A second wave of Covid-19 is now battering Lebanon, a country reeling from an unprecedented financial and economic crisis, and still grappling with post-port explosion realities. As a result of these compounded calamities, Lebanon’s economy is likely to end up a fifth smaller by year’s end, as the International Monetary Fund (IMF) had estimated it would shrink by 12 percent even before the blast. The unemployment rate might have already reached 40 percent according to some estimates (bizarrely, the government does not publish unemployment data). While some countries battered by the pandemic have sought to shore up their citizens with emergency public spending exceeding 10 percent of GDP, Lebanese officialdom has responded in a manner both lethargic and haphazard.
The exodus of the young and able (official emigration data is notoriously unreliable) resulting from the dire situation threatens the country’s long-term economic potential, even if growth can somehow be resurrected. Therefore, job creation and preservation should be at the apex of policymakers’ agendas.
Setting aside now-exhausted lip-service to reforms, this will not be possible without facing some hard truths. In particular, a serious government would need to tackle five imperatives head on, presenting difficult trade-offs and hard choices that do not lend themselves to easy fixes.
First, job creation requires a dynamic private sector. Even in communist China, 80 percent of new jobs are created by private companies. And the lifeblood of business is access to finance. Therefore, cleaning up the banking sector to allow it to focus on credit to finance business investment should be a priority. This will not be easy. We have reached a point where an inherent contradiction has emerged between the income of the majority of the salaried masses and the interests of depositors. The idea that public finances can be sanitized and banks’ balance sheets bolstered without one form or another of a haircut on deposits is fanciful. In this context, the mantra of “protecting depositors’ rights” is also misleading: around 53 percent of Lebanese are unbanked and 86 percent of deposits by value are in the hands of a mere 8 percent of depositors. To reignite growth, the government cannot afford to keep dedicating 35 percent of its outlays to service its debt; it is also impossible to reduce this burden without affecting its final beneficiaries, i.e. major depositors who have benefited from high interest rates in the past.
Second, the genesis of an export-oriented economy. On this, it is important to address the arguments raised by some leaders who have harangued citizens about the country’s “elevated imports bill” and who blame their consumption choices for depleting its foreign reserves. Lebanon came 117th globally in 2019 in the ranking of countries by imports to GDP. The problem is not that the country imports too much, it is rather that it exports too little. This is because of its limited ability to compete globally and regionally; it ranked 88th of 141 countries in the World Economic Forum’s 2019 Global Competitiveness Report. This is in no way a call for the government to adopt industrial policy. Rather, what is needed is to create an enabling environment where entrepreneurship can thrive. To achieve this, we need the private sector to take the lead on electricity generation to provide reliable, affordable and sustainable energy; to stop treating the telecommunications sector as the public purse’s cash cow, but rather focus on improving quality and minimizing costs; and to invest in the country’s derelict transport infrastructure (for instance, Lebanon is the standout amongst middle income countries to rely on a single airport).
Third, the current civil service system needs to be reformed to stop being a deterrent to job creation. Too many young people prefer waiting for a comfortable government job rather than toil in the private sector. Currently around 50 percent of formal employment is soaked up by the public sector, a rate higher than in some oil-exporting countries. These jobs are better paid (per hour of work), more secure and more protected than most jobs in private employment. Still, Lebanon ranks 177th in 2019 on the World Bank’s Index for Government Effectiveness. Civil service reform is urgently needed to normalize public jobs away from lifelong, cosseted employment with limited accountability.
Fourth, preparing young people with the skills they need to succeed in the workplace of the future. Lebanon has for too long rested on the laurels of its vaunted education system. Even as unemployment stubbornly persists, finding people with the needed skills remains a top concern for executives in Lebanon and the broader region. This paradox can partly be explained by a study last year that showed that Lebanon came second amongst MENA countries in the percentage of 8th grade students asked to memorize science facts for every lesson (58 percent). Education reform should focus on equipping students with the soft skills that enable them to thrive in the job market of the future, not of the past. Critical thinking, problem solving, teamwork, conflict resolution and computer programming – the likely lingua franca of the rest of this century- should replace rote-learning and conformism. This has become even more crucial, as the pandemic accelerates the digitization of the global economy. Likewise, technical education needs to be revamped by bringing in relevant companies to partner in the design of programs and curricula. For example, successful hotels and restaurants could be brought in to design and help run a hospitality/culinary program, or shipping giant CMA-CGM could design a program on logistics.
Fifth, the labor force participation of women needs to improve. At 23 percent Lebanon has a lower proportion of women in work than every country in the Gulf Cooperation Council, bar Saudi Arabia. This is due in large part to structural factors, such as the lack of publicly funded (or at least, subsidized) child and social care. It will be an uphill struggle for a bankrupt state to fix this. However, an easy place to start could be to reform labor, social security and other laws that do not treat women on equal footing. Introducing paternity leave could also help institutionalize burden-sharing at home. The country will not be able to compete globally, if half of its talents remains untapped.
Realizing Lebanon’s full potential requires responsible leadership to take on these five imperatives. The pandemic only makes this more pressing. At a time of global turmoil and where most countries are looking inwards, we need responsible, agile and transparent governance to enable a transformation of our economic model and social contract that allow self-realization for the many instead of rewards for the few. Realizing this amidst a colossal crisis will not be easy. But to paraphrase Churchill, it would be an immense mistake to let this crisis go to waste.