Lebanon’s real economic growth was a meager 0.8 percent in 2012, according to the most recent evaluations from The Institute of International Finance (IIF), compared to an expansion of 1.8 percent in 2011. The downturn was primarily attributed to rising political tensions, declining domestic security and the Syrian conflict. Real private consumption was calculated to have increased by 3 percent in 2012, compared to 3.7 percent in 2011, while private investment contracted by 3.7 percent following a fall of 3.5 per cent in 2011. What is more, the IIF stated that the foreign direct investment represented a paltry 2.7 percent of gross domestic product in 2012, whereas it had amounted to 8.8 percent in 2011. The most recent figures from the Ministry of Finance (MoF) compound the bleak reflection on 2012, revealing a 67 percent increase in the fiscal deficit to reach $3.93 billion compared to 2011. The MoF based its monthly fiscal results on the Ministry of Telecommunications estimate of telecom receipts, which reached $1.3 billion in the first 11 months of last year, rather than on the funds actually received at the treasury. Although the MoF’s figures revealed that the cost of debt servicing decreased by 3.1 percent year-on-year over the first 11 months of 2012 to $3.4 billion, the IIF noted that the debt-to-GDP ratio actually increased to 140 percent, compared to 136 percent in 2011. This was the first such increase since 2006 and the IIF called on the government to implement measures to reverse the widening fiscal deficit.
Mikati, Hariri families’ billionaire rankings
Six people from Lebanon feature on Forbes Magazine’s annual survey of the world’s billionaires; four hail from the family of former Prime Minister Rafiq Hariri and two from the family of recently-resigned Prime Minister, Najib Mikati. Indeed, Najib and his brother Taha Mikati ranked 384th place, down from 377th, despite the fact that their net worth grew to $3.5 billion each, up from $3 billion in 2012. The Mikati brothers are followed by Bahaa Hariri in 613th place and his brother, former Prime Minister Saad Hariri, ranked 792nd, down from 764th on the 2012 list, despite his personal fortune being estimated to have increased $200 million to reach $1.9 billion. The Mikati empire was built in telecoms, with the brothers founding Investcom in 1982 and selling most of their stake to South Africa’s MTN group in 2006; they remain the largest single shareholder through the holding company M1 Group. M1 Group investments include real estate, jet leasing, retail and industry. The Hariri family fortune includes investments in Saudi Arabia, other Arab countries and Europe, in the real estate, banking, telecommunications and media sectors. The richest man in the world is Carlos Slim, a Mexican national of Lebanese descent, and his fortune is estimated at $73 billion.
The Banque du Liban (BDL), Lebanon’s central bank, made some modifications in late February to the stimulus package mechanism announced in mid- January. Intermediary Circular 318 stipulates that banks operating in Lebanon can benefit from financial facilities from the BDL totaling up to $1.47 billion against guarantees from beneficiary banks, compared to $1.46 billion in the mid-January circular. The loans are to be extended on a first-come first-served basis with a fixed rate of 1 percent per month. The banks can take from the BDL advances equivalent to between 15 and 60 percent of loans offered to the productive sectors, 60 percent of non-housing loans extended in local currency, 100 percent of loans to small and medium sized enterprises (SMEs), 100 percent of loans that finance higher education, 150 percent of credits allocated to research and development in local currency, between 30 and 150 percent for loans extended to finance environmentally friendly projects and between 60 and 100 percent of allocated housing loans. Intermediary Circular 318 indicated that banks would not benefit from reductions in reserve requirements for these loans. The BDL also announced that it had allocated $817.2 million to housing, $353.6 million to environmentally friendly projects, $146 million to productive sectors, $79.6 million to non-housing loans, $33.2 million to education loans, $14.9 million to research and development projects and SMEs with $6.6 million.
Between January and October 2012 the treasury transferred $1.8 billion to the national energy utility, Électricité du Liban (EDL), an increase of $446 million from the same period in 2011. The most recent figures released by the Ministry of Finance show that over the first 10 months of 2012, $1.8 billion of the transfers were used to reimburse Kuwait Petroleum Corporation (KPC) and Sonatrach for fuel oil and gas oil purchases, $71.27 million for debt servicing and $9.33 million as treasury advances for value added tax payments. The increase in transfers was partly offset by a $36.67 million decrease in natural gas purchases from Egypt. The largest increase came in the fuel bill from KPC and Sonatrach, which increased by 31 percent year-on-year, mainly due to increases in international oil prices. 2012 payments reflect consumption over the period May 2011 to May 2012, where the weighted crude oil average prices were $113.35 per barrel. The January to October 2011 payments reflect consumption over the period June 2010 to May 2011, where crude oil prices averaged $93.3 per barrel. The proportion of the oil bill funded by EDL in recent years has declined; from January to October 2010 EDL paid 11.4 percent out of an oil bill of $1.08 billion; over the same period in 2011 they contributed 6.4 percent of $1.47 billion; and for the same 10 month stretch in 2012 EDL stumped up just 3.7 percent of a $1.8 billion fuel ticket.
Strikes build steam
As his parting shot before resigning from his post in late March, Prime Minister Najib Mikati referred the public sector pay hike proposal to Parliament. Teachers and staff across the public sector had been on open-ended strike since February 19, staging a series of protests at key ministries, the airport, the Beirut Port and the Presidential Palace. The Union Coordination Committee launched the industrial action after Mikati had previously failed to refer the law to Parliament. Following Mikati’s decision, Minister of Finance Mohamad Safadi said the draft law would be “economically devastating” for Lebanon. The pay scale hike, which hasn’t occurred in 16 years, is expected to cost around $1.2 billion dollars per year. The draft law contains, among other measures, increased valued-added tax on certain luxury items, charges for construction violations and a 15 percent capital gains tax on real estate transactions. The proposal would also see the working week increase to 35 hours and the retirement age rise from 64 to 69. The proposal has faced fierce opposition from private sector lobby groups citing sluggish economic growth, inflation of around 10 percent and a fiscal deficit that ballooned last year by 67 percent to reach $3.93 billion.
Damming the Jeita Grotto
The Ministry of Energy and Water (MoEW) embarked on the first construction phase on the Janaa Dam along the Nahr Ibrahim river, despite warnings about the efficacy of the project and potential harm to the world-renowned geological tourist attraction, Jeita Grotto. The dam would be the second largest in Lebanon after the Qaraoun, at 165 meters, and a storage capacity of up to 95 million cubic meters and is slated to provide 18 million cubic meters for the Jbeil area and 20 million cubic meters to the capital Beirut. A report drafted by the German Federal Institute for Geosciences and Natural Resources warned that the dam is being built in an area that leaks large quantities of water into underlying networks that feed the Jeita cave network. If the initial findings are correct this could undermine the intended water storage purpose of the dam as well as the stability of the cave network, yet the MoEW has staunchly denied the veracity of the report’s findings. A further 10 dams are scheduled to be built across Lebanon this year.