Official figures put the average real growth rate of Lebanon’s economy at about 8.8 percent during the years 2008 to 2010, constituting one the highest average growth rates in the world over that period.
Indeed, only Qatar, Afghanistan, Timor-Leste, China and Ethiopia posted better growth rates than Lebanon during these three years. Further, Lebanon’s real gross domestic product growth rate averaged 9.2 percent in 2008 and 2009, almost identical to China’s 9.4 percent output for the same years. These figures put the performance of the Lebanese economy among the best globally, a remarkable achievement if one were to believe the official numbers. But high and sustained rates of economic growth require a number of factors, including a very competitive economy in most of its pillars. This year, and for the first time, the competitiveness of the Lebanese economy has been measured and benchmarked against the rest of the world.
The World Economic Forum ranked Lebanon in 92nd place among 139 countries on its Global Competitiveness Index for 2010-11. It also ranked Lebanon in 26th place among 32 upper-middle income countries and in 12th place among 15 Arab economies included in the survey. The index measures national competitiveness and highlights its micro and macroeconomic foundation. It measures a country’s and its enterprises’ ability to compete in global markets, based on the supporting institutions, infrastructure, economic policies and education and healthcare systems, the country’s capacity for innovation as well as the sophistication of domestic markets and local business practices.
Hamstrung by poor infrastructure
A closer look at the index ‘s detailed results shows that Lebanon does well on efficiency-enhancing indicators such as health and primary education, higher education and training, efficient markets, financial sector development and business sophistication, among others. But it is clear that the poor state of infrastructure is a major impediment to the competitiveness of the Lebanese economy.
Lebanon ranks in 123rd place among 139 countries for the quality of its infrastructure. In other words, Lebanon has a better infrastructure than just 22 percent of the countries surveyed. Lebanon falls immediately behind Mauritania, Mali and Lesotho, while ranking ahead of Paraguay, Cameroon and Cambodia. Mauritania and Mali are low-income economies and Lesotho is classified as a lower-middle-income economy.
Lebanon also has the worst infrastructure among the 15 Arab countries included in the index, as well as among countries of the same income level. The results indicate that Lebanon has the infrastructure of low-income countries, while its per-capita income is one of the highest among upper middle income economies.
However, the details show that it is not the entire infrastructure that is neglected, as Lebanon has the 36th best air transport infrastructure, the 55th best port infrastructure and the 71st best fixed telephones network in the world. So what is dragging the quality of infrastructure to the level of poor economies is primarily the low quality of electricity supply and mobile telecommunications, followed by the poor state of roads and railroads.
The quality of electricity supply is the single biggest infrastructural obstacle to the competitiveness of the Lebanese economy, as Lebanon ranks in 136th place on this category, classifying it as having the fourth worst electricity supply of the 139 countries surveyed.
The quality of mobile telecommunications does not fare much better, as Lebanon has the 16th lowest level of mobile phone subscription, reflecting the network’s limitations.
In parallel, a survey showed that a plurality of executives at Lebanese companies consider that the inadequate supply of infrastructure is the single biggest problem for doing business in Lebanon, as 18.5 percent of respondents put infrastructure bottlenecks as the most important obstacle for their work, ahead of government bureaucracy, political instability and corruption.
Making it all add up
So how can the Lebanese economy grow by an average of 9 percent annually and, at the same time, have vital components of its infrastructure in such a dismal situation? The more pertinent question would be: does Lebanon growing by an average of 9 percent annually mean the country does not have infrastructural impediments, or are infrastructural bottlenecks so significant as to raise questions about the reliability of the growth figures?
Benchmarking the scope of improvement for Lebanon shows that if the country achieves a maximum value on each of the categories in the infrastructure sub-indicator within the Upper Middle Income group to which it belongs, its rank would jump by 91 spots to 32nd place globally in the quality of its infrastructure. As such, Lebanon’s infrastructure would become comparable to that of Estonia, Israel, Thailand and Oman.
In turn, this would push the country’s overall competitiveness ranking to a level allowing the economy to effectively compete on a regional level and achieve its growth potential.
Studies by the International Monetary Fund and the World Bank indicate that improving the electricity supply would raise Lebanon’s real per capita GDP by 1 percent annually, while upgrading the broadband infrastructure would add as much as 1.4 percent annually in real per capita growth.
The electricity issue is being addressed through a comprehensive five-year restructuring plan, which has been approved by the cabinet with vast sums allocated in the 2010 budget for this purpose.
Also, the Cabinet’s Ministerial Statement called for upgrading the telecom infrastructure. These initiatives, even with political consensus, will require time to be completed but they would help alleviate key obstacles to economic growth.
If competitiveness is to truly be raised, along with upgrading Lebanon’s hard infrastructure, the country’s statistical infrastructure must also be upgraded in order to provide a more realistic and transparent picture of the actual growth and performance of the economy.