Make it or break it

Lebanon’s manufacturing industry continues to sail a tumultuous sea

Greg Demarque | Executive

With Lebanon’s economy stuck in a rut, only limited options remain available to support the country’s struggling manufacturing sector. Executive sat down with the person at the helm of the sector for an update on industrial and agricultural developments – Minister of Industry Hussein Hajj Hassan, whose long political career as a parliamentarian includes chairmanship of the agriculture and tourism committee, and he was a former minister of agriculture.

E   What can you tell us about the performance of the manufacturing sector in 2015?

Certainly it was not a good year with the war here in our region – in Syria, Iraq and Yemen. The economic crisis, the price of petroleum per barrel and the instability in the whole region led to a period of instability in the economy and in politics. So in this context I think it was a good year.

E   Have manufacturers and industrialists been quite resilient given all the challenges?

We have a small decrease in exports because of transport through Syria and Iraq. The [borders] between Syria and Jordan and between Syria and Iraq are occupied by terrorists, and the authorities in Syria, Iraq and Jordan closed these frontiers. So we’ve had problems with transport but we have another opportunity transporting by sea. We have very important growth transporting by sea.

E   Exporting by sea is a program recently implemented through subsidizing sea transport. Was this only for agricultural products or was the government also subsidizing manufacturing products?

The subsidization was only for agricultural products.

E   Do you have figures for how much money has been deployed until November 2015?

I don’t know; you must ask Nabil Itani [head of Investment Development Authority of Lebanon (IDAL)]. How much money was spent, I don’t know. But the amount is about $20 million.

E   Do you have a sense of how much it has helped?

[The amount is] enough.

E   At least helping in the sense that the farmers aren’t losing so much money or are maintaining their profits – what is the indication so far?

We don’t have indications actually because we are at the beginning. We must wait. But I think it’s very important for transport because we subsidize it by sea to the Gulf and to Jordan. I think that will help enough.

E   How long will the $20 million subsidization program last?

For one year, from the beginning of August [lasting until August 2016].

E   Do you expect the program might be renewed in 2016?

This depends on the decision of the government.

E   Are you lobbying for its continuation?

Certainly. I think this will depend on the results of sea [exports] and the line through Turkey and Erbil in Iraq, and the results on export – agricultural and industrial.

E   Moving from subsidization to the opening of new export markets – have possible markets been opened?

We have a problem with [exporting] to Russia – the transfer of money and the sanctions against Russia.

E   Have you been able to identify other new markets?

We tried actually to enhance our exports to Iraq, to Egypt and with Mercosur – Latin America.

E   What are the expectations – will enhancing exports to those markets help only farmers or manufacturers?

Any kind of product, but certainly some kinds of products have a greater chance [than other products] – especially jewelry, fashion, IT and high technology and finance technology. It depends.

E   In general do these trade agreements remove tariffs?

We’re talking about that. We try to sign new agreements sometimes and we try to change some articles in some agreements. It depends on the country. For example [with] Mercosur, we will sign an agreement. With Russia we have an agreement and we will update it.

E   Which countries did Lebanon sign trade agreements with in 2015?

Our political situation has not been very good in Lebanon. We’ve prepared [an] agreement with Mercosur. Yesterday [on November 10] I received the Brazilian ambassador to talk about the agreement. Last week I was in Iraq; we have two agreements under preparation. With Russia I think we’ll prepare a meeting in Lebanon between the Lebanese and Russian businessmen.

E   What about Iran as sanctions are lifted – as the minister do you view this as a huge market for exports whether agricultural or manufacturing?

No, I think in Iran it is very difficult for us to export agricultural products because they have huge production and low cost of production. I think we can export to Iran some industrial products [but only] few agricultural products.

E   With Lebanese investing in Iraq, and maybe Iran, whether in factories or starting new companies – do you see that as a promising possibility moving forward into 2016?

Some Lebanese are in stages of preparation for investment in Iraq. I discussed this issue with Iraqi ministers and the prime minister and I think they have to resolve some issues and problems.

E    Lebanese have already been quite active in Erbil and the Kurdistan region – what are the largest barriers?

They are active but they can be more active if the Iraqi authorities resolve some issues.

E   Would you mind elaborating on one or two of these issues?

[We need] a new law of investment [and a solution to] the bureaucracy and some problems.

E  For Iran a lot of investors are invested in the energy sector and in oil and gas…

They are in stages of preparing for a big visit to Iran soon.

E   That would be a delegation of businessmen or a government-to-government meeting?

Both, I think. It’s possible to have a visit to Iran as minister with a delegation of businessmen or as businessmen only.

E   Would they only focus on the oil and gas sector?

No, we don’t have a very important [business community] in Lebanon. I think it is possible in the sectors of banking, tourism and industry.

E   You’ve been in support of women’s empowerment but are you working on any practical measures to further their economic participation?

We have an agenda certainly.

E   Can you elaborate?

My duty in this agenda is to support small and medium enterprises (SMEs) for women – also for men – [through] credit financing, and to help promote trade between women, fair trade, and to [reach] markets.

E   Are these programs to be implemented by the Ministry of Industry?

Yes, with [the United Nations Industrial Development Organization] (UNIDO).

E   With what kind of timeframe?

I have a visit with UNIDO [in December 2015] to sign an agreement.

E   What is the proposed program with UNIDO?

We will sign an agreement about our CPF – Country Program Framework. And we’ll sign a program about energy and women and youth, about medicinal herbs and about industrial park zones.

E   Is the budget coming from the ministry or does UNIDO finance them – how do these programs work?

UNIDO is a technical institution; you need help to find funds.

E   Are there many women starting SMEs in the industrial sector?

Certainly. In food products [and handicraft].

E   In terms of helping the manufacturing sector you’ve consistently called for more incentives, whether through tax breaks…

You know we are in a very delicate period. We are in the preparation stage of many projects but there is no government and no Parliament.

E   Are there ways around the obstacles – have you been able to find creative solutions to push new programs?

I hope so. But we are in the preparation stages of many projects of law – reducing or abolishing the value added tax (VAT) for some things like industrial equipment and raw materials, reducing the cost of interest on loans.

E   Has the October 2015 central bank circular that makes corporate debt restructuring easier helped the manufacturing sector?

Yes, certainly, because they are in a period of transition and need help with their loans.

E   The central bank in many different sectors has been stepping in to try and pump life into the economy – what sort of impact do you think this circular might have for the manufacturing sector and did they coordinate with your ministry?

This kind of decision is very important for the economy, not only for industry.

E   So for manufacturers what are the possibilities?

Resistance against the economic situation. They must resist to remain alive.

E   And the loans would allow manufacturers extra capital to pay salaries and keep operations running at a time when revenues are down with the hope that in five years things will get better. Is that at the heart of this circular?

You know, we have a problem in Syria, Iraq, Jordan, Saudi Arabia and Yemen. Some states have a war; some states have a budget problem because of the price of petroleum. We have a recession in the region’s economy so it is certain that Lebanon will [be affected]. In our economy, industry will suffer at some level. This circular will help [the business community] to restructure their debt, to keep [them afloat and avoid bankruptcy].

E   Has the non-delivery of power plants inhibited growth in subsectors of manufacturing, for example the agro-industry?

This kind of industry will always grow because people eat every day.

E   When Lebanon is able to resolve its political crisis, can we expect a brighter future for the manufacturing sector and economy as a whole?

Certainly if we have a stable situation in politics, we will see a good and positive result for the economy and industry.

E   Looking forward to 2016 with the UNIDO programs and your plans for incentivizing industry – what is the outlook for manufacturing; is it going to be another year of maintaining and trying to stay alive?

My target in 2016 is to stabilize the situation. If I am successful in stabilization it will be [my pleasure] in these circumstances.

E   Any specifics to achieve stabilization that you haven’t told us already?

I don’t talk about politics.

E   Right.

I talk about these circumstances in politics, security, war in the region and the price of petroleum if I can.

E   Waste as a raw material for industry – during the 18 month period of the waste management plan, if it is ever in fact enacted, there would not be any sorting of waste. As the ministry are you doing anything…

We will prepare some programs.

E   What?

We will prepare some programs and declare our projects in December 2015.

Jeremy Arbid

Jeremy is Executive's in house energy and public policy analyst.