If there is unanimity concerning Lebanon, it is that the new government signifies a chance to put the country on a new track that will create prosperity and inclusive growth for Lebanese society. At the same time, it is widely agreed that the regional and domestic challenges are significant. Not least among these challenges is the task of holding fair parliamentary elections, as well as the need to return to organized budgets, improve infrastructure, invest in the economy and achieve continuity in government. These challenges are all surmountable, but they all have to be tackled. To inquire about governmental plans and strategies for the improvement of the economy, Executive sat down with the new Minister of Economy and Trade (MoET), Raed Khoury, who is a member of the Change and Reform bloc. The interview took place right after the January 14/15 Parliament session, which focused on the rent law(discussed further in a Q&A below), among other issues.
In elaborating on economic policy priorities, Khoury starts by explaining that the ministry is currently engaged in both short-term and long-term planning involving other government ministers. Some points in this plan “relate directly to the Ministry of Economy and some are related to the whole government,” he says, explaining, “The government has assigned a number of ministers to form what is called the Economic Committee in order to address the macroeconomics of the country”.
“It is a special political opportunity that the country should take advantage of. The priorities of the new cabinet lay down the basis for the medium-to-long-term future of Lebanon,” he adds. In reference to a set of prepared answers to questions that Executive submitted in advance of the interview, he then outlines economic and general policy priorities as comprising four important pillars in the short-term; the electoral law, budget approval as a starting point to improve Lebanon’s financial conditions, agreement on a plan for rehabilitation of Lebanon’s depleted infrastructure and appropriate management of the oil and gas sector.
Elaborating in more detail on each pillar, he emphasizes that the electoral law is an urgent issue given its importance in reviving constitutional authorities and national confidence. The adoption of a budget should entail decisions on several levels, including; redirection of expenditures toward sectors where Lebanon has a competitive advantage to create balanced and sustainable growth, tightening the revenue collection processes to avoid incurring any losses and to ensure social equity by the appropriate distribution of revenues among Lebanese citizens, adjusting the wage bill in the public sector – which accounts for more than 30 percent of total spending – and rectifying what he called the “peculiar transfers” to Electricité du Liban, ideally through a public-private partnership deal for operating the power utility and addressing the issue of public debt, which is growing. “In fact, public debt has exceeded $74.5 billion to date,” he stresses.
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Khoury sees it as a priority to update the country’s consumer protection law
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According to Khoury, the plan to rehabilitate Lebanon’s infrastructure needs to tackle problems comprehensively, such as the waste crisis, shortcomings in the supply of water, road, air, maritime and urban transport, telecommunications and energy. It is important in the context of infrastructure development “to highlight the private public partnership law,” he adds.
For the fourth pillar, proper management of the oil and gas sector, the minister takes the view that development of this sector “opens the page for a new era of economic prosperity and will aid in limiting the deficits in Lebanon’s public finance”. This makes it paramount to push to advance the file on the energy sector and to invest every effort in ascertaining that appropriate planning for this new sector is carried out, he says.
From Khoury’s perspective, the recent governmental visits to Saudi Arabia and Qatar make it evident that this new government has been implementing positive decisions since its formation in December. He attaches particular importance to the visits in the context of the issuance of the oil and gas decrees, for rebuilding regional confidence in the Lebanese economy and for revitalizing the relationships between Lebanon and the Gulf Cooperation Council.
Legal framework
When asked what the MoET would hope to achieve within the current cabinet’s term of little more than three months, he responds that he expects the current cabinet to work longer than that and be in charge for between six to nine months. “This is still very short. There are some quick wins that we need to put in place at both the ministry level the country level. It would also be an achievement if we can implement a long-term macroeconomic plan,” he says, before going on to specify that the economic vision and strategy would be based on a socio-economic developmental perspective and encompass a range of initiatives from attracting new Foreign Direct Investment (FDI) to the creation of a better business climate and diversification of the economy by way of supporting innovative sectors through small-and-medium-sized enterprises (SMEs) and startups.
For attracting FDI, the minister envisions special incentives for investments originating in the Lebanese diaspora. Regarding enhancing the business climate, he points to the importance of avoiding unpopular austerity measures and the need to amend laws and update the legislative framework. “Several economic sectors are relying on the ratification of several draft laws by the Parliament in order to enhance the business environment. These laws include; a public-private partnership law, a bankruptcy law, a competition law, a secured lending law, a commerce code and so forth,” he says.
Calling it of great concern that Lebanon is ranked only 126 out of 189 countries covered by the 2017 edition of the World Bank’s Doing Business Report, Khoury sees it as a priority to update the country’s consumer protection law and the laws relating to protection of intellectual property, just as much as improving the national trade balance by spurring Lebanese exports. To achieve the latter, he calls for strengthening existing trade relations, opening new markets and concise targeting of the Lebanese diaspora.
Markets of importance to Lebanon cited by Khoury in this regard include West Asia, the EU, Africa and the Mercosur common market in South America. In countries around the world, it will be important for Lebanon to collaborate with the private sector, mainly with the chambers of commerce and private economic entities.
As far as strengthening consumer protection at home, he aims to enhance the role played by the Consumer Protection (CP) Directorate at the MoET, especially with regards to monitoring the quality, safety and validity of local and imported products. Calling the CP Directorate’s role “critical” for the benefit of the Lebanese, he says positive repercussions of stronger consumer protection activities will affect many sectors from hospitality to healthcare and agro-industry.
A final action point on the minister’s mind is mitigating the socioeconomic impact of the refugee crisis and spillovers of the ongoing Syrian conflict. MoET’s goal here entails following up on the management of the crisis to alleviate the repercussions on Lebanese host communities and Lebanon’s social structure, Khoury says. He points to competition between Lebanese and Syrian labor for low to high skilled jobs and also at the level of micro to small enterprises, in addition to unemployment that has climbed to more than 25 percent in general and 35 percent among youth.
Asked what the MoET plans or projects for the next few months are in relation to the insurance sector, which is under its supervision, Khoury refers to acting head of the Insurance Control Commission (ICC), Nadine Habbal, as the person with the most expertise on the subject. As she talks to Executive, Habbal emphasizes that the ICC had a very fruitful year in 2016 and was recognized in a recent report by the International Monetary Fund’s Financial Sector Assessment Program as “instrumental in maintaining the [insurance] industry in a generally sound situation”.
Addressing ICC plans for the coming months, she lists four major projects, “First, the organization of the compulsory [Third-party Liability] motor insurance policy, which can be ranked as first priority because of the new [traffic] law. We need to abide by this law and have a standard policy covering both bodily injuries and material damages.The second project will be the organization of medical insurance benefits. We want to have a standard policy with minimum benefits and we want to interfere in the pricing strategy. We have to impose minimum pricing; this will aid the policyholder in having the right coverage [in combination] with an acceptable price. Next is quantifying and managing the risks of an earthquake. We also aim for creation of a framework of soft loans that will act as incentives for mergers and acquisitions in the insurance industry.” She concluded that achieving these four goals within five or six months would be significant and regarded as an institutional success for the ICC.
In addition to elaborating on the MoET strategy for the coming months, Khoury kindly responds ad-hoc to several questions by Executive, addressing issues from real estate to banking and the ministry’s relationship with Banque du Liban, Lebanon’s central bank.
E If we take a look at specific laws that are on the agenda at this time, the rent law sticks out. It was a topic in Parliament this January and is an urgent topic on the minds of the population both the side of tenants and the side of landlords. When putting them into a macroeconomic context, how important are laws like the new insurance law that has been debated for years, or modernized laws on restaurants and hospitality demanded by that industry, or the rent law that has been highly contentious? What is the most important law from the ministry’s perspective?
All of them are important but the rent law is very important for [a number of] different reasons. First, it will create fairness in how people are treated, which is important for the socioeconomic environment. Second, it creates stability in the real estate market in terms of prices, etc. Third, it also helps in creating more turnover and demand in the real estate sector, which will attract foreign and Lebanese investors to buy and sell [properties], creating a market.
E The usual assumption is that confidence is a key factor for economic development. If investors don’t have confidence in the legal framework of a country, they are very hesitant to invest in an area like real estate.
True.
E In order to encourage inflows of Foreign Direct Investment (FDI) into real estate, and also encourage local Lebanese to invest, what can the ministry do in terms of building confidence in this market?
We have some input for the law itself from our side, and we can also try to think [in line] with [Banque du Liban, Lebanon’s] central bank. We have not yet looked into it, but there could be a project with the central bank for incentives that are geared toward this legislation in order to create what I have said before. It has to be with the central bank in terms of subsidies. Also, as the Ministry of Economy, we have a role in supervising the implementation of the law in terms of prices.
E So in this regard and with regard to Consumer Protection Laws, the function of the Consumer Protection Unit at the MoET will be crucial?
Exactly.
E Do you have a plan to enlarge the functionality of the Consumer Protection Unit to a greater level?
We are now studying the capacity [needed] for accompanying this law and will have our opinion later.
E The time frame for this cabinet is limited by elections later in 2017. Is it true that there is no visibility at this time as far as the next cabinet after parliamentary elections, or is there already some agreement or personnel arrangement for the next cabinet as far as ministerial positions?
On positions, no. So we don’t know if I will stay or not. But whether I stay or go, I am part of a political party that is involved in putting together an economic plan and agenda for the country. I will be part of this regardless of my position, because I am directly involved in this and I will continue to [be].
E That is good to hear. Prior to the 2005 elections, Executive made the rounds with most political parties in Lebanon to inquire about their economic perspectives. There was an almost total absence of party programs as far as having an economic platform. Is it different today?
First of all, concerning our political party, we have finalized an economic plan, and it is already on the table. We are now in the process of communicating this plan to other parties and developing a common paper that will be adopted as a roadmap for the future. So in this regard, I can tell you, yes, we have done something. We have been working on this plan for the past three months and have finalized it internally. Now we are at a stage of communicating with other parties and reaching agreements with at least three or four major parties in order to roll it over.
E It is my understanding that the Lebanese constitution calls for implementation of meritocracy in filling positions from the president on down but all throughout the past 25 years we have been hearing people allege that wasta is more important than merit in getting a job in public administration. What can be done to create a stronger image that people are placed in positions because of merit?
There is a process involving the Civil Services Board which does examine people for their qualifications. When they pass [applicants] will see what vacant positions are to be filled in the government and we as ministers will have our say. We will interview them and take [the applicants] we want. I can’t tell you how to change the image but there is a process and there are exams. Wasta might come into play when two people have the exact same level of qualification and compete for the same job, but there is a process.
E It seems that it was often difficult to attract qualified people to top positions because the remuneration in the private sector is much better.
You are right. For very high-caliber people the private sector is more competitive when you compare remuneration. But there is stability in the public sector and this weighs in because in the private sector a company can fire someone if the company is not doing well, whereas in the public sector it is difficult to fire people. There are also some institutions within the government, like the United Nations Development Programme (UNDP) or some semi-government entities, where the remunerations are higher and more flexible. There are ways to overcome the situation but in general the salary in the public sector is lower than in the private sector.
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I personally made it a point to seperate the two things by resigning from my position as chairman of a bank [when appointed minister]
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E The insurance sector is an important sector under your supervision and the minister of economy has a role in the development of the insurance industry. Do you think that the combination of regulator and supporter of development is a good thing in the hands of one ministry, or should the regulator be independent from ministerial decisions?
We are debating now if the [Insurance Control Commission] should be under the Ministry of Economy or should have more independence. I am the kind of person who believes that it should be more independent but again, once it is independent, the ICC’s role would be more supervisory than promotional regarding insurance companies. The regulator’s first role is to protect the sector, its second role is promoting it. What we care about is that an insurance company does not lose money and shut down. The regulator doesn’t care if it makes a million dollars or $10 million. And what we also care for is ensuring the fair treatment of clients, etc. But in terms of the ministry’s role, I believe the ministry has to work hand in hand with the regulator in order to carry out some elements of promotion as well. I am also thinking about something, that I will not talk about now, in order to promote the insurance companies to make them healthier and more developed.
E So whether the scenario would be to keep the ICC under the ministry or independent, there would be a focus on the development of insurance?
Yes, of course.
E In terms of banking, many international voices – not least the World Bank – have for the last five or six years spoken with some criticism of quasi fiscal policies being exerted by Banque du Liban (BDL). One of the major issues in Lebanon was the inability to create effective fiscal policy on part of the government. As a person coming from the banking field, how do you see the relationship between MoET, BDL and the banking industry?
You are right in saying that the banking sector and BDL have played a role in regard to fiscal policies. This is for two reasons. The central bank has been working in a healthy way, unlike the government, which has been interrupted many times by inability to form a Parliament or cabinet – you know the story. The second reason is because the central bank has tools, [meaning] mainly it has money which it can control to enact fiscal stimulus. The government, including my ministry, does not have the financial capability to support or subsidize anything in the economy like the central bank can do with regard to the housing sector, for small-and-medium-sized enterprises (SMEs), for energy and many other sectors. After all, the central bank is supervising more than $160 billion in deposits in commercial banks and it is a wealthy institution. Going forward, we will take some of the burden from the central bank by working hand in hand with the central bank in putting more fiscal laws and regulations into place, but the stimulus will still come from the central bank.
E The political game between monetary policy and fiscal policy is considered to involve some competition based on divergent interests of the fiscal and monetary authorities.
Not in Lebanon. The central bank is playing both roles.
E So this will continue for the coming years?
It will continue for a long time, yes, because the fiscal situation is not healthy at the [level of] government. We have debt and a negative balance of payment, our budget is running every year in minus, so we don’t have many tools.
E When people are appointed to public positions, one often hears in other countries that they step back from their private business because of potential conflict of interest between public and private functions. Can you say what you did in this regard?
I am not sure if regulations force [disassociation from their private business] on ministers or deputies in Lebanon. However, I personally made it a point for myself to separate the two things by resigning from my position as chairman of a bank in the private sector. I resigned on the day after I was appointed minister of economy. It was my personal decision.
