EXECUTIVE speaks to Fadi Abboud, head of the Lebanese Association of Industrialists, on the outlook for industry in the absence of government support, sizeable foreign investment and a fair playing field for regional trade.
E Is the cardinal industry question, at this stage in Lebanon’s history, the cost of production or political stability?
We can survive political instability. At this point, our biggest problem is the cost of production and the reluctance of the government to do anything about it. For argument’s sake: you cannot control the bribes at Beirut Port, or at social security, or Electricite du Liban and so on. Well, make things coming to Lebanon a bit more expensive, to subsidize all these things. But don’t say: “We can’t control the cost of production but we won’t take more taxes.” Industrialists are the only Lebanese on this planet saying: “Please, please, please, collect more taxes.” And imagine, they’re refusing, even though the law allows them to do that, because all these people we signed free trade agreements with are cheating, because they are subsidizing their cost of production. Okay, you cannot tell someone not to subsidize, but the principles of the WTO give you the right to fairness. So why don’t we extract some taxes here and there to make it a bit more expensive, so that at least industry here can make a little profit, and increase their exports? There are some companies in Lebanon that do benefit from protection, and they are the ones increasing their exports. But they are companies backed by politicians. For example, you can’t import cement into Lebanon. You cannot import electrical cables. You pay more than 80% tax on wine imports. That’s why our wine industry is increasing its exports by more than 25% a year and controls 80% of the local market. Here, protection is a matter of who owns the factory. It’s got nothing to do with economics.
E For many years, Lebanon’s private sector believed it was its own savior – meaning that the government’s role in supporting industry was non-existent to negative. Do you expect this to also be the case in 2006? Is this situation sustainable?
I hope that it will not be the case. If you look at our government, they believe that in certain sectors they are doing a good job. And it is clearly putting money in their pockets. I acknowledged that the banking sector is important. But why don’t they help our sector like they help the banking sector? Imagine all the facilities and subsidies available for takeovers in the banking sector. Why do we not have the same facilities for takeovers in the industrial sector? Imagine the law on placing a container on a vessel. We have been on a crusade for ten years to get all these complications which cost a lot of money done away with. Exporting should cost next to nothing. You should be able to place a container aboard a vessel for less than $100. I hope that there isn’t a calculated plan to within the next 20 years, help industry wither away. But this situation, if it continues, is not sustainable for industry. If there is a hidden plan based on the notion that industry is simply not good for the country, then it’s working. In Britain, if I wanted to start up a factory, municipalities would be offering things like free rent for six months and half the wages of my employees for the first year. They would be begging me to come and employ people in their town. Here it’s the contrary, and then the municipalities complain and say they want subsidies. And yet they don’t want to create jobs for their people. Prejudice against Lebanese industry is in the roots of society. In this country, people who work with their hands are considered second-class citizens and in the Western world it’s the opposite.
E Subsidized loans have been the largest and most successful public sector support measure over the past few years. Do you see areas where this program has holes or should be expanded?
I agree with it entirely. We conducted a survey and we found that a big portion of companies that received the subsidized loans increased their exports. For God’s sake don’t stop it. It’s probably the only public money invested the way it should be invested. It should be expanded to cover loans for working capital, specifically if it goes to exports. This project is being run efficiently by the central bank. People are treated equally. And look at the results.
E Is export promotion high enough on the government’s agenda?
As high as it should be? No. Better than it was last year? Yes. The only time I can have the full attention of the minister of finance is when I mention exports. At a dinner a few weeks ago he said: “I want exports within the next five years to reach $4 billion.” But that’s not going to come from the Holy Spirit. We will have to work hard. But it is now more on their agenda than it was with previous governments.
E How about the private sector agenda? Are companies doing enough to promote exports?
This is a country in which 99% of industry is small and medium sized. Not all of us have enough means. Imagine someone producing little kibbeh balls, wanting to go and participate in the ethnic food exhibition on the other side of the world. Can you imagine how much that would cost? Probably close to $40,000. That’s a huge amount for someone manufacturing frozen kibbeh balls. That’s where we come into play, by paying a portion of the costs. They would still have to pay something. Because in Lebanon if people don’t have to pay for something they don’t take it seriously. That way they can go there and see how the Turks are playing with kibbeh balls, how the Israelis are playing with kibbeh balls. We invented the kibbeh balls.
E Is Lebanon’s industry today ready for Euromed and the WTO?
Not fully ready but on the way to being ready. We’re getting a very small percentage of the aid the Europeans are giving. If we compare Lebanon to Tunisia, we see that we are getting maybe one twentieth of what the Tunisians are able to attract. We attract very, very little foreign direct investment (FDI). The only companies to write home about are Nestle, which is Swiss, through the purchase of Sohat and Heineken through the purchase of Almaza. We haven’t attracted enough FDI. That’s because there isn’t a central command to take care of relations with Europe. One ministry does one thing. Another does something else. We ought to have three or four people living in Belgium, making sure they know exactly what’s happening and trying to get all the subsidies and benefits which Lebanon should have. Also, we only remember parts of the agreement we signed with the Europeans. No one seems to remember that we undertook to ensure that our laws are not contradictory to European laws. We have a number of draconian laws. We need more Lebanese to believe in the benefits of being linked to the European market, especially since I think that the future of Lebanese industry lies with Europe.
E Has industry benefited from European Union programs?
There is a lot of finance available through the European Union. We have for example, the Quality Enhancement in Lebanon program worth about 15 million euros. And we have others worth millions more euros. Some of these projects have been channeled through the right channels. And some were not channeled through the right channels, specifically the quality enhancement project. It was given on a silver platter to the ministry of economy and trade. And the ministry of economy and trade is the ‘enemy’ of industry. They are not at all interested in industry.
E Has the creation of the Greater Arab Free Trade Agreement (GAFTA) been beneficial to Lebanon’s industrialists?
Most of the Lebanese media embrace the cliché that the Lebanese industrialists are against free trade. This is not true. Our future lies in free trade. But free trade has to be fair trade. Let’s take the figures. They’re more powerful than words. Since GAFTA came into being, our exports to Egypt have increased by a few percent. They have increased their exports to Lebanon tenfold. Five out of ten attempts to export to Egypt fail. They use every trick in the book, including non-tariff barriers, quality barriers and [other] specifications to prevent Lebanese exports from coming into Egypt. I know of very few instances in which we didn’t allow in Egyptian produce and industrial products. It’s the same in Saudi Arabia and in all Arab countries. All of them have increased their exports to Lebanon at a rate higher than that at which we have increased exports to their countries. There is this notion in Lebanon that we can’t demand free trade from Saudi Arabia if we are going to ask them for a bit of money at the donor conference. I am a very proud person. I do not agree with this theory. Trade diplomacy is as important as diplomacy. We should treat people exactly as they treat us. All Arab countries – with the exception maybe of the UAE – use tricks against Lebanese exports.
E What can the Association of Lebanese Industrialists do to enhance the position of Lebanon at the planned donor conference?
Something really bothers us. No one has asked us for our opinion on the conference or our vision of the future of this country. That gives you an idea of the priorities of the people taking decisions.
E Job creation is one of your main concerns. Can Lebanese manufacturers train young people in promising jobs and provide them with enough work opportunities? Or should this be done by the government?
It should be a joint venture, exactly like what happens in the UK. We should get businesses more involved in the community. One very good example of business in the community is when in England the private sector took over the running of several schools in areas which had the worst results in the UK. Within two or three years they had 90% of students passing their A-levels. This is something we’re working very hard on here. We also need to work more with universities and academia. We have one program taking place right now in which we call on students at university to come up with projects which they will show at UNESCO. But when you look at the Lebanese University, people are not really interested. How many times do you hear the word “unemployment” uttered by someone in power? Very rarely, and then only as a cliché. Are we really declaring war, as France did a few years ago, on unemployment? We are not, and yet we all know what we need to do. Most of our politicians are people who are ready to do anything to stay in power. The public good is not a priority.
E Does Syrian labor in Lebanon present an opportunity or a burden for the economy and employees? Do you support giving Syrians jobs in Lebanon?
In one sense having cheap labor is a brake on the development of industry. You go to a building site and you don’t see a forklift truck. On the other hand, if we didn’t have cheap labor a lot of industries would be unable to continue. You now, it’s impossible to have a Lebanese labor force for the nightshift. They don’t want to work at night. A country like Lebanon, being rebuilt, does need some cheap labor. The Syrians are our brothers. I think they should be welcome in Lebanon. If they create unfair competition that is something that should be looked at. I think they should pay tax, exactly like Lebanese workers, and get the benefits.
E Are industry statistics accurate?
No, because there isn’t a civil state of information. When it comes to exports, you’ve got the statistics of the chamber of commerce, you’ve got the statistics of customs. We have a figure but it includes non-industrial and non-agricultural products: for example, re-exports, scrap, gold, and precious stones. The statistics are not accurate. And the reason is simple: they don’t want them to be accurate, because when you don’t have accurate figures you can juggle statistics and make them suit whatever position you want to adopt.
E What has actually changed since Syria left?
It’s mind-boggling. We hear that the Syrians were responsible for two billion dollars worth of corruption a year. I do not know of a single place in Lebanon, a single administration, where I pay less money. So I ask: where is the money that the Syrians are no longer taking? What has changed? Has anything changed at Beirut Port when you’re exporting? Has anything changed with the quarries, at the ministry of labor, or the ministry of public works? I don’t see anywhere where we’re paying fewer bribes. On the contrary, we’re paying more bribes. People were hiding behind the Syrians, saying they were the source of all Lebanon’s ills. I’m talking pure economics. The situation when it comes to corruption is as bad as when the Syrians were here. I could give you hundreds of examples of the day-to-day corruption we’re still living with.
E How much is that corruption costing?
To be able to collect a bribe you make something that should take five minutes take five hours and make it terribly complicated. I would say that the Lebanese economy’s efficiency could improve by more than a third if we stopped the bribery. Imagine the two years it takes to get all the permits necessary to start a factory. About 25 different administrations have a say in it.
E Do companies create a special budget for bribes?
Yes. Indeed. If you look at my accounts or any other accounts you will find by my estimate of 3% to 5% of turnover.
E How concerned are you about the prospect of sanctions on Syria?
If it happens, we will lose the Syrian market which represents just under 10% of exports. But for some companies Syria represents 50% of exports. We hate to even think about this. It should not happen in any way or form. Economics should interfere with politics.