There seems to be little end to the litany of woes Lebanon’s economy has been suffering this year, brought on by regional unrest and internal instabilities mushrooming across the country. Many industries have felt the impact. For a closer look at the implications of this soured environment on the country’s traders, Executive sat down for a frank one-on-one with Nicholas Chammas, head of the Lebanese Traders Association (LTA).
Mohammad Choucair, president of the Lebanese Chamber of Commerce, Industry and Agriculture, as well as some economists we have been speaking to, are saying the economic situation in Lebanon is the worst it has been in a while. What are the figures that alarm you the most?
In the first quarter of the year the numbers were exceptionally good where the trade sector is concerned. We had an increase of 7 percent compared to the same period in 2011, and this is because it came in the realm of a very strong fourth quarter for 2011. Unfortunately, the middle of the second quarter (April-June) 2012 saw a strong turnaround due to the events in the north and the other instabilities, which led to a barely even quarter as compared to 2011. In the third quarter, all hell broke loose due to the closures of the airport road, the abductions of foreigners and the continuing violence in the north.
These factors and the [Gulf] Arab travel warnings, led to the almost complete absence of Arab tourist. Also, Lebanese expatriates have not come back for the summer in the expected numbers. Add to that the slim purchasing power of those residing in Lebanon and you have a recipe for an economic disaster.
How much has the trade activity fallen from the beginning of the year?
So far, we have dropped a good 15 percent compared to 2011 as the third quarter accounts for about 50 percent of our annual sales and when it is hit, our entire year suffers.
What is your forecast for the rest of year?
Though Q3 has not ended, if you extrapolate and assume all things remain equal, I foresee a drop in the commercial activity of around 20 percent for the year 2012 (as compared to 2011). This is a disaster because trade constitutes about one third of the total gross domestic product (GDP) of Lebanon.
Your forecasts are based on 2011 numbers, which was already a bad year…
We have been going downhill since 2010; 2009 and 2010 witnessed a growth rate of 9 percent, which benefited the trade sector a lot. Unfortunately, we got the wrong cues and traders spent hundreds of millions of dollars on luxury retail expecting good times to come. Then the events in Syria happened, and now traders are in a debt trap; they borrowed huge amounts of money and now the cash flow is severely restricted and our expenses have skyrocketed.
So you forecast bankruptcies going forward?
Definitely. The operational costs have risen so much and at the same time the top line has dropped in a dangerous way. Either you incur more debt, which is poisonous in the long run, or you have to increase your equity or you liquidate. They are all bad solutions and there are no good options.
How much do you believe the raise in minimum wage has contributed to speeding up the pace toward bankruptcy?
Very much so, as we have stated plainly in past negotiations with the Ministry of Labor when all was well. Back then, we agreed that there is an imported inflation due to the high exchange rate of the euro versus the United States dollar and the expensiveness of raw materials like oil — raising wages only lead to home grown inflation.
Last time you spoke to Executive, you were asking the government for subsidized loans for the retail sector, which they have done for other sectors. Where do you stand on this now? Is it likely it will still occur?
We are very much in need of this and are even more strident about it as we are facing difficulties with outstanding loans, and need to renew the loan base with more favorable conditions. But, I don’t see it happening now as the government’s budget carries a huge deficit and they are unable to figure out ways to pay their dues.
What is the LTA doing to help support the sector in these challenging times?
We are a strong voice within the economic organizations of the country and we often take the lead in negotiating with the government on issues that affect the sector. In the end, 80 percent of our problems are due to security issues and the lack of law enforcement in the country, so we cannot do much more than give advice and be persistent about representing our demands.
Regarding social security, the National Social Security Fund (NSSF) is requesting that the salary ceiling for contributions to the end-of-service indemnity funds be increased from LL1.5 million to LL2.5 million. This would represent an additional burden on the private sector. What would you be rooting for in this case?
Our position has been adopted by all the economic organizations. Early on, we refused to move the ceiling, but we were outnumbered on the board of directors of the social security fund. [The NSSF board is made up of 10 representatives of employers, 10 for employees and six from the government.] The issue went to the government who stopped it because they realized it was unfair to the employers. As a concession, we agreed to take the ceiling up from LL1.5 million to LL2 million.
With the economic crisis we are facing, what sectors in your opinion are the most heavily impacted?
The most exposed sector is obviously tourism. We cannot expect hotels to fill up when there are no tourists in Lebanon. Directly after that, restaurants have been suffering and then it comes to us, the traders. We had increased our capacity in the wake of 2009-2010 to accommodate for the demands coming from abroad and now there is an increase in supply and hardly any demand.
Manufactures are also suffering and while they are selling abroad, they are facing logistic problems when it comes to shipping over Syria. The banks will be the last to suffer because they deal with us and there will be a leap time before they start to suffer. As for real estate and construction, they hit a plateau in 2011 because of increased capacity and no demand and a bubble was created, but it will take a while to pop and even then, it won’t be as drastic as it was in other countries, such as the US.
Do you think there are any economic opportunities for Lebanese companies from the increased inability of Syrian companies to meet their domestic demands?
We have noticed that imports of merchandise into Lebanon have increased 11 percent year-on-year (for the first three quarters of the year) and this is not explained by domestic consumption. So, part of it is explained by the Syrian [impact] on Lebanon.
You are threatening civil disobedience. Who are you going to strike against and what are your demands?
This is the last resort for us. We will first try to keep the discussions with government officials open and convince them of the danger of the situation we are in to reach a common ground. Then, we are willing to symbolically close down for one hour or a day, followed by an open-ended strike. For us, it is an issue of survival, so if we have to go on strike, we will. The key demands are the basic demands of order, a state of law and security.
Do you believe the situation is a cycle the Lebanese will eventually overcome, like the ones before, or is it more severe this time?
I have mixed feelings about this. Speaking about the long run, Lebanon has seen and overcome worse. But this is not just another obstacle, it is extremely painful and no one would have imagined the extent of the economic chaos due to the situation in Syria. So far we have shed five percentage points of growth in 2011 and 2012, which means billions of dollars lost that cannot be made up for.