The UNIDO view on Lebanon’s industrial sector

In need of support

History shows that roughly all developed countries, which currently benefit from a high standard of living, have gone through a period of successful industrialization—during which the industrial sector, benefiting from high levels of technological advancement and innovation, was the driving force behind national economic growth.

A close look at Lebanon’s development pattern tells a different story. Local and regional circumstances have favored the services sector at the expense of the productive sectors of the economy. As a result, Lebanon has not fully benefited from the economic development that industrialization can offer. In the last decades, the contribution of the industrial sector to the national GDP was low compared to industrialized countries in East Asia and the Pacific. Based on statistics by the United Nations Industrial Development Organization (UNIDO), the contribution of the industrial sector to the country’s GDP now stands at 8.3 percent.

Weak investment and growth in productive sectors can also contribute to poor job creation, a volatile GDP, and low levels of competitiveness internationally. This view is supported by the World Bank’s Lebanon Economic Monitor published this year, which partly attributed Lebanon’s “defective” growth model to the high reliance on services (real estate, construction, finance, and tourism) characterized by low productivity and a low capacity to generate high-skilled jobs.

UNIDO has been working in Lebanon since 1989, with a strong belief that a healthy and successful industrial sector has the potential to create jobs for men, women, and youth in different areas across Lebanon. A strong industrial sector promotes exports, reduces the trade deficit, and improves economic resilience against shocks and stresses. The industrial sector also supports development outside greater Beirut, thus promoting the sustainable and inclusive economic growth that Lebanon urgently needs.

Industrial zones

UNIDO signed a Country Programme Framework with Lebanese government in 2015. In alignment with the Ministry of Industry’s MoI 2025 vision for the industrial sector, UNIDO’s framework covers the following areas: supporting the development of Industrial parks, improving the competi­tiveness of small- and medium-sized enterprises (SMEs) in the agro-industrial sector, promoting environmental sustainability and energy effi­ciency, and supporting host communities in rural areas affected by the Syrian refugee crisis.

Working in close partnership with the MoI and the international community, many achievements have been realized. Thanks to a grant contribution from Italy, feasibility studies and master plans have been developed for three new sustainable industrial areas. These zones are featured in the government’s Capital Investment Plan and are expected to create approximately 31,000 jobs and impact 200 enterprises across Lebanon. Thus far the zones have attracted financial commitments of 7 million euros ($7.9 million) from the Italian government and 52 million euros ($59.3 million) from the European Investment Bank (EIB) for their construction and development. The European Bank for Reconstruction and Development (EBRD) is also considering a loan of 42 million euros ($47.9 million) for investments in the development of these zones.

Moreover, thanks to the support of Italy, Austria, and Japan, UNIDO is promoting innovation in key value chains in the agro-food and the furniture sectors. Approximately 2,000 people were trained and new equipment or other technical support was supplied to more than 15 cooperatives (900 members), 10 agriculture associations, 80 SMEs, and handicraft initiatives.

Supporting green growth

An important component of UNIDO’s work is environmental sustainability. Through the regional MEDTEST project funded by the European Union and implemented together with the Industrial Research Institute, UNIDO has been working on greening Lebanese industries by supporting them in identifying potential energy savings and providing training to industrialists on cleaner production practices.

UNIDO continues to support the MoI in overcoming challenges that are hindering growth in the industrial sector in Lebanon. Weak infrastructure and the high cost of production make industries less competitive compared to their regional counterparts. High interest rates—resulting  from the monetary policy adopted by Banque du Liban (BDL), Lebanon’s central bank to sustain the fixed exchange rate—has impacted private sector investment. This limits growth in both traditional and emerging industrial sectors. Moreover, the Syrian crisis had an important impact on the industrial sector, mainly through the closure of regional export markets and the added pressures resulting from the increase in the labor force.

Despite the above-mentioned challenges, Lebanon’s industrial sector holds promising prospects. The level of manufacturing value added per capita has more than doubled between 1990 and 2015. By moving from $268 to $703 over this period—in constant US dollars per capita—Lebanon surpassed comparator countries such as Jordan and Georgia. Also since 1990, Lebanon’s ranking on the competitive industrial performance (CIP) index has mildly improved from ranking 97 (out of 148 countries) to 90. A promising indicator is also the share of sophisticated manufactured products (medium and medium-high technology, as per UNIDO definition) in total manufactured exports, which in Lebanon is 40 percent—indicating promising technological capabilities in the sector.

The outcomes of CEDRE—especially the preparation of the government’s plan for supporting the growth of productive sectors—suggest an increasing recognition that achieving inclusive and sustainable long-term economic growth is contingent upon supporting productive sectors. UNIDO welcomes these efforts in the hope that they materialize in policies and investments that will allow the industrial sector to achieve its potential and positively contribute to the long-term growth of the Lebanese economy.

Through its mandate and with the generous support of the donor community, UNIDO will continue playing its part in supporting inclusive and sustainable industrial development in Lebanon.  This is underpinned by joint working and building partnerships with public and private sector partners, in order to ensure the successful implementation of projects and programs, and to positively contribute to the achievement of the UN’s Sustainable Development Goals.

Cristiano Pasini is the UNIDO Representative for Lebanon, Jordan, and Syria.

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