Business

Muddling through

by Jeremy Arbid
written by Jeremy Arbid

For Lebanon’s manufacturers, 2014 was a difficult year. The promising gains the sector had made in the preceding year were diminished as the many oft-cited impediments — those of political and security instability, and high operating costs — hindered a continuation of industrial growth. It was, at best, a year in which factories muddled through the wasteland that is the country’s ruined economy — encapsulated in November when Minister of Industry Hussein Hajj Hassan called for an economic state of emergency. But as difficult as 2014 was for mainstream manufacturing, there were indicators that, at least in the niche subcategories, point toward a more hopeful 2015.

Plenty of obstacles

The first half of 2014 was indeed a bumpy ride for the sector. Exports declined by 12.5 percent compared to the same period the year before, totaling $1.58 billion in the first six months. Imports, meanwhile, reached $140 million, declining 15.7 percent from the same period in 2013. While the sector has not traditionally been the driver of Lebanon’s economy — tourism and services have overshadowed manufacturing in terms of steering gross domestic product (GDP) growth — 2013, when the economy grew a meager 1.5 percent, was pushed forward by the manufacturing industry.

[pullquote]Manufacturing is a driver of employment in Lebanon[/pullquote]

Statistical data on the sector is sketchy as Executive noted — not for the first time — in its industry special report earlier in 2014. A former president of the Association of Lebanese Industrialists (ALI) guesstimated the sector’s contribution to 2013’s GDP at about 10 to 12 percent; the Investment Development Authority of Lebanon (IDAL) on its website reports that industry contributes only 7.5 percent to GDP annually; the World Bank, meanwhile, cites the most comprehensive figure — its methodology is robust and publicly available — on manufacturing’s contribution to the nation’s GDP at 8.6 percent in 2013.

Naysayers will point to the obstacles obstructing their paths. Security concerns throughout the country and region have discouraged productivity, and raised the costs of shipping, as factories have had to reroute paths of export to Lebanon’s primary markets in Arab countries, which accounted for 53 percent of industrial exports for the month of June 2014. Where once these paths traversed by land through Syria to Saudi Arabia, the United Arab Emirates and Iraq, they are now using sea routes. And while the cost — according to ALI data — of clearing inbound trucks carrying raw materials for use in Lebanon’s factories used to be somewhere around $7 per ton, clearing containers through the Port of Beirut costs a pricey $70 per ton on average. The waves of political instability — an oft-cited inhibitor of growth in any sector — might be less choppy in 2015 as the Parliament has extended its mandate. The hope is that a new president will also be elected in the opening months of 2015, leading to a period ripe for legislation, lending stability and setting the stage for growth in the coming years.

Phoenix Energy: automating manufacturing

[/media-credit] Phoenix Energy: automating manufacturing

The high cost of energy, too, hinders manufacturing, where factories generally rely heavily on energy inputs to produce their products. Ask any owner and the likely response is that their factory must pay two electricity bills — one for the state and one for a private generator — on top of its raw material costs. While it is very premature to say that a revolution in the production of electricity is underway, there are indicators of some structural changes to the way the country generates electricity. For example, the UNDP’s CEDRO program — implementing large and small scale renewable energy projects — is installing photovoltaic systems (electricity harnessing the sun’s rays) in three Lebanese factories (LibanLait, LibanJus, and Gemayal Frères) that will supply the facilities with their electricity needs and feed oversupply into the national electrical grid. Likewise, the Beirut River Solar Snake — constructed by local company Phoenix Energy — is the first of 10 photovoltaic projects that form part of the government’s goal to build solar farms producing a total of 200 megawatts by 2020. Looking into the crystal ball over the coming decade, were Lebanon to become a natural gas producing country in the future, part of the government’s vision is to supply power plants with gas to generate electricity, and factories with gas as a feedstock — reducing energy input costs and enabling a diverse new range of production opportunities for manufacturers.

Finally, the lack of reliable and easily accessible data is arguably the Achilles’ heel of industrial sector governance in the country. But just as Executive wrote in its report on government statistics, private companies are stepping in to produce data that fits their needs. One such example comes from Technica — a manufacturing company specializing in the construction of automated production lines and robotics — which collaborates with other manufacturers to produce a baseline for labor and human resource data, including compensation, benefits information and other HR issues, according to the company’s strategy management officer Cynthia Abou Khater. 

[pullquote]Manufacturers like Technica are benefiting from industrial zones throughout the country[/pullquote]

Supporting manufacturing

Manufacturing is a driver of employment in Lebanon, contributing from 130,000 to 140,000 jobs, depending on whether you rely on ALI or IDAL figures. Many of these individuals are employed by family owned businesses and other small and medium sized enterprises (SMEs). Minister of Industry Hassan, citing unemployment numbers, pointed out in November that more support is needed for these companies to — among other improvements — increase job opportunities.

When looking at what limited data is available in the country’s manufacturing sector, one might simply consider the decline in total exports as a negative indicator. Upon closer examination, however, Lebanon’s main export product was its jewelry — much of it handcrafted and featured in Executive’s luxury special report. Jewelers are typically family owned businesses exporting approximately $431.7 million, or 17.3 percent of total exports through the first nine months of 2014, according to a report by Byblos Bank.

Jewelry and furniture manufacturing are two subcategories that will receive technical assistance from the latest phase — launched in mid November 2014 — of a UN Industrial Development Organization and Ministry of Industry collaboration aimed at boosting the manufacturing quality of products. This support is sorely needed to further strengthen the production and export capabilities of Lebanon’s talented craftsman and artisans, as Executive wrote earlier this year, targeting not only the luxury markets but also mid range and economy products.

Similarly, the Lebanese Center for Policy Studies launched a series of roundtable workshops with industry stakeholders in September 2014 — including the Ministry of Industry, ALI and private sector actors — to identify products that Lebanese manufacturers could potentially produce and export across manufacturing subcategories, such as machinery equipment, furniture, textiles and clothing.

One such program, to leverage the talents of small businesses and boost jobs in rural areas, comes from the US Agency for International Development’s Lebanon Industry Value Chain Development (LIVCD) program — though the project in its current stage focuses exclusively on agricultural products, rather than manufacturing. It is, however, an example to replicate for the SMEs in manufacturing, where simple products can promote in-country value chains with the goal of integrating local products into regional and global value chains.

Promoting SME manufacturing capacities and developing value chains would boost sophistication and product value, in turn bringing more wealth back to the factories and into the greater economy. A 2010 report published by the United Nations Conference on Trade and Development outlined how government policy might approach industrial integration into value chains, but the report also highlighted the obstacles facing support for SME integration. According to the report, governments “have industrial policies and may promote certain economic sectors, they have been less supportive of SMEs … nevertheless, there is growing awareness of the contribution of SMEs to income, employment and exports.” Though linking SMEs and local suppliers of goods and services into regional and global value chains is no simple feat, the effects of doing so can positively impact local economies, labor and trade.

Incentives for manufacturers

In many cases, the difficulty of operating in Lebanon can prohibit a business’ success, but even in the most arid of deserts plant life persists. Panning Lebanon’s manufacturing landscape identifies several such companies and entrepreneurs that are thriving, in part with support from the government. Technica — the manufacturer of automated production lines — is one such example. From what started as a small operation in a single car garage 32 years ago, the family owned business is forecasting revenues of approximately $15 million for 2014, and will finalize expansion of its production floor capacity in late 2015 — the company has clearly found its niche in building automated technologies.

Manufacturers like Technica are benefiting from industrial zones throughout the country. To spur investment in the sector IDAL has, on behalf of the Lebanese government, simplified the work visa process for companies needing specialized foreign labor not readily available within the Lebanese workforce, while also emphasizing a number of tax incentives and permit fee reductions to companies establishing operations in these specified zones.

State of the art industrial unit

[/media-credit] State of the art industrial unit

Likewise, the niche entrepreneurs and SMEs of Lebanon are formulating new solutions for the manufacturing sector, receiving support from Kafalat — the government sponsored loan guarantee company focusing on SMEs. According to a quarterly report by Bank Audi, financing for industrial sector SMEs recorded a rise, with the number of loans increasing by 15.4 percent year-on-year during the first half of 2014. Executive’s Entrepreneurship Top 20, an annual survey of the country’s most innovative startups, has featured many SMEs in past surveys benefiting from the Kafalat loan scheme — using the money to reinvest and expand operations. 

The Top 20 edition of 2014, which focused on entrepreneurs in science and technology, featured one collaborative business effort leveraging its founders’ academic background in mechatronics — a holistic engineering approach to the field of robotics — in building robotic devices for prospective clients. Though not a formal company, the collaboration, E2, is benefiting from close ties to the entrepreneurship and academic communities, with ties to Beirut Digital District and the American University of Beirut — itself in the process of establishing an incubator to support its talented student body and faculty in transforming academic work into business models.

There is, however, an expressed need for the modernization of, and access to, industrial technology for Lebanese companies. Manufacturing could benefit from more money pouring into research and development to modernize industrial technology. Several programs within government institutions, such as the National Council for Scientific Research or the Industrial Research Institute, support this category of research, but the researchers are hindered by a lack of adequate funding, minimizing the scope and quantity of unique research projects. “In Lebanon there are no funds, the government is really — if you compare to other countries how much they fund — [providing] practically zero,” says Fadi Fayad, business advisor to ELCIM, the Euro-Lebanese Centre for Industrial Modernisation. More financial support from the government or the donor community might boost industrial research and development; likewise, links to research uptakes for practical applications in the factory setting deserve strengthening.

[pullquote]“In Lebanon there are no funds, the government is really … [providing] practically zero” [/pullquote]

Embrace flexibility

 So, while Lebanese manufacturers have been clawing their way through the economic struggle that was 2014, they should still be commended for their unwavering application of elbow grease. Fresh challenges and opportunities will surely lie ahead for them in 2015. In recent years Lebanon has entered into a number of trade agreements — like the most recent agreement to export products to the Russian markets — and trade liberalization is likely to continue into the future. Lebanon is still intent on joining the World Trade Organization; Lebanon’s Customs Administration — the body governing import and export policy in the country — has recently taken to modernizing its clearance process to introduce e-governance and reduce costs, while optimizing efficiency, intent on aligning with international trade standards.

As noted in previous reviews of the sector, the government will still need to strive to get its act together and provide manufacturers with the stable operating environment and infrastructure investment that will spur innovation and productivity, while reducing operating costs.

And, for their part, manufacturers must strive to be flexible in approaches to innovation in the ever difficult and changing operating environment in Lebanon.

Correction: An earlier version of this article erroneously claimed that when completed, Lebanese solar projects would produce 10,000 megawatts — a ridiculously high figure. The first phase of the Beirut River Solar Snake is slated to produce 1.08 megawatts at peak capacity, while later additions promise a total of 10 megawatts. More generally, the government has set a national goal of building solar farms producing 200 megawatts by 2020. Very sorry.

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Business

Industry matters

by Thomas Schellen
written by Thomas Schellen

Top Asian industrial producers like China, South Korea and Thailand consistently rack up over 30 percent of their gross domestic product (GDP) from the value added by their manufacturing industries. The contribution of manufacturing to the Lebanese economy in each of the past 10 years has, by the World Bank’s estimations, notoriously been below 10 percent of GDP. Nothing new there for 2014. But it would be a fallacy to think that Lebanon lacks industry or potential for industrial growth. And, as Executive’s coverage of the manufacturing industry shows, it would be an even graver blunder to think that industry doesn’t matter for Lebanon.

Would you have guessed that South Korea’s per capita GDP represented less than 50 percent of Ghana’s, just 50 years ago? When internationally renowned development economist, Korean born Ha-Joon Chang of Cambridge University, recounted the journey of his home country from backwardness to OECD stalwart in a very critical review of what he described as a myth of free trade propagated by rich countries, he emphasized two things: the problematic policies of multilateral development organizations with their self serving free trade ideology, and the importance of manufacturing. In his book “Bad Samaritans,” he pointed to Switzerland and Singapore as countries whose manufacturing industries provide a much larger contribution to their wealth than people generally think.

In the Lebanese case, the accurate measurement of manufacturing capacities and industrial outputs in 2014 is — given the absence of not only an economic census but also of a government that could undertake one — still a hypothesis, one is tempted to say. Longer term export data, for all the analytical details that they do not entail and for all the massive fluctuations that they do, nonetheless tells a story of how this country of an allegedly overwhelming services orientation has been able to expand its exports from less than $50 million per month in 1994 to generally above $300 million a month for a 46 month period between September 2009 and June 2013. In this context, and corroborating the idea that manufacturing is very much a central pillar of nations’ wealth today, industry represented everything before the dot in the 1.5 percent growth of Lebanon’s GDP in 2013 — with services accounting only for the decimal.

This notwithstanding, industry and obstacles in Lebanon are as close as manakish zaatar and khodra, and known detriments are annually recounted by many an industrialist and practically every minister of industry.

On the other hand, as Executive’s reports on industry show with equal consistency, there are new stories of manufacturing successes in diverse niches every year. From brewers and canners and industrial scale bakers in the food sector, to makers of pharmaceuticals, jewelry, steel products and industrial equipment, the mosaic of manufacturing in Lebanon is extremely complex when compared to other countries. That is good for competitiveness, and as Executive examined the use of advanced automation technologies in Lebanon in our research for the 2014 Facts and Forecasts, we found new examples of this complexity.

In macro terms, it is amazing how manufacturing is worth more — and represents greater potential — than is let on by our long standing weaknesses in data collection and policymaking for industry. The call for better data and improved policymaking remains valid as ever. But more than anything, stakeholders and experts concur that the issue for manufacturing is to not complain about all that is bad or missing and merely wait for solutions from some higher powers, whether they are local politicos or multilateral organizations. The issue is to take more initiative, push enterprise forward without regard to political, economic and financial resources, and make the most of the talents and virtues of industry that we have. 

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Real Estate

Impending calamity

by Matt Nash
written by Matt Nash

After over a decade of debate — and severe hiccups in 2014 — a law annulling the “old rent” system, whereby tenants who signed leases before 1992 never faced rent increases, gained parliamentary approval and in June was published in the Official Gazette. The Constitutional Council, however, struck down two and a half articles in the law related to a committee to settle disputes between landlords and tenants over the value of an apartment. An apartment’s market value is used in the law as the basis for incremental rent increases for tenants with pre-1992 leases. The law is expected to go into effect in December. Executive speaks with parliamentarian Ghassan Moukheiber about the Constitutional Council’s decision and the impact of the law. 

 

Were the articles that the Constitutional Council rejected removed from the law?

No.

 

[pullquote]It is expected that dozens if not hundreds of landlords will be suing their tenants based on the law[/pullquote]

What does that mean for implementing it? 

There’s a legal debate in the country about the consequences of such a decision. You have a divided opinion as to whether or not the Constitutional Council effectively invalidated the whole law or whether the effects of the invalidation of two and a half articles has no impact on the rest of the law.

 

What do you think will happen when the law goes into effect, given legal uncertainty around the committee that should arbitrate disputes over the value of apartments and rent increases?

It is expected that dozens if not hundreds of landlords will be suing their tenants based on the law.

 

Why do you think landlords will sue tenants?

Because, assume I’m a tenant and I don’t want to do anything — my argument, if I am asked by my landlord to pay increased rent, will be that the whole law is not applicable so you cannot ask me to do anything.

 

Is there any way to resolve this issue?

There are two ways to handle this confusion. It’s either handled through the courts themselves, through appeals up to the supreme courts, which will take years before they are settled, or Parliament intervenes and clarifies, by modification of the law, the fate of the two and a half articles. If Parliament does this, it will reopen the debate about whether or not to limit legislative intervention to these two and a half articles or to revise the whole law. And there you have two approaches within Parliament: those that side with the law and say we only have to modify those articles that were addressed by the Constitutional Council and the others that were unhappy with the law anyway and want to see it totally remodeled.

 

Is there any talk in Parliament about such an intervention?

Yes, there already are a few bills that were submitted and I expect Parliament, particularly the Law Committee that proposed the law, to discuss those new bills or ideas for reforming the law.

 

[pullquote]The other dimension of housing policy that we should have voted on is a series of tax incentives for building and developing social housing[/pullquote]

Is Parliament looking at any other housing issues?

The rent law is only part of a group of bills that were supposed to be voted on together, which includes a special law on long term leasing, a funding system that makes it cheaper for people to own the apartments they’re renting. The other dimension of housing policy that we should have voted on is a series of tax incentives for building and developing social housing. 

 

This rent law took years to agree on, are you hopeful these other pieces will be approved soon?

That goes back to the issue of parliamentary ineffectiveness particularly with contentious bills. The more contentious it is, the more difficult it becomes to pass. 

 

Are there any recent, reliable statistics on how many “old rent” contracts there are in Lebanon?

No, there are no real, exact statistics. 

 

The law calls for funding to help low-income tenants pay the rent increases. Will it be functioning immediately or does it need additional legislation?

It would need funding laws, but there’s no [functioning] Parliament to [pass such laws].

 

So, in reality, is there a fund in place?

No, of course not. Having a rent fund would require a budget law, and the budget would need to provide funding for this fund because this is a new expense for the state, it has not been provided for in the past. If Parliament doesn’t do that, the creation of a fund would remain theoretical.

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Real Estate

Building for demand

by Matt Nash
written by Matt Nash

With the Lebanese real estate market remaining stagnant again in 2014, Executive sat down with Jihad Ibrahim, general manager of Jamil Ibrahim Establishment, to discuss ways to better regulate the sector and how to improve statistics related to real estate transactions, which he says today are misleading. 

 

We’re seeing a lot of newly built units remaining unsold in Beirut — particularly the most spacious. What happened and what’s the best way to fix this problem?

The only salvation for the real estate market is a little bit of intervention. The main issue, and the most important point, is the demand. Does the community need the project being built? This is how you safeguard [the market]. This goes a little bit against laissez-faire economics because it’s a directed economy. I’m not saying we should go into a completely directed economy, but there is some logic to it. You have to protect the sector in some way. When the Order of Engineers and Architects looks and sees over 100,000 unsold units, there should be a mechanism whereby new permits are slowed down and not given so easily.

 

[pullquote]Granting permits based on demand in a given area also protects the market[/pullquote]

Do you, as a developer, have to submit a market study before getting a construction permit?

Absolutely not. No consideration is given whatsoever to whether a project is needed or not. We should have some checks and balances, and I think the best body to be responsible for this is the Order of Engineers and Architects or the municipality. They know how many permits and empty apartments they have or how much empty commercial space [there is]. Granting permits based on demand in a given area also protects the market, so you won’t end up with a bubble market or any deficiencies, instead of open investment without checks and balances just because the money is there. Otherwise, [the issue of supply and demand] will always be chaotic and will open up the sector to some points of weakness as it is doing now.

 

I understand some of the statistics coming from the sector are not well collected. For example, when we see numbers from the Cadastre detailing the value of real estate transactions in a given year, are those numbers accurate?

No. The numbers are based on when ownership of the sold units is recorded with the Cadastre in the Registrar of Deeds. On average, a residential project or a medium-sized commercial project would need — from concept to handover — let’s say three years, in a straightforward environment. Most of the sales occur either around when the concept is put forth or in the first year or year and a half of the project. Let’s say a project started in 2010 and was handed over in 2013. Most of the sales happened in 2010 and 2011 with a smaller number in 2012 and 2013. However, statistics in Lebanon are based on the record of transfer of ownership in the Registrar of Deeds, which happens when the project is finished and the units are handed over. This means that sales in 2010, 2011 and 2012 are recorded as actual arm’s length transaction sales in 2013, which is not true.

 

What’s a better way to calculate these statistics?

A better way would be to base the sales figures on when the contractual agreements are registered with the Ministry of Finance, which happens immediately since all sales over [$44,444] must be registered with the ministry, including all real estate transactions. The intelligent thing to do would be to take figures from the Ministry of Finance, not the Registrar of Deeds. But for that, the Ministry of Finance should filter the transactions and do the statistics itself. When you pull the figures only from the Registrar of Deeds it is definitely not representative of what actually happened in that year.

 

I take it the number of transactions and the total square meters of transactions are similarly misleading?

Yes. Both also come from the Registrar of Deeds.

 

[pullquote]You have eight years to execute a construction permit, so it is an irrelevant indicator of activity[/pullquote]

What about construction permits? Are they a good snapshot of market activity?

Construction permits are also used as indicators, but you have eight years to execute a construction permit, so it is an irrelevant indicator of activity. It’s relevant if you want to examine investor confidence, however. The permits help show that investors are confident, they buy land and decide to do a project. Whether they will use the permit this year, next year or in the eighth year, we don’t know. We have a project in Sanayeh. We executed the project and now it’s sitting idle — we had to do the concrete phase since it hit the sixth year which meant we had two years of leeway. So we built the project not because we think the demand is “wow” and it’s going to be sold. We had to build that project because otherwise we would’ve lost the permit. By the way, most of the buildings in Solidere and most of the projects coming up now fit into this category. Most of [the developers] are just doing the facades and the common areas to make sure they don’t lose their permits, but they’re not finishing anything inside because [the units] are not being sold. 

 

It seems that Beirut is becoming a concrete jungle. What can the municipality do to create a bit more public space?

You need some breathing space, you need some parks. There are a lot of pieces that belong to the municipality that are being sold to developers. We are a main developer, and we always buy them, but we go after them because we know somebody’s going to buy them [if we don’t]. You need to study the green spaces. A park doesn’t need to be one square kilometer; it can be 100 square meters. Instead of having one huge park, you can have 10 small ones.

 

[pullquote]We have taxes being levied on the real estate market with each new minister of finance[/pullquote]

What do you think of the new taxes being discussed by Parliament to fund the public sector wage hike?

We have taxes being levied on the real estate market with each new minister of finance. It’s always, it seems, the sector the Ministry of Finance targets. But look at where the sector is today. We can’t afford more taxes at the moment and just talk of it is having an impact. The talk of new taxes has affected the sales of land. Nobody will buy land. The appraisal of what the land is worth — conducted by the Ministry of Finance — is what you base your taxes on, not the actual price you paid for the land. The market has been in paralysis for a few years now but appraisals are still jumping. That’s a problem that new taxes would only make worse.

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Real Estate

A work in progress

by Matt Nash
written by Matt Nash

Bilal Hamad, president of the Beirut Municipality, talks with Executive about parks, sidewalk renovations, the city budget and the increasing number of revenue-generating towers within the city limits. 

 

Back in 2012, you launched the “Beirut is Amazing” project aimed at adding and improving green spaces in the city. How much are park renovations going to cost the city?

$50 million, but we are not paying for all of the work. We are going to our friends for design donations, and sometimes maintenance of the parks after they are redesigned, as was the case with the René Moawad/Sanayeh Garden. Why? Because that’s how we can get the best. We can bridge over all of the routine administrative processes within the municipality and outside. Instead of going through a tender, where we would get someone who doesn’t necessarily offer the highest quality or best design, but the lowest price, we have sought out donations.

 

Aside from Sanayeh Garden, can you give us another example? 

Saint Joseph University had to buy a strip of land next to the campus on Damascus Road from the city. I said, ‘I will give you that stretch parallel to the campus for 99 years but I want you to give something back to Beirut’. So on their own, they took on the repair of the Mar Nicolas Garden. This is good.

 

What’s happening with Horsh Beirut, the city’s pine forest that remains closed to most of the public?

We have a new master plan that was given as a donation. We approved it in the council and now are preparing the tender document with specifications and a bill of quantities to execute the master plan, because there are many facilities that need to be completed like tracks, the water fountain, benches, bathrooms, a theater. We will have a tender file to execute whatever is required by the master plan, including providing management, maintenance and internal security for Horsh Beirut. That tender will be ready in early 2015 and we are going to execute it in 2015. Hopefully later in 2015, we can get Horsh ready to open for the public.

 

[pullquote]We don’t want to open [Horsh Beirut] and lose all of the greenery because of abuse[/pullquote]

Why isn’t it open yet?

We don’t want to open it and lose all of the greenery because of abuse. So that’s why we have reached this point. Once I have that firm that can maintain, secure, manage and execute the master plan, I will open it and let people bear their responsibilities.

 

Are there still plans to renovate the Hippodrome?

We planned on Île-de-France providing us with a master plan to transform the hippodrome into Beirut’s Central Park, where the hippodrome is only part of the park. But we waited a long time for Île-de-France and now they have decreased their overseas assistance to countries like Lebanon by a lot. We waited a long time and now we’re not going to wait any more. We’re going to commission a landscape consultant to do the master plan and we’ll see where we take it from there.

 

I understand there will also be a park in Martyrs’ Square in downtown.

The design was done by [engineering and urban planning consulting company] Khatib and Alami, and the CDR [Council for Development and Reconstruction] was commissioned by the council to finalize the design. It will have room for maybe 1,000 plus or 2,000 cars. Above the underground parking spaces Renzo Piano would provide the landscape design. We’ve commissioned the CDR to do the Build-Operate-Transfer, and I think this will be [completed] early in 2015.

 

Which plots will be part of the park?

Opposite from the Mohammad al-Amin Mosque and all the way down. But there is a part we cannot use because we found ruins there. So we will keep the ruins and start from there.

 

[pullquote]We want a track for bicycles that comes all the way from near the museum to downtown[/pullquote]

In the summer of 2014, Nadim Abu Rizk, the vice president of the city council, shared photos on Facebook that looked like a plan to make the road from the National Museum to Sodeco Square pedestrian only. Is this true?

Not pedestrian only. The plan is to widen the sidewalk and make it friendly to soft mobility. We want a track for bicycles that comes all the way from near the museum to downtown. The master plan is there but we need to develop the execution drawings.

 

When will that happen?

2015.

 

Do you have any news about the Fouad Boutros road that will connect the road near Spinneys in Ashrafieh to the main highway north?

The environmental impact assessment is being done and we are waiting. I don’t know how long we have to wait.

 

What’s happening with Beit Beirut [a new museum and urban cultural center]?

It’s under execution now. The old building is almost done. For the new building, we finished everything on the underground level. Now, I think, we are on the first floor. Things are speeding up. Hopefully we will open it at the end of 2015. This is costing us $20 million dollars, by the way.

 

Speaking of which, what are the city’s main sources of revenue?

The municipality tax and the new construction permit tax. These two. The new construction permits’ rate is going down. And this is a problem. If this trend is going to stay like this, I think it will cut into our revenues. But the taxes are ok. And, actually, so are all the new buildings. In one new tower, we get taxes like an old neighborhood because the taxes are based on the year in which that resident came into his home, so you see in the same building people paying LBP 200,000 ($133) per year and people paying LBP 10,000,000 ($6,667) because this guy moved in the 1980s and the other guy moved in recently. So in a new tower, a 40-story tower, they pay [a total amount of] tax almost equal to an [entire] old neighborhood.

 

I understand the city has around $1 billion in surplus?

No, we have around $800 million. Every year we spend around $200 million, but we also have revenues around $200 million. We have savings from over the years and now we have around $800 million. That’s why we’re spending money where it needs to be spent. 

 

[pullquote]Before the end of the year in Hamra we will be doing super structures, sidewalk furniture, lighting, benches[/pullquote]

Aside from the parks, how will you be spending it?

We’re also renovating and repairing sidewalks and infrastructure throughout the city. Before the end of the year in Hamra we will be doing super structures, sidewalk furniture, lighting, benches. We’ll do the same soon in Sassine, in Rmeil, Medawar, Karantina, Mar Mikhael. We will change all of the sidewalk furniture.

 

Will you make the sidewalks larger?

No, it’s a repair of them — remanagement. Making all the sidewalks accessible for the disabled, upgrading the city. We started some of them and finished several streets already — Badaro Street, Mar Elias, Tariq El Jdideh, Mousaitbeh. We are doing Mousaitbeh now. We did this in the Sanayeh–Al Zarif area where we changed all of the infrastructure, improved all the storm water lines and waste water lines. Now we are doing Ouzai Street, which runs from Barbir to downtown. We finished all the infrastructure, and all the sidewalks, made them accessible for the disabled and arranged the lighting. And now, on the street, we will do tiling like on Hamra Street. We will start that before the end of the year. And Makdessi Street will be tiled too.

 

How much does this cost?

Each street with its branches [costs] around $3 million.

 

I know parliament is theoretically working on a transportation plan for the city and suburbs, but the municipality has legal authority to design a plan only for the city. Are you doing anything related to public transport?

We are planning a public transport plan for Beirut. The council passed it a few years ago and the old [governor, who has to approve all city council decisions] put it in a drawer. Now the new [governor] is working on it. Hopefully we will have it soon. The design will take one year and then we will have a tender ready for execution. Maybe on a Build-Operate-Transfer basis. I don’t know.

 

Will the plan focus only on buses?

Maybe buses, maybe tramways on a few lines. Providing lanes for buses, for motorcycles and bicycles. Separate lanes.

 

Switching gears a bit, what is the city’s role in approving the various high rises many activists argue are spoiling the city?

All these high rises get their exceptional approval from the director general of urbanism, and it comes to us. Then we just manage the permit and give it to them, and let them pay the money to the city. This is causing a lot of problems. All these high rise towers, they get it from there.

 

[pullquote]If there is somebody who is going to put $100 million into the city, can I say no?[/pullquote]

The city has no power to say no?

Yes, we can, but if there is somebody who is going to put $100 million into the city, can I say no?

 

One particular project, Eden Rock, is located on the sandy beach at the end of Ramlet al-Baida. Does this project have the proper permits?

I don’t think so. He’s finishing the design but I don’t think he has the permit.

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Real Estate

Empty towers

by Matt Nash
written by Matt Nash

Seven years ago if you went out at night and looked at some of the newer residential buildings completed in Beirut, you would notice that many of the flats were dark. At that time, the explanation was that the owners were either foreigners or Lebanese expatriates who only use the apartments for a few weeks or months per year. Today the phenomenon is the same but the reason has changed: many of these units are still not sold. Since the Syrian crisis erupted in 2011, the Lebanese real estate market has been in a slump. The number of real estate transactions fell in 2011, 2012 and 2013. The first nine months of 2014 suggest there may be a small rise in sales activity compared to 2013, but 2014 will no doubt still stack up short compared to 2010.

The Syrian crisis, however, is arguably not the only culprit here. After the 2006 war, developers announced a flurry of projects that did well in off-plan sales. This prompted even more projects with little attention paid to whether or not the market truly wanted — or needed — all of them. The result is unsold apartments. At the end of both 2012 and 2013, Ramco Real Estate Advisors did a survey of buildings completed in Beirut in each respective year with an asking price for a ground floor apartment of $2,800 per square meter and above. In each year, Ramco found that 65 buildings matched their criteria. By the end of 2012, 217 apartments in the newly completed buildings surveyed were unsold. By the end of 2013, there were 277 unsold units in newly completed buildings that fit Ramco’s criteria. For each year, Ramco noted, the unsold units were over 300 square meters in size. Jihad Ibrahim, managing director of Jamil Ibrahim Establishment, argues that many of the buildings going up in the downtown area are also largely unsold. The real crisis in the real estate market seems as related to oversupply as it does to the war in Syria. 

It is true that there will always be some demand for property in Lebanon (both local and expatriate), however, whether developers understand and respond to that demand will be an important question for 2015 and beyond.

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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. 

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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.

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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.

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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.”

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