Lebanon’s industrial sector has overcome the odds stacked against it to have a surprisingly good 2010. Exports rose 32.6 percent to $2.56 billion as of the third quarter of 2010, up from $1.93 billion in the same period last year, according to figures from the Ministry of Industry. Imports of equipment and machinery were also up by 13.54 percent to $176 million, a healthy sign of cash being injected into one of Lebanon’s most neglected economic segments in terms of investment.
What was unusual about 2010 was that machinery and mechanical appliances topped the export list, at 21.21 percent, or $544 million, of the total, followed by exports of jewelry at 19.77 percent, or $507 million. In 2009, the country’s jewelers were the biggest exporters at 31.5 percent of the total.
“This year, Lebanese industrialists and entrepreneurs succeeded in overcoming internal instability, the global economic situation, the high cost of raw materials and unfavorable exchange rates,” said Charles Arbid, general manager of Rectangle Jaune and president of the Lebanese Franchise Association (LFA). “The rise in exports is also due to the development of certain markets and existing markets — the first destination is the Arab countries, but also toward Mediterranean countries, which have become an important target for exporters.”
Lebanon’s strong economic growth has also aided the sector, with domestic sales on the rise.
“Internal consumption is up, and there is demand for Lebanese products,” said Arbid. “It’s a maturity stage where on a technical level we’re strong enough and capable enough to produce the right products. There is definitely a lot of competition, but with production prices increasing in the Far East today, people are turning to easy-to-find products made here at a good price.” His company, Rectangle Jaune, experienced growth of 8 to 9 percent this year, “but it has been a huge effort to maintain this,” he conceded. Last year the clothing company had double-digit growth.
Attar Steel, which has an annual turnover of up to $5 million and is one of the top-10 Lebanese players in the industrial sector, recorded 25 percent growth this year in the Lebanese market, outdoing its typically buoyant business in Saudi Arabia.
“This year was better than 2009, and better than 2008. Lebanese sales were particularly good, as 2009 carried with it the terrible effects of [the political unrest of May] 2008,” said General Manager Hassan Attar. The company, which has a 12,000 square meter factory in the Bekaa with a staff of 40, produces 1,000 items, from light, perforated and embossed steel, to large steel doors and hangers for airports.
At 9 percent of Lebanon’s gross domestic product, industry is an important employer and sector for the country, even if it is not living up to its full potential. “In general, Lebanese exports are getting better, and 2010 has been good for industry,” said Fadi Gemayel, chairman of Gemayel Freres and President of Libanpack. “That doesn’t mean we don’t have impediments, such as political instability, but we are growing and can grow more.”
Diana Menhem, a researcher on Lebanese industry, says the sector is being hindered by the high costs of labor, inputs and energy, and the “quasi-monopolistic behavior” of importers. “What’s important in the end is that industrialists are not interested in developing their products — value-added is low and decreasing, as a World Bank World Development Indicators study shows,” she said. “Within that, what is more alarming is that the percentage of medium and high technology is really low. It’s because there is no incentive to improve their products and the government is not saying ‘we’ll help out and subsidize energy or exports.’”
While the World Bank study shows a gradual decline in value-added manufacturing as a percentage of GDP up to 2008, the LFA’s Arbid attributes the export increase in 2010 down to the industry having adopted value-added goods.
“There has been a definite increase in industrial exports, and that is due to the efforts of industrialists over the past decade to develop products and services with added value,” he said. “There has been a big effort in branding, something I’ve been fighting for with colleagues, for added value, and we are going toward specialized production.”
Pushing such value-added production is the LFA, whose membership has swelled by 50 over the past year to 120 companies, brands and concepts. “We have a powerful and influential association as many businesses are going towards the brand and franchise concept,” said Arbid.
Franchises include food producers, bakers, jewelers, services, beauty care and restaurants.
Libanpack is another example of adding value to Lebanese products, with its packaging facility set up two years ago as a non-profit organization to boost exports. Initially financed by the Swiss Development Agency, and given land facility by the Lebanese Industrialists Association, the facility now works with 50 companies.
“As industrialists we cannot narrow our competition on prices due to the cost structures in Lebanon, so we have to put forward our competence in other fields, such as value-added, packaging and design components,” said Libanpack’s Gemayel. “Packaging is one of the contributing factors now to marketing goods, and Libanpack is a platform for those involved in packaging to add value to their exports. In that sense we have given small and medium-sized enterprises the tools to do this, to use the most advanced packaging material.”
The need for a plan
For Lebanese industry to push the proverbial envelope further, more action needs to come from the government.
“We need two things: a serious plan, as industry requires plans, and linkages between industry and human resources to carry out such plans,” said Menhem. “There are a lot of models we could use from countries such as Singapore, South Korea and China. In all these cases what these countries have is a large, well-funded industry ministry.”
Government investment could, in particular, be of great benefit to the agro-food industry; the Lebanese Farmers Syndicate reported that agriculture generated some $1.5 billion in gross revenues in 2009, but could generate $3.5 billion if there was sufficient cash pumped into infrastructure.