Important partners of Lebanon, such as the European Union and the United Nations, have long advocated sustainable expansion of industrial capacity as a core requirement for Lebanon’s economic development. Past and present collaborative projects such as ELCIM (Euro-Lebanese Center for Industrial Modernization) and the interaction with the United Nations Industrial Development Organization (UNIDO) are testimony to the value that multilateral stakeholders attach to proper industrial growth. A new phase of interaction with UNIDO started to shape up in 2014 and to find out more, Executive sat down with Cristiano Pasini, UNIDO representative and director for Lebanon, Jordan and Syria.
What is UNIDO’s role when it comes to working with Lebanon’s industrial sector?
In Lebanon we have four ongoing programs. One is the Community Empowerment and Livelihoods Enhancement Project (CELEP), which is in its third phase now after supporting small companies and agriculture cooperatives. We launched this [third phase in October 2014], focusing on creative and cultural clusters of industries, and tackled a very specific sector, which is very much in tune with the potential of Lebanon’s creativity and cultural heritage. Besides CELEP, we have one program for supporting the transfer of environmentally sound technologies — this program is regional but we have a component focused on Lebanon. And we are also working to offset the effect of the Syrian refugee crisis by supporting communities in vulnerable areas through industrialization — a project that supports productivity and job creation.
Can you give a ballpark figure for your overall budget for Lebanon?
It [depends] on the flow of projects, but we deliver support to industries of around $1.5 to $2 million per year. The volume of funds for international assistance varies depending on the moment. For example, after the war in 2006 we had a huge amount of funds — I think more than $10 or $12 million.
If you take, for example, the assistance provided after the 2006 conflict, did you have any metric saying how much return on that investment was generated?
One of the major activities we did was trying to put industries back on track that were affected by the war. We are a specialized agency, first of all, we are not a generalist agency. So we [emphasize supporting] companies that have the potential and the capacities to grow, so they can increase employment and we help them to become more competitive and become exporters. [Lebanon] created quite a significant number of jobs throughout that period [and] what is meaningful is that we noticed that for each dollar [UNIDO] invested in the companies, the companies self-invested three dollars — the multiplier effect.
[pullquote]There is a direct correlation between industrialization and the wellbeing of the people [/pullquote]
Do you have a forward-looking agenda where you can say what you will look to accomplish in 2015 and beyond?
I just arrived 10 months ago and this has been a very positive year because we started three new initiatives [and] we found much greater willingness among the international community for supporting productivities; that is not the normal case with certain partners.
Is that because of the Syrian refugee crisis?
[Yes,] that is because of the Syrian crisis. We realized that humanitarian assistance is, at a certain point, going to be reduced because the governments will not [be able to] afford to support [refugees in the long term]. So there is a need to create livelihoods and jobs, so people can start earning their own livings. Productivities and job creation warrant much more focus from the international community. There is a huge opportunity for export here in Lebanon; we have a strong agro-industrial sector, small companies but there is a lot of potential. We see also potential in the creative and cultural clusters industries, and I think the international community has also started realizing that it is important to support the productive fabric, the manufacturing fabrics of society.
What are the drawbacks — the barriers — against actually increasing industrial productivity and output in Lebanon?
There is a direct correlation between industrialization and the wellbeing of the people. We have strong statistical evidence that this is the case; the more a country is industrialized, the greater the wellbeing of its people. Sometimes this way of thinking is not very much in tune with certain constituencies in Lebanon, but industrialization is indeed very important. There are areas where obviously there is a lot of work to do. [With regards to] creating a more conducive business environment — in terms of regulations — we’re working closely with the Ministry of Industry to make sure there are programs to address the different aspects. One element that I feel is very important is the lack of data in the industrial sector.
Does UNIDO find the lack of availability of statistical data regarding industrial manufacturing to be a weakness?
This is something very close to my heart and I’m trying to discuss this with the Ministry of Industry to [encourage them to] have a very strong statistical department. I think we need more solid data to supply to the public and to the private [sector] to understand the pulse of the situation. If you don’t have the pulse it’s difficult to think about policy.
How important are exports when measured in comparison with the domestic capacity for demand for advanced manufactured products made in Lebanon?
We don’t target exports; UNIDO normally has several indicators in the statistical department. One is what is called ‘manufacturing validation’, which deals with the idea of manufacturing capacity and net imports of unfinished goods of manufacturing capacities in the country. For Lebanon, the latest numbers that we have are around 8–10 percent, which is still very low. The second element is the link — what we call a competitive industrial performance index — which is benchmarking a country against others. These two elements give you a quick snapshot of how the industrial sector is performing, together with the manufacturing valuation per capita. Where do we stand in Lebanon? For the manufacturing validation we stand at 8 percent; for me we need to work to increase this to a higher value. Certainly, 15 or 20 percent, like [in] some industrialized countries, would be a perfect situation. That’s the kind of probable target we will try to reach. One of the issues UNIDO is working on is to try to help industry to grow in specific areas. That’s why you hear a lot about industrial parks and industrial zones — this is something we’re very much willing to support.
[pullquote]We can become the conduit, we can become the underlying force, but it requires a lot of support from others[/pullquote]
But it hasn’t happened even though they’ve been —
Well they’re working on that, it takes time. Industrial zones are not an easy task. First, to approach the issue of industrialization in general, not one single ministry or one single international organization can [perform alone]. We can become the conduit, we can become the underlying force, but it requires a lot of support from others — other ministries, private sectors [and] different international institutions.
Development economist Ha-Joon Chang of Cambridge University has been extremely critical of the policies of the World Bank and industrialists saying the capacity for industrial manufacturing distinguishes the rich from the poor among nations.
Tell me one country in the developed world that became developed without passing through manufacturing.
Absolutely, but one of the things he was very critical of is that industrialized countries — such as Germany or Italy, as well as all the multinational agencies — are preaching free trade and abandoning protectionism whereas [developed economies] all grew through protectionism. So in this context, what is UNIDO’s position today on, for example, Lebanon’s ascension or non-ascension to the World Trade Organization?
I am starting from the same argument. How do you foster industrialization in countries — what are the tools? The first thing you have to do is look at what you have on the ground, so you need to have numbers — statistics — [to give] a good picture of the industrial sector and a good picture of the potentiality. Then you can frame a strategy. Industry needs support. Let me clarify, not support just to protect, but support [to promote] competitiveness. [UNIDO] wants to support development because [companies] need to link into global trade. And to link to the global trade they need to become competitive.
Between compliance with European standards — environmental sensitivities and product integrity — labor conditions in production, and the numerical output capacity to serve a market like Russia — what are the main obstacles for Lebanese manufacturers?
I think for business normally the bottleneck is in demand. In this case we’re in the positive side in supply, which is the easiest to address, except for industrialization and industrial products. For agriculture production, I’m not the best expert to speak but I think [Lebanon] would require much more land to be able to supply this kind of market.
For 2015, do you have an expectation of what percentage of GDP Lebanese industrial output will be able to contribute?
No, because we are not in control of industrial production. If I hope something for 2015, it’s that we can establish a strong metric and statistics system here, which would be useful not only for UNIDO but for the ministry and the private sector.
My discussions with the minister of industry are on a daily basis on UNIDO programs supporting stronger industrialization. This includes industrial zones, continuing to support small and medium companies, moving towards environmentally sustainable industries and building an upgrading program for industry — possibly supported by the ministry — to leverage financial funds from banking as a financial tool.
Have you been in discussion with the major banks or the banking association?
We first are trying to create consensus with the major stakeholders and donors. Then when something solidifies, we will hold discussions directly with the bankers. I’m sure they would be very interested.