Paying more for the same
Prices of consumer goods in Lebanon continue to rise, with last month’s consumer price index, the major indicator of inflation, showing that the trend of increasing prices since 2000 continues unabated. Even though real estate and communication prices remained steady, the first half of this year witnessed a 6 percent increase in inflation compared to June 2010 levels, according to the Central Administration of Statistics, though many economists fear that actual inflation may be much higher. The rise in prices was mostly attributed to an increase in the price of clothing and footwear (+21.1 percent), electricity, water, gas and other fuels (+13.1 percent), as well as more moderate rises in the price of education, restaurants and hotels. According to the International Monetary Fund the index hit 127.62 in 2009 and is expected to exceed the 150 mark in 2015. Most analysts agree that Lebanon imports around 70 percent of its inflation.
Keeping the country watered
Minister of Energy and Water Gibran Bassil inaugurated last month the Lebanese Center for Water Conservation and Management and announced a strategy aimed at conserving water in the country. According to the minister, unless new measures are taken soon Lebanon will face a water deficit by the year 2020. The project was put together to “promote sustainable water management through both technical and policy-level support”, according to the United Nations Development Program (UNDP) website. It will be conducted with the support of Italy and Spain, through their embassies in Lebanon. According to the UNDP, the strategy has three components: technical capacity building on sustainable water management, the promotion of public awareness on the issue and an assessment and collection of data on groundwater.
Trade deficit hits five-year high
According to Ministry of Finance figures, the period from January to May 2011 registered the highest trade deficit in five years in terms of value. Lebanon’s trade deficit was about $5.95 billion, or 10 percent higher than the trade deficit recorded the same period last year ($5.4 billion). In fact, the economy witnessed a 7 percent increase in imports, which reached $7.66 billion, while exports decreased by 1 percent to $1.71 billion. The main reason was the rise in oil prices. However, an increase in prices of Lebanon’s most important imports was also a key reason (such as a 49 percent rise in the value of unwrought and semi-manufactured gold, precious stones and metals, and a 19 percent rise in pharmaceutical products). Imports from major trading partners Italy and France increased, according to a Byblos Bank report last month, while key export destinations like Switzerland, the United Arab Emirates and Syria fell 17 percent. Lebanon’s main exports include jewelry (33 percent of total exports), base metal (15 percent), machinery and mechanical appliances (13 percent), prepared foodstuff (9 percent) and chemical products (8 percent).
Debt roll over, and over, and…
The government’s strategy of rolling over short-term debt for longer maturity periods looks to continue as reports emerged in July that the finance ministry was seeking to issue Eurobonds this month. The issuance will be the first under the new government and is an indicator of the level of confidence in Lebanese paper. The ministry is looking to make a $950 million issuance that reportedly consists of a $750 million principal and $200 million in interest. According to various reports Citigroup and BLOM Bank will handle the book running for the issuance. The last issuance of Eurobonds occurred in May when $1 billion were issued in two tranches, the first at a rate of 6 percent with a maturity of eight years and a value of $650 million, and a second at a rate of 6.1 percent with an 11-year maturity and a value of $350 million. This month’s issuance will be part of the remaining $2.1 billion in Eurobonds that will mature this year. The public debt maintained its level of $52.7 billion at the end of May, unchanged since the beginning of the year.
Internet penetration on the rise in MENA
According to the International Telecommunications Union (ITU) the United Nations agency for information and communication technology, the rate of Internet penetration in Lebanon rose from 24.7 percent in 2009 to 31 percent in 2010. The figures ranked Lebanon 10th in the Middle East and North Africa in this category, and 100th among 233 countries worldwide — surpassing Egypt and Syria with 26.7 percent and 20.7 percent penetration, respectively. However, Lebanon still has a long way to go to catch up with the leaders in the region. The country is still far behind the United Arab Emirates and Qatar, with 78 percent and 69 percent penetration, respectively. As for fixed-line communications, Lebanon is ranked highest in the Middle East and North Africa region with a 21 percent rate of subscription for fixed lines, compared to a 9.19 percent average in the region; worldwide Lebanon ranks 97th.
Fewer tourists, spending more
An unstable political situation in Lebanon and the region has resulted in a 20 percent decline in tourist arrivals to the country during the first six months of the year, compared to the same period last year — from 964,067 down to 774,214. However, tourist spending grew by 6 percent in the first half of this year, according to duty free agency Global Blue. Arab tourists accounted for 31.9 percent of total arrivals and 54 percent of tourist spending in Lebanon. Among them, tourists from Saudi Arabia took the lead, at 20 percent, followed by the United Arab Emirates (11 percent), Kuwait (9 percent), Syria (8 percent) and Egypt (6 percent). Some analysts say the rise in tourist spending comes on the back of the financial crisis of recent years.
Another growth downgrade for Lebanon
The Institute of International Finance (IIF) has followed other institutional surveys and reduced Lebanon’s real gross domestic product (GDP) growth expectation for 2011 from 4 percent to a range of 1.1 to 3.0 percent. The global bank HSBC made a similar move a few weeks prior, cutting Lebanon’s growth forecast from 3.2 percent to 2.7 percent. Indeed, so far most economic proxy indicators have witnessed a decline, with observers saying that growth will depend on the development of the political situation in Lebanon and the region. In that vein, the IIF has predicted two separate scenarios. The first, with a 70 percent probability of occurrence, assumes that the situation in Lebanon and Syria will remain unchanged, in which case any recovery would be insignificant and GDP growth would not exceed 1.3 percent. With a stable political situation, in other words the return of political calm in Syria and a resolution to strife over the Special Tribunal for Lebanon, the organization would expect 5.1 percent growth in the second half of 2011.
Minimum wage still lagging
As prices rise, wages should follow suit. That was the sentiment last month of Lebanon’s largest labor union, the General Labor Confederation (GLC), when asking that the minimum wage be raised once again. The GLC demanded that the Lebanese government increase the minimum wage in the country by 150 percent, from $333 to $833. However, according to the Association of Lebanese Industrialists and the Federation of Chambers of Commerce, Industry and Agriculture, before being able to do so the government needs to create incentives for companies to increase their level of productivity. Otherwise such a move could lead to the bankruptcy and/or closure of many factories and private companies due to increased wage costs.
