Left in the dark
Technical problems, industrial disputes and political brinkmanship have left most of Lebanon without electricity for abnormally extended periods of time on a daily basis. Around 2,500 contract workers and bill collectors at the nation’s sole power provider, Électricité du Liban (EDL), entered into their third month of strikes as they demand permanent employment with the company. Minister of Energy and Water Gebran Bassil has staunchly refused their demands and opposes the bill passed last month granting the workers permanent employment. The bill was awaiting approval of the parliament’s secretariat at the time of Executive going to print. Meanwhile, the ministry signed a $360 million three-year contract to lease two power-generating ships from the Turkish company Karkey Karadeniz Elektrik Uretim. The first ship is expected to arrive in four months and the second within six months and combined they should provide Lebanon with 270 megawatts of electricity. Lebanon’s current electricity production stands at around 1,500 megawatts while peek demand exceeds 2,400 megawatts. However, the ships would not increase power generation in Lebanon as they are intended to offset the drop in production as vital maintenance works are done on existing power plants. Treasury transfers to EDL totaled $360.9 million in the first two months of 2012, constituting an increase of 56 percent from $231.5 million in the same period last year. [see comment page 14]
Not-so-happy holidays
The number of tourists visiting Lebanon in the first five months of 2012 was down almost 7 percent on the same period last year. Despite warnings from several Gulf Cooperation Council governments against travel to Lebanon, Arabs still accounted for 39.9 percent of total visitors and their numbers were actually up 15.2 percent on the same period last year. After Arab visitors, Europeans accounted for 29.7 percent of arrivals, 12.8 percent came from the Americas , 10.1 percent from Asia and Africa 4.4 percent. Tourists from Iraq accounted for 8.3 percent of total visitors in May 2012, followed by visitors from the United States (8.1 percent), France (7.3 percent), Jordan (7 percent) and Saudi Arabia (6 percent). Incoming tourists totaled 1.66 million in 2011, down 24 percent year-on-year.
A banal budget, but a budget nonetheless
The Lebanese cabinet approved the 2012 draft budget, albeit without any of the tax changes mentioned in the budget that the Ministry of Finance proposed in May. The new version calculates $13.9 billion in expenditures and about $10.2 billion in revenues, which constitutes a fiscal deficit of $3.7 billion. Among the new taxes, or tax increases, dropped from the May version were a new 4 percent capital gains tax on real estate transactions on property owned prior to Jan 1, 2009 and 15 percent on transactions on property owned thereafter, an increase in value added tax from 10 percent to 12 percent, an increase in taxes on interest from banking sector deposits from 5 to 7 percent and an income tax rise in the banking sector from 15 percent to 20 percent. The budget still has to be passed in Parliament where it is likely to face criticism from the opposition block. Lebanon has been without a budget since 2005 and the state’s institutions have been kept afloat through extra budgetary spending bills. Lebanon’s contribution of approximately $33 million to the Special Tribunal for Lebanon (STL) was removed from the budget at the last minute as the funds were provided by the Higher Relief Committee, which falls under the prime minister’s office. The new budget will not cover the contentious issue of public sector wage increases as new sources of funding will be sought towards that end.
S&P: Growth on course, but also at risk
Standard & Poor’s (S&P) credit rating agency has maintained its projection of Lebanon’s real gross domestic product growth at 3 percent in 2012 compared to an estimated 1.7 percent in 2011, but acknowledges that the prospects of higher and sustainable medium-term growth, which would increase competitiveness, enable private sector development and improve fiscal stability, depend on the implementation of key structural reforms by the government. The agency stated that the government’s proposed public infrastructure investments would support growth but are unlikely to materialize in the current political environment. S&P further observed that the continued factionalism in the cabinet is hindering macroeconomic and fiscal policy. The nation’s economic activity is supported by regional growth, especially in the GCC, but the turmoil in Syria since March 2011 has hobbled Lebanon’s economic growth. In the rating agency’s assessment Lebanon had not capitalized on potential benefits from the regional unrest, as it was not able to capture outflows from unstable neighbors due to its own instability in the first half of 2011 and the ongoing perceived risk emanating from the crisis in Syria.
A board to brand the nation
A Lebanese Promotion Board is slated to be established to support and promote the tourism sector and improve Lebanon’s brand perception. The council of ministers agreed to the creation of the new body that will be headed by the Minister of Tourism Fadi Abboud. On it will also sit the first vice governor of the central bank, the chairman of the nation’s flag carrier Middle East Airlines and the chairman of Casino du Liban, the president of the Association of Banks in Lebanon, the head of the Federation of Tourism Syndicates, the president of the Economic Associations, and the head of the Syndicate of Advertising Firms, in addition to five persons from the tourism sector to be selected by the tourism minister. The board will also help raise funds for the ministry, which is currently only able to make very minor contributions to the branding of Lebanon with its annual budget of just $18.4 million. The body will have an advisory role to the ministry proffering suggestions and advice regarding the development of the tourism sector, which is estimated to make up some third of the Lebanese economy. The Nation Brand Perception Index, compiled by the international consulting company East West Communications, ranked Lebanon in 189th place among 200 countries and territories in terms of how a country is projected in major media around the world and in 13th place among 19 countries in the Middle East & North Africa region in 2011.
Feeding the MEA fleet
Lebanon’s flag carrier Middle East Airlines no longer intends to buy a share in Cyprus Airways, having stated a previous interest in doing so. The Cypriot government, a 70 percent share holder in the carrier, revealed its intention in February to sell a portion of the airline, which posted losses of 29.3 million euros in the first half of 2011 and received 20 million euros in compensation from the government for extra costs incurred after Turkey banned Cypriot traffic. Meanwhile, MEA signed a memorandum of understanding for the purchase of 10 new Airbus aircraft at an estimated cost of $1 billion. The five A320neo and five A321neo planes will join the company’s existing fleet of 16 Airbus planes. MEA claims the new aircraft will offer the company 15 percent gains in fuel efficiency and cost effectiveness.
