As Lebanon keeps pushing through one of the greatest economic and financial collapse’s in history, we can only appreciate the resilience of its private sector. Since the “official” start of the crisis, Lebanon has gone through a financial meltdown, a public sector default, the COVID-19 pandemic, the August 4 2020 Beirut blast, and the Russian-Ukraine war, all while hosting a refugee population that nearly amounts to a third of its nationals.
To put things into perspective, for a country like France, it would be the partial destruction of Paris, the loss of all the social security programs including pensions, all the deposits, every single financial lifeline, while hosting 25 million refugees. One doesn’t need to be an oracle to imagine the result.
Nevertheless, we need to lay the foundation for a better future today. We owe it to our country; we owe it to our children.
The private sector has always been the driving force behind the economy. It has performed despite the abnormal burden the state has placed on it. It has been able to beat all odds and operate in an environment that would be fatal to the most efficient multinationals.
The resourcefulness and creativity of those companies has allowed them to find synergies and opportunities where no one else would have ventured. But even those heroes can’t indefinitely beat the odds or keep navigating abnormally treacherous economic seas. Without a sound socio-economic vision, the uncompromising rule of law and a solid leadership to deliver, even the brightest and the most resourceful will fail.
As we move into 2023, we have identified six main pillars for the development of the industrial sector and the economy at large.
1. The Energy Transition
The local utility provider, Électricité du Liban, will be incapable of providing reliable and affordable energy in the immediate future. A transition to renewable energy is no longer a luxury or an environmental endeavor, it is now vital to the feasibility of any industrial operation.
The main obstacle towards a rapid transition remains access to finance. We have already initiated negotiations with DFIs to figure out a scheme that would allow them to get involved.
We call on them and the countries that hold the most sway in their decision-making to act swiftly on that front, time is of the essence and the rewards are indisputable.
2. Fiscal Policy
As the government scrambles to address its fiscal deficit, we call on them to go beyond the knee-jerk reaction of expanding taxes. We are in a deep recession and in any other situation we would be calling for quantitative easing.
If the past couple of months are any indication, it is going to be impossible to levy new taxes and even harder to enforce payment.
The government should be investing resources to widen the reach of their current taxes which are paid by barely a third of the population. Closing loopholes such as the VAT threshold and the lump sum accounting principles are instrumental to that effort.
It should also concentrate on the services it provides. Pricing those correctly allow for covering payroll costs while keeping the country fiscally attractive.
3. Monetary Policy
Forex markets should be regulated to protect consumers and corporates from speculation and manipulation. It should also reflect the current value of our local currency.
It is extremely important to float the currency, allow for its free exchange in regulated environments (banks, licensed exchange offices…). It is also equally important for the central bank to intervene only to prevent wild swings, therefore making it too costly for any player to speculate.
The Central Bank and the government should take immediate steps to move away from the cash economy back towards a highly regulated financial transaction system.
4. Pensions and Medical coverage
The financial collapse has brought down with it all the social safety nets that were designed to protect the population. The social security program has all but disappeared with both medical and end-of-service branches technically bankrupt.
We believe it is time to implement a PPP approach to the medical coverage issue, along the lines of the Dutch model.
The government is currently designing a pension system with the International Labour Organization to replace the old end-of-service model. We are looking forward to improving the text of the proposed laws and starting a swift implementation. The old model can no longer be applied and any attempt to do so will result in massive bankruptcies across sectors.
5. Export Promotion
Addressing the balance of payment issue is the only way to bring back financial stability and put the country back towards sustainable growth.
Lebanon has been reeling under a considerable trade deficit for the past 30 years. The only way to address this deficit without causing a significant contraction of the economy is to increase our exports multiple folds.
To achieve such a difficult goal, we need to bring down our costs of production (energy, transportation…) but we should also engage in a ferocious campaign to market our products by leveraging our economic attaches, enforcing our bilateral and multilateral agreements and helping our SMEs understand the requirements of foreign markets.
6. Workforce development
We can all attest to the quality of Lebanon’s higher education system Lebanon. Thankfully, it still ranks among the best in the world. Unfortunately, the same cannot be said of our Vocational and Technical Education (TVET) sector. It is still archaic by design, out of touch with the needs of the market and hardly attractive to the youth of this country.
Without a proper TVET system, our industrial sector cannot grow, nor can it produce efficiently. We have setup a vision for this sector centered around a hybridized model which basically embeds students and trainees in the workplace as they continue their studies.
Since they would be paid, this model creates thousands of jobs while improving on the quality of the training and the knowledge of the market requirements. We would be creating a highly skilled, well paid and highly productive workforce.
The industrial sector has been neglected for the past decades, and this has resulted in a much weaker economy; one that is highly sensitive to foreign factors. While we are not advocating for the replacement of any sector by any other, we have clearly seen why it is important to have a balanced economy.
What was laid out above are the most urgent pillars, but many others remain as well. We call on the government and parliament to engage continuously with the private sector and especially the industrial one, and to immediately start with the reforms required.
This year might very well be the one that sets the stage for the next decade. We can either rise to the challenge and inevitably change course or watch as the country disintegrates. Our children would never forgive us.
