Real Estate

The slump begins to hurt

by Matt Nash
written by Matt Nash

Lebanon’s real estate developers are singing a different tune these days. Gone is the talk that residential property prices will never go down as three years of a slump are taking their toll.

“We’re all having to discount, let’s not kid ourselves,” Nabil Sawabini, chairman of MENA Capital, tells Executive. How much are developers knocking off the price tag of a new home? “10 to 15 percent,” he says, echoing something other developers were saying much less boldly over the summer. Not only is there more wiggle room in the pricing of new residential projects, but some developers are also putting plans on hold in hopes of better days ahead.

Indeed, MENA Capital started 2014 with bad news. In March, reports emerged that they would not be moving ahead with a three-tower gated community of nearly 200 units called Bella Casa, initially expected to be delivered in 2015. Though a sign pointing to where the project should have been under construction still stands near the Beirut river, Sawabini confirms  that that project — and another MENA hadn’t announced — are indefinitely on hold. For Bella Casa, Sawabini says, off-plan sales had reached 15 percent, but MENA doesn’t start excavation work until 20 to 30 percent of the units are sold. He says they decided to call the project off before any work began. For both projects, he says MENA is “seriously considering what to do with the land.”

A slight lift

The first nine months of 2014 saw the number of real estate transactions rise 4.2 percent to 51,975 compared to the same period in 2013, according to Byblos Bank’s economic report “Lebanon This Week”, released on October 20. This growth, however, needs to be put into context. In the first nine months of 2011, 2012 and 2013, the number of sales was down compared to the same period in the preceding year. So while sales were marginally up in the first nine months of 2014, this comes on the heels of three straight years of sales contraction. On top of that, as Jihad Ibrahim argues in an interview with Executive, property sales figures reflect the recording of the sale with the registrar of deeds within the Land Registration and Cadastre. This is a flawed measure, Ibrahim argues, because residential projects take several years to build and, as Sawabini notes, many sales happen when a project is first announced or shortly thereafter. It is therefore difficult to look at the numbers and know whether they reflect sales which actually happened in 2014 (i.e., when a customer buys a built property and registers it immediately in order to begin living in the property) or if they happened earlier and are only now being recorded because units are ready to be turned over to their owners. 

Regardless of what the numbers say, the developers and intermediaries that Executive spoke with were far more downbeat than usual. Even Chahe Yerevanian, chairman of Sayfco Holding, who argues he saw a slowdown coming and began focusing on making smaller, more affordable apartments, says 2014 has been a hard year for developers, though he still insists insists things are going well for his company. Referring to 2014 as “one of the best” years he has personally seen, Yerevanian tells Executive that, as of early November 2014, Sayfco had sold over 2,000 units, compared to 1,500 in 2013. Asked for a price breakdown of those units, he says 50 percent sold for under $200,000, 20 percent went for between $200,000 and $400,000 and 30 percent cost over $400,000. 

Resorts are king?

Even as tourism numbers are dwindling and the overall economy is in trouble, some developers still see large-scale resorts as a worthwhile gamble. In October, Achour Holding held a launch party for the Eden Rock Resort, which will include a hotel and a 22 story residential building, along with chalets and cabins. The resort is located on 22,000 square meters of sandy beach at the southern end of Ramlet al-Baida, and the starting price per square meter of a property is $16,000. Wissam Achour, CEO of Achour Holding, did not respond to several interview requests to discuss the project. However, Achour is not the only one pushing ahead with a big resort. 

Sayfco Holding is also planning a $1 billion resort just north of Beirut in Zouk. Tentatively named Azur, Yerevanian says the project, which includes an offshore marina to be built on 50,000 square meters of reclaimed land 500 meters off the coast, will be divided for permitting purposes into two, as a presidential decree is required to build a marina. He said that construction of the resort should begin in a few months while the marina will take longer. “We didn’t want to tie the permit with the marina” to electing a new president, he says, so the company is seeking one permit for the on-land resort and another for the marina. “Hopefully once a president is elected, we will work and get the presidential decree for the marina and work on the marina,” he says. The marina island, he says, will be connected to land via one bridge for vehicular traffic and another for pedestrians. The idea, he explains, is to keep the actual sandy coast open to the public, as stipulated by law. 

MENA Capital’s Sawabini says his company is also thinking of getting into the resort business. Asked if another resort is the wisest option, he keeps his cards close to his chest. “It has to be a resort that has a theme to it and is certainly different than what’s available in the market,” he says. So what is the market missing? “I can’t tell you,” he says, reiterating only, “it will have to be different.”

Looking abroad

In late 2013, both Prime Consult and Plus Properties, local real estate intermediaries, announced they were heading overseas to help boost their bottom lines. Both were interested in selling properties in Europe (particularly Spain and Cyprus) to well-heeled clients keen to get residency permits. Spain was offering residency for anyone who purchased a property worth €500,000 (around $623,000), while Cyprus offered residency permits for a little less, €300,000 (around $374,000). Prime Consult’s owner Massaad Fares told Executive in January that he was primarily looking to sell properties in Spain and figured the Lebanese wouldn’t be his main client base. For him, the scheme did not work very well. He told Executive via email in mid-November that “the whole exercise didn’t directly contribute much to Prime Consult’s turnover in 2014.” However, he says it did help the company realize “that we could start a new project in Marbella, Spain, oriented to British, Norwegian and Russian clients, totally uninterested in the residence permit issue, but in a nice upper market modern product, well designed, well built and well priced, so off we go, Prime Consult is now looking into reinvesting in Spain.” While insisting that Lebanon will remain Prime Consult’s “most important” market, he notes: “When your main market is going through a slow down, one needs to look into other services and other markets to sell.”

MENA Capital’s Sawabini agrees and says his company is also looking into visa-related property sales in Europe. Asked if more developers are making the same decision, he says, “If there was one [developer] who wanted to do this a year ago, there are 10 today in the region.” He says MENA is also looking to build in Iraq, where the company has already done work, and Saudi Arabia.

If not now…

However, Nabil Gebrael — a real estate agent with Coldwell Banker and the chief financial officer of Cascada Village, a mega project in the Bekaa near Zahle that includes a shopping mall — argues that the slow down in activity means now is the perfect time to go shopping for a new home. “It’s a buyer’s market,” he says. 

2 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

No direction home

by Matt Nash
written by Matt Nash

An end to the Syrian civil war does not seem likely in 2015, meaning that Lebanon will continue to host over 1 million refugees even as the government tries to limit the flow of new arrivals. Executive spoke with Ninette Kelley, representative of UNHCR, about what the government should do in 2015, what impact funding shortages have on meeting refugee needs and on leveraging Lebanon’s private sector.

 

What recommendations do you have for the Lebanese government on the policy level for 2015?

We hope that we can do something similar to the RACE [Reaching All Children with Education] initiative which boosted Lebanese public education in other areas such as health, so that this crisis can actually create some opportunities and provide more focus and support to institutions who needed it before the crisis, but who really need it now. [We also hope] that support will have a longer projection over several years to deliver benefits to Lebanese as well as Syrians, which would be a win-win for all. That’s what we’d like to see happen.

What do you think 2015 has in store in terms of refugee needs?

What we see right now is that refugees are increasingly exhausting all the personal resources they may have had when they entered [Lebanon] and their level of vulnerability is continuing to increase. So we anticipate that refugees, as they did this year in Lebanon, in any event will continue to live very, very difficult lives. We, as well as our partners, will spare no effort in trying to ensure that humanitarian assistance is sufficient to meet life saving needs. To date, this assistance has truly helped us save hundreds of thousands of lives, but it must continue as we move forward. 

Do you see people who came here in 2011 or 2012, who initially had some sort of savings and didn’t come to UNHCR, now turning to you for assistance?

We do see that but we also see that the number of people living in very insecure shelters is increasing over time because refugees who have been living in apartments can no longer afford them and are moving into more insecure dwellings. That’s perhaps the most visible way I can describe that growing impoverishment.

The government decided in October to be more restrictive in letting Syrians into Lebanon to seek refugee status. What do you think the impact of this policy is going to be over the next 12 months?

The policy they agreed to in the cabinet was really a reiteration of an intention they have proclaimed for some time. They also started to implement it as of August … when entry through the northern borders was quite strict, and in the last several weeks when entry through Masnaa has similarly been very restricted. We have therefore seen a significant reduction, [ranging between 75–100 percent on any given day], in the number of people who’ve approached us asking to be registered. 

[pullquote]We have seen a significant reduction in the number of people who’ve approached us asking to be registered[/pullquote]

The government also decided that if a registered refugee goes to Syria, he or she will not be allowed back in.

Well the government already said last June that anybody who left to go back to Syria would not be able to re-enter Lebanon as a refugee.

So that policy was already in place. I know oftentimes the government says things that don’t actually end up happening.

Well, they’re controlling entry into Lebanon and … we understand that Syrians who are registered [and] go back to Syria [have] their passports stamped to indicate that they’ve gone back and definitely there are restrictions now at the border.

Do they lose their status as registered refugees with UNHCR or do they remain on the books?

What we have agreed with the government is that they give us the names of people they know who have gone back and we bring those people in for interviews to see their reasons for going back [and] whether or not those reasons are consistent with someone who has a need for international protection. We know for example that some people have gone back to check on an aging parent or bring someone [to Lebanon] or help someone get out of a bad situation. But it’s also the case that people are going back and forth for jobs and these aren’t the people who we’re concerned with having on our books. 

Have you removed many people?

We do regularly. Every month we do verification exercises and, since last June, I think we’ve deactivated over 68,000 files. So it’s a regular process within UNHCR.

Is this a fair or humane policy?

What we have seen Lebanon do in the last three to four years has been nothing short of extraordinary, and at a considerable cost to the country. So the government has said: “we feel that with one quarter of our population being refugees and given the enormous economic impact of the Syrian crisis alone, and add to that the increased pressures on our fragile infrastructure and provision of services, we can’t do more.” Put in that perspective, one can understand why they’ve reached that position. We also understand that they are willing to continue to provide access to persons who are in extreme humanitarian need and we’re grateful for that. [We want to] continue to work with them on how to define what that is and to provide greater accountability. 

[pullquote]Every month we do verification exercises and, since last June, I think we’ve deactivated over 68,000 files[/pullquote]

I understand that this year you’re finalizing the documents for the next two-year plan.

Yes. So the plan looks at what the needs will be and how we devise our programs. I think the budget is on for the next year but the strategy … it’s a long term strategy [because], and this is important, we’re trying to provide greater focus on development and resilience to help institutions and local communities deal with the shocks of the crisis in Syria and prevent a further degradation of their service provision. And it’s good. I mean, we’ve got development actors playing a strong role in that — UNDP and the World Bank — and this is a way to show the real link between humanitarian assistance, which also needs to be ongoing, and development assistance that needs to come in to provide much greater support to countries that are hosting this huge number of Syrian refugees.

Both regionally and in Lebanon, your funding appeal — which includes money UNHCR needs but also money the Lebanese government and various NGOs are asking for — is far from being met. What impact does that have? 

When you look at the raw numbers, Lebanon has received more but it [also] has proportionally more refugees or has absolutely more refugees. So the level of assistance, which is close to $650 million, really has been remarkable for the humanitarian appeal but it’s still not in proportion to the needs of the refugees or the hosting countries — Lebanon in this case. So yes, we face a real funding shortfall, which right now is 38 percent in its entirety and 43 percent considering what the agencies ask for and what they receive. What that means is that the level of assistance that we can provide continually needs to be heavily targeted and we’re simply unable to meet all needs, and you see it across all sectors. If you look at shelter for example, we’re prioritizing initiatives that will at least keep refugees safe from the cold and the rain during winter, but even there we’re racing to keep up with the needs.

Is there a lot of corporate social responsibility (CSR) money coming from Lebanese companies?

It’s an area that I know UNDP and other development agencies really want to explore more in the coming years because that certainly [is] an area that we need to tap into. In terms of partnerships with private enterprises on the humanitarian side, we’ve done that through the introduction of biometrics, using private sector expertise to help us introduce iris scan technology [for identification purposes at border crossings]. We’ve also done it in our cash assistance programs with the World Food Programme and food vouchers, [which are administered through partnerships with local banks. This assistance] also injects considerable money into the Lebanese economy. These are ways that we have partnered with the private sector. In terms of providing more robust support to the efforts that are needed here in Lebanon, I think more can be done.

What are one or two glaring opportunities where the private sector can really step in to help out?

On that question I think you have to look at the World Bank and the UNDP because [this issue] is a lot more development focused than humanitarian. For example, we provided plants for high quality olive production, which increases the yield of certain communities in the Bekaa. This is definitely something that provides a benefit to the community, and also a way to try and redress for them the loss[es] they’ve suffered through the Syrian crisis as a whole. If you look at other areas for example, we invested in improvements for an outdoor market in a village in the Bekaa. That has doubled the revenue of that market because of the improvements: the drainage we put in and the stalls we helped them erect. These are great partnerships that could be expanded and I think [our publication “Lebanese Communities in Focus: Supporting Communities Protecting Refugees”] gives a lot of ideas as to where they could be moved forward.

1 comment
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

From resilience to inaction

by Annalisa Fedelino
written by Annalisa Fedelino

Lebanon’s history has not been short of challenges. The modern Lebanese state is less than a century old, yet it has endured unique experiences unknown to other nations over a much longer history — a 15 year civil war, foreign invasions, sociopolitical and security unrest and, most recently, a major inflow of refugees. Lebanon has survived all of these shocks — on top of others that have created havoc in the rest of the world, like the global financial crisis. And not only has Lebanon survived them, it has done so with a certain flair. In fact, there is no surprise there. This is, after all, what Lebanon’s renowned resilience is about.

[pullquote]Confidence in Lebanon’s resilience seems to have morphed into an unchallenged sense that problems can wait[/pullquote]

But such fortitude can also bring about a sense of complacency and an excessive confidence that things will work out because, one way or another, they always have. This same logic applies to many of Lebanon’s outstanding problems. Why worry about the increasing public debt when the past has seen much higher debt to GDP ratios? Why dramatize the current political stalemate since similar episodes have happened before? Or why pass a budget when the country has been managing without one for almost a decade? Confidence in Lebanon’s resilience seems to have morphed into an unchallenged sense that problems can wait. Lebanon, after all, will muddle through. 

Three notions are at play in this wait and see attitude: that things are not that different this time; that waiting has no costs, as bad days will give way to better ones; and that nothing can be done to expedite their return.

But in reality, this time is different. Lebanon is mired in a regional conflict that transcends its borders and has created an unprecedented shock to its social, political and economic fabric — the 1.1 million registered refugees that have increased its population by one quarter. In the past, Lebanon has bounced back from discrete and time bound shocks, yet this time the shock is prolonged in time and multifaceted in scope.

The second notion, that waiting comes at no cost, is similarly false. Lebanon did very well during 2007–2010, when the economy boomed and real growth averaged more than 9 percent per year. But following the eruption of the civil war in Syria in 2011, average growth has since dropped to about 2 percent. Starting in 2012, primary fiscal deficits — not seen since 2001 — have reemerged. The combination of low growth and primary deficits has fed into the debt dynamics, with the debt to GDP ratio reaching above 140 percent in 2013, and it continues to grow. And high debt is costly: Lebanon spent more than 8 percent of GDP ($3.8 billion) on interest payments in 2013 alone — about one quarter of total public spending.

Similarly, the lack of fiscal adjustment is costly. For example, since 2011, transfers to the loss-making Électricité du Liban have exceeded 4 percent of GDP. Despite that, electricity provision has remained inefficient and insufficient. There has been a lack of funding for pressing social needs as well as inadequate and decaying infrastructure, constraining Lebanon’s growth potential. The cost of inaction therefore matters and is sizeable. It could have been smaller, had the fiscal deterioration stopped, and had reforms — for example, of the electricity sector — taken place and had public money been better spent.

[pullquote]Past resilience should not become an excuse for inaction[/pullquote]

Finally, the idea that nothing can be done is also false. At a minimum, now that Parliament extended its mandate, there is a plethora of pending legislation to vote on. It is high time to pass a budget, since the last approved one was in 2005, and the framework law for public–private partnerships, which could jumpstart much needed projects, has been stuck in a parliamentary subcommittee since 2013.

Cabinet has its responsibilities too. A model Exploration and Production Agreement for the oil and gas sector is still pending approval; without it, the close of Lebanon’s first offshore licensing round — already postponed five times — will not happen. Also, the long-delayed reform of the electricity sector should be tackled without further delay.

In the current environment of increased uncertainties, doing nothing is not an option for Lebanon. Resilience doesn’t mean staying still and waiting for the storm to pass. Resilience is fighting the ongoing storm by taking targeted, effective measures to limit the damage — such as holding regular legislative and executive sessions to pass needed laws. Not doing anything has large costs. Past resilience should not become an excuse for inaction. That is not a good way for a country, especially one of Lebanon’s potential, to navigate the current storm and get ready for future ones.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

Still a long way to go

by Raghed Assi
written by Raghed Assi

The Lebanon Millennium Development Goals Report 2013–2014, launched at the Grand Serail in September 2014, is the country’s national report outlining the progress in, and main challenges to, achieving the eight Millennium Development Goals (MDGs), agreed upon by 189 countries during the UN Millennium Summit in 2000. It follows two similar national reports published in 2003 and 2008, and an updated interim MDG report in 2011.

The 2013–2014 report comes at a critical moment for Lebanon, with an unprecedented number of Syrian refugees spread across the country, a period of political instability, security risks, economic pressures, and social and humanitarian challenges. It also comes a year before the 2015 deadline for attainment of the MDGs and aims to present the country’s track record. All recent available information was gathered to draw a realistic picture of where Lebanon stands now, and give direction on how it could deal with emerging issues and the post 2015 agenda.

Although Lebanon appears to be reasonably on track to achieve several of the MDG targets by 2015, the country still has a long way to go to achieve the fundamentally important goals of poverty eradication, gender equality and environmental sustainability.

Political and economic context

Lebanon is a small to medium income country composed of a mixture of religious groups and sects. The political system is a consensual democracy; however, internal conflicts are often triggered by sectarian tensions.

Lebanon has a free market economy, closely linked to the developed world in most economic activities, and benefits come largely from tourism, remittances and investment from Gulf countries as well as the banking sector.

[pullquote]The Syrian crisis and the large refugee influx has exposed Lebanon’s structural weaknesses[/pullquote]

In the 1990s, the government focused on reconstruction and monetary stabilization programs that lowered inflation and led to sustainable GDP growth rates. However, they also increased fiscal and public deficit. The political challenges in 2005 and the conflict in 2006 weighed again on the economy, driving down growth rates to 1 percent in 2005 and 0.6 percent in 2006, according to the Ministry of Finance. Lebanon has received massive support from the international community, pledging to fund the country’s economic recovery, reconstruction and economic reform agenda. Lebanon’s indicators all improved in 2008 and GDP grew in 2008 and 2009. After that, worsening political divisions and especially the Syrian crisis slowed down this improvement, with GDP declining to 3.0 percent in 2011, and 1.4 percent in 2012.

Emerging challenges

Political instability is a major impediment to economic and social development. By 2013, both legislative and executive authorities in Lebanon had become almost paralyzed, hindering normal operations and obstructing decisionmaking.

The Syrian crisis and the large refugee influx has exposed Lebanon’s structural weaknesses. Economic growth was dampened in 2012 and 2013, largely because of an overall decline in aggregate investment and due to Syrians in Lebanon consuming mainly basic, rather than luxury or high-value-added items. The instability of the situation also weakened investor confidence. The World Bank estimated a loss in economic activity of around US$7.5 billion during the 2012–2014 period.

Tourism has suffered losses equivalent to 0.5 percent of GDP in 2012, and the real estate sector is currently witnessing an unsustainable increase in rent demand. Trade was most badly hit, caused by disrupted exports due to Syrian route closures. 

The crisis is affecting all parts of society, particularly the most vulnerable Syrian and Lebanese communities.

Accomplishments

Primary education in Lebanon is compulsory, and is free in public schools, making attendance ratios high, almost universal. The biggest problems in Lebanese schools are repetition and dropout rates in the final year before intermediate and secondary cycles. There are many geographical disparities, which are apparent when comparing public and private schools, with the worst performing regions being the north and the south. On a positive note, though, youth literacy rates are almost 100 percent.

[pullquote]On a positive note, though, youth literacy rates are almost 100 percent[/pullquote]

The maternal mortality ratio has decreased in Lebanon by more than two thirds compared to the 1990s, placing Lebanon above its regional peers. The prevalence of HIV/AIDS in Lebanon is relatively low. However, there are increasing risks in the context of migration and growing permissiveness in sexual relations. New diseases could spread, especially in refugee communities, where diseases including hepatitis, measles, leishmaniasis and tuberculosis have been reported, alongside growing mental health problems.

Lebanon’s National Program for Combating Tuberculosis aims to implement an observed therapy approach to treat and monitor disease across Lebanon. It offers free treatment, for both nationals and non-nationals. Although tuberculosis cases have risen in 2013, the country’s eight anti-tuberculosis centers and the private sector have both been quite successful in detecting, diagnosing and treating the disease. National and international organizations have established outreach campaigns, as well as vaccination stations set up at registration sites.

Lebanon’s geographical location, its history of economic liberalism and its well-developed banking sector have all facilitated its integration within the global economy. The country has a number of free trade agreements with large trading blocs. These have allowed the introduction of business reforms and modernization of the business and legal framework. However, many businesses suffer from outdated infrastructure. Some of the main barriers on Lebanese exports relate to internal and external factors, mainly non-tariff, technical and non-technical barriers.

Challenges

With respect to poverty, Lebanon does not have a major issue with malnutrition, although there are disparities between urban and rural areas with regards to children. Nevertheless, the level of extreme poverty has dropped slightly in recent years, from 10.1 percent in 1995 to 8 percent in 2005 (when the last comprehensive household survey was conducted). However, this is a slow pace if Lebanon is to meet the 2015 target of reducing the level of extreme poverty by half. Social safety nets are weak, with a majority of Lebanese perceiving the government’s current efforts as ineffective.

The Syrian crisis and the unprecedented number of arriving refugees have increasingly impacted the country as a whole, and have fallen most heavily on those parts of Lebanon least able to cope with additional stress — areas with relatively high poverty, low wages and weak infrastructure; presenting challenges for systems of local governance and social service delivery. There has also been an increase in competition for employment, particularly among unskilled and semi-skilled workers. While the country is increasingly strained as a whole, those communities in particular have suffered from the multiple effects of the crisis. The recent joint World Bank-UN Impact and Needs assessment demonstrated that without equally robust stabilization responses supporting Lebanese host communities at a broader level, some 170,000 Lebanese could be pushed newly into poverty, while unemployment rates could double by the end of 2014.

[pullquote]Women in Lebanon are economically and politically excluded to a significant degree, in comparison to other countries both regionally and globally[/pullquote]

With respect to gender equality, significant challenges still remain to be tackled. Although figures suggest equal opportunities for women and men in terms of access to education, data on economic participation and political representation paints a different picture. A 2010 World Bank Survey revealed that 70 percent of working age men are in the labor force, versus only 24 percent for women. Also, women only held some 3 percent of seats in Parliament and 4.7 percent in municipal councils. Women in Lebanon are economically and politically excluded to a significant degree, in comparison to other countries both regionally and globally.

Despite considerable efforts by the government, civil society organizations and international partners, Lebanon continues to struggle to achieve the seventh MDG: environmental sustainability. Improvements have been observed for some indicators, but overall Lebanon lags in terms of natural resources management. In 2011, the cost of environmental degradation in Lebanon was estimated at $686 million, and a plethora of environmental issues have been identified. Of major concern are water pollution (including coastal and marine degradation), loss of biodiversity, risk of desertification, and high urbanization coupled with land degradation. Host communities have witnessed an increased demand for water supply, as well as significant increases in the level of waste, exacerbating the strain on an already deficient system. These pressures will have high health and environmental impacts, which the municipalities simply do not have the necessary resources to manage.

Finally, it is important to mention another major challenge faced when producing such reports — data collection and availability. For many indicators, availability of updated data is limited. Regularity, periodicity and methodological differences in producing statistics remain major challenges in Lebanon.

Post 2015

Lebanon’s most realistic bet in the short term, given constraining circumstances, is to try and protect the MDG achievements it has made and contain any deterioration in poverty levels and environmental sustainability, while maintaining macroeconomic stability. This is only possible through the collaboration of many different partners: the Lebanese government, the international community, NGOs, elected representatives, the media, and the public at large. All have important roles to play in this regard. 

Global discussions are under way to set a post-2015 developmental agenda with a new set of development goals to implement once the current one expires. This process has highlighted what Lebanon knows only too well, as stated by the UNDP Administrator, Helen Clark, during the launching event of the report: “Economic and social development cannot be separated from broader principles of governance, stability, human rights and the rule of law. Good governance can do much to build the resilience of communities to the external stresses placed by conflict and displacement. By contrast, inequality, exclusion, marginalization and the perception of lack of service delivery can become triggers to violence and conflict.”

0 comments
1 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

In search of decent work

by Mary Kawar
written by Mary Kawar

Major challenges in the Lebanese labor market not only include high unemployment rates, but poor working conditions as well. Regulation of, and investment in, the Lebanese labor market are seriously lacking. The outcome is an increasingly low skilled labor force with minimal social protection stuck in a ‘downward spiral’ towards increasingly dire working conditions. While the absence of decent work is not new to Lebanon, the addition of hundreds of thousands of largely low skilled Syrian workers is exacerbating an already fragile situation.

[pullquote]While the absence of decent work is not new to Lebanon, the addition of hundreds of thousands of largely low skilled Syrian workers is exacerbating an already fragile situation[/pullquote]

Over the past decade, there have been shifts in the distribution of employment and productivity. A decrease in the share of employment in agriculture has been matched by an increase of employment in services, transport and trade, along with a decrease of productivity in the services and industrial sector, preventing the creation of new and decent jobs. The low level of labor demand is a significant contributor to unemployment. There is no incentive for employers to invest in high productivity and technological innovations. There is all the incentive to invest in services and construction, where you have access to an unlimited number of low waged, mostly migrant workers, and — today — an unlimited number of Syrian workers. This is creating circumstances where you have job demand based on low skills. 

While Lebanon is a country that prides itself on having high levels of education and high quality higher educational institutions, limited opportunity for good jobs pushes many skilled young Lebanese to emigrate, which also contributes to the deskilling of the labor market.

The absence of labor market governance is also leading to worsening working conditions. As of 2007, when the most recent data available was compiled, 48 percent of the Lebanese workforce was informally employed — meaning workers lacked contracts, access to the National Social Security Fund (NSSF) or both. This figure must have substantially increased in the past seven years. If one only looks at the number of strikes among both the public and private sector workers, it is easy to realize the level of discontent among the Lebanese workforce. Recent strikes included electricity workers, contracted teachers and bank employees, among others. Most strikes relate to the working relationship (i.e temporary workers and irregular contracts), wages and access to social security. Here, however, it should be noted that workers in the informal economy are not represented by labor unions, and therefore have no means to give voice to their concerns and demands.

[pullquote]Overall unemployment in Lebanon stands at around 9 percent, but youth unemployment is around 24 percent[/pullquote]

Unequal opportunities

For a young woman or man in Lebanon, the problem begins far before she or he enters the labor market. The educational system is fraught with inequalities, giving urban youth from private schools far better opportunities. Overall unemployment in Lebanon stands at around 9 percent, but youth unemployment is around 24 percent. Young women and men from poorer rural backgrounds have a lower completion rate of primary education, less access to private schools, and lower rates of university enrollment than students from more advantageous socioeconomic backgrounds. Moreover, when it comes to whether you find a job after education, who you know will make a difference in finding a job or not. This nepotism — locally referred to as wasta — and the resulting inequality in access to opportunity is a factor which frustrates many Lebanese youth, either discouraging them from entering the labor market or encouraging them to migrate abroad.

Moreover, Lebanese companies are not investing in training. Out of 142 countries ranked in the World Economic Forum’s 2012 Global Competitiveness Index, Lebanese employers ranked 42nd in terms of satisfaction with the education system, but only 98th in terms of their investment in employee development. This confirms the assertion that the private sector is increasingly investing in low skills.

However, the private sector needs to have a stronger role in skills development in Lebanon, and to work with the government to find solutions to the common concerns of skills development. For example, vocational schools have a certain stigma in Lebanon as a choice of absolute last resort — a destination for high school dropouts. One way of addressing this would be linking vocational training more directly to actual existing jobs. This requires a partnership between employers and the government in the provision of training. One successful example in the region is Jordan, where the Greece based construction giant CCC established a governmental vocational school focused specifically on training welders whom they would subsequently hire.

[pullquote]

The ILO survey also revealed that Syrian refugees work for extremely long hours, and are mostly daily wage workers with limited skills and education

[/pullquote]The refugee crisis 

The Syrian refugee crisis has undoubtedly negatively affected the Lebanese labor market by strengthening this downward spiral of low working conditions mostly affecting low skilled Lebanese. In 2013, the International Labor Organization (ILO) conducted a survey revealing that Syrian refugees face harsh working conditions. While the sample size was limited, it was clear that they earn much less than the Lebanese legal minimum wage. Of the 404 working Syrian refugees interviewed, 78 percent earn less than LBP 600,000 ($400) per month, below the minimum wage of LBP 675,000 ($450). 

The ILO survey also revealed that Syrian refugees work for extremely long hours, and are mostly daily wage workers with limited skills and education. It is important to note that Syrian refugees are concentrated in geographic areas like the North or the Bekaa, which have always faced social exclusion and limited job opportunities, putting pressure on social cohesion between Syrian refugees and their Lebanese host communities. Therefore, the labor market impact of Syrian refugees is exacerbating pre existing labor market challenges and contributing to its deterioration as employers (both from large formal or small informal enterprises) race to take advantage of the increasing supply of cheap Syrian labor.

Looking ahead

It is undeniable that Lebanon’s labor market needs an expanded productive base to create better jobs, and this requires a comprehensive mix of policies including macroeconomic, industrial and social policies.

However, if we focus on labor market governance separately, there are three critical elements to be considered.

First is strengthening the role of labor, the Ministry of Labor and related labor market institutions, such as the NSSF and the National Employment Office. If these institutions are empowered with the qualified human resources, budgets and decisionmaking authority to push through the needed reforms, they will be able to: improve oversight of working conditions for better compliance with labor standards; provide services to job seekers, including skills development and links with available jobs; and secure sustainable, adequate and fair social protection to workers. In fact, ILO research in other parts of the world indicates that investing in working conditions, safety protection and training leads to increased employee satisfaction and consequently higher productivity and enterprise performance and growth. 

A second important area is the strengthening of statistics in order to analyze the labor market. Lebanon has a weak statistical base despite concerted efforts by the international community, including the ILO, to support it. For example, regular labor force surveys, which include migrant workers and refugees, are a fundamental step towards informing policymaking and monitoring progress and the impact of policies over time.

[pullquote]There can be no solutions or consensus without transparent participatory social dialogue[/pullquote]

A third area is social dialogue, which includes all types of negotiation and consultation among representatives of the government, employers and workers on issues of common concerns. The increasing labor strikes today relate to a breakdown in this relationship that is fraught with irregular employment patterns even among well known employers and limited trust between workers and employers. The government on the other hand is unable to play an effective role in the face of weak institutions, outdated laws and a political impasse, which has put a freeze on passing the necessary laws, regulations and policies through Parliament.

Indeed, this deadlock in dialogue reflects the wider national political climate. However, there is an opportunity to move beyond this and focus on the immediate needs of workers and enterprises alike. There can be no solutions or consensus without transparent participatory social dialogue, and some concessions by the relevant institutions, to pave the way for a commitment towards promoting decent work in Lebanon — and the time is now.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

The incremental approach

by Jeremy Arbid
written by Jeremy Arbid

As Lebanon stares down increasing deficits, mounting debt, a history of fiscal inefficiency and recent complications posed by the Syrian war, the state’s finances are yet again in troubled waters. Executive sits down with the person charged with keeping the government’s fiscal ship afloat, Alain Bifani, director general of the Ministry of Finance since 2000.

 

[pullquote]If you abide by the rules and wait for the windows of opportunities then you can achieve plenty of things. [/pullquote]

You’ve been at the Ministry of Finance for nearly 15 years. When you approached the job the first day, five years, or 10 years in, did you have a mindset of “this is what I want to be doing this year in the medium and long term” in the context of the national budget?

When I joined the ministry, I had in mind to review the whole tax system, for instance. The part I was successful in was that we introduced VAT [value added tax], and we introduced it very quickly, despite tremendous political resistance. Now I’m more and more into the details that make a huge difference like, for instance, developing a macrofiscal framework for Lebanon — which we did — [in addition to things] such as being able to have a debt directorate that works well and finalizing a medium term debt strategy.

I’ve never had a draft budget the way I wanted it to be. This is one source of frustration that I still have. It has become a very big source of worry to me because we don’t have a budget. I have to be inventive all the time because we don’t have a budget that is formally voted upon. And this is really bad for the country, really bad for the ministry and for the whole system. We are not in a context where [fiscal] reforms are easy to do — where the system has a decisionmaking process that allows change to happen whenever it should happen. But it is just like any other system — a game that has rules. If you abide by the rules and wait for the windows of opportunities then you can achieve plenty of things.

 

Capital spending seems to be very low, and it also seems that the only focus is on satisfying expenditures rather than on sustainable investment. But you’ve stated quite recently that this situation is being restructured away from short term measures and that, for example, a massive investment is taking place in electricity, which accounts for some 40 percent of the deficit. Can you explain how this infrastructure investment is shifting?

It really started shifting when the electricity plan was approved in 2010. It was clear at that point that we would have a peak in capital expenditure in the energy sector. Normally we’ll have more supply and if you have more supply it means that people will rely more on Électricité du Liban and less on private generators. This will provide room for a tariff change — the main reason why we’re losing money. We’re losing money not because we want to, [but] because electricy is subsidized very heavily.

Altogether we will probably see the deficit decrease, plus hopefully, fixing some issues of governance within the institutions will also help improve the situation. I cannot estimate by how much now — it’s not the right time to give figures. But it’s a big amount; the bracket has been close to $2 billion as a whole.

 

[pullquote]One might argue that we have even more reserves than required, so this in itself is a very positive and good indication [/pullquote]

Jim Yong Kim, president of the World Bank, stressed on his visit to Lebanon earlier this year the importance of public–private partnerships (PPP) to reform institutions, particularly in the electricity sector. What are some indicators of whether Lebanon is following this advice?

The government of Lebanon already prepared a draft law for PPP a long time ago. It hasn’t been passed yet. To have a proper PPP operation you need to first know exactly what you want. Second, you need to make sure that you’re able to attract private funding at a lower cost than public funding, or at an equivalent cost, or at slightly higher cost. Here we’re talking about investment and there must be a return on investment. If, from the beginning, you say, “I don’t have the money to invest,” you let somebody else invest and get the return, [but] maybe you are losing more than what you are gaining. We have to have a very pragmatic approach looking at each and every project, seeing what we can achieve in terms of a partnership. But if you want to attract foreign or private investors, it is always good for them to have the guarantee of a legal framework.

 

The central bank’s foreign currency assets climbed to new levels, reaching $38.4 billion in September. Does this indicate structural weakness in the context of the state’s finances?

Well it is not obvious that it indicates financial weakness, but when someone needs to have high reserves it is probably because there is a need to maintain confidence. I wouldn’t say myself that it is an indicator of weakness; I think it is one of the main indicators of strength. One might argue that we have even more reserves than required, so this in itself is a very positive and good indication. It is a very good cushion and it helps to maintain confidence.

 

Is the trade deficit a vulnerability for state finances?

Of course, it is a historical vulnerability to Lebanon. We are a country that for a very, very long time [has had a] structural trade deficit that is very large. And that means we are a country that doesn’t produce enough and that we overspend compared to what we produce, which means that we tend to rely on what people produce abroad — which is not necessarily the best structure to have.

 

What role does the Ministry of Finance play in mitigating this vulnerability or the negative outcomes from the trade deficit?

In this, one can argue that we need to review our export policy, we need to have synergies created for exporters, we need to review taxes and customs, we need to revisit the way many administrations work, but that is a policy that has to apply to everybody.

 

At the end of June, the central bank held 30 percent of local currency government debt. Does that level of debt holding enable the central bank to leverage greater influence over state finances?

I’m sure the central bank would like to have much more leverage than what it has, but I don’t think this is at all its intent. I think the central bank has simply been doing this to prevent a deterioration of the situation, which has been the case for a very long time. Of course one can argue that the level is high, others would argue that it shouldn’t happen at all. But you have to be very pragmatic, and I think that both the Ministry of Finance and the central bank have been very pragmatic. It is simply the case that in the previous couple of years or more, it wasn’t easy at all to continue to offload the government paper from the balance sheet of the central bank. But this has happened in the past and we are hoping to find the opportunity again to decrease the exposure of the central bank to the state.

 

[pullquote]I think it would be unfair to say that the central bank has a bigger say because of a situation which it wouldn’t like to be in anyway[/pullquote]

Because it has a lot of exposure — and you do sit on the board of the central bank — does that practically allow the bank to leverage more influence? Do you see this as a reality?

Let’s take a few steps back and look at it from the beginning. We have a government in Lebanon that has started, from the [end of the Civil] War, to accumulate deficits and debt, which clearly shows that the government itself has not managed to have a proper fiscal policy. And if you are not able to have a proper fiscal policy, this necessarily means that the central bank is going to have a bigger say, or is going to wish to have a bigger say, because it is in charge of stability here. I think that the weakness of the policies of the government induced this intervention — I don’t like to call it intervention, but this exposure of the central bank. Even if it would theoretically give it a bigger say, [it] is definitely not something that any central bank would wish to have. I think it would be unfair to say that the central bank has a bigger say because of a situation which it wouldn’t like to be in anyway.

 

You’ve been here for nearly 15 years; you sit at the nexus — the connection point between all the various factions and powers. When it comes to a budget, because of your position, do you not have a lot of leverage to say, “It’s 2014, 2013 has passed and so has 2012, 2011, 2010 … let’s pass these draft budgets”?

Oh, but we keep doing that. Let me tell you, every single year, we have been in full respect of the law and we’ve always produced our draft before August 31. We hand it to whoever is minister, who would either send it to the council of ministers by the deadline or not. For instance, this budget [draft budget 2015] was sent to the council of ministers [before] the legal deadline. Now I’m not at all in the position to tell the government to convene for a budget meeting —

 

[pullquote]It is unfair to continue to bear with all of the complications of not having a budget. It is unfair to Lebanon[/pullquote]

You kind of are in the position —

Well I keep doing that, but the fact is it doesn’t bear fruit. The director general talks to his minister, the minister talks to the government [council of ministers]. Now if the minister of finance insists, the government might not answer. And if the minister of finance doesn’t insist, it’s one more reason why the government is not going to feel under pressure. My job is to do my homework on time, and the minister does his homework on time, and then the government is supposed to study the draft, amend it, and send it to Parliament on time and then Parliament has to pass it.

Of course we would have this never ending discussion of “yes, but initially in the 90s it wasn’t done properly and now we want to do it properly and so on.” Fine. We want to do it properly but whatever and however we see things, this country needs a budget and it needs it quickly. It is unfair to continue to bear with all of the complications of not having a budget. It is unfair to Lebanon.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Editorial

The unsuspected juggernaut

by Yasser Akkaoui
written by Yasser Akkaoui

There’s a parallel space we Lebanese have learned to operate in — a place where the crooks in power have no influence. In that space, we’ve flourished in 2014. Our banks are strong, our entrepreneurs are maturing, our design space is expanding and our industrialists are investing in mechatronics, putting the country on a path toward creating a more productive economy. Our central bank governor stepped in to lead and push the economy forward, ensuring this year once again proved the cliché about Lebanese resilience — even as our politicians ignored their responsibilities and did nothing to promote growth.

Our private sector is what really drives this country, and we’re confident it will continue to do so in 2015 and beyond. Lebanon has its problems, for sure, and they need to be addressed. Our elected officials can’t agree on a president — hell, they can’t even agree on 24 hours of electricity — but there are determined minds like ours fighting to make this country a better place. We will ultimately win, and when we do, nothing will be able to stop us.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

Into the void

by Matt Nash
written by Matt Nash

There is a certain fascination in Lebanon with world records, whether it’s enough hummus to choke an army or a 20 square meter plate of kibbeh that would cost $140,000 were it an apartment in Ain el-Mreisseh. By November 25, 2014, Lebanon had already broken its own post Civil War record of time spent without a president (the six month void between Emile Lahoud and Michel Suleiman between November 2007 and May 2008). If they’re gunning for another record, there’s still about two more years to kill until Moldova’s 917 days can be bested. This possibility should not be put past lawmakers who have awarded themselves a full second term in office with very little to show for their five years in power thus far. Doing nothing seems to be what the current parliament does best, but continuing down this track of inaction will only make a bad situation worse.

The list of problems policy makers need to address was long 10 years ago. It has only grown longer since. Lebanon may continue trying to close its borders to new Syrian refugees in 2015, but it won’t be able to kick all of those already here out, nor will it be able to provide them — and the communities where they are living — the services they need without serious action from policymakers. This, as the Lebanese love to say, is known. The solutions to Lebanon’s problems are not secrets, but at this point they are not easy fixes either. To take but two paradoxical examples: the country desperately needs massive spending on infrastructure development at the same time as it needs a serious commitment to fiscal discipline. Given that Lebanon’s shortfalls have been known and ignored for so long, it seems hard to believe they will be addressed in 2015, but as so many Lebanese also like to say, even a small development in the policy sphere can have wide ranging multiplier effects, so perhaps there’s hope yet.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Economics & Policy

Race to the bottom

by Matt Nash
written by Matt Nash

In the absence of governance, Banque du Liban (BDL) is doing all the heavy lifting to keep the economy afloat with tourists staying away, consumers hesitating to spend and the growing population of Syrian refugees putting further strain on a state that could not provide basic services even before they arrived. Assessing the impact of the bank’s work — in the form of stimulus packages unveiled in 2013 and 2014 — is tricky to say the least.

A section titled “overview of the recent monetary, banking and financial developments in Lebanon” on the central bank’s website claims 1.5 percent of the 2.5 percent of real GDP growth in 2013 resulted from the bank’s stimulus package that year — which saw the central bank extend $1.46 billion in loans to commercial banks at 1 percent interest along with a mandate to pass the lending on to “support housing, education, renewable energy projects, innovate projects, research and development ventures, entrepreneurship and other productive sectors of the economy.” The “overview” does not go into details on the breakdown of lending, nor which sectors helped boost growth and how. And, while the page does not seem to have been updated since February 2014, the central bank’s real gross domestic product (GDP) growth estimate for 2013 is far above the World Bank’s estimate of 0.9 percent growth. 

New indicators

Indeed, according to the World Bank, BDL’s growth estimates — based on the BDL-coincident indicator (BDL-CI) — are in need of improvement. The World Bank notes, in an evaluation report on Lebanon’s economy published in spring 2014, that BDL’s indicator “was developed in 1993, immediately following the end of the Civil War and is composed of eight variables. Notwithstanding the profound structural changes in Lebanon’s economy that took place since the end of the Civil War, the weights of the eight BDL-CI variables in the index have remained fixed since 1993.” The World Bank found that BDL’s indicator misestimated growth every year between 2006 and 2011. In 2006, the BDL-CI estimated a 1.4 percent contraction in growth while in reality GDP grew by 1.6 percent, according to the World Bank’s report.

In response, the World Bank devised two new measures — a coincident indicator to chart current growth and a leading indicator to predict future growth — with which to gauge economic activity in Lebanon. The World Bank argues its measures are far more accurate, and the coincident indicator was used to devise the 0.9 percent growth estimate for 2013. The leading indicator, meanwhile, was estimating growth of 1.8 percent for 2014 at the very beginning of the year. However, the bank trimmed its growth estimate for 2014 to 1.5 percent following five suicide bombings that hit Lebanon in January — only a portion of the terror attacks in 2014, most of which happened in the first six months of the year. The early 2014 report notes, however, that even the estimate of 1.5 percent growth included an “assumption that political uncertainty related to the presidential and parliamentary elections are rapidly resolved and that the security situation improves slightly.”

[pullquote]“The economy’s not growing … There have been no decisions at the executive level, so the central bank had to step in”[/pullquote]

Policy paralysis

While the security situation did improve somewhat following various security plans in different parts of the country — notwithstanding the August kidnapping of over 20 members of the police and Army by militants fighting in Syria — the political situation only deteriorated in 2014. Parliamentarians failed to elect a new president when Michel Sleiman’s term ended in late May, and they gave themselves another 31 months in office in November 2014, in part because there is no president but also because they did not pass a new election law. The legislature did pass a flurry of bills in April — which included criminalizing domestic violence, revising the “old rent” system and making civil defense volunteers full-time state employees — but again postponed passing a controversial wage increase for public sector workers and teachers, the full funding of which parliamentarians have still not agreed upon.

Lawmakers and the government have also ignored all of the administrative reforms international agencies like the World Bank and the International Monetary Fund have long been calling for. To cite just one example, Lebanon is still without a budget in 2014. The last budget passed by Parliament and the government covered the year 2005. It is this unwillingness to make important decisions — particularly important fiscal decisions — that likely prompted BDL to intervene with stimulus money in 2013 and 2014. 

“The economy’s not growing,” Nassib Ghobril, head of research at Byblos Bank, tells Executive. “There have been no decisions at the executive level, so the central bank had to step in,” he says, adding that this is an “implicit admission that the economy is struggling and in need of stimulus.” BDL Governor Riad Salameh in January 2013 announced $1.47 billion in loans to commercial banks at a 1 percent interest rate to boost growth. By the beginning of 2014, as Executive reported at the time, $468 million of it wasn’t spent and was rolled over into 2014 along with an additional $332 million, for a total of $800 million for 2014. At a Beirut conference in June, Salameh said that nearly all of the $800 million had been spent and announced the bank would inject another $400 million. In October, Salameh said that 2015 would see the bank give another $1 billion in low-interest loans. BDL itself has not offered a guess as to how the money is helping — aside from its likely overestimation of contribution to GDP growth in 2013. Ghobril said Byblos Bank anticipates a paltry 0.8 percent growth in 2014.

Silver lining

As has been the case since 2011, the large influx of Syrian refugees and security problems relating to the conflict in neighboring Syria held down growth in Lebanon in 2014. The World Bank, in a 2013 economic report, estimates that “cumulative losses in economic activity could reach an estimated [$]7.5 billion,” between 2012 and 2014. The report notes that poverty among the Lebanese was also on the rise during the same period with nearly 170,000 Lebanese “pushed into poverty [over and above the 1 million currently living below the poverty line].” As Executive went to press, there were over 1.1 million Syrians registered as refugees with UNHCR, the UN’s refugee agency, according to statistics dated November 18, 2014, on UNHCR’s website. That’s nearly a 40 percent increase from the more than 800,000 registered on January 2, 2014. While more people strain both the state’s ability to provide services and the host community’s patience, the crisis is channeling some money to infrastructure projects that will, theoretically, benefit Lebanon after the conflict in Syria ends. UNHCR funding for ‘community support programs’ that aim to benefit both Syrian refugees and Lebanese is anticipated to reach $25.5 million by end of 2014, a drastic increase from the $11,700 and $160,600 spent on such programs in 2011 and 2012, respectively. About 54 percent of the 2014 money is expected to go toward social cohesion projects designed to create “opportunities for Lebanese and Syrian families to relax, learn and play together,” according to a UNHCR pamphlet on the community spending. Some 24 percent of the money is designed to improve public services, up from 9 percent of the $13.5 million spent in 2013. Since 2012, UNHCR figures show that public service spending is expected to total nearly $7.4 million. While this is shy of the $1.1 billion the World Bank estimates the Lebanese government has had to spend to “meet some of the surge in demand for public services” the crisis prompted, it is nonetheless a welcome contribution. 

[pullquote]without real reforms … fiscal decisions and help from abroad, Lebanon’s economic outlook will get increasingly worse as the crisis in Syria continues[/pullquote]

Donor fatigue

In dealing with the fallout of the Syrian crisis, Lebanon is hoping for help from the international community. That help, however, is not materializing. A multi-donor trust fund administered by the World Bank has received only $30 million, according to the most recent information on the fund on the bank’s website from September 2014. UNHCR’s Lebanon-specific donor appeal is also 54 percent underfunded as of November 5, according to UNHCR’s website. It is becoming increasingly clear that without real reforms, important — albeit painful — fiscal decisions and help from abroad, Lebanon’s economic outlook will get increasingly worse as the crisis in Syria continues. 

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Comment

In search of gas

by Seiichi Otsuka
written by Seiichi Otsuka

Since the suspension of nuclear facilities after the 2011 nuclear disaster in Fukushima, Japan has been seeking to diversify its energy sources. Among a variety of resources, the country has substantially increased its import of natural gas, particularly from the Middle East. After Fukushima, the import of liquefied natural gas (LNG) almost doubled in terms of value as a result of an increase in volume combined with a depreciation in the value of the yen. And as Lebanon is mounting its efforts to develop offshore and onshore natural gas and oil, the interests of the two countries are converging.

Shaking ground, quaking economy

The Great East Japan Earthquake and resulting massive tsunami on March 11, 2011 caused serious damage to the Fukushima nuclear power plant. The damaged nuclear reactors went out of control immediately. As a result of this accident, residents surrounding the plant were forced to evacuate and approximately 140,000 people still cannot return to their homes.

Taking into account the lessons learned from this disaster, the independent Nuclear Regulation Authority (NRA) was established, and new regulatory requirements — among the most stringent in the world — went into effect. The NRA examined Japan’s 48 existing nuclear power plants to ensure conformity with the new standards from technical and scientific viewpoints. Since then, all of the country’s nuclear facilities have been out of operation, though 17 are under screening by the NRA for possible restart.

The result of the shutdowns was dramatic: as of 2012, Japan’s energy self-sufficiency rate had declined to 6 percent. As alternatives to nuclear energy, imports of oil and natural gas have increased, resulting in an upsurge in Japan’s dependency on fossil fuels from 60 percent before the earthquake to 90 percent afterwards. In 2013, 83 percent of oil imports and 30 percent of LNG imports came from the Middle East.

In 2011, Japan’s trade balance turned to a deficit for the first time in 31 years, and expanded further in 2013. The increased imports of fossil fuels have thus caused problems not only in the field of energy, but also at the macroeconomic level.

Charting a future

Japan has controlled total energy consumption by exerting various energy saving efforts, such as promoting energy efficient lifestyles, introducing energy saving industrial devices and shifting major industry away from energy hungry sectors and towards the service sector since the 1973 oil crisis. As a result, final energy consumption in 2013 was only 1.3 times higher than in 1973. But energy conservation by itself is not enough.

Faced with the challenging conditions of energy supply, Japan adopted the Strategic Energy Plan in April 2014, outlining the immediate response to the energy crisis due to the sudden stoppage of nuclear power, and also mid to long term policy options toward diversification of energy sources. This strategic report highlights nuclear power as an important power source — but only if it’s safe.

When reevaluating the significance of nuclear power, it is very important to identify the characteristics of the respective supply chains of individual energy sources to realize the structure where stable supply, low cost and environmental acceptability can be achieved in proper balance. Particularly in terms of electricity supply, which plays a central role in the secondary energy structure, Japan must optimize each energy source based on its character.

First, Japan as a country should position geothermal power, ordinary hydropower, nuclear energy and coal as base load power sources, which can be operated stably and at low costs. In this context, there is no option without nuclear power. Second, natural gas should be placed as an immediate power source, which can respond quickly and flexibly to the situation of electricity demand. Third, we can consider oil and pumped storage hydropower as peaking power sources. They come at a higher cost, but can respond to extra electricity demand.

LNG now accounts for more than 40 percent of Japan’s energy generation and has high efficiency as a heat source, so its use is increasing. Furthermore, natural gas involves relatively low geopolitical risk compared to oil and emits the least greenhouse gas among fossil fuels. In the near future, fuel prices will be determined through competitive pricing due to the shale revolution. It is anticipated that a shift to natural gas will swiftly proceed in various sectors.

Lebanon, a possible future exporter of LNG, could be a close partner for Japan. Cooperation in energy may strengthen bilateral relations between the two countries, and if it does, we can expect the synergy to spill over into other important areas.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
✅ Registration successful!
Please check your email to verify your account.