Hand power to regulatory authorities

Better regulation will lead to better governance

Telecoms is one of the sectors that is supposed to be independently regulated

As part of Executive’s ‘10 Ways to Save Lebanon’ issue, we asked leading figures from a range of fields to put the case for one major changes for the country. In this article, Executive’s MENA business editor Thomas Schellen argues for better — and more independent — regulation.

A vacuum in the wrong place causes all sorts of disturbances. In numerous segments of Lebanon’s governance system, development has been obstructed by regulatory vacuums. Instituting a culture of independent and fully accountable regulatory authorities is a way to address deep-rooted deficiencies in economic policymaking and generate positive impulses for economic well-being that far exceed the direct areas of responsibility under their control.

The benefits of proper regulation are well documented. In the 1990s, World Bank researchers found a strong causal relationship between good governance and development outcomes, such as incomes, infant mortality and literacy.

Since that time, the worldwide governance indicators (WGI) have traced the long-term performance of countries for six governance indicators, one of them regulatory quality. According to the WGI, good governance is significant for development in that each ‘notch’ of improvement in governance tends to create 2.5 to 4 notches of improvement in economic and social outcomes. Not surprisingly, Lebanon is positioned in the lower half of the WGI readings for regulatory quality and has barely improved over the past ten years.

One way to take significant steps forward would be the creation of properly empowered and independent regulatory authorities to oversee different areas of government policy.

Reforming toothless agencies

Legislative and executive branches of the government are open to regulatory authorities. The first prominent example dates back to 2002 when Law 431 laid the foundations for the establishment of the Telecommunications Regulatory Authority (TRA). Since then, the most notable new authority has been the Petroleum Administration (PA), set up in late 2012 to oversee the tapping of the country’s offshore oil and gas resources.

[pullquote]Weaning the regulatory unit out of the ministerial nest would help in securing a more consistent flow of regulatory action[/pullquote]

The authorities have two major factors in common. First, both were set up at the time when the sector concerned had the greatest potential to drive Lebanon’s economic growth. The TRA was the outcome of a period when the initial rapid growth of the mobile communications sector had led to allegations of corruption and under-representation of state interests in the awarding of contracts for two mobile networks back in 1994. It was intended to reinvigorate the communications industry, which at the time was the second largest revenue source for the Lebanese state. Likewise, the PA was launched at a time when every political party was looking to oil and gas for the country’s future.

The second unifying factor is that neither body has been fully empowered. The TRA has yet to fulfill its mission to “liberalize, regulate and develop telecommunications in Lebanon” in many important components. Specifically, the liberalization roadmap of 2008 for privatization of the mobile and landline operators was a missed opportunity. The body is now, sadly, rather toothless. The PA is still at an early stage of its life cycle but it has, as this magazine uncovered last October, been subject to significant political pressures from all sides.

To improve regulatory authorities, what is needed is competence, independence and accountability. Competence in technical issues is such an obvious need that it should prohibit any consideration of loading regulatory authorities with political appointees, or with anyone without the highest qualifications in the required area of expertise. Independence of regulators from politics is critical for their efficacy. Independent regulators are mandated to respond to long-term needs, assess the entire set of cost-benefit ratios of a development or major initiative, and follow laws and standards that have been laid out for the duration of more than one electoral period.

Regulators must be held to the highest standards of transparency and must be accountable to elected representatives. This will ward against the dangers of becoming self-absorbed technocratic entities or, worst of all, colluding with special interests.

Currently, regulatory and supervisory functions for several areas are performed by units attached to various ministries. Some of these units are better equipped than others in terms of manpower and budgets, but all ministerial units have to contend with the high frequency of politically driven changes on the respective portfolio minister’s chair. Weaning the regulatory unit out of the ministerial nest would help in securing a more consistent flow of regulatory action.

Merit-based regulatory bodies with a clearly defined mandate and the requisite authority can be of value in streamlining competencies that have been historically distributed among ministries, with various complications in decision-making. Independent regulatory authorities can better address the development needs of important social infrastructures, such as — to name just two examples — health care and education.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.