There were very few positives for the Lebanese economy in 2013, but the industrial sector was perhaps one of them. If 2011 and 2012 were years of crisis — with the Syrian civil war destroying trade routes and wreaking havoc with business plans — 2013 was a year of adaption and stabilization.
In the first eight months of 2013, industrial exports totaled $2.2 billion, an increase of 12.3 percent from $1.9 billion in the same period in 2012, according to the Ministry of Industry. Industrial imports reached $217 million in the same time period, up 7.7 percent from $201.4 million in 2012. The government does not collect accurate information for total industrial output but Neemat Frem, head of the Association of Lebanese Industrialists (ALI), told Executive that growth was “certainly double digit” in 2013. These figures were, admittedly, starting from a low point after terrible years in 2011 and 2012, but growth is growth and there was precious little of it in the Lebanese economy this year.
In fact, industry was one of the key reasons why Lebanon’s economy grew at all in 2013. The meager 1.5 percent growth in gross domestic product (GDP) achieved nationally was — according to World Bank figures — mostly from industry. While services — the traditional driver of the economy — and agriculture made up less than 0.5 percent of GDP growth, industry alone was responsible for over 1 percent.
This is somewhat of an anomaly, mostly due to the rapid decline in services, which in the boom years of 2008 and 2009 made up over 7 percent of GDP growth. Industry’s input to GDP growth has never been more than nearly 3 percent in 2010, and is unlikely to be the major driver if and when the economy does start to grow again. But the positive numbers do point to a strong level of resilience in the sector.
Eric Le Borgne, lead economist at the World Bank’s Lebanon branch, agrees that “in relative terms” industry was a success in 2013. “The big losses have come from the services sector; industry has remained a small part but relatively resilient. It has been resilient even though some sectors have been impacted by the trade disruptions through Syria and the Gulf/GCC customers going through Syria. But overall what we see is relative resilience.”
Confidence is gradually returning as well. Banque du Liban’s Balance of Opinions quarterly business survey — a key measure of how industrialists perceive their positions — was at -5 in the second quarter of 2013. While this was clearly negative (a positive score means that more industrialists forecast growth than decline), it was up from -11 in the same quarter 2012, and -8 in the first quarter this year. There was, however, clear geographical divides with those in the North (-30) and Beirut and Mount Lebanon (-7) negative, while those in the Bekaa (+5) and the South (+34) were positive about the coming months.
In terms of policy, it is hardly a surprise that little if anything was done by the government to support industry in 2013. The industrial sector has long complained of marginalization — the industry ministry is one of the worst backed financially, with an annual budget of little more than $5 million — and the fall of the government in March made policy-making impossible. Caretaker Industry Minister Vrej Sabounjian, however, denies that his time in office has been a failure. “[We] have achieved a lot of things, but of course there are some things we could not do yet — especially because in the last 6 or 7 months we have not had all the powers of execution,” he said.
The biggest disappointment has perhaps been the failure to implement the tax reduction for Lebanese exports, which would see the rate fall from 15 percent to 7.5 percent. The deal was first backed by the government of Omar Karami in 2005 but has yet to be implemented. A year ago Sabounjian told this magazine it would be done in 2013, but he now believes the collapse of the government in March and the subsequent failure to reach a unity deal has made it impossible in the short term. “It is in the parliament. It has been over seven or eight months in the parliament but I hope one day they meet again and finalize this law,” he said. Industrialists have grown weary of political promises and none that Executive spoke to believed the decision will ever be implemented.
The fall of the government has also led to a moratorium on all plans to develop other parts of the framework for Lebanese industrialists. Lebanon’s bid to accede to the World Trade Organization (WTO), which officially began in 1999, is now all but consigned to history. In February USAID, the American development agency, indicated as much when they cut their funding aimed at supportting the bid. “We had done everything we could and it was up to the government of Lebanon to take it to the next level,” Heath Cosgrove, director of economic growth, water and environment of USAID said, explaining the decision. The key competition law which needs to be passed for WTO status to be granted has been sitting on parliament’s to-do list for a while, but the economic interests of the country’s oligopolies make sure it never makes it to the top. Improvements to intellectual property laws, research and development schemes and tax incentives also went unmade in 2013.
But the absence of government support may be helping unite the industrial sector. ALI’s Frem told Executive that industrialists have given up hope of government leadership but are looking to improve support within the sector. Chief among their proposals is an industrial park (see box above), which, if it is formed, will be run without any government support.
Similarly ALI is seeking to establish an industry index to reliably measure industrial development. Among the key indices to be included will be job creation, investments, proper industrial output statistics and a yearly overview of change in costs. In a country where reliable data on almost any sector is lacking, this initiative is to be welcomed.
More fundamentally, however, Frem makes the case that the shockproof nature of the industrial sector means that there should be more focus on orienting policy towards supporting it. “We are living in a country that is built on many fault lines, so we shouldn’t build an economy that is not resilient,” he says, referring to the service and tourism-oriented focus of the economy. “In 1974, 25 percent of Lebanon’s GDP was from industry. Now it is 10 percent but it should be around 20.”