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Battered and neglected

Effects of turmoil next door strain Lebanese economy

by Ramzy el-Amine

It is an exercise in historic futility to ask if Lebanon was at any time in its past or present unaffected by Syria. From the moment the first cracks in Syria’s internal stability opened in 2011, it was clear that Lebanon would have to cope with the repercussions, and while the magnitude of the refugee problem was perhaps underestimated even in the first part of 2012, the first six months of 2013 have left it unmistakable that the region is facing its worst humanitarian disaster in over 50 years. 

As all humanitarian disasters have a massive economic component, the only question today is how long this economic shock will last. Wael Mansour, economist at the World Bank, says, “We are looking at a potential medium- to long-term development challenge to Lebanon.” 

Local and international media have focused on the spillover effect on the Lebanese labor market, describing the influx of hundreds of thousands of working-age men and women as an issue with immediate, negative consequences for the country’s new job market entrants and job seekers in general. But the extent to which Syrians are taking work from the Lebanese is disputed. Jad Chaaban, assistant professor of economics at the American University of Beirut, says that Syrians tend to enter the low-end jobs that have historically been dominated by Syrians and other migrants. “Most competition now is with already existing, low-skilled Syrian labor [and] Egyptians,” he says.

A second concern is over the impact that the swelling refugee population has on the rural economy. 

Chaaban points out that while to a certain extent Beirut, Lebanon’s economic hub, has been inoculated from the crisis, outlying areas are taking the brunt of the economic impact. “What is happening is a spillover effect from the visiting community to the host community. This is starting to be felt, especially in the peripheral areas,” he said.

Indeed, the Bekaa and the North, which contain some of the poorest villages by per capita GDP, have seen the greatest numbers of refugees arrive since the crisis. According to the Central Management Unit for Poverty, 45 percent of Lebanese villages have seen their population more than double since January 2013. This, says economist and former Minister of Labor Charbel Nahas, has increased the energy needs and pollution yields of the communities.

“When you have more people coming in and living in an area, they need energy. So you definitely have a push on energy prices and availability. You have pollution, water pollution. You have sewage that is not being treated now, that has doubled or tripled in magnitude. You also have municipal waste,” Nahas explains. 

Pre-existing conditions

From a macro-economic perspective, the World Bank’s Mansour says the crisis has “accentuated the weaknesses of the Lebanese economy.”

“You have a very large fiscal deficit,” he says. “No fiscal consolidation is available. You don’t have a budget to do fiscal policy, reduce this deficit or really relocate this spending towards more productive sectors and infrastructure.”

This fiscal bind is exacerbated by the lack of infrastructure. “You still have high economic costs related to transport and electricity. These are not only related to economic costs but also to the competitiveness of your sectors that can really create value-added and employment,” Mansour says.

But Mansour suggests that the crisis can be used as an opportunity for fundamental reform. He takes the state-funded Électricité du Liban, which loses around $2 billion a year, as an example.

 “You lose around $2 billion a year — that’s like 4 to 5 percent of GDP. The whole plan [to reform the electricity sector] is $6 billion, financed by both the private and public sectors… Imagine if you invested now because of the crisis and had electricity 24 hours a day. That’s $2 billion in revenue which you can allocate to providing services or attenuating social tensions that are created due to the refugees issue or other things,” Mansour explains.

With seemingly no end in sight to the conflict next door, Lebanon’s political and industry leaders need to find solutions to the medium- and long-term challenges that continue to batter the economy. 

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Ramzy el-Amine

Ramzy Al-Amine is a Machine Learning Engineer at Mark Cuban Companies developing data-based tools for basketball coaching. Previously, he worked at the IMF's Risk Unit in Washington D.C, where he helped build and operate crisis prediction models for risk management and contingency planning. Ramzy is a graduate of the American University of Beirut and holds an MA in Applied Economics from Georgetown University. His work focuses on predictive modeling, time series forecasting, and statistics. He is interested in topics related to organizational success in the context of macroeconomics and sports

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