It was the famous Lebanese poet Gibran Khalil Gibran who said that a nation that does not produce—that does not eat bread from the wheat it harvests or wear the clothes it weaves—is a nation to be pitied. As Cristiano Pasini, representative and director of the United Nations Industrial Development Organization (UNIDO) for Lebanon, Jordan, and Syria, argues in his article for Executive, countries with a high standard of living also have strong productive economies with well-developed industrial sectors.
Lebanon’s agricultural and industrial sectors are generally weak. However, there may still be hope for these sectors moving forward.
All in the same boat
Mounir Bissat, secretary of foreign affairs and head of the export promotion council at the Association of Lebanese Industrialists (ALI), tells Executive that the industry sector largely suffers from the same challenges as the Lebanese economy as a whole. He says subsidized loans for capital investments were harder to access in 2018 than in previous years, noting a slowdown in lending from commercial banks due to changes in the monetary policy.
The main market for Lebanese exports, the Gulf region, was economically strained in 2018, negatively impacting our industry sector. Meanwhile, the low purchasing power among local consumers—who are increasingly reluctant to spend beyond necessities—took its toll on industry in Lebanon as well.
An unregulated and chaotic market is affecting the industrial sector. Bissat says many factories in Lebanon are not officially registered, which means they do not pay taxes. This, in turn, allows them to sell their products at a lower price than companies that are registered, and do pay taxes, creating unfair competition.
Lebanese products face challenges due to the high cost of production, meaning they are not competitively priced in the local market—where they compete with imported goods—or in export markets. “To survive in an increasingly competitive market, we need to have the government subsidize the cost of energy (for energy-intensive industries) and of shipping, and to support Lebanese products in export markets,” Bissat says. He offers examples of potential government support, such as arranging business-to-business (B2B) visits or subsidizing the cost of attending international exhibitions, which he says are key in the industrial sector.
Some positive news
There were, however, a few positive developments to celebrate in the industrial sector this year, Bissat says. The May 2018 parliamentary elections saw 15 industrialists, or people with industrial backgrounds, enter Parliament. “We feel that we have an unofficial lobby in Parliament, or at least a significant body that understands the sector’s needs and can represent them. We are trying to benefit from this to pass laws that would support the industrial sector,” Bissat says.
ALI, in collaboration with the Ministry of Industry and the Ministry of Economy and Trade, lobbied against 26 imported products that were being dumped in the Lebanese market, Bissat says. (Dumping is the practice of exporting a product at a price lower than that in the exporter’s domestic market. This typically involves substantial export volumes and is problematic for the manufacturers or producers of the same products in the importing nation.) The association asked that Lebanese products be protected from the impact of these imported goods, which include detergents, aluminum, burghul, and wafers, through safeguard measures. Bissat says that the government issued a decision just prior to the May elections, which was then implemented in November 2018, to prevent Turkish wafers and detergents from entering the Lebanese market. This decision was not what the association had lobbied for, Bissat explains. “We are not in favor of prohibiting any imports because we are with a free economy and also because we don’t want our exports to be treated in the same manner. We were pushing for safeguard measures instead,” he says.
The October 15 reopening of the Nassib border crossing, between Syria and Jordan, is expected by some to boost the Lebanese industrial sector by allowing for land exports previously stymied due to the war. But Bissat believes it is too soon to tell if that will be the case. To his knowledge, no industrialists had made use of the route as of mid-November 2018, and so far he has heard of increased customs duties and restrictions imposed by Gulf countries (on which nationalities and vehicle types are able to enter their borders).
In 2018, there was an increase in the number of permits given to industrial entities as compared to 2017. These ranged from small workshops to large factories, and the increase in permits indicates that there is some dynamism in the sector. Kanj Hamadeh, assistant professor of agricultural economics at Lebanese University, says that 40 percent of these permits were given to the agro-industry sector. Hamadeh says agro-industry’s growth is fueled by the low cost of labor and the high demand for food in Lebanon, both of which have been affected by the Syrian refugee crisis. Another factor that contributes positively to the growth of agro-industry is the trend toward eating authentic, healthy, and local food—largely driven by mid- to high-income Lebanese.
Bissat fully recognizes that e-commerce is the future, and the association is working toward developing a comprehensive industry B2B platform, despite the challenges. “The platform is not the problem—anyone can develop that for us—the problem is how to promote it in international markets and what the payment method should be, given that we don’t even have PayPal in Lebanon yet,” he says. “We also don’t have an e-signature [mechanism] if I want to virtually sign a pro forma. Basically, we lack the necessary infrastructure for e-commerce, witnessed by the slow internet. But it’s the trend and the future of commerce, and we have to be ready for it or fall behind.”
For the sake of Lebanon, we hope that the industry sector does not fall further behind, and instead maintains its growth as it celebrates its small successes on its way to making “Made in Lebanon” a badge of pride.