremely. Industrialists say there are hundreds of millions of dollars to be saved. Cautious optimism – some might say wishful thinking – notwithstanding, a chorus of familiar complaints remains.

Communications and energy costs are still extraordinarily high – a burden in particular for industries with energy-intensive needs. They angrily compare energy costs here to their drastically lower equivalents in the Gulf, where industry is heavily subsidized. A number of energy insiders say that costs could be brought down if Lebanon’s power stations were fed by liquefied natural gas. But that would have to come through pipelines. And those pipelines would have to traverse a neighboring country before arriving here. Forget Israel. What about Syria? Hardly a good bet given current rocky relations. An alternative would be to (partially?) privatize Electricite du Liban (EDL). But who, right now, would want to buy it?

Blocking free trade

Lebanon’s industrialists also argue that a variety of trade practices by other Arab states amount to concealed protectionism, branding them borderline unacceptable under WTO regulations. They accuse almost all Arab countries of using underhand tactics such as non-tariff, quality and specification barriers to protect their domestic industry markets against Lebanese imports. It’s not, Lebanon’s industrialists state, that they are against free trade. But since the creation of the Greater Arab Free Trade Agreement a few years ago, Lebanese exports to other Arab countries have increased far less than other countries’ exports to Lebanon.

Complaints about unfair trade practices extend not just to the Gulf, but also to rising economic goliath China. China is accused of flooding the Lebanese market with cheap products, in part by using corrupt officials here, who allow Chinese goods to enter Lebanon without imposing customs duties on them because they are re-exported from the UAE bearing fake “made in the UAE” tags. The Industrialists’ Association says that last year it interrupted the flow into Lebanon of supposedly second-hand Chinese-made clothes, which were in fact not second-hand at all. The association even alleged that there was a set bribe at Lebanese customs for a 40-foot, $10,000 box of Chinese clothes imported without duty – which would, if paid, come to three times the value of the bribe. The whole process is facilitated in its initial phases, industrialists here say, by the direct and indirect state subsidization of Chinese exports.

Also, before the Syrians withdrew in May, they were allegedly stealing hundreds of millions of dollars a year from Lebanon’s economy, in great part through a network of corruption. Today, the Syrians have gone, but the corruption remains. Industrialists still have to pay bribes to get their containers through Beirut Port in less than a few weeks. In fact, they still have to set aside 3% to 5% of annual revenue for bribes in general. They compare the inefficiency of Beirut Port with the efficiency of ports like Rotterdam, Felixstowe, or Hong Kong. And there is physical intimidation, too. One industrialist told Executive that when he pushed too hard for transparency with respect to a certain public tender, he received a phone call from someone who threatened his family. The shipping process as a whole, in Lebanon, is an overpriced, needlessly time-consuming nightmare, industrialists complain, and one that costs millions of dollars in wasted spending.

Poultry

In agro-industry, poultry farmers are understandably despondent. They continue to reel under the lingering effects of the bird flu scare. Poultry sales are still down 30%. For the moment, costs are 30% higher than their revenues – a state of affairs that is unsustainable even in the short term. But they expect no help whatsoever from the Lebanese government, placing vague hope, instead, in “international” assistance. If a full-blown bird flu crisis does erupt in Lebanon, the poultry sector will be decimated, experts warn, because the government is unprepared and under-equipped.

Meanwhile, there’s no realistic end in sight to the brain drain from Lebanon, which sees talented, educated, but disillusioned young Lebanese who should be propping up the industrial sector now that it is free from Syrian control, leaving to seek greater fortune in the Gulf or the West. And of those who do stay, only a fraction opt for a career in industry.

And there is also no end in sight to the dearth of technical schools – whose existence is crucial if Lebanon is to generate enough skilled workers to keep the cogs of the industrial sector turning. Of course, the level of dissatisfaction varies from industry sector to industry sector. Among the country’s leading industrial sectors, and those least affected by the post-February 14 turmoil, a confident ‘it’s now or never’ attitude can be found.

Wine

Wine producers say their sector is thriving. Only domestic consumption dipped after February 14, because fortunately for wine producers here their export routes don’t pass through Syria. So they were unaffected by the weeks of Syrian border delays. Their exports are, in fact, rising by more than 25% a year and they control around 80% of the domestic market. But they nonetheless berate “unfair taxes,” a lack of regulation in their rapidly expanding – some say almost saturated – sector, and the absence of any clear agricultural subsidies plan. The one currently in existence is based on an outdated notion of food staples as well as feudal political and social considerations. Vine growers are excluded from the subsidies.

Speaking of Lebanon’s agro-industry as a whole, though, even the most optimistic of industrialists speak of “very slow” improvement, principally because of the persistence of an antediluvian agricultural culture which sometimes appears to have missed the industrial revolution, a lack of training and the absence of a clear, modern governmental agricultural policy. For the moment, agro-industry accounts for only 10% of Lebanon’s total industrial exports as a whole, something industrialists call a “tragedy.” They note that Britain goes through half a million tubs of humous a day, and yet only a fraction of that humous comes from Lebanon – despite the fact that humous is traditionally Lebanese.

Oil

Oil traders say their sector has weathered the post-February 14 storm rather well and is currently headed in a decent direction, or at least, as one oil derivatives trader put it, “not regressing.” Yes, consumer demand sagged somewhat. But overall business has proved resilient. Nevertheless, traders complain of chronic cronyism, stifling bureaucracy, disinterested policy-makers, and a continuing lack of transparency, relevant expertise, and continuity within the public sector as a whole, and the ministry of industry and oil in particular. At least tens of thousands of dollars are sometimes lost because the process of checking the specifications of tanker deliveries is either needlessly lengthy, or lackadaisical. In one case, because the team carrying out the checks “forgot” to take a customs official on board a vessel with them, the vessel had to hang around for several more days, at the cost of $1,000 an hour, until the process could be repeated – this time with the customs official. Suppliers, wary of the potential for delay-incurred wasted costs when delivering to Lebanon, overcharge to compensate. Oil traders also bemoan the absence of a watchdog overseeing petrol quality at the pumps. An iron fist dishing out steadily-increasing fines and ultimately days of suspension to repeat offenders is needed, they say.

Printing

Lebanon’s printing sector, another industry vanguard, is hanging in there, operating without a loss that is, after losing 30% of business over the months following February 14. Today, printing insiders speak of renewed confidence. One said he had recently purchased more powerful printing machines, in the expectation of an upturn in business.

But unsurprisingly intensive-energy dependent print professionals complain about the high cost of electricity.

And they could really use an efficient postal service – one trusted by foreign clients who print their publications in Lebanon. Not that LibanPost’s no-nonsense head honcho Khalil Daoud hasn’t done a good job revamping and modernizing a once-creaking institution. But there are still problems with mail deliveries. In fact, one printing press manager here said that the British Airways inflight publication Impressions prefers to send an employee over to Beirut by aeroplane with a CD of the publication’s content, rather than place its faith in Lebanon’s postal delivery system. Printing industry professionals are expressing fears that user-friendly Dubai may supplant Lebanon as the Middle East’s pre-eminent printing center, because of the Emirate’s modern, fluid infrastructure, its low communications costs and its reliable postal deliveries. The only thing Dubai doesn’t have is “skiing in the morning and swimming in the afternoon.”

On a final note, there is gnawing concern in all quarters, over the continued standoff with Syria, which has seen Syrian President Bashar al-Assad call Seniora, “a slave to foreign masters.” What, industrialists worry, is going to happen if massive border delays for trucks occur again, or if the UN judges that Syria is not cooperating with the probe into Hariri’s murder and clamps economic sanctions on it, effectively wiping out the country as a destination for the 10% of Lebanese industrial exports which end up there every year?
 

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