Executive Magazine https://www.executive-magazine.com Lebanon's premier economic, financial and business magazine Sat, 28 Dec 2019 09:16:37 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.5 People outclass politicians on women’s rights, expression rights, and responsibilities https://www.executive-magazine.com/executive-roundtables/access-to-rights-information/people-outclass-politicians-on-womens-rights-expression-rights-and-responsibilities https://www.executive-magazine.com/executive-roundtables/access-to-rights-information/people-outclass-politicians-on-womens-rights-expression-rights-and-responsibilities#respond Sat, 28 Dec 2019 08:40:01 +0000 http://www.executive-magazine.com/?p=24971

Reading Time: 9 minutes The fourth discussion in Executive’s roundtable initiative was comprised of two broad topics: access to rights, with particular focus on the rights of women, and access to information, with additional focus on freedom of expression and media responsibility. Both topics were deserving of roundtables in their own right and had initially been planned as separate...

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Reading Time: 9 minutes

The fourth discussion in Executive’s roundtable initiative was comprised of two broad topics: access to rights, with particular focus on the rights of women, and access to information, with additional focus on freedom of expression and media responsibility. Both topics were deserving of roundtables in their own right and had initially been planned as separate before timing constraints necessitated they be brought together.

The fourth roundtable took place on November 20, with participants asked to consider the following topics in advance: 1) The empowerment of women and minorities, in corporations, in small and medium sized enterprises, in politics and public administrations, and in civil society organizations, 2) the breaking of glass ceilings and challenging existing social structures, 3) legal measures against domestic violence and exploitation, 4) implementing the access to information law, 5) data ownership and privacy, 6) the role and responsibility of media and digital networks as countermeasures to fake news, and 7) the dangers of surveillance and manipulation in a digital society.

Participants came from a range of backgrounds and expertise, but while discussions on the day were clearly delineated between the two broader topics, with the moderator inviting those with backgrounds on the subject at hand to take the lead, there was passionate and dynamic debate among all participants.

The women’s revolution

To kickoff the roundtable, participants were asked for their views on the role of the government in ensuring gender equality and the legal measures necessary to guarantee protection from violence and discrimination. This led to two main considerations around the table: the importance of culture versus legislation when tackling equality issues, and the importance of a unified personal status law under a non-sectarinized system that would ensure equality for women under the banner of civil rights for all.
There was a general consensus that the perception of women’s roles had shifted as a result of the then-month long civil thawra (revolution), in which women had taken prominent leadership roles, organizing protest marches and creating human chains on the frontlines of protests to act as a barricade between security forces and male protesters.

It was in this context that it was argued by one participant that discussions about capacity building and empowerment were no longer relevant—women were empowered and acting as leaders within the protests—instead, what was lacking was access to equal opportunities and resources, which was tied by several participants into the need to ensure that women have equal rights as citizens. Among the legal steps cited were laws that would grant women the right to grant their children the Lebanese nationality, further protections against sexual harassment, and guarantees that women are treated equally in matters of inheritance.

There was debate around the table about the extent to which women’s equality could be legislated, given that many of the issues being discussed were linked to cultural and social norms. To two participants, achieving gender equality did not necessarily need to be tackled through legislation. Instead, since gender inequality was a cultural issue in their perception, it could be countered through education and awareness raising for society to accept women as equals, especially when it comes to equal pay. Financial independence for women, they argued, would go even further than legislation in achieving gender equality.

Others linked the idea of addressing cultural issues back to the thawra by noting that women suffered most under a political system that was tied to patriarchal norms, but argued that society and Lebanese culture at large was supportive of equal rights for women—seen through women’s leadership and participation in the protests—and as such, the people were more advanced than the political elite, and so changing the political system would be the entry point to securing equality for women.

Participants had differing views over the roles of quotas in ensuring female participation in the government and in boardrooms. Several participants believed that quotas were necessary to ensure women were granted opportunities that society would otherwise not accept, another raised concerns over inequality of representation in rural or impoverished areas. Another disagreed entirely with the premise that there was gender inequality in terms of high ranking positions in Lebanon, citing female ministers and department heads within ministries—this was met with significant opposition from around the table, with other participants noting that there were few female representatives within syndicates or the judiciary, and that women in prominent roles—such as activists or journalists—were often subject to online harassment and bullying tactics.

Amid disagreements among those present, one participant made a note that the perspectives of those around the table—educated women (and men) in high ranking positions—may differ from those of women from rural or impoverished areas in which rights that were being taken for granted by those present may not exist in practice. This, it was argued, was why legislation on the national level was necessary, particularly revisions of laws on personal status, nationality, and minimum age for marriage.

Other participants called for the bigger picture to be addressed, arguing that without the fall of the current sectarian system, it would not be possible to achieve progress in women’s rights. It was argued that there needed to be a direct link between the state and the citizen in order to ensure citizen’s rights outside of the clientelistic sectarianism in which sectarian leaders act as middlemen. What is needed, argued one participant, was a direct link between citizens and a state that could provide them with social welfare, subsidized education, housing plans not based on loans, and employment opportunities, and that, by removing the middlemen, women would be able to claim more independence. As such, one participant called for a unified personal status law for all citizens so that no one would need to go to their sect to obtain their rights.

While there was passionate disagreement among participants at the table, debate was generally carried out in a respectful and constructive manner—with one notable exception. On the issue of nationality rights for women, in particular women being able to pass on Lebanese citizenship to children with Palestinian or Syrian hertiage, there were strong disagreements between participants. When some participants argued that this issue was not related to gender discrimination, this was met with strong opposition from another participant who noted that while these points of view were common, they were based on a false premise. The participant went on to reference research undertaken by their organisation on the impact of the nationality law on women and their foreign spouses and children, and the way in which it impacts their access to education, healthcare, and residency. More specifically, it was noted that the numbers often cited by parliamentarians—that giving women nationality rights would tip the demographic balance by granting Lebanese nationality to some 100,000 – 200,000 Palestenians and Syrians—were inaccurate and amounted to little more than fear mongering.

The participant went on to explain that according to General Security, 21,796 non-citizen children and spouses of Lebanese women obtained legal residency in 2017. But a 2016 census of Palestinians in Lebanon found just 3,707 cases of a Palestinian head of household married to a spouse of a different nationality, and a 2009 United Nations Development Program-backed study found that there were only 18,000 marriages between Lebanese women and foreigners in Lebanon between 1995 and 2008. The participant noted that while these figures may not be 100 percent accurate, they are indicative that the numbers cited in political discourse were—even at the low end—massively inflated. When presenting these numbers, the participant was frequently shouted down by others at the table who were in disagreement; the moderator was forced to intervene.

In terms of practical steps moving forward, there was a three-part call by one participant for the government to first understand and ensure they are aligned with the obligations they were undertaking when signing international treaties such as the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). The second call was for these commitments to be translated into a strategy on the empowerment of women, complete with a budget and a set of indicators, and the third call was for equality for all on the basis of their citizenship alone. This was positively received by the other participants.

Differing interpretations

The focus of the roundtable then shifted to discussions on Law 28 (2017) on access to information and the difficulties of implementing it, as well as the broader issue of data collection in Lebanon.

Two participants discussed the access to information law in detail, explaining that there were two schools of interpretation when it came to its implementation: for NGOs and some administrations the law was being applied, but for many other bodies, the lack of implementation decrees and Anti-Corruption Commission (ACC) was being used as a pretext to ignore the law.

One of the participants pointed to the mixed success their organization had in trying to obtain data using the access to information law. In their first attempt last year, only 34 out of 133 administrations replied. Of those, only 18 had appointed an information officer—15 on request of the organization—and many were unaware the law existed. A second report, released in September 2019, had more success with 68 out of the 133 contacted admininstations responding, yet, of those, only 33 complied with requests to view their fiscal budgets. Many administrations cited the lack of implementation degree as the reason why they were not complying with the law, with only some reversing this decision when shown documents from the Committee of Legislation and Consultation at the Ministry of Justice that stated the law was applicable without implementation decrees. According to the participant, the Office of the Presidency of the Council of Ministers even went so far as to say that those who had provided information were in violation of the law.

According to one of these participants, the parliamentary session that had been due to take place the day prior included several amendments that would have guaranteed the law should be implemented regardless of further decrees and the formation of the ACC, and would have increased its efficiency. This, they said, was a required step in the short term. In the short to long term, the new government, when formed, needed to issue implementation decrees to help facilitate the law and make it more efficient. Here it was noted by both participants that the current draft implementation decrees are actually problematic, as they restrict the use of the law to stakeholders with interest in the information, despite this being in violation of international agreements as well as the Lebanese Constitution and the access to information law itself. It was noted that in the course of trying to seek information through the law a common question was, “Who are you, why are you asking?”

A further consideration, one deemed easy in the short term, was for all administrations to appoint an information officer. Moving forward, a practical and necessary step, according to one participant, was to pass the law on combating corruption in the public sector and to form the ACC. It was noted that the ACC had been passed by Parliament in July 2019, but sent back with around 12 objections by President Aoun. Of these objections or remarks, there was concern over the issue of whether judicial appointments to the ACC should be elected, with the participant arguing for the latter to increase judicial independence. It was further noted that the ACC law needs to be passed as its holdup has prevented effective full implementation of four other laws: Law 28 (2017) on access to information, Law 83 (2018) on whistleblower protection, Law 84 (2018) on transparency in oil and gas transparency, and Law 154 (2009) against illicit enrichment.
Digitization of data and the creation of an e-platform/referral system for active disclosures necessitated by the law—such as budgets—was under process and needed to be continued, it was argued.

In the long term, several participants noted that a lot of work needs to be done on awareness raising among citizens on their rights regarding transparency and accountability as well as capacity building for civil servants. There was, however, some disagreement on this from one participant who argued that the thawra had shown that citizens were engaged and aware of their rights.

The dearth of data
The lack of available data was an issue raised throughout the roundtable initiative, though none more so than in the discussion on access to information. When debating the issues with data collection and subsequent digitalization, one participant noted that the problem was much worse than realized. There was, according to this participant, no good classification of data, no standardization between administrations, integrity issues with the data itself, and duplicate data across various government agencies. Beyond that, it was argued, civil servants need to be educated on their responsibilities, and there needed to be agreement on what data should be collected and what can be disseminated. A practical step, according to this participant, would be to start digitizing services that would not change, such as healthcare services.

Other participants noted that if the initial data was incorrect, this would not be solved by digitalization. Further dimensions considered by participants regarding data included the need for trust between citizens and public administrations, political considerations—such as the Central Administration of Statistics allegedly being kept away from the refugee file as politicians did not want accurate data—and that digitization was yesterdays’ news and without it Lebanon would lack behind on the world stage.

Crackdown on free speech

During a discussion on freedom of expression, it was argued that the perception that from 2015 to the onset of the thawra freedoms had been under increasing attack was borne from data. One participant noted that attempts to quantify the number of defamation/insult cases in that period using the access to information law proved to be an interesting experience, and their organization had opted to get numbers from the Cyber Crimes Bureau (CCB)—which most cases were referred to—to get a sense of the scale. Between 2015 and May 2019, the CCB had recorded 3,559 defamation cases—only 60 – 80 of which had made it into media reports.
The participant went on to argue that these cases—an increase of 325 percent from 2015 to 2018—were problematic for a number of reasons: firstly, they argued, the law itself was an issue as by international standards, peaceful speech should not be criminalized, and so, defamation cases should be tried as civil not criminal cases; secondly, that truth was not a defense under Lebanese law; and thirdly, that public officials were offered greater protections under current defamation laws when this was against the public interest. Beyond that, it was alleged that there were abusive practices in place, including threats or acts of violence, summons without giving cause, and people being pressured to sign pledges with no legal bearing. It was suggested that public persecutors, who have control over these security investigations should make very clear the need to abide by the code of criminal investigation. The participant further suggested that there should be training for judges to eliminate alleged bias in proceedings.

Countering rumors amid revolt

In the last minutes of the roundtable, the discussion moved to the media’s role in countering the rapid dissemination of propaganda, particularly in times such as the ongoing uprising in Lebanon.
One participant said that in Lebanon there was no independent media; 12 political families own the media in Lebanon and so, they argued, the national media is little more than media arms from political parties. In this context, it was noted that support for truly independent media was necessary.

Participants also argued that due to the revolution media was playing a huge role now, yet lacked in-depth journalism and analysis. There was also criticism of public administrations for not providing information and so allowing rumors to spread. Again, the lack of data was raised as a barrier to analysis by the media. There was, however, some hopes raised by participants that the civil thawra and citizen journalism from it could play its role in creating an independent media in Lebanon.

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Not so merry go-round https://www.executive-magazine.com/lebanon-uprising/timeline/key-events-in-pm-saad-hariris-tenure https://www.executive-magazine.com/lebanon-uprising/timeline/key-events-in-pm-saad-hariris-tenure#respond Tue, 24 Dec 2019 13:36:47 +0000 http://www.executive-magazine.com/?p=24936

Reading Time: 7 minutes 2016 October 20 Saad Hariri endorses presidential bid of Michel Aoun. October 31 Aoun, backed by Hezbollah, is elected president of Lebanon, ending a two-year stalemate. November 3 Hariri named as prime minister, promises a new, just electoral law. December 19 Hariri begins his second tenure as PM, forming a 30 minister cabinet that includes...

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Reading Time: 7 minutes


October 20

Saad Hariri endorses presidential bid of Michel Aoun.

October 31

Aoun, backed by Hezbollah, is elected president of Lebanon, ending a two-year stalemate.

November 3

Hariri named as prime minister, promises a new, just electoral law.

December 19

Hariri begins his second tenure as PM, forming a 30 minister cabinet that includes all political parties with the exception of the Kataeb party.


March 23

Cabinet approves first budget in 12 years.

April 4

PM Hariri attends Brussels Conference I  on Supporting the Future of Syria and the Region to receive international aid for refugees in Lebanon.

June 16

New electoral law passes.

October 20

Cabinet commissions McKinsey & Co. to develop the Lebanese Economic Vision for the value of $1.3 million in time for the Paris donor conference (later named CEDRE) in April.

October 25

US Senate passes new sanctions against Hezbollah. 

October 30

PM Hariri visits the crown prince of Saudi Arabia Mohammad bin Salman.

November 3

PM Hariri meets with international affairs advisor to Iranian Supreme Leader Khamenei. 

November 4

Reading a televised statement, Hariri resigns as PM of Lebanon from Riyadh citing the overextension of Iran in the region and fears of assassination.

November 12

PM Hariri is interviewed by Future TV on the reasons behind his questionable resignation adding he will be returning to Lebanon shortly.

November 17

After spending a fortnight in Saudi Arabia allegedly discussing Iran’s policies in Lebanon and the region, President Emmanuel Macron invites PM Hariri and his family to France to discuss the region’s political climate.

November 21

PM Hariri arrives to Lebanon after meeting with Egyptian President Abdel Fattah el-Sisi in Cairo.

November 22

After meeting with President Aoun, PM Hariri postpones his resignation.

December 4

PM Hariri withdraws his resignation stating that this decision is based on the agreement that all members of the government stay out of the affairs of other Arab countries.

December 8

PM Hariri attends a meeting with the International Support Group for Lebanon (ISG), chaired by the United Nations and France.


January 12

PM Hariri states that the 2018 budget will not include new taxes.

February 18

Council of Ministers forms committee headed by Hariri to study budget figures.

March 12

President Aoun signs draft state budget decree referring it to Parliament.

March 14

Rome II donor conference is held to secure funding from France aimed at empowering the Lebanese Army and other national security institutes.

March 29

Lebanon passes 2018 budget.

April 6

> PM Hariri attends CEDRE in Paris, with the government’s Capital Investment Plan in tow. 
> Donors pledge $11 billion dollars toward infrastructure projects in Lebanon, On condition of fiscal reform.

April 18

President Aoun signs 2018 state budget law.

April 24

> PM Hariri attends Brussels II to meet with EU officials who pledged to grant Lebanon part of 560 million euros in refugee aid.
> President Aoun calls caretaker-speaker Nabih Berri to reconsider article 49 of state budget law which provides temporary residency for foreigners who buy property in Lebanon.

April 26

Constitutional Council suspends article 49 of budget law.

May 6

Parliamentary elections take place under new electoral law.

May 7

> Electoral results give Gebran Bassil’s Free Patriotic Movement (FPM) the biggest bloc in Parliament, with 29 seats.
> Future loses seats, securing only 20.

May 12

PM-designate Hariri dissolves Future Movement’s electoral body, electoral machine, coordinating branches in Beirut, Western and Middle Bekaa, Koura and Zgharta.

May 22

Cabinet approves plan to save electricity sector in accordance with Energy Minister’s proposals.

May 23

Nabih Berri is reelected as Speaker of Parliament, Elie Ferzli as his deputy.

May 24

PM-designate Saad Hariri commissioned to form new government.

May 28

Deliberations to form new government begin.

July 17

Parliament elects 17 committees.

August 9

PM-designate Hariri and Parliament Speaker Berri meet to discuss cabinet formation. Hariri states after the meeting that delays in government formation have been the result of a competition for shares in the coming cabinet.

September 3

PM-designate Hariri announces that a national unity government lineup has been handed to President Aoun.

September 10

President Aoun from Strasbourg: Government will be formed soon as a balanced formula is reached. No sect should monopolize representation or marginalize any side.

October 9

PM-designate Hariri says that Lebanon’s economic situation calls for the immediate formation of the government within the next 10 days. The FPM and Lebanese Forces continue to argue over their shares.

December 14

After seven months of political deadlock, members of the Sabaa Party block the entrances of the ministries of labor, social affairs, and industry to protest the delay in government formation.

December 16

Around a thousand people march from Hamra to Riad el-Solh protesting against government policies and the economic situation in a demonstration organized by the Lebanese Communist Party and the Popular Nasserite Organization. 


January 7

McKinsey’s LEV is made public by Caretaker Minister of Economy and Trade Raed Khoury, as a push from the ministry to accelerate government formation. Says the delay in publishing is the result of the delay in government formation.

January 19

The Arab League Economic and Social Development summit takes place in Beirut despite rumors of postponing due to disputes between Lebanese parties over the normalization of relations with the Syrian government.

January 31

PM Hariri forms a new 30-minister government, after eight months of deliberations.

February 18

First meeting after government formation is held with the Economic and Social Council to tackle the next steps into implementing CEDRE which included discussions of a 22-point economic plan needed to unlock funds.

February 25

First ever EU and Arab League Summit in Egypt kicks off with PM Hariri heading the Lebanese delegation in Sharm el-Sheikh.

March 5

Ministry of Finance hands over all the statements and documents necessary for the Court of Audit to audit the public accounts starting from 1993 until 2017.

April 8

Council of Ministers adopts a new electricity policy paper, aimed at reforming the sector.

April 17

PM-Hariri calls for the implementation of a harsh austerity budget for 2019.

July 9

The US sanctions Hezbollah lawmakers. 

July 19

State budget with austerity measures is passed, four months past its deadline.

September 20

PM Hariri suspends Future TV due to financial troubles. Over 350 workers lose their jobs after being on strike since July 30 for not receiving their salaries for 24 months.

September 26

Interchangeable currency transactions on ATMs are stopped with no official statement from the Association of Banks.

September 30

The New York Times publishes an article on Hariri gifting South African model Candace van der Merwe $16 million in 2013.

October 13

125 wild fires break out across Mount Lebanon over two days with around 1300 acres burned. Three Sikorsky firefighting helicopters donated to the government in 2009 could not be used as they were not maintained.

October 17

Reports of a WhatsApp tax ignite nationwide protests, reports of burning tires and road closures across Lebanon. 

October 18

> Protests continue nationwide with schools and banks ordered to close until the early hours of the next morning, when security forces start firing tear gas and protesters move out of Downtown.
> PM Hariri holds a press conference announcing a 72-hour deadline for the passing of the long overdue economic
reform plan.
> Protests continue nationwide calling for the fall of the regime.

October 19

> Hezbollah addresses protesters saying that Lebanon cannot afford the time to form a new government.
> Lebanese Forces announces the resignation of its four ministers, marking the first tangible success of protesters’ demands.

October 21

PM Hariri announces a list of 17 reforms approved by cabinet that propose to cut the deficit and expedite administrative reforms without increasing taxes on the people.

October 24

President Aoun addresses the public for the first time since the beginning of the protests pushing the idea that PM Hariri’s economic reform plan will save Lebanon.

October 29

PM Hariri resigns.

October 31

President Aoun addresses the nation with a televised speech vowing to work toward a civil state and promising to implement a unified Personal Status law.

November 1

Banks open their doors.

November 3

> President Aoun and son-in-law Minister of Foreign Affairs Gebran Bassil address Pro-FPM demonstrators gathered in front of Baabda palace in large numbers.
> Tens of thousands of anti-establishment protesters gather in Downtown Beirut and all around the country.

November 5

> Moody’s Investors Service downgrades Lebanon’s credit rating from Caa1 to Caa2.
> Road closures were forced open by the Lebanese Army on the 20th day of protesting. 

November 6

> US Secretary of State Mike Pompeo: Iraq and Lebanon deserve to set their own courses free from Iranian Supreme Leader Khamenei.
> School and university students embark on nationwide protests after a threat that came from the headmaster of a school in Saida against student participation, citing repercussions would be expulsion and the inability to sit for their official exams.

November 7

Ex-PM Fouad Siniora questioned for hours about $11 billion missing from state funds. 

November 8

Lawsuit filed against Caretaker FM Gebran Bassil for charges of embezzlement, money laundering and illicit enrichment. 

November 12

President Aoun: “If they [protesters] do not like it and there is not a single decent person in power, then they should go and emigrate.” Thousands take to the streets in anger after Aoun’s televised interview to denounce the emigration statement made, with one protester, Alaa Abou Fakhr shot dead during an altercation with an army colonel and the driver of the colonel’s car. 

November 15

Ex-Minister MohammadSafadi is touted as a candidate for PM, he is rejected by anti-establishment protesters.

November 17

> Melhem Khalaf, an independent candidate is elected president of the Beirut Bar Association.
> Uprising’s one month anniversary.

November 19

Protesters block all entrances to Parliament and prevent a legislative session they deem unconstitutional. The session was to include passing of a controversial general amnesty law. 

November 22

> In celebration of National Independence Day, protesters organize a civil independence parade, marching from several meeting points in Beirut toward Martyr’s Square. 
> In the official celebration, a military parade is held on Ministry of Defense grounds in the Beirut suburb of Yarze in presence of President Aoun, House Speaker Berri, caretaker-PM Hariri, and General Joseph  Aoun, commanding officer of the Lebanese Armed Forces. 

November 25

Pro-Hezbollah and Amal protesters violently clash with anti-establishment protesters on the Fouad Chehab bridge, known as “the ring” and burn down their tents in Martyr’s Square. 

December 6

Businessman Samir Khatib withdraws his candidacy for PM just three days after he received public support from Caretaker PM Hariri and FM Bassil and one day prior to a consulations to select a new PM.

December 19

Former education minister Hassan Diab is named PM after securing 69 MP votes in the Parliamentary consultations. Diab is supported by Hezbollah, FPM, and the Amal Movement.

Sources: The Daily Star, NNA, and Megaphone

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Reflections during tumultuous times https://www.executive-magazine.com/reflection/reflections-during-tumultuous-times https://www.executive-magazine.com/reflection/reflections-during-tumultuous-times#respond Tue, 24 Dec 2019 12:38:31 +0000 http://www.executive-magazine.com/?p=24931

Reading Time: 3 minutes The year-end holiday season is a time for self-reflection and goal setting. We at Executive are no different, and so as we prepare to bid 2019 goodbye, we are looking backward to recognize our achievements this year—despite the trying circumstances—to understand what we could have done differently, and to explore ideas and opportunities for growth...

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Reading Time: 3 minutes

The year-end holiday season is a time for self-reflection and goal setting. We at Executive are no different, and so as we prepare to bid 2019 goodbye, we are looking backward to recognize our achievements this year—despite the trying circumstances—to understand what we could have done differently, and to explore ideas and opportunities for growth that we will attempt to embark on in 2020. However, there is a big obstacle. No one with a stake in Lebanon’s economy, including media organizations and journalists, can plan for the coming year with any amount of certainty. In terms of any rescue concept, the equation contains too many variables. Even the scenarios of collapse that have been discussed in the waning weeks of 2019 involve mountains of speculation. 

Throughout its 21 years of history, Executive has kept a watchful eye on the Lebanese economy, applauding successes while also warning of troubling indicators in hopes they would be addressed. At the end of 2018, Executive warned of an economic meltdown (on its end of year cover) and was proactive in publishing an economic roadmap to reboot Lebanon. Lebanon’s situation did not improve as 2019 continued, and this was reflected in Executive’s coverage.

In this and the previous issue of Executive, editors dedicated substantial coverage to the protests and their impact on the economy. In November, our main focus lay in providing a platform for comments and contributions from experts in addition to our own analysis and reporting. The validity and relevance of these efforts to foster dialogues on saving Lebanon will be made clear in the year 2020, which is certain to be decisive for the country. The thawra of 2019 brought on an avalanche of fake and politicized news from two opposite directions—those who resisted calls to relinquish power and return looted assets, but also those who wanted to get rid of the old regime at any cost. Uncorroborated stories, extreme accusations, and unsubstantiated allegations flooded virtual Lebanon, facilitated by the ease of sharing information digitally on social media and WhatsApp. People no longer knew what to believe or who to trust. Thus, at this historic juncture and turning point, Lebanon more than ever before needs and deserves as many independent and responsible journalistic voices, on the levels of media organizations and individuals in the profession, as possible. Executive is well aware of the need for analytical business and economic journalism as a crucial facilitation factor in securing the future of this country. Editors are resolved to maintain and further increase the magazine’s contribution to improve the fortunes of all groups and social strata in Lebanon that are committed to make this country the dignified home of all its people. 

The last quarter of 2019 bought with it a lot of changes, some positive, such as the political elite falling from their pedestals in the eyes of many, and the Lebanese recognizing their own power as citizens. Negative changes were the economic situation that has forced people to survive under a new financial reality. Executive is in no way immune to the winds of economic and financial change sweeping the country. 

Looking forward to 2020, what is certain is that change is the only constant. In plain language, this means that management and editors will collaboratively seek new funding and revenue sources in the coming year. The magazine will also explore its digital development options. Executive’s many committed readers—whom editors use this moment to thank and wish the best in their endeavors—and our—hopefully vastly growing numbers of opportunity-based readers—will be witnessing the results of our efforts: new paths to convey our quality content, and new ways to interact with audiences all over the world, as well as new coverage. We will keep exploring all these possibilities and put all ideas on the table, but what will not be up for debate, ever, is our mandate for responsible, transparent, and independent journalism. 

As our wish for Lebanon, and with a bow to the paradigmatic narrative on what the year-end holiday season means in its most intercultural and constructive sense for a bunch of economic writers at this particular time, we borrow from Charlies Dickens our wish that in 2020 every scrooge will find the economic health to tell every Bob Cratchitt “I am about to raise your salary!” in the recognition that shadows of things that have not yet happened can lead to different ends if courses are changed, even within a hair’s breadth, to a path that is “open, generous, and true.” 

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Transition scenarios and their bleak alternatives https://www.executive-magazine.com/executive-roundtables/financial-reality/transition-scenarios-and-their-bleak-alternatives https://www.executive-magazine.com/executive-roundtables/financial-reality/transition-scenarios-and-their-bleak-alternatives#respond Tue, 24 Dec 2019 12:35:05 +0000 http://www.executive-magazine.com/?p=24925

Reading Time: 10 minutes For the roundtable on financial reality, monetary needs, and trade and energy issues, the discussion brief invited debate on the role and responsibility of the central bank, the banking sector, the insurance sector, and capital markets in Lebanon, coupled with exploring the country’s circumstances with regard to trade and remittances, its interdependency on international financial...

The post Transition scenarios and their bleak alternatives appeared first on Executive Magazine.

Reading Time: 10 minutes

For the roundtable on financial reality, monetary needs, and trade and energy issues, the discussion brief invited debate on the role and responsibility of the central bank, the banking sector, the insurance sector, and capital markets in Lebanon, coupled with exploring the country’s circumstances with regard to trade and remittances, its interdependency on international financial markets, the prospects for international participation in infrastructure investing, and the national impact of global financialization. For the initial question, Executive editors asked if Lebanon has its own capacity to devise an economic plan for near, medium, and long-term economic rescue and progress.

In the realization of the financial reality roundtable, this initial query was expanded by the moderator into four questions: namely if an economic plan could still be viable in light of the ongoing uprising and economic shocks experienced since mid-October 2019, what the best course of action was in regard to the monetary course and international financial obligations of Lebanon, how trade patterns had to be changed and interactions with international markets developed, and if resource exploitation could contribute to the rescue of the economy.

Toward light or dark

The discussion of Lebanon’s financial reality was opened with the juxtaposition of two extreme scenarios in the near term. As the scenarios were first painted and later reviewed around the table, a distinction was made between a “white” scenario and a “black” scenario, the likelihood for which was 5 percent for the former and 95 percent for the latter, according to the instigator of the comparison. 

The white scenario would unfold via the designation of a government that gains popular consent, and then would progress by recovering embezzled public funds, gaining active support from friendly governments and international agencies, and implementing investments laid out at CEDRE—and would receive a positive economic shock via a sizable offshore oil/gas discovery. Under a multi-year perspective, this scenario would incur both public-private partnerships (PPP) and private investments.

By stark contrast, the black scenario, with a horizon of unfolding on very short time frames from a few weeks to three months in the opinions of several roundtable participants, would see many families without living incomes due to full or significant partial failures in receiving their salaries, causing anger, despair, and violent conflicts on the streets of Lebanon. Bank depositors would add to the violent crowds because of the loss of their deposits from abysmally dysfunctional banks.

Under this prediction of maximum socioeconomic gloom, import capacities would be extinguished, and the banking system in near entirety would implode, resulting in an accelerated scenario of social unrest that would further be reflected in the organization of communal fiefdoms by Hezbollah, while in other parts of Lebanon only a handful of private investors with access to external banking services would be able to enact financial activities. A parallel system of finance would emerge and recovery from this systemic implosion of the Lebanese financial system would require 10 years.

Debating the probability of such a scenario, participants noted that other possible pathways would not involve a collapse of the banking system. Confidence having admittedly vanished from the system, the removal of ultra-dollarization, along with impositions of capital controls and eventually the reduction of imports related to foreign exchange controls, and action to overcome tax evasion and waste in public expenditure could function toward Lebanon’s stabilization. However, under such views, the rapid designation of a government was the precondition for a benign scenario in Lebanon’s financial reality over the coming months and improving credibility scores with the population and international partners would be a key factor.     

Another participant concurred that, at the time of the discussion, no confidence existed in the Lebanese system while the central bank was unable to meet financial needs for importation and banks were experiencing runs on deposits. Restoration of confidence was only possible on basis of a government’s appointment, proceeding from which the only path to recovery would exist through involvement of the International Monetary Fund (IMF) that would enter an agreement with Lebanon and also act as catalyst for mobilizing international support.

The rapid designation of a government was the precondition for a benign scenario in Lebanon’s financial reality over the coming months.

The Lebanese economy in this perspective should first embark on simple reform measures, such as filling the void at regulatory authorities in telecommunications and civil aviation, increasing electricity tariffs, taking one-two steps toward increasing taxes and social safety provisions for the poor, attempting to reign in the external imbalance in payments and trade, and doing what the IMF would do—even if for political reasons the direct help of the IMF was not sought. Proposals to restructure the economy from a rentier to a productive one with increasing agricultural and industrial exports were presented in this context (a concept further spelled out in the position paper by economist Marwan Mikhael, first published in full
on Executive’s website).  

Moving further into the discussion of realities and possible solution ideas, other stakeholders at the table argued that there are too many variables involved in the unfolding of the current crisis for planning efforts to be adequate at this time but expressed that things will be messy, noting that many measures should have been embarked on years ago, such as a move by the central bank to reinstitute a crawling peg of the Lebanese lira instead of applying the policy of a fixed exchange rate.  Recent decisions on monetary action in the attempt at securing imports such as fuel and medicines were, however, sharply criticized. Under the perception that a new 15-year cycle was about to unfold in the story of Lebanon, the sixth of its kind, there was, however, hope from participants that the coming cycle would induce a better Lebanon.  

Trading in complexity

With a view to trade and the guidance of imports and exports, it was noted that two aspects of the negative trade balance involve the shrinking of exports over the past 20 years as well widening of the trade deficit due to increasing imports. The export capable sectors of the Lebanese economy over many years have suffered from deficient infrastructures and also lacked governmental interventions to make producers more competitive and increase exports. Private sector actors in credit insurance have a mission to support companies in building abilities to increase sales and export, but the government’s role in this context cannot be fully substituted through private initiatives, it was argued. That companies in Lebanon need more support in becoming export-ready, was raised as part of these discussions.

From the perspective of Lebanese industry, it was noted that a quick increase in export volumes was not likely to be achievable for local companies, given their high comparative costs relative to regional peers, and the fact that they were not commodity exporters but rather had their main potential in exports of complex products. In this regard, the complexity of the Lebanese economy was more on par with European countries than with regional neighbors and emerging markets producers. While this was a very positive factor offering economic gain potentials in the long term under international collaboration scenarios with higher cost developed economies, the development of such potentials required time. Therefore, a shorter term adjustment of trade imbalances of Lebanon was more readily achievable by import reductions and substitution with locally produced goods, it was argued.

On the financial side, proposals from the industry stakeholders entail conversion of bank deposits held by investors. Two special vehicles or funds were on the drawing boards in this regard, the first was a mechanism for industrial sector investments and lending that entails capital guarantees from the Lebanese central bank and also at the international level. The triangular process envisioned by industrialists would ease interest costs of industrial loans, remove part of deposit interest burdens from the books of banks as well as liberate funds that have been locked under provisioning needs, and provide long term benefits to investors who cannot access their deposits in absence of economic sanity.

A similar but somewhat simpler mechanism would, in the view of industrialists, also be enacted in the sphere of unsold property stock in Lebanon. It was noted that the envisioning of such scenarios would have room for the activation of special-purpose banks in the country. Pointing out that many banks have exhibited substandard behavior and unsatisfactory communication performance as the Lebanese economic crisis began to unfold, industry representatives at the financial reality roundtable agreed nonetheless that it would not be feasible in the short term to depart from Lebanon’s monetary policy patterns of a peg to the US dollar.

Yet another very noteworthy scenario elaboration at the sixth roundtable was presented with a baseline assumption of 80 percent agreement with the “black” scenario presented at the start of the discussion. This scenario, however, argued that the time window for embarking on a determined financial rescue operation would not close within weeks, but rather a few months. Under this variant of “black,” the rise of social tensions and job-loss related unrest in combination with investment losses would loom in the first half of 2020.

Attempts to avert this chain of events would have to include an, albeit costly, defense of the dollar peg because failure to do so would translate into a factor four exchange value deterioration of the lira. Currency support under this recipe would have to be maintained until an organic restabilization of the lira was achieved at, or near levels of, the current official exchange rate, from which point on unpegging of the currency could be implemented.

This scenario also assumed the need to have a viable departure point in an agreement on a government and a negotiated political settlement. In pursuing a rapid agreement on government formation, however, the scenario assumed that a significant share of governmental power would fall to the opposition, which would henceforth restrict the ability of establishment politicians to act with previously existing impunity. As such, incorporation of opposition in governmental functions would work toward gradual transition to an entirely new government.

Lessons learned

Part of this transition process would be the activation and continuation of economic councils within the framework of the uprising. Such agora transparency, it was argued, would prevent politicians from maintaining corrupt patterns. At the same time, recovery of embezzled funds/elimination of financial gaps in the political economy of Lebanon (in electricity, telecommunications, customs, and other realms) would work for reestablishing a rule-based and compliant political economy system. As further part of the starting setup, it was argued that authority over the Lebanese streets must be restored to the point of not allowing protesters to lock down economic activity in the country.

The rise of social tensions and job-loss related unrest in combination with investment losses would loom in the first half of 2020.

Efforts to recover looted funds would have to follow but were likely to be of limited effect under this scenario’s assumptions, the reason being that most of the funds that were diverted from serving public interests were “stolen in lawful ways,” i.e. under imposition of legislation that was permissive of politicians’ self-interests. However, once a new government has reclaimed partial trust of citizens and partial trust of the old political stakeholders, it would become possible to approach the international community with a request to disburse a first tranche of money allocated under the CEDRE framework and Lebanon could then begin to implement a reexamined and eventually improved Lebanon Economic Vision, the plan devised in 2018 by the McKinsey consultancy firm.

Even as the proponent of this scenario noted that reliance on CEDRE lending would not have been advisable just one year ago, the participant pointed out that such inflows would be needed under the rescue scenario in addition to inflows from Lebanese diaspora sources that would be contingent upon implementation of
a good government.  

Despite the need for external funding, a pivot of the system away from seeking to attract deposits and financial inflows into an economy that prioritizes venturing into industrial and agricultural production activities was embedded in this rescue scenario. The argument in this regard was that the country must be equipped with an economic policy by the government and a monetary policy by the central bank. The central bank would decrease interest rates in 2020 (note: a circular to that extent was released a few days after) and stepwise governmental easing of tax burdens on companies then would support industry and agriculture in conjunction with the implementation of an inter-ministerial initiative labor market initiative. The former needed to entail guidance for youth into constructive employment. Industrial and economic growth would subsequently cause confidence in the Lebanese economy and currency to improve.

No savior in oil

Included within the financial reality theme of the sixth roundtable were perspectives on the energy sector, with an opening comment that painting Lebanese oil exploration as the solution to the country’s economic problems was not reflective of reality. Oil cannot save a country, it was emphasized. The ongoing process of development of regional infrastructures without current Lebanese participation was noted, as well as the need for a clear vision on the domestic or export usage of an
eventual discovery.

However, it was further emphasized that the chances of a commercially usable discovery at the speculated size of 1.7 trillion cubic feet gas was at 25 percent and that revenues from exploitation could not be expected before eight to nine years. In the intermediate time, no more than necessary expenditure was warranted, for example in tendering for a single floating storage regasification unit (FSRU) that would be employed until a gas discovery transitions into commercial use. Besides the need to allocate funding to an FSRU unit, challenges for implementing new energy infrastructures for natural gas usage in electricity generation were the need for civil works and the acquisition of the liquefied gas. A review and revision of energy exploitation policy and eventual gas purchasing contracts was also required.

With regard to electricity provision by the state utility Electricité du Liban (EDL), better planning and tariff setting were required in order to tackle unsustainable electricity subsidies. However, current plans would increase the price of electricity for end uses and need examination, otherwise the risk of a vicious cost cycle at levels of end users exists.

From an industrialist’s perspective, a participant added that some solutions could be implemented immediately, due to economic opportunities—such as decentralization of electricity production—created by cost differentials. Also it could be advantageous for a company to have reliable electricity supply from EDL, even if prices are hiked significantly, because reliable supply would allow manufacturing plants to avoid allocating three electricity budgets: one for state electricity, one for private generation, and a third for costly backup batteries to keep things running during the switch. Thus, even at double the current rates for industrial usage of state electricity, removing inefficiencies from the EDL system would suffice to make it operationally viable, although not thriving, as a starting line for a privatization process, it
was argued.

Also critically mentioned were legal barriers that prevented private sector producers from selling electricity into the national grid as well as undesirable behavioral effects on end users by having introduced generator metering at the wrong time. A proposal for immediate substitution of state subsidies for electricity provision at the private household level would be to hike tariffs and effectively institute a redistributive levy in the area where households have the least need to buy additional generator services, namely in the Beirut area, because residents there benefit from low cost provision of power at rates not hiked in over
20 years.  

Discussions at roundtable six, which like the other events in the series deliberately did not involve politically-entwined individuals nor the “1 percent,” reflected the presence of “leftwing” and “rightwing” perspectives in the current search for a better economic and fiscal direction. In agreements across such barriers, however, all participants concurred that it was paramount to continue dedicating time and energy to emancipation of Lebanon from paradigms of a society with a weak state, widespread corruption, a large and expansive public sector with entrenched social entitlement niches but poor economic efficiency, and sub-standard social justice and safety nets. Empowering Lebanon will require many interrelated efforts and have to show measurable results as far as monetary stability at emergency speed and structural reforms in the near term, but also produce determined and conciliatory economic mindsets for liberating a country that for many years was frozen in socioeconomic immobility with growing economic informality
and unmitigated poverty.

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The search for a fairer, more redistributive tax system https://www.executive-magazine.com/executive-roundtables/taxation/__trashed https://www.executive-magazine.com/executive-roundtables/taxation/__trashed#respond Tue, 24 Dec 2019 12:24:55 +0000 http://www.executive-magazine.com/?p=24920

Reading Time: 6 minutes The roundtable covered in this piece was dedicated to economic angles of fiscal reform and taxation. Thus, in the context of Executive’s mission and coverage focuses, both it and the accompanying sixth roundtable on financial reality were a hardcore expression of this magazine’s existential paradigm to cover the Lebanese economy to the best of its...

The post The search for a fairer, more redistributive tax system appeared first on Executive Magazine.

Reading Time: 6 minutes

The roundtable covered in this piece was dedicated to economic angles of fiscal reform and taxation. Thus, in the context of Executive’s mission and coverage focuses, both it and the accompanying sixth roundtable on financial reality were a hardcore expression of this magazine’s existential paradigm to cover the Lebanese economy to the best of its ability. Both roundtables were conducted on November 21 under sole content authority of Executive editors.

The discussion brief for the fifth roundtable stipulated that participants would be discussing ways to shift to redistributive taxation structures, to identify opportunities to tax economic rents with no detrimental impacts on overall economic participation, to improve tax collection in fair and equitable ways, and to introduce new transparency to fiscal and tax institutions.

On taxation and fiscal reform

The roundtable on the implementation of the fiscal reforms and taxation entailed a pivot away from highly technical tax questions, such as requests for proposals on effective and ethical taxation of economic rents or the implementation of schemes to enable economic transfers from highly developed economic metropolises to disadvantaged communities. Questions at the table re-focused on participants’ recommendations for fiscal reform measures, on the best and most fair approach to the taxation of banks, and on ways to migrate toward more efficient tax collection, to increase the ability of productive sectors to comply with international market requirements, and to achieve more formality in the economy.

As a baseline of the fiscal reforms and taxation roundtable, participants had zero disagreements in saying that Lebanon in recent years—and in context of 2019—has shown no evidence of any fiscal policy, but that fiscal actions have been comprised wholly of fiscal measures without any discernible vision or strategy. Haphazard measures in recent years were aimed at increasing state revenues through tax law revisions (e.g. 2017), but were implemented without necessary impact assessments. Equally undisputed were comments that taxation policies—which over years were only adjusted in minor ways, even when the national value-added taxation program was enacted from 2002—needed to pivot from indirect and regressive to direct and progressive. A shift from indirect to direct taxation would favor social equality.

It was depicted as prudent to recognize that personal and corporate incomes in Lebanon are taxed rather mildly in international comparison.

However, the organization of society toward being more inclusive and fair would also have to come with behavioral reforms of the economic system whose current structure supports rent seeking, wealth-derived gains, and the concentration of wealth under strong protection for rich individuals.  

Strongly criticized were taxation decisions in the 2010s that were described as reallocations of market-generated incomes to the “black hole” of an increasingly unproductive public sector. Less than universally agreed, however, were the perspectives which participants espoused in assessing existing realities of poverty prevalence versus the concentration of wealth in the country, the most appropriate ways to gauge banking performance and profit rates achieved in the sector, and productive paths for ethical and efficient taxation of incomes and economic rents.   

Arguments that private concentration of deposits in bank accounts was extremely high were challenged with reference to Lebanon’s banking secrecy, which was argued would not facilitate collection of such information for the entire banking sector. Disagreement over the right approach to taxing bank profits—juxtaposing nominal profit levels of Lebanese banks in recent years with the return on equity ratios highlighted by bank economists—also remained very noticeable.

Advocacy for the general removal of banking secrecy in the Lebanese system was voiced as the path toward income transparency and removal of tax evasion incentives for individuals in the liberal professions who engage in diverse economic activities and hold several bank accounts, but do not declare all their incomes. Also proposed was to increase pressure to implement tax compliance of companies that operate on the border of informality by not paying their dues, ranging from VAT and corporate income taxes to national social security fund contributions for all their employees. It was argued that the enhancement of governance in tax collection and fight against tax avoidance should be achieved before attempting a discussion on the economic order of Lebanon, including questions over the desirability of a welfare state or an economy with a very large public sector. 

With regard to the question of the economic system and the course of Lebanon, it was argued that a very big problem in the country existed in having governments but not an efficient state. The apparent dwindling of the Lebanese middle class in the past 30 years and the continued influence of militia structures and militia persons who had been able to transition into political roles were pointed to as other obstacles in need of remedying in order to achieve a more effective state. Furthermore, voices around the table drew attention to the need of achieving a balance of private sector growth and implementation of laws by an empowered state. A participant argued that unfettered activities of the central bank and commercial banks had led the country to the difficult place that it found itself in this year.  

Attesting to the necessity of looking beyond taxation when seeking to address social inequality and poverty prevalence in Lebanon, several participants emphasized the importance of social expenditures from quality spending on education and health to liberating the poor from cost burdens and improving the labor market. It was further emphasized by participants that young companies with growth and job creation capacities are faced with taxes and levies that do not make sense and, suffering greatly under indirect taxation burdens, are in want of government policies and incentives that compensate them for their contributions to economic opportunities and keep them in Lebanon.

Toward inclusiveness

Besides acknowledging the problems of persistently regressive taxation and the need to change these practices, it was depicted as prudent to recognize that personal and corporate incomes in Lebanon are taxed rather mildly in international comparison. The major challenge in the fiscal constitution from this perspective are problems on the other side of the fiscal balance sheet, such as irrational hiring in the public sector, indiscriminate expenditure, haphazard spending, and other wasteful deficit drivers. Participants argued that increasing expenditures and heightening deficits led to higher interest rates that blocked economic growth, on top of which the long existing exchange rate peg and low productivity made Lebanon noncompetitive. This malaise was further exacerbated by absence of business friendly regulations, weakening in the Gulf markets, the conflict in Syria, and the Lebanese government shift to borrow in US dollars. All this was contrasted with governmental economic rescue propositions that were badly insufficient.

There were divergent views on whether wealth in Lebanon is highly concentrated or not to the extents believed by some.

It was acknowledged around the table that tax policies need to incorporate elements of societal guidance and be grounded in a national economic vision on what sectors in the economy should be promoted and how spending of fiscal revenues should be targeted. In the case of Lebanon, participants noted that this translates into a question on how to move from an extractive economic model to an inclusive one.

A resurging factor of irritation and divergence in the discussion arose from the—universally acknowledged—lack of reliable data on the Lebanese economy and the actual performance of its economic agents. Insistence on the deficiency of hard data in areas ranging from poverty to income concentrations was juxtaposed with passionate emphasis of visual evidence of high poverty levels, for example. There were divergent views on whether wealth in Lebanon is highly concentrated or not to the extents believed by some. In the perception of Executive, this discussion once again pointed to the utter importance of initiating a national socioeconomic census under any government seeking to design policies that can achieve socially meaningful targets.

Reforming taxation

Concrete measures in the area of taxation needed to involve closing tax loopholes by reforming the frameworks under which offshore companies operate, unifying income tax, and simplifying tax codes, it was suggested. Newly anchoring the system on progressive taxation was a priority need in the perception of numerous participants. Other areas of note from a taxation perspective according to participants were succession taxes and the need to make the entire tax and fiscal system more transparent to tax payers. In this and other regards, digitization and introduction of e-government functionalities was viewed by participants as an enabler for improvement.

Application of essential rules on tax equity—such as taxing personal or corporate incomes equally and protecting tax payers from arbitrary changes in their tax burdens—was emphasized in the discussion, as was the importance of taxing productive sectors and banks on basis of principles of equality and fairness. Emphases for fiscal development were reiterated as restructuring of expenditures and elimination of wasteful practices in the public sector. The fiscal mission was described as a combination of moving from waste to productivity in the public sector, reducing the public sector, putting public finances in order by fighting tax evasion, increasing transparency, and instituting internal auditing as a constituent factor in public and private sector economies.

The majority of participants did not think that experiments with new public sector entities aimed at better management of economic cycles, such as a publicly-owned investment bank, would be applicable given Lebanon’s over-politicization of political economy institutions. Issues such as the idea of a digital currency under central bank management, as discussed in some countries, were not perceived as being of current importance for Lebanon. 

In evaluation of the overall fiscal and taxation discussion, and in the conclusion of roundtable five, participants stated that the public finance problem was also a political problem that originated from the unchecked existence of conflict of interest issues engulfing political actors and that, likewise, the determination of a national government was indispensable for devising practicable solutions in the fiscal and taxation space. 

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Reinventing Lebanese education for an uncertain future https://www.executive-magazine.com/executive-roundtables/reinventing-lebanese-education-for-an-uncertain-future https://www.executive-magazine.com/executive-roundtables/reinventing-lebanese-education-for-an-uncertain-future#respond Tue, 24 Dec 2019 12:18:41 +0000 http://www.executive-magazine.com/?p=24913

Reading Time: 5 minutes The third discussion in Executive’s roundtable initiative was designed to cover a broad selection of topics—regarding health, education, and labor—under the banner of social development. Already a dense focus, the third roundtable was further restrained when it became clear to Executive’s editors that plans to carry out 10 roundtables over the course of November 18...

The post Reinventing Lebanese education for an uncertain future appeared first on Executive Magazine.

Reading Time: 5 minutes

The third discussion in Executive’s roundtable initiative was designed to cover a broad selection of topics—regarding health, education, and labor—under the banner of social development. Already a dense focus, the third roundtable was further restrained when it became clear to Executive’s editors that plans to carry out 10 roundtables over the course of November 18 – 22 would be scuppered by two events scheduled to take place that week—the first, a rescheduled parliamentary session that was intended to take place on November 19 amid intense opposition, and the second, Lebanon’s Independence Day celebrations on November 22. 

Folded into the discussion in the organizing phase then was the impact of pollution on human development and—in a last minute move due to the withdrawal of several participants, the focus of a planned roundtable on poverty alleviation was also folded into the mix. It was, by anyone’s standards, an overloaded and ambitious discussion list. Prior to the roundtable, which was held in the early afternoon of November 20, participants were encouraged to consider the following topics: the organization and provision of healthcare, pensions, and education; the development of labor statistics and labor markets; incentives for highly qualified graduates and professionals to work in Lebanon; the need to re-evaluate the labor law; environmental protections, and the impact of pollution on human development.

It was perhaps due to the overloading of this roundtable, along with logistical challenges on the day, that discussions instead were centered on education and the labor market as related to university graduates. Executive’s Economic Roadmap, however, has sections dedicated to developing strategies for improving education and healthcare, a section on combating poverty and pollution, and a section on developing labor. This is born out of our belief that all these elements of social development and capacity building are essential to move the economy—and indeed the country—forward. When applicable, the roadmap has been amended to reflect relevant points submitted by email or form by both participants and the wider public.

The quality of education 

The discussion began with a reflection on education for the 21st century and how, in the views of the moderator, students in Lebanon’s schools were not being equipped with the tools and skills they needed to excel in the jobs of the future—which the moderator said required education in creativity, curiosity, collaboration, and communication. Participants were then asked for their reflections on these opening remarks. 

Several of those at the roundtable believed that, contrary to the views of the moderator, private education in Lebanon was of high quality and had kept up with the changing needs of the students to become more skill-based than knowledge-based, with one citing various real life examples found in their own work. Participants also noted that Lebanese students have successfully taken the skills they have learned at educational institutions in Lebanon and used them to excel abroad. The issue lay, according to one participant, in the inability of students to apply these learned skills in Lebanon—something it was believed was in the process of being changed through youth participation in the thawra.

It was noted that quality assurance measures do not exist at the school level in Lebanon, which creates an uneven landscape for students upon entering higher education.

There was, however, some agreement with the moderator’s premise, with one participant saying that time is running out and Lebanese schools need to catch up fast by teaching the skills needed for life in the 21st century, starting with primary school children. 

It was noted that quality assurance measures do not exist at the school level in Lebanon, which creates an uneven landscape for students upon entering higher education. To resolve this, it was suggested that there should be a regulatory body—made up of both public and private schools and the Ministry of Education and Higher Education—that should set a new educational system, with indicators that would focus on teaching the skills needed for the 21st century. This view was echoed by several participants. The responsibility of the state was seen in terms of standardization, one participant argued that there needed to be a program that would be followed by all educational institutions in the country that was decided upon at the state level.  

The discussion then flowed on to public schools and the vital need for elevating the quality of the education to produce more competitive graduates that would help rebuild Lebanon. A participant suggested that instead of the government draining itself running the public schools, its role should be to simply manage them through inspections and ensuring they adhere to certain standards. This could also be achieved through a public-private partnership, according to some participants. 

The mismatch between education and labor

The mismatch between education and the labor market was also raised by those around the table. One participant noted that an investment in quality education was very costly—estimating it to be $500,000 from pre-school to university—and questioned how many years of work in Lebanon it would take to recoup that investment. This argument was furthered by another participant who said that there needed to be an understanding of the cost relative to the returns in order to be table to address both. While the costs of private education are known, it was argued that data on the cost per student to the state of public schooling or a degree from the Lebanese University was lacking. It was also suggested that a study should be taken to survey the incomes of students of private education institutions from the past five years to determine the average income in relation to the upfront cost of their education.  

The discussion on the mismatch between the skills of Lebanese graduates and their labor opportunities continued, with one participant noting that Lebanon suffers from a nonproductive economy whereby we have 30,000 graduates every year, and yet only create around 3,000 to 4,000 jobs, which are mostly in the public sector and so are relatively low-skilled. 

Beyond this, they continued, the mismatch was impacted by two interlinked phenomena: corruption and clientelism. It was argued that in Lebanon it was immensely difficult to open a business, complete official paperwork, or get a good job—one for which you were qualified—without wasta or being from the right sect or political party. What was needed was a reorganization of the political system into one that could move Lebanon toward a productive economy and open up the labor market with equal access to all those qualified, participants argued.

What was needed was a reorganization of the political system into one that could move Lebanon toward a productive economy.

There was also a consensus around the table on the need to obtain data on labor market outcomes to guide strategies in education development. Several participants noted that in order for the discussion to move forward and practical measures to be agreed upon, it was necessary to know the baseline from which we were starting in order to determine key indicators of success. Lack of data to assess the current situation and, therefore, its needs was a theme raised throughout the roundtable initiative. 

Hopes & dreams

Beyond this, participants also questioned what the goal of education was, with one quesstioning whether they believed education was a means to an end, or an end in itself, noting that there were other outcomes to education beyond economic ones, including improving citizen engagement and civic education. It was noted that if a goal of education was to produce engaged citizens, then students’ and youths’ participation in the thawra was evidence enough of the benefits of the Lebanese education system—though this idea was challenged by another participant who thought that civic education was lacking
in Lebanon.

Also raised by those at the table were questions on what problems were being addressed through the discussion—was it reach of education, consistency across schools, the outcome of education, or its cost? Defining the problem clearly was seen as a necessary first step to
tackling it. 

Amid closing comments, it was asked that the Ministry of Education and Higher Education apply existing regulations when it came to the inspection of institutions of higher education, and especially when it came to issuing of
graduate degrees. 

Another closing remark was a practical suggestion related to the strengthening of students’ skills versus their knowledge base, which recommended extracurricular activities between private institutions of education and civil society (charitable organizations for example) whereby students could learn a variety of real life skills.  

This roundtable highlighted the value all participants placed on education as a vital building block for almost all pillars of a functioning

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Hard new looks at the tech ecosystem and its entrepreneurial future https://www.executive-magazine.com/executive-roundtables/hard-new-looks-at-the-tech-ecosystem-and-its-entrepreneurial-future https://www.executive-magazine.com/executive-roundtables/hard-new-looks-at-the-tech-ecosystem-and-its-entrepreneurial-future#respond Mon, 23 Dec 2019 11:05:11 +0000 http://www.executive-magazine.com/?p=24902

Reading Time: 7 minutes Before the October 2019 uprising, it was not difficult to list unresolved questions and some outright disappointments with the way that the Lebanese entrepreneurship ecosystem had been shaped in the past six years since Lebanon’s central bank, Banque du Liban (BDL), effectively launched it with publication of its Circular 331. In mid-November, amid the uprising,...

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Reading Time: 7 minutes

Before the October 2019 uprising, it was not difficult to list unresolved questions and some outright disappointments with the way that the Lebanese entrepreneurship ecosystem had been shaped in the past six years since Lebanon’s central bank, Banque du Liban (BDL), effectively launched it with publication of its Circular 331. In mid-November, amid the uprising, the Executive roundtable on entrepreneurship (the second in a series of six) witnessed most of the same systemic and operational concerns as had been debated in the ecosystem before, but with two added accents: the money will never be the same, and the discussion has gained honesty and clarity.

In other words, the financial wells to nurture the knowledge economy and the few Lebanese startups with real economic promise need to be re-drilled elsewhere and meet new specifications. And everyone in entrepreneurship acceleration is beyond wasting their time on idle ecosystem diplomacy or polite compliments to the old 331 system. 

In years one to three of the entrepreneurship ecosystem there were already warning signs of clientelistic allocations of projects and a lack of competency in some of the ecosystem’s most privileged cogs—its units that had been established with 100 percent BDL-guaranteed funding instead of the 75-percent guarantee of bank investments into tech venture funds and startups.

Ecosystem insiders from early on also lamented about distortions that had crept in, due to money inflows under 331 that had led to inflation in startup valuations and financing pitches of more attractive looking business plans. Observers next noted very critically how the ecosystem’s venture capital (VC) playing field was tilting increasingly away from super-high-risk startups that needed finance the most, in favor of investments with risk profiles tending to the private equity corner.

Tech startups and especially ventures in deep tech are more resilient due to their international migration opportunities.

Throughout the entire six-year period, as they had been before the launch of 331, the existing legal and judicial frameworks remained ill-suited for facilitating an economic activity that needed permission to fail fast and reboot. Before and after 331, some good projects never even got such  permission as they were killed by over-cautious investment committees. In times of 331, however, failures of ambitious startup projects happened, but they were often not revealed in ways that would allow the system’s players to learn all they could from them. Transparency, from the ecosystem’s financial top at BDL to its operational bottom layer of VC funds, remained as alien as an interstellar visitor.

In the latter part of the current period, from 2017 to 2019, the questionable wisdom of regulatory rules that limited 331-supported startups to allocations of their funding in Lebanon was put deeper into doubt when the financial reporting requirements for these companies, under instructions from BDL, were tightened to the point of being counterproductive.  

Still, despite these flaws and other questions, such as the ability of the small ecosystem to create enough jobs to make more than a tiny dent in the long-standing employment malaise of a country that produces an estimated five to 10 times more college graduates than jobs, Executive’s reporters every year found positive aspects to point out in the ecosystem—although in 2019 less so than in previous years, and warranting far less exuberance than signaled by the foreword of an external report that was published this summer (see box below).

Entrepreneurship in the thawra age

Executive noted that internal and external stakeholders—such as the promotional units attached to the system and international partners with interests in its success—had embarked on several mapping exercises from the third and fourth year after the launch of 331. These exercises, however, tended to be afflicted by the difficulty to obtain data (which was limited due to the system’s very brief existence) and even more so by methodological imperfections or, all too often, special interests.      

The outlooks and assessments of the ecosystem stakeholders participating in the Executive roundtable on November 18 were decidedly uncheerful in the short term, to the point of diagnosing the death of financing paradigms that had been in force until now. According to participants, absent visibility on the future of 331, uncertainty on the ability to still tap into any of its hitherto unused funds, and a strong expectation that the funding environment would not be sustained in the coming months were juxtaposed with the understanding that entrepreneurship will be vital for economic development and job creation after the tremors in the political economy recede.

Noting that the ecosystem was nearing a pivotal juncture with need to shift from the 331 funding paradigm to activating private funding already necessary before the uprising, participants concurred that this path forward is now fully in the dark to the point of having to ask how currently operating startups will stay alive until the funding finds firmer ground. Entrepreneurial flight to other markets, meanwhile, is a downside risk of the current situation, with regard to all tech startups, hardware startups, other young companies, and even manufacturers that
have the ability to move out of Lebanon.

Emphasis on the upsides of the past six years entailed the acknowledgement that 331 was responsible for assembling the entrepreneurially high-powered minds that were gathering last month at the Executive roundtable. Participants agreed that the ecosystem’s emergence under the 331 initiative was also successful in creating a new mindset and culture that is compliant with the patterns that made tech entrepreneurship succeed in those countries where it flourished, beginning with a readiness to stand up after a venture’s failure.

There was a divergence of views if the shrinkage of new startups applying for acceleration in recent years was coupled with an increase in the average quality of the applying ventures. Views were also diverging on the funding environment, as some participants noted that private money at the end of 2019 has been exiting the Lebanese ecosystem, while others pointed out that investors with new unwillingness to expose themselves to the banking sector’s deposit schemes have inquired with VCs and accelerators about investing into entrepreneurship (traditionally not a prime conduit for most investors due to the high risks associated with startup investing).

Broad agreement among roundtable participants showed in their emphasizing the importance of overcoming Lebanon’s financial liquidity problems and preserving banking sector sustenance, given that the ability to transact with local and international counterparties is just as vital for entrepreneurial ventures as for all companies. At the same time, participants noted that tech startups and especially ventures in deep tech (focus on hard-to-copy innovations in technology and science, e.g. artificial intelligence) are more resilient due to their international migration opportunities when compared with non-tech or e-commerce entrepreneurship ventures that rely strongly on non-tradable expertise such as local market knowledge.     

Experiences of the past few years cleared out some hopes of Lebanon-focuses in tech entrepreneurship, first of all expectations of fintech successes in the local market where negotiations between startups and a small group of banks as potential clients, partners, or acquirers had, in the past 18 months, come to naught. This in the opinion of one accelerator program has ruled out entire verticals as being viable for pursuit in Lebanon, most notably fintech, but also has shown that ventures targeting small local e-commerce and e-services niches have very poor chances of success in the Lebanese entrepreneurship ecosystem.

It was important for several of the stakeholders at the roundtable to highlight that systemic limitations translate into better chances for startups whose team profiles reflect considerable expertise in the targeted field, emphasizing that entrepreneurship is not a cure-all for career and employment obstacles encountered by university graduates. Entrepreneurship is also not the answer to business cycles, demographic mismatches, or the dearth of employment opportunities in labor markets in the Gulf that have previously attracted Lebanese graduates. Moreover, while age is not a barrier, young success stories are exceptions, and the value of being trained in entrepreneurialism in tertiary or secondary education lies mainly in students’ improved ability to satisfy international employer demand for entrepreneurial thinking, it was said.     

Further limitations in the system seems to be based on blind spots on the side of its agents and proponents, and distrust and lack of information on the side of entrepreneurs. According to this view, many local entrepreneurs and hopefuls are invisible to the ecosystem and prefer to stay away from it because of their perceptions that the ecosystem is corrupted, the game rigged, and money not accessible to them.     

Some at the table suggested that startups should avoid—at all costs—local banks and the 331 framework as hindrances on their development paths, adding that the ecosystem needs to tap into funding sources that offer invested startups the right conditions. Further reiterated were emphases on linkages to universities and boosts of research and development as well as industries and suitable exit platforms. 

Economic vision

To save the entrepreneurship ecosystem from its operational dysfunctionalities that have been building under the financial reign of Circular 331, capital guaranteed funding needs to be redirected to only the companies that need it, said one strong recommendation. The entrepreneurship and knowledge economy ecosystem needs to be rooted in a shared and clear vision of the type of economy that Lebanon wants to have, the recommendation also noted. Entrepreneurship needs a purpose, and mindsets need to mature. Instead of pursuing a startup as the hoped-for ticket out of Lebanon, the mindset of the civil revolution should be expressed in “national entrepreneurship” commitments, while at the same time advocating for reforms of the regulatory and legal frameworks.  

According to participants, options for moving forward exist also in further activation of the business angel networks created over recent years and link them to diaspora investors who want to engage with cogent entrepreneurship ideas in Lebanon. International advisory councils can also still be cultivated on the strengths of alumni networks at universities like AUB, on condition that the ecosystem is managed trustworthily.

It was noted at the table that immediate remedial action for the preservation of companies in portfolios began during the Q3 financial crunch. This action included efforts of accelerators and funds to consolidate operational costs and reduce burn rates of their hosted companies, improve coordination between startups and mentors, and create clustering benefits by bringing portfolio companies together that operate in the same industries.

Some at the table suggested that startups should avoid at all costs local banks and the 331 framework as hindrances on their development paths.

Internationally connected funds and accelerator programs according to managers at the Executive roundtable can further help startups that are faced with bottlenecks in their transactions by helping them to establish bank accounts and corporate partnerships outside of Lebanon, find “soft landing spots,” incorporate in startup-friendly jurisdictions (e.g. Delaware), and navigate legal requirements that, under conditions of global crises, can turn into economically deadly cash flow chokers.    

In their concluding remarks, participants reiterated that the initiative of Circular 331 was the beginning of an experiment that can bring many benefits to the Lebanese economy, but that further development of this entrepreneurial process requires improvements of governance structures in this country. Discussants agreed that entrepreneurial spirit is a mindset of problem solving and pointed out that all entrepreneurial ventures launched in Lebanon since the early 2000s had found themselves confronted with one or other tough period soon after their launch. The need for an entrepreneurial spirit and belief in what one is doing was undisputed around the table, as was the need to reign in uncertainty
and have a functional government.

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Corruption looms over all aspects of Lebanese life https://www.executive-magazine.com/executive-roundtables/corruption-looms-over-all-aspects-of-lebanese-life https://www.executive-magazine.com/executive-roundtables/corruption-looms-over-all-aspects-of-lebanese-life#respond Mon, 23 Dec 2019 08:47:46 +0000 http://www.executive-magazine.com/?p=24871

Reading Time: 6 minutes Executive has long recognized the importance of fighting corruption as an essential step toward creating a strong economy for Lebanon. Both previous versions of Executive’s Economic Roadmap (version 1.0 published in December 2018 and 2.0 published in February 2019) had sections dedicated to combating corruption, as does the reshaped Economic Roadmap 3.0 that has been...

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Reading Time: 6 minutes

Executive has long recognized the importance of fighting corruption as an essential step toward creating a strong economy for Lebanon. Both previous versions of Executive’s Economic Roadmap (version 1.0 published in December 2018 and 2.0 published in February 2019) had sections dedicated to combating corruption, as does the reshaped Economic Roadmap 3.0 that has been updated to reflect the reality of Lebanon in the last quarter of 2019, aided by the findings of Executive’s roundtable initiative. 

The first of six roundtables held in mid-November, roundtable one on combating corruption was chosen as the opener on November 18, given its urgency in the context of the ongoing protests and the demands on the streets. Yet, over the course of all six roundtables—on corruption, on entrepreneurship, on social development, on access to rights and information, on taxation and fiscal policy, and on financial reality—corruption was a topic that participants repeatedly cited as one of the major roadblocks in the way of long overdue and necessary reforms. 

Participants were almost unanimous in their view that Lebanon needed to fight corruption—at any cost.

The discussion brief provided in advance to participants of the corruption roundtable invited them to discuss legal initiatives to retrieve embezzled funds, the enhancement of penal codes, and the adoption of laws for prosecuting incidents of corruption. Other discussion points mentioned in the brief included the establishment of institutions to combat corruption and audit public spending, awareness and education on public service paradigms and appreciation for effective administration, and finally a redesigning of services and digital access to government. 

Changing systems not symptoms

To start the discussion, participants were asked whether institutional prevention, prosecution, or education and awareness building were the best tool in combating corruption, and which of the three were seen as a priority.

Almost all agreed the main issue lay beyond the proposed question, and that before addressing prevention, prosecution, or awareness building, the first goal must be to change the political system in its entirety—along with its leadership. It was argued that corruption in Lebanon was so flagrant because the political class failed to consider the concept of the public good, and, as a result, the citizen was never a pillar in policy-making. The consensus was that the way forward in fighting corruption was to first create a new government, independent of all current ruling parties, which would, in turn, allow for an independent and empowered judiciary system that could hold politicians to account by allowing for the legislation and implementation of anti-corruption laws—as such, participants called for the passage of laws that would grant independence to the judiciary system, as well as an independent security force that would prevent and control the use of governmental scare tactics to stop prosecution against corruption. Access to information was also brought to the table as one of the main tools that would help with the fight against corruption, in particular when it came to attempts at prosecution.

Photo by Greg Demarque | Executive

Corruption was also seen as being a lubricant of what was termed “the political economy of sectarianism.” Under this paradigm, corruption was not the sole purview of Lebanon’s political elite as it was argued that it was in the best interest of the latter to allow corruption to trickle down—thereby reinforcing sectarian identities and moving the populace further from an ethos of accountability. 

Leadership in the fight against corruption 

The following discussion point was the question of whether or not the fight against corruption should be led by politicians or civil society members, and whether investing in e-government would benefit this fight. Most agreed on the need for leadership in the fight against corruption and that it should come from independent judicial bodies and through the establishment of anti-corruption laws. There was, however, some disagreement on whether leadership would come from above or below. A common thread among participants was that bottom-up approaches—such as the establishment of new political parties with a background in civil society and strengthening independent voices within syndicates and orders—were a necessary long term approach to combating corruption. In this vein, the victory of independent candidate Melhem Khalaf in the elections for the head of the Beirut Bar Association the day prior to this roundtable was seen by participants as the first milestone in a long battle against corruption. 

Others, however, believed that change would be imposed from the top down, and therefore, before new political parties or leadership, it was necessary to rehaul the system itself or risk replicating the same corrupt leaders. It was argued that Lebanon’s sectarian constitution needed to be changed to eliminate the idea that citizens need their sects for protection and to start building the idea of protection coming from the government and a strong independent state.

Regarding e-governance, several participants argued that we needed leaders who understood modern technology and were able to put in place a system that would help fight corruption through eliminating the middle-men in bureaucratic procedures—who often ask for bribes—and through making it easier to trace instances of tax avoidance. However, it was also warned that given the state of the internet in Lebanon, migrating official paperwork online would be a nightmare, and the priority would need to be in fixing the internet infrastructure before even thinking of putting time and effort into e-governance. 

The battle against corruption is a long one, and it should be led by the new generation who have proven through this uprising to have a clear understanding of what needs to be done. 

Participants were asked to consider the fact that a society that has corruption also incurs some economic benefits from it. Executive editors then asked for a simple yes/no response from around the table on two questions: whether they felt that the economic benefits of corruption in Lebanon would be bigger than the cost of fighting it, and regardless, whether Lebanon could afford to not fight corruption? While there were some attempts to address the first question—several participants, while acknowledging some economic benefits, argued that the cost of opportunities lost was still greater—most responses singled out the second question, with participants almost unanimous in their view that Lebanon needed to fight corruption—at any cost. One dissenting voice was against such a fight under certain circumstances, arguing that in the past, Lebanon has been able to thrive under the stewardship of moderately corrupt leaders. At this point, the moderator quoted South Korean development economist Hyun Chang, author of “Bad Samaritans,” who argued that certain elements of anti-corruption were actually promoted in order to keep developing economies from gaining an advantage—what German economist Frederich Lust termed kicking away the ladder after you have used it. This view was well-received by the table.

An environment for change 

The judiciary’s role in combating corruption was the focus of the general debate. Participants were split between the idea of working within the current system to change it versus the need to change the system altogether. One argument for the former was that honest lawyers could impact positive change despite a corrupt system. This was met with criticism by others who again raised the point that corruption needed to be weeded out from the system itself, and the first step toward that goal would be an independent judiciary. 

Photo by Greg Demarque | Executive

The value of a bottom-up approach was again highlighted as the preferred mechanism of achieving an independent judiciary within a corrupt environment embedded in za’ims and sectarian party leaders, with participants calling for a series of small victories—such as Khalaf’s Beirut Bar Association win—within orders and syndicates that would lead to change, giving the example of professional orders in Tunisia as key to the success of the revolution there.  

The idea that there were two battles being waged—one against the sectarian system, but also one within the system itself—was also floated. Within each sect are people who are fighting against their political parties, but also those who want to keep the regime as is because they benefit from it economically. Participants concluded that the battle against corruption was a long one, and that it should be led by the new generation who have proven through this uprising to have a clear understanding of what needs to be done. 

The question of how long the protests could last given the current economy was asked by one of the participants, two scenarios were proposed: either the current government would take action before the country goes bankrupt—because it goes against their interests—or the economic situation would severely deteriorate further. The latter was argued to be good for the protests as it would tip the scale between an uprising of middle income to lower-middle income citizens to one with full participation of lower income citizens—a full-on revolution.

Throughout, the tone of the roundtable was one of grim determination to face the difficult task of weeding out corruption through changing the current system, yet hope for a better Lebanon was evident in all the participants’ answers. 

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Economic Roadmap https://www.executive-magazine.com/economic-roadmap/third-draft/economic-roadmap-3 https://www.executive-magazine.com/economic-roadmap/third-draft/economic-roadmap-3#respond Fri, 20 Dec 2019 12:32:59 +0000 http://www.executive-magazine.com/?p=24866

Reading Time: 2 minutes This document—Economic Roadmap 3.0—is the most definitive Roadmap yet in Executive Magazine’s ongoing quest for providing a working platform for advancing the Lebanese economy. Building on a first version published in the December 2018/January 2019 issue of Executive, and a second version published with an additional 261 measures and three entirely new national priorities in...

The post Economic Roadmap appeared first on Executive Magazine.

Reading Time: 2 minutes

This document—Economic Roadmap 3.0—is the most definitive Roadmap yet in Executive Magazine’s ongoing quest for providing a working platform for advancing the Lebanese economy. Building on a first version published in the December 2018/January 2019 issue of Executive, and a second version published with an additional 261 measures and three entirely new national priorities in February 2019, Executive presents this third iteration at the end of 2019 in the hope that its reflection of fourth-quarter developments will accelerate the discussions seen in Lebanon after October 17 and elevate the economic discussion to one that can generate a new and healthy productive economy. As was the pattern from the beginning, we took a participatory approach in deliberations of Economic Roadmap 3.0—this time by inviting both online recommendations and querying around 50 diverse and qualified individuals in a series of six roundtables conducted in November 2019 (See intro to roundtables). The stakeholders at these tables ranged from representatives of civil society and persons with personal commitment to Lebanon’s civil thawra (revolution), to economists, industrialists, entrepreneurs, and academics.

As in the two previous Roadmap iterations, there was little or no disagreement on the top priority for moving Lebanon to safe economic ground in the face of a financial liquidity and confidence crisis that erupted from September 2019 in parallel to the October protests. However, while many needs of the Lebanese economy had not been met since we published Roadmap 2.0, priorities were added especially in the Build and Reform pillar as well as in the Combat pillar, specifically in Combat Corruption. The Build and Reform pillar addresses agenda priorities in the areas of fiscal policy, capacity building, state institutions, judicial reform, and regulatory frameworks. Moreover, while the list of pillars and agenda priorities in Roadmap 3.0 is the same as in iteration 2.0, we note that the agenda items discussed at the November roundtables (agenda priorities 1-6, 8, 11-13, and 15-18) saw more additions, new emphases, and modifications than the other five agenda priorities, but want to emphasize that the shifting toward urgent issues and short-term economic survival priorities does not detract from the importance of the remaining components in the Economic Roadmap. The fundamental question over the best economic system for Lebanon is still open but one dichotomy, a line of deceptive argumentation used throughout past periods of governmental vacuums in Lebanon and into the period after the resignation of the Hariri government at the end of October, has been revealed as fake news. This is the argumentation from some political quarters that addressing the economy is more important than adhering to the will of the people, as well as the view of some economic protagonists that political health will follow upon a vigorous private sector performance. In truth, as the last months of 2019 have proven, Lebanon needs a government that implements the will of the people and an economy that serves them. Ultimately, Lebanon has to decide what kind of system it wants to implement and move forward collectively. While the country seeking to rebalance state and society in a cogent new system, Executive is committed to contribute to this vital search by continually striving for a definitive, collaborative, and passion-empowered Economic Roadmap.

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The madness of clowning around in an economic tornado https://www.executive-magazine.com/business-finance/the-madness-of-clowning-around-in-an-economic-tornado https://www.executive-magazine.com/business-finance/the-madness-of-clowning-around-in-an-economic-tornado#respond Fri, 20 Dec 2019 12:16:20 +0000 http://www.executive-magazine.com/?p=24854

Reading Time: 8 minutes Two months after a blundering collage of new budgetary revenue measures drove people into a unified and spontaneous civil uprising, the state of Lebanon remains an unresolved mess. Six weeks of attempts by the political regime to uphold and reorganize what the people perceived as a corrupt system only made the country’s social and economic...

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Two months after a blundering collage of new budgetary revenue measures drove people into a unified and spontaneous civil uprising, the state of Lebanon remains an unresolved mess. Six weeks of attempts by the political regime to uphold and reorganize what the people perceived as a corrupt system only made the country’s social and economic predicaments more intractable. Failures of the process to determine a cabinet in the first week of December then further exacerbated questions if the stakeholders in the old regime have understood the popular will and demand for a new independence of Lebanon from its soiled political past and the seriousness of the country’s economic disaster and looming financial implosion.

From a banking and finance perspective, the dire monetary state of Lebanon in the final weeks of 2019 is neither the fruit of the populace’s political struggle for a redesign of the country’s electoral and representative paradigms nor the root cause of this struggle for a new system on the threshold of the symbol-heavy year 2020. Nor is the current monetary and economic mess the direct result of just another period during which the implementation of government has been stalled by a—as socially entrenched as societally lethal—mix of political selfishness, communal inertia, and national disunity.

What was triggered by another government attempt to tap into the people’s pockets—and specifically the sensitive communication expenditure pocket—was the eruption of society telling the state “enough” with a voice that could be neither overlooked nor silenced: the unified voice of the street. This voice coincided with a crisis of confidence—according to some views long overdue and to others premature—in the sole functioning pillar of economic strength, Lebanon’s monetary stability and banking resilience.

Total information loss

What could not be expected from this voice of civil thawra (revolution) in this highly combustible constellation of vanishing confidence and financial instability, however, and what did not come to bear, were concise answers on the concrete need to maintain economic life support for the large private and public consumption needs, equally gigantic dependence on financial inflows, and the comparatively small productive capacity existing in the national economy.

The offspring of this unintended union of civil revolution in politics and draining of liquidity and confidence in the economy appeared firstly as a total loss of actionable information in the financial system. From an observer’s perspective, this collective lack of transparency and early warning signals might have been attributable in part also to the behavior of stakeholders in the Lebanese financial system, who did not make determined efforts to regain the trust of private account holders on corporate, small-to-medium business, and household levels, as would have been wise, and instead acted behind smoke screens when seeking to rein in financial transactions.

One side-effect of the worrying monetary movements that set in during the year—which in hindsight appear to have become visible to system insiders from mid-2019 but remained largely camouflaged in communications between the banking sector and the public—is that it is impossible to draw any conclusions on the health of the banking sector’s performance in the second half of 2019 on the basis of the performance up to the middle of the year.

Neither a 1.3 percent contraction in domestic customer deposits in the first half of the year, nor the slowing asset growth trajectory of alpha banks (with deposits exceeding $2 billion each) to $263.6 billion by end-June 2019 provided data that at first glance would have supported immediate alarm in response to six-month results. Alpha bank assets were recorded as a 1.6 percent growth in consolidated assets (a 2.2 percent growth in domestic assets versus an exchange value deprecation-induced contraction of assets at overseas operations). A stagnation of domestic branch network developments and a headcount decrease of some 300 banking employees in Lebanon also provided no cause for crying out. The sharpest deterioration in bank activities, a 7.5 percent drop in domestic loans, could be taken as reason for another exasperated sigh over the state of the Lebanese economy rather than as a sign of new weakness in the banking sector.

Primary liquidity ratios of banks even increased significantly on paper, to almost 60 percent (an increase by 8.7 percentage points from a year ago) and the downturn of bank profits—an 8.1 percent contraction of domestic net profits in the first six months—should, if anything, have been comforting to critics alleging disproportionate banking sector profitability. In the sum of the data, while the sector numbers gave no reason for euphoria, there appeared to be no huge noticeable alarm signals, sharp digressions from historic banking performances in multi-year time series, nor data points of any predictive crash dimension for the first half of 2019.  

Arguably, this first-half performance only made it more difficult for many business and household clients of banks to prepare adequate and rational behavior in response to the altered behaviors by banks that came as a full surprise near the end of Q3 of 2019.

Left in the dark

Moreover, when the first wave of protests was triggered in mid-October and quickly escalated into the civil thawra that resulted in the government’s demise by the end of the month, there was little else than fear, instinctive self-interest, and very short action horizons for the bulk of banking customers to go by. Central Bank Governor Riad Salameh addressed the country on November 11 with assurances that there was no intention whatsoever of embarking on a capital control, haircut, or devaluation policy, saying as reported by the National News Agency that the protection of deposits and depositors is “a basic and final matter, and we have taken the necessary procedures so that there will be no losses borne by depositors.”

Meanwhile, banks took what they considered as decisions in their best interest, dispatching updates on withdrawal and transaction barriers via messages to their customers individually and often on ultra-short notice. But in any larger sense, thawra was a non-event as far as communication by the systemically most important pillar of the private sector. Even in the beginning of December, the home pages of alpha banks contained next to no comments on the national societal situation or, as far as the deteriorating economy, either systemic financial assessments or personal advice on how to behave rationally as a customer in times of national economic crisis.   

This left the field wide open to all the legitimate concerns voiced by economic experts (but also some almost pejoratively imprecise or premature labeling of the role of banking and finance in the crisis with negative to criminal connotations), erratic exchange rate signals from the private currency market, viral anti-banking rumors and accusations as part of the thawra expressions of systemic disapproval with the ruling status quo and the exploitative cliques of corruption, and even what looked to some like orchestrated attempts to further destabilize the country through attacks against the central bank and banking sector at large. 

In published economic evaluations and discussions—such as the Executive Roundtable series that took place November 18 – 21—credible views on the scope of liquidity problems, on the extreme danger to the banking system, or even a practical “bankruptcy” on central bank level were debated. Scenarios of recovery and rescue were juxtaposed with scenarios of extended bleakness for the banking system and the economy at large.

Opaque or invisible

Some impacts on the financial fabric of the worrying liquidity and currency situation were visible by the example of the insurance market in Lebanon. A few weeks into the economic and currency dilemma, international insurance ratings agency AM Best published a snapshot report on the situation of Lebanese insurers in November 2019, in which the agency noted that amidst an accelerating decline in investor confidence and US dollar cash-flow constraints, Lebanese insurers with dollar-based fixed costs face new challenges and have been seeking to maximize their dollar inflows and minimize outflows.

“AM Best notes as an example that companies have been paying obligations such as staff costs in the local currency where possible, limiting the risk for short-term operational problems,” the report says, adding that ability of premiums collection in insurance companies has suffered. “Insurers with weak asset and liability management frameworks that have not matched their US dollar-denominated liabilities with US dollar-denominated assets may find themselves exposed to the risk of a Lebanese pound devaluation,” According to AM Best, Lebanese insurance providers have resorted to measures  such as leveling a surcharge oriented on the exchange rate in the parallel market on policyholders settling premium obligations in lira, or refusing to pay claims in dollars if a policy holder paid all or part of the premium in lira.

“Over the longer term, should BDL find itself in a position in which it is not able to refinance its US dollar debt issuances, pressure to devalue the Lebanese pound could increase, leading to a significant erosion of shareholders’ equity for companies with poor asset-liability management. A devaluation could also result in significant inflationary pressure,” the agency warned.

In an interview with Executive in the first part of November, Farid Chedid, chairman and CEO of Chedid Capital Holding, explained that the bigger worry for the Lebanese insurance sector since the eruption of protests resided in investment concerns, not underwriting issues. Attributing this to the uncertainty on the fate of investment portfolios held in the local financial system under regulatory mandates, he pointed to work interruptions, difficulties in premiums collection and achievement of renewals, and new business as additional burdens of local insurers.

He conceded that local insurers face further challenges for their reinsurance dealings where a very large currency mismatch is being created between lira and dollar at the level of insurance companies that have all their reinsurance contracts with international providers in dollars. “But having said that, insurance companies are well protected because reinsurance contracts are all in dollars. Assets of clients of insurers are well protected because contracts are in US dollars,” he noted.

Insurance stakeholders participating in the Executive roundtables further emphasized that settlements of reinsurance obligations at the end of 2019 or any point of contractual payment obligation in 2020 could unleash crises on coverages under the important insurance verticals from medical and motor to property and life business lines.

When compared with the opaque outlook for the insurance sector, the ability to predict banking sector health developments in the new year and even before the arrival of 2020 is even more limited. At this point, consensus in discussions of economists and informed stakeholders appears to be that central bank directives for the bolstering of bank capitalization and the initially temporary realignment of interest rates away from the excessive levels seen earlier in 2019 and before are steps in the right direction but may not suffice, depending on the development related to the formation of a real government and support from the international level.

Requiem for a global failure pattern

Lebanon’s financial and economic outlook for 2020 is interdependent with geopolitical factors and prone to be influenced by the wider international economic outlooks. This, however, is no comfort. The global debt problem is being increasingly thrust into the spotlight. Quoting the total combined public and private debt at world level as never-before seen 230 percent of global GDP at time of her speech in early November (something like $188 trillion dollars, up from $184 trillion mentioned in a January 2019 document), Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said that private and public debt were responsible for the high total in a ratio of about two to one. While noting that some countries with rooms in their budgets should consider borrowing to finance “productive public investments” she also highlighted the “darker side of debt” and the “devastating effects of unsustainable credit booms.” The borrowing of developing nations has to become more sustainable, transparent, and organized in collaborative ways with creditor options, she said.  

The uncertain and dichotomous global financial realities picture comes, moreover, in a frame of sharp contrasts of almost scarily complacent market perceptions in developed markets with recent boosts of vibrant consumer spending and increasing numbers of developing countries in desperate struggles against state failures, corruption, inflation, rising impoverishment, and outright hunger. In this context of a world that has over the course of the last 40 years incurred massive liabilities on the dual fronts of debt and climate under irresponsible economic behaviors of overwhelming proportions, the descent of Lebanon into a vicious cycle of national spending beyond national means no longer looks like a purely local madness.

Too important to fail

For the time being, one retrospective argument that seems in order relates to the fact that measures of quantitative easing, unconventional methods, and financial engineering have not only been the practice of the Lebanese central bank. The challenges of financialization and redefinition of fundamental monetary paradigms are universal and not a problem suited for exclusionary views on Lebanon’s monetary authority or allegations of local thievery. Other than that, it seems that in the concluding weeks of 2019, all perspectives on the local banking sector entail too many variables and unknown elements to dare predictions or rational expectations. 

In conjunction with the civil uprising’s attempts to generate, in the medium or even shorter term, a new systemic political reality, the banking system can only benefit from pursuing a path of constructive adaptation instead of passive rejection of slowly impending change. In the immediate term, the implications of the currently witnessed turning points on systemic and banking realities converge at the threshold of 2020 in the sense that any progress will have to rely on international interventions.

Sadly, it seems against the backdrop of the uprising experiences of the last quarter in 2019 up to the middle of December that the representatives of the existing communities and structures cannot be entrusted neither on the individual, nor the organizational level to be effective agents of meaningful innovation. The consequence of this for the financial and economic rescue of Lebanon is that an IMF-type program with foreign supervision is the best option for moving forward. The Lebanese banking sector, even if considered as a single bank for the purpose of discussion, in this regard does not have the advantage of being “too big to fail” in global perceptions. The best hope might be that the Lebanese polity as factor of relative stability and peace on the edge of a most volatile geopolitical crisis zone, is too important to fail.

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