Economy taking knocks
The political upheavals in Lebanon and around the region, coupled with a natural cyclical downturn, may signal the end of Lebanon’s economic honeymoon of the past several years. According to a statement issued by the International Monetary Fund, Lebanon will grow at just 2.5 percent this year — the worst rate since the 2006 war with Israel. To make matters worse, the inflation rate is also expected to climb to 6.5 percent this year. The IMF estimated the economy’s growth rate last year to be 7.5 percent. This year’s low growth rate was attributed to the cabinet’s collapse in January and the continuing political deadlock over the UN Special Tribunal for Lebanon investigation, according to investment bank Merrill Lynch. The bank cited the drop in the balance of payments to $2.6 billion in January along with $1 billion in capital outflows, an increase in dollarization and a deposit growth deceleration as the main reasons for the prediction. The central bank’s coincident indicator, an average of eight weighted economic indicators published on a monthly basis, echoed this sentiment, falling from 254.4 points in January to 243.2 points in February, the lowest since September 2010, indicating a deteriorating economic situation.
A dream of sanitation
The Ministry of Energy and Water last month released a new wastewater management plan entitled “Wastewater strategy: not to waste our water”. Lebanon creates more than 310 million cubic meters of wastewater each year, and while 60 percent of the population is connected to wastewater collection networks, only 8 percent of the generated wastewater is treated. The plan seeks to connect 80 percent of the population to wastewater collection networks by 2015 and 95 percent by 2020. It also seeks to achieve full operations and maintenance cost recovery in the sector within nine years. The ministry said that so far only four major wastewater treatment plants exist in the country. The total existing investment in the sector was set at some $1.5 billion. A further $1.69 billion is needed to complete all existing plants, while further investment is needed to fulfill all the objectives by 2020 was put at more than $3 billion. The plan will need to be passed through the cabinet to become policy; the money required must come from either a national budget, treasury advances or donors.
Damming the future
The Ministry of Energy and Water last month unveiled the new “Lebanese Strategy for Surface Water Storage,”part of the National Water Sector Strategy, which aims to build 30 dams across the country to address Lebanon’s water shortages. The document serves as an unofficial plan to invest $1.98 billion to build the structures, which will have a static storage capacity of 680 million cubic meters (MCM) and dynamic storage capacity of around 900 MCM. The plan is an updated version of a previous 10-year plan to build 27 dams, approved by both government and parliament over the last decade. Of those 27 proposed dams, only one saw the light of day. A total of 10 were said to be ready for implementation while the remainder required further studies before they could be priced and implemented. Caretaker Minister of Energy and Water Gebran Bassil put the annual water deficit in 2010 at an estimated 426 MCM. In response to a commonly voiced objection to building dams Bassil admitted Lebanon’s geological formations were “not helpful,” but insisted that the projects go ahead. He added that even if all other reforms — including groundwater regeneration, network reconstruction and demand side initiatives — are enacted, it would only reduce the water deficit by 369 MCM as of 2015. Bassil declined to comment on a new tariff structure when asked how much citizens’ bills would increase as a result of the measure. He added, however, that citizens would be happy to pay one bill instead of three and that the reform would help the water establishments and relieve the public purse from having to cover their losses, which weighs on the public debt.
The cost of sectarianism
On the back of protests calling for the downfall of the sectarian system, a study by American University of Beirut Professor of Economics Jad Chaaban has put the accumulated cost of sectarianism to the Lebanese economy during the span of one lifetime at a minimum of 9 percent of GDP, or an estimated $3 billion. The report combined the costs of the sectarian system and its added costs from birth, to schooling, to housing, to marriage, to living expenses and old age, to arrive at a per capita burden of around $114,000. It identified the cost of residential segregation at $800 million and estimated that 16 percent of public servants are employed solely due to their confessional affiliation. Chaaban told Executive that the study was only preliminary and that he expected the actual cost to be much higher.
Suing to open the telecom market
Lebanese Internet Service Provider (ISP) and broadband operator Cedarcom is taking legal action against the country’s Ministry of Telecommunications (MoT) and government-owned GSM mobile network operators, Alfa and MTC. Cedarcom is mounting a legal challenge against Mobile Interim Company (MIC) 1 operated by Alfa, and MIC2 operated by MTC for monopolistic and unfair competition practices. Lebanon’s largest ISP claimed that the MoT, Alfa and MTC had breached telecom Law 431, ratified in 2002, by taking active steps to implement 3G networks and services without having received the required licenses from the Council of Ministers and the Telecommunications Regulatory Authority (TRA) in Lebanon. Cedarcom stated that the Lebanese Telecom Association, which includes a number of Lebanese ISPs, had repeatedly cautioned the MoT and TRA on the threat of a new monopoly in wireless broadband services if 3G services were introduced in the absence of proper licensing, unequal taxation and fair competition among government-owned and private operators. Cedarcom also argued that fixed-line and mobile GSM monopolies are already there, adding that private ISPs and data operators are kept on interim transitory yearly licenses, prohibited from increasing their DSL capacity and forced to pay up to 60 percent of indirect and direct taxes, all rules and regulations from which Alfa and MTC are exempt. VAT scandal
Al Akhbar newspaper last month reported millions of dollars had been stolen from government coffers by front companies claiming to be foreign import-export firms eligible to claim refunds for Value Added Tax (VAT) receipts. According to the newspaper, the finance ministry had paid out some $254 million in refunds to these companies, which had accounts with the ministry, and that no inspections of the claims had been made to investigate any wrongdoing. In theory, the newspaper reported, these businesses had a right to file for refunds, while the ministry has four months to check the legitimacy of their claims, otherwise refunds are automatically made. The newspaper claimed that this practice had been going on since 2005. The finance ministry responded that such practices were common around the world and that it had uncovered the cases and forwarded requests for legal action to the general prosecutor’s office. The ministry added that its responsibility was not to inspect whether companies were truly established or not, but to inspect the financial statements it receives from companies. The ministry claimed inspections were in fact the responsibility of the commercial registry department at the justice ministry. In addition, the finance ministry refuted that $254 million was stolen, instead claiming that figure was the total amount refunded to all companies in 2010. The finance ministry did not reveal how much had been stolen by the front companies.
Tipping the scales
The balance of payments (BOP) continued its downward trend after registering a deficit of $668.8 million during the first two months of 2011, compared to a surplus of $714.2 million over the same period in 2010. The BOP did post a surplus of $103.3 million in February, however, constituting a turn into the black after January registered a deficit of $772.1 million. The turnaround was attributed to a rise in the net foreign assets in Banque du Liban, Lebanon’s central bank, and that of other banks and financial institutions. This is the first time in the past three years that the first two months of the year did not see a BOP surplus.
