Executive Magazine

Morning briefing: 1 Apr 2013

by Executive Staff April 1, 2013

written by Executive Staff

Economics and Politics

A delegation from the IMF is due to arrive in Egypt on Wednesday for talks with the government on a $4.8bn loan, a government spokesman said on Sunday.

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Meanwhile, inside the country the Egyptian pound has fallen sharply against the dollar on the black market in the last few days due to dwindling supply of the US currency.

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Cooperation among Arabian Gulf nations is vital to the protection of what is the world's busiest oil export zone, security chiefs agreed yesterday at a Gulf Cooperation Council meeting.

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Emirates NBD, Dubai's largest lender, listed a US$750m conventional bond on the NASDAQ Dubai bourse on Sunday.

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State-owned Oman Air, the sultanate’s national carrier, plans to launch a budget airline to handle regional and domestic flights as a measure to expand its business, chairman Darwish Ismail Al Balushi said on Sunday.

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April 1, 2013 0 comments

Finance

As Cyprus struggles, Lebanon watches

by Maya Sioufi March 29, 2013

written by Maya Sioufi

Endless queues at ATMs, protests in front of Parliament, banks closed for 12 consecutive days and businesses under increasing pressure to continue operating: the eastern Mediterranean island of Cyprus, just 200 kilometers from Lebanon, is in crisis management mode.

The aptly named Cypriot central bank governor Panicos Demetriadres has tried to calm the situation, saying that “superhuman efforts” were being made to get the banks to open. And yesterday they did finally reopen — albeit with stringent capital controls such as a daily €300 ($384) cash withdrawal limit on depositors, a €5,000 ($6,400) monthly limit on card transactions and a €3,000 ($3840) cash limit per trip for people leaving the country.

The real cause of the mayhem is the size of the Cypriot banking sector’s investments. These investments accounted for 6.5 times the island’s tiny economy, compared to Lebanon’s 3.5 ratio. With money flowing into their coffers, the deposits were deployed into Greek bonds and as these went down the toilet, the Cypriot banking sector went into crisis mode.

The vast majority, 74 percent, of the deposits in Cyprus’ banks are held in the top two banks: Bank of Cyprus and the Popular Bank of Cyprus (Laiki Bank). The latter will now be wound down as part of a €10 billion ($13 billion) bailout agreement between Cyprus and an international group of lenders.

A key requirement for the agreement was for the island to come up with €5.8 billion ($7.5 billion) before getting the money. European finance ministers initially suggested doing so by taxing depositors across the board — a plan that provoked a furious backlash amongst Cypriots and also Russians who are large depositors with $31 billion in the island’s coffers, according to Moody’s Investors Services.

The final financial rescue plan agreed on Monday sees depositors with accounts under €100,000 ($130,000) – previously expected to contribute 6.75 percent of their savings – spared but leaves those with accounts over that amount expecting cuts to their savings of between 30 to 40 percent; much more punitive than the initial plan of having a tax levy of 9.9 percent.

Nicosia’s pain, Beirut’s gain?

The effect of the plan on Lebanese investments is difficult to judge. Cyprus is home to 52 banks, of which 36 are foreign – including nine Lebanese. The Lebanese exposure, however, is not huge: the combined deposits of the nine banks account for less than 3 percent of the total deposits of Lebanon’s banking sector, Makram Sader, secretary general of the Association of Banks in Lebanon (ABL), wrote in the Lebanese newspaper As-Safir this week. With $128 billion in deposits held by Lebanese banks as of the end of 2012, this implies that around $3.8 billion are in Cyprus. The Lebanese accounts make up fewer than 2.2 percent of the total deposits of the Cypriot banking sector — which stood at $88 billion as of the end of January 2013, Sader wrote. He was not, however, overly concerned about the deposits of the Lebanese banks in Cyprus as he confirms that they have not been invested in Greek or Cypriot bonds.

With regard to investors, as the number of Lebanese with accounts worth over €100,000 ($127,000) in Cyprus is not available, it is difficult to gauge how many will be affected. Nevertheless, the reaction from the Lebanese banking sector has been hostile. “It is unfair to burden the Arab banks with the cost of increasing the capital of the troubled Cypriot banks. The customers of these banks should not pay the price of this decision,” said Joseph Torbey, head of the World Union of Arab Bankers and president of the ABL said.

And many would argue he is right. One is left wondering whether the tough terms for the bailout are Europe’s way of punishing the wealthy visitors interested in the island for reasons that go beyond its golden beaches and sunny weather.

With the island’s hefty levy on wealthy depositors and strict capital controls — the first Eurozone country to impose such controls — the Cypriot banking sector is rapidly losing its appeal. Rich Spaniards and Italians might worry that policymakers will impose the same kind of drastic measures in their own debt-ridden countries, while non-EU investors will be looking for new places to stash their cash. Whether Lebanon’s banking sector could benefit from a flight of capital remains to be seen.

Maya Sioufi is Executive's Banking and Finance editor

March 29, 2013 0 comments

Society

Cleaning up the scraps

by Nabila Rahhal March 29, 2013

written by Nabila Rahhal

The Lebanese do not have a good record when it comes to the environment. There are few facilities for disposing of your waste in an environmentally-friendly manner, and those that do exist are often underused. But have you ever wondered what happens to the leftover scraps of food on your plate at a resturant or what pubs do with all their empty bottles? A new scheme aims to ensure that none of that waste ends up as landfill.

Food Establishments Recycling Nutrients (FERN), a nonprofit social enterprise based in Lebanon and advocating for environmental stewardship in food establishments, works with hotels and restaurants to help them both compost and recycle. Established less than a year ago by Meredith Danberg-Ficarelli and Naji Boustany, FERN aims to encourage establishments to reduce waste through a “multistep process beginning with a chat with the food establishment owners to explain what we do,” Danberg-Ficarelli says.

Once the restaurant is on board, FERN then conduct a waste analysis where they weigh the garbage and assess how much the venue generates every day. “The average resturant usually generates from 60 to 100 kilograms per day, with about 75 percent to 95 percent of that of organic nature,” Danberg-Ficarelli says. “Imagine how useful that would be as fertilizer for a greener Lebanon, instead of going to a landfill.”

The final step of the process is the staff training which, aside from going over the importance of recycling environment-wise, also involves training on recycling plastics and metals as well as organic items. “A challenge we face is to get staff on board as some just don’t care. But there are many who become very enthusiastic after our training and adopt the project wholeheartedly,” says Boustany.

Once a restaurant signs up, FERN collects waste twice daily and takes it to their small warehouse for further sorting. Organic wastes are sent to Cedar Environmental, a waste management company run by their collaborating partner Ziad Abi Chaker, who is offering them his services free of charge. Recyclables are sent to various end-line recyclers in Lebanon.

The company is already working with Hotel Gabriel in the Ashrafieh area of Beirut and with seven other restaurants in the city (Casablanca, Tawlet, Angry Monkey, Lux, Couqley, Mayrig and Pacifico). They are currently in the process of adding three new venues: Dragonfly, The Gathering and Urbanista. The majority of these restaurants are located in the Gemmayze area as it is part of FERN’s long-term plan to make it Lebanon’s first environmentally responsible community.

The main expense for FERN is gas for their collection truck, but there are also small salaries for their four staff members and driver, as well as the cost of the garbage bins they loan to the restaurants and the bags they provide them with.

The group’s funding comes mainly from the monthly donations made by the participating food establishments, but they have also received a grant from the British Embassy. They also run regular events the first Thursday of every month at Tawlet restaurant in Mar Mkhayel, with a different chef every month. “Though these events only raise enough to cover our operational costs, we want to have those events because we want people to learn about what we do, have fun and get excited about composting and recycling in Lebanon,” says Danberg-Ficarelli.

According to Boustany, incentives for restaurants, other than some minimal cost reduction that comes with more efficient waste management, are mainly social promotion through the exposure they get with FERN and being part of a community of environmentally responsible restaurants committed to social change.

March 29, 2013 0 comments

The Buzz

Morning briefing: 29 Mar 2013

by Executive Staff March 29, 2013

written by Executive Staff

Economics and Policy

Dubai’s index rallied from an eight-week low Thursday as bargain hunters returned, but this was not enough to stop the benchmark making its largest weekly decline since May.

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OPEC crude production slipped to a 16-month low in March as output in Nigeria dropped to the lowest level in over three years.

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Lebanon’s acting energy minister Gebran Bassil has announced that 52 firms from 25 countries have submitted applications for the pre-qualifying round for the country’s offshore oil and gas.

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Starwood Hotels and Resorts has announced plans for a $200 million renovation strategy for all its Le Méridien hotels in the Middle East and Africa.

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March 29, 2013 0 comments

Society

Seven ways design is making Lebanon a little better

by Mirna Hamady March 28, 2013

written by Mirna Hamady

Randomly pick any Lebanese citizen and they’ll be able to list many negative things about their home country: power cuts, traffic jams, excruciatingly slow Internet. But Lebanon is also home to hundreds of talented design professionals in all sectors, some of whom are starting to tackle these problems. From graphic designers, to app developers, to urban planners and architects, the country is full of brilliant individuals who are helping to improve it, whether through a tiny urban intervention or a large-scale project.

Here are seven exciting ways designers are already helping improve the country.

1. Easing the electricity crisis

In a country which suffers from crippling electricity shortages, streetlamps are often switched on during the day and off during the night. The mobile app Waffir, run by the Muhanna Foundation, allows citizens to anonymously report the locations of lit streetlamps during the day.

The app gathers these notifications and forwards them to the respective municipalities, reporting the energy waste. This crowd-sourcing app aims to reduce energy wastage and creates a platform for citizens to hold municipalities accountable – something we rarely see in Lebanon.

2. Empowering rural businesses

Farmers across the country cultivate food that defines our culinary traditions but they face problems getting their products to market and getting a fair deal.

Initiatives such as Souk el Tayeb and Slow Food Beirut bridge the gap between rural food producers and the marketplace centered in Beirut. Both organizations offer spaces for these producers to sell their goods.

Slow Food Beirut commissions graphic designers to work on the brands of these rural producers, facilitating their entry to the marketplace and consequently improving their businesses. Simply by turning a handwritten label into a professionally branded product, designers can help rural farmers get better deals.

3. Helping the sick

When children are diagnosed with cancer, a long battle lies ahead. Designers are not doctors, but they understand the importance of maintaining high-morale for sick children.

The Lebanese charity Toufoula has for the last nine years brought color to the lives of children with cancer through art and design. The organization has designed dozens of ‘Dream Rooms’ in various hospitals around the country, harnessing the power of design to inject a surge of positivity into young cancer sufferers.

4. Reducing pollution

The toxins breathed by Beirut’s residents are double the limit set by the World Health Organization, according to a study by the American University of Beirut. Around 93% of the city’s residents are exposed to dangerous air particles due to heavy use of diesel generators, a surplus of cars and a lack of green spaces.

Cleaning up our air is not the job of environmentalists alone. Researchers can partner with urban planners and architects to create easily implementable solutions, such as architect Sandra Rishani’s Beirut the Fantastic, a blog charged with practical solutions for greening the city amid today’s current setbacks.

Smaller projects can also have a powerful impact on society. Metel ma Shelta, a witty campaign by AUB graphic design students last year, raised awareness about littering in the streets. The campaign revolved around mock-ups of a 10,000 Lira banknote thrown randomly on the streets. Once pedestrians eagerly lunged for the money, they realized it was a piece of paper with a message on the back: “If you can pick this up, then you can also pick up your trash.”

5. Rethinking public transport

“A developed country is not a place where the poor have cars. It's where the rich use public transportation,” Gustavo Petro, the mayor of Colombia’s capital Bogota, once said. Fifty years ago Lebanon had a train, tramway and bus system. Today there is little public transport and our streets are clogged with cars.

Designers are starting a debate about how to change this. Architect and urban planner Sandra Rishani shows in her car-free city proposal that creating mixed-use streets, designating bus lanes and designing a solid transport map could help reduce traffic.

6. Reviving artisanal trades

Lebanon was historically known for its artisanal craftsmanship, such as metal and woodworking, glass-blowing and hand chiseling. Foreign imports have weakened these trades, with many of them on the brink of extinction.

Product designers and interior architects naturally create jobs for these people. Upon co-founding Kashida, my partner and I scavenged the country for reliable, talented producers to work with us. It is an example of a Lebanese brand designed and manufactured in Lebanon, empowering local artisanal trades.

7. Empowering other designers

One way to help designers change the country is to train them better. Design educators must involve more real-life projects in the classroom, especially community projects addressing real problems.

A good example is Desmeem, a cross-cultural design collaboration organized by the MENA Design Research Center in Beirut last year. Desmeem was a three-month-long project involving young professionals that came up with design solutions for lingering issues, ranging from public transport and sustainable consumerism to gender equality and migrant integration. The results were displayed at the Ministry of Tourism and are currently being executed.

Design is more than making a water-bottle label look pretty. Advertising your product on a visually pleasing billboard or designing mass-produced eyeglasses for impoverished communities are two very different forms of design. One betters the pocket of your client, while the other betters the lives of your community.

Design will not save the world without political stability and a decent economy. However, creatives that think outside the box can help find solutions.

If you are not a designer, join a collective whose cause you believe in. Your skills, contacts and mere presence will be a push forward. If you are a design educator, bring the real world into the classroom.

And finally, if you are a successful entrepreneur in the creative field, invest in the passionate newcomers. Funding can get a team together, create momentum, attract media coverage and even gain enough traction for lobbying.

Call it corporate social responsibility, then everyone is happy.

Mirna Hamady is the co-founder of kashidadesign.com

March 28, 2013 0 comments

Economics & Policy

A breakthrough for Lebanese e-commerce?

by Benjamin Redd March 28, 2013

written by Benjamin Redd

The Lebanese blogosphere lit up last week when PayPal announced at the ArabNet conference that it would begin offering services in the country later this year. A gaggle of online commentators welcomed the news, with responses ranging from excitement to mere relief. “I can’t tell you how much this helps me,” one commenter said.

PayPal is the leading global service that manages online payments. It is owned by eBay, the world’s top online marketplace, and rose to prominence alongside the site. But it has branched out and is moving rapidly into mobile technology and other new trends.

Yet until now, those Lebanese wanting to buy goods or services via PayPal have been unable to, or have been forced to use foreign cards. The reason, the company says, was strategic – Lebanon’s market was not ready before. Even now e-commerce is still in its infancy, with only 9 percent of Internet users active in it – the vast majority for online banking rather than buying goods – according to a new poll by Ipsos.

While PayPal’s arrival will make life easier for consumers, the real beneficiaries may be Lebanon’s businesses. “We’re definitely excited,” said Mohammed Bakhash, project manager for Mira-Clé, a business consultancy that also builds websites for e-commerce companies. “I know a lot of clients who are trying to get around the fact that PayPal isn’t available in Lebanon,” he says.

There are other services for online payments, but none stack up against PayPal, according to Bakhash. Currently, most e-commerce sites “get around this issue by creating an account and having a virtual credit card,” he said, adding that some banks offer payment solutions as well, but they’re “very complicated and they charge a lot.” PayPal, on the other hand, is simple, cheap and ubiquitous.

The timeline of the arrival is still unclear. Speaking to Executive, PayPal’s Business Development Manager for the MENA region, Francis Barel, said it will hopefully be before the end of the year, provided a launch in Egypt goes smoothly. “We have said we’re planning to come to Lebanon in 2013 — so we’re hoping it will be by the end of the year, but it’s a long process.”

The online spin-off of Lebanon’s leading bookseller Antoine already uses PayPal, but only for customers with foreign bank accounts or credit cards. “At first the [focus] of the site was to sell outside Lebanon,” says Cyril Hadji-Thomas, CEO and co-founder of Books Without Borders, which manages Antoine Online. But “now the positioning has changed a bit…the growing market is Lebanese customers.” Currently, around sixty percent of Antoine Online’s sales are in Lebanon, he says.

Hadji-Thomas thinks PayPal’s security safeguards and ease of use mean it will be popular in the market. “With PayPal you can link your identity and it’s secure. Most of the time people don’t want to fetch their credit card to pay… the whole process is easier,” he says.

He believes Antoine Online is uniquely positioned to take advantage of PayPal’s move into Lebanon as they have their own delivery service that is used to the chaos of Lebanon’s address system, while people can also pick up the product from in-store. This mix of physical infrastructure, combined with a lack of customs hassles, provides a competitive advantage over foreign e-commerce sites, he says. “We think we have a better offer than Amazon in the country.”

The missing link

However, PayPal’s introduction will only be a game changer if it coincides with changes in the Lebanese attitude towards online shopping, where poor infrastructure and low levels of trust prevent people buying online. “The main issue is having Lebanon get [used] to the e-commerce market as standard,” Hadji-Thomas says.

Part of the problem is that there is still no legal or regulatory framework for e-commerce in Lebanon. A draft law was shelved in 2010 after activists complained that it was so poorly written that it would have provided government bodies with sweeping powers over many aspects of online life.

Another draft law has been proposed to address these concerns and lay a basic framework for e-commerce regulation. A government official, speaking on condition of anonymity as he was not allowed to talk to the press, said that if enacted, “a lot of issues might be resolved, including logistics, security, payments, downloading, quality of software and protecting the rights of stakeholders.”

The law would also provide for transactions involving the government, the representative explains. For example, “when [the government] automated registration of trademarks, we had to resort to LibanPost to make payments and transport the documents. If we had this transaction law, everything could have been done over the web,” he says.

But whether the government moves on e-commerce or not, the private sector will continue to advance the field. According to PayPal, the lack of proper regulation is a hindrance, but the markets cannot wait for government action. As Barel said, “I think [Lebanon] is quite ready.”

Note: PayPal contacted Executive to clarify that while the company is aiming to have its services available in Lebanon in 2013, the exact timeline is still unconfirmed. Mr Barel’s quote has been changed to reflect this

March 28, 2013 0 comments

The Buzz

Lebanon announces oil and gas firms

by Executive Staff March 28, 2013

written by Executive Staff

Lebanon’s acting energy minister Gebran Bassil has announced that 52 firms from 25 countries have submitted applications for the pre-qualifying round for the country’s offshore oil and gas.

Included amongst the bidders are major oil firms including Total, Shell, Statoil and Exxon Mobile, as well as Middle Eastern companies from Iran, Kuwait and the UAE.

The firms, if successful, will eventually form consortiums of three joint venture companies, but they are to be assessed individually on legal, financial, technical, and health and safety criteria.

The results of the applications will be announced next month, Bassil said. There will then be a six-month period of negotiation for companies to prepare their bids, with contracts expected to be signed early next year. However, no agreements can be formally agreed until a new government is formed.

Bassil said the bids were a "sign of faith" in Lebanon and added another 200 companies had withdrawn from the application process because of the tough conditions imposed by Lebanon. "Most of the major oil companies in the world, from all regions, have have put in submissions and this is surely a sign of faith and trust in Lebanon," he said.

The full list of companies and their country of origin is as follows:

Australia

Santos

Brazil

Petrobas

Austria

OMV

Canada

Suncor

China

CNOOC

Croatia

INA

Denmark

Maersk

France

GDF Suez

Total

Hungary

MOL Group E&P

Italy

ENI International

Edison International

India

Cairn India

ONGC

Iran

National Iranian Drilling Company

Ireland

Circle Oil PLC

Petroceltic

Japan

INPEX

JAPEX

JX Nippon

Mitsui

Kuwait

KUFPEC

Lebanon

CC Energy

Malaysia

Petronas

Netherlands

Shell E&P

Norway

Statoil

Russia

Lukoil

Novatec/GPB Global Resources

Rosneft

South Korea

KNOC

KOGAS

Spain

Repsol

Thailand

PTTEP

Turkey

TPAO Turkish Petroleum

Genel Energy

UAE

Crescent/Apex Gas

Crescent Petroleum

Dana Gas

Dragon Oil

MOISSS

Mubadala

Cairn Energy

Dana Petroleum

Heritage Oil

Ophir

SOCO

USA

Andarkor

Chevron

Exxon Mobile

GeoPark/Petroleb

Levantine Exploration

Marathon

March 28, 2013 0 comments

The Buzz

Morning briefing: 28 Mar 2013

by Executive Staff March 28, 2013

written by Executive Staff

Economics and Policy

Banks in Cyprus were due to reopen today after almost two weeks, amid heightened security measures to control the thousands of people expected to swarm branches demanding their money.

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Companies and Business

The UAE has approved a $400 million loan to Serbia, boosting the Balkan country’s drive to find investors from outside the crisis-hit Eurozone to help pull it out of recession.

More from Reuters

The United Arab Emirates central bank has given initial approval to a proposal by the country’s commercial banks on setting limits for residential mortgage loans.

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March 28, 2013 0 comments

Finance

Look to the East

by Ziad Abou Jamra March 27, 2013

written by Ziad Abou Jamra

As the yen continues to weaken and the rally of Japan’s stock index, the Nikkei, persists, it is time to start adding exposure to its stock market. With the country’s current account surplus worsening, it is getting more difficult to finance the budget deficit of around 9 percent of gross domestic product, coupled with a sovereign debt amounting to 240 percent of GDP — both figures being roughly double that of Lebanon’s equivalent statistics.

Bonds…Japanese bonds

Japanese establishments have always been the biggest and most reliable buyers of Japanese government bonds (JGBs), but they have recently been conveying that they lack the funds to keep buying at the scale of previous years. The Bank of Japan needs to step in and buy government bonds with newly printed yen so the supply of yen will have to rise drastically in the coming few years. This would lead to price levels in Japan moving from a deflation of slightly below zero to an inflation of around 2 percent, the target set by the newly appointed government and the Bank of Japan. The resulting weaker yen would be a new scenario for Japan as the country’s currency has been one of the world’s best performing for the past 20 years.

Additionally, Japan’s major life insurance companies act as pension funds for the Japanese community, which has a high propensity to save, with these savings being channeled into investment in domestic and foreign assets. Because of the yen’s positive performance over the years, these life insurance companies have hedged part of their exposure to the currency by buying yen against their foreign holdings. The recent drop in the yen might force the hand of these institutions to unwind part of their hedges by buying tens of billions of dollars and simultaneously selling yen. Many other institutions, from pension funds to industrial companies, are in a similar position and will have to react in a comparable fashion. As a result, demand for JGBs will likely decrease, threatening the big Japanese banks as they have large holdings in JGBs. To counter this, the Bank of Japan will need to intervene and buy more bonds, thereby increasing the supply of yen even further.

Grabbing stocks by the horns

Japan’s dangerous game of weakening its currency — given that it is a policy which could eventually backfire as more than one nation can play this game — is nonetheless very beneficial to Japanese manufacturers and exporters and bullish for Japanese stocks as the recent rally in the Japanese index Nikkei indicates. Japanese equities have been in a bear market since 1989 with investor sentiment constantly deteriorating. The consistent drop in prices and sentiment over the years, with Japanese equities losing three quarters of their value in the past 23 years, has led to the country’s stocks being competitively priced relative to their international counterparts.

On the other hand, the value of the bond market in Japan has risen by around 400 percent. A major switch from bonds to stocks is already underway and an acceleration of this process could create a major bull market in the country’s equities as Japanese and foreign investors scramble to buy stocks. In my opinion, the best way to benefit from such a scenario is by buying a currency-hedged electronic traded fund such as the WisdomTree Japan Hedged Equity fund listed in the United States under the symbol DXJ.

Given the explosive nature of both the rally in Japanese equities and the dramatic drop in the yen in recent months, I believe that in the short term the call is overstretched and warrants caution. However, given my extreme bullishness on Japanese equities and bearishness on the yen for the next two to three years, I would recommend keeping an eye out for a major correction, which should be used as an entry point to add exposure to what could be the onset of a bull market for Japanese equities.

Ziad Abou Jamra is the deputy general manager of Fidus, an affiliate of Societe Generale de Banque au Liban

March 27, 2013 0 comments

Comment

Lebanon without a government, again

by Zak Brophy March 27, 2013

written by Zak Brophy

Lebanon without a government feels remarkably similar to Lebanon with a government. The political establishment in this country is so fickle and dysfunctional that the cogs and levers that actually drive this fragile nation grind along regardless of the ineptitude and cynical shenanigans of those voted into office. This begs the question, how much will the resignation of Prime Minister Najib Mikati affect the wider economy?

The country’s financial health had been declining for some time prior to Mikati coming to office in June 2011, and was in a worse position as he made his dash for the exit last Friday. The economy grew a paltry 0.8 percent in 2012, down from 1.8 percent in 2011; Despite sluggish activity, inflation belligerently persists at around 10 percent; foreign direct investment dropped more than two thirds in 2012, and a recent study by the American University of Beirut and Byblos Bank found consumer confidence at its lowest since their first poll in 2007. The nation’s prospects were further sullied by the fiscal deficit ballooning 67 percent in 2012, with a corresponding upswing in the debt-to-gross domestic product (GDP) ratio to some 140 percent.

Mikati’s government undoubtedly had their work cut out for them. The crisis in Syria has led to acute regional tensions that have affected Lebanon, with the knock-on effects severely damaging tourism and security, as well as inflaming sectarianism. Furthermore, high energy prices have put the squeeze on Lebanon’s treasury, as the country is completely dependent on oil and gas imports to produce electricity.

But while in office the government also failed to realize any meaningful reform in public administration, which is critically needed. Furthermore, the politicians sat on a number of laws that could have breathed new life into Lebanon’s battered private sector, including a public-private partnership law, an updated intellectual property rights law, an international trade and licensing law, and a competition law that would have challenged the stifling predominance of well-protected oligarchies.

Perhaps the most glaring shortfall was the failure, once again, of the government to agree on a budget for 2013. It is nothing short of astounding that Lebanon has been without an official budget since 2006. For eight years the country has bungled along with a system that lacks any semblance of accountability or forward planning, whereby spending beyond the 2005 budget is covered by “treasury advances”. What kind of economic stewardship can be expected from a government that cannot even agree on its own spending?

It would be unfair to focus purely on the shortcomings without acknowledging where progress was made. Decrepit and decaying infrastructure is one of greatest shackles to Lebanon’s development and the likes of the pugnacious Minister of Energy and Water Gebran Bassil and his political bedfellow, the Minister of Telecommunications Nicolas Sehnaoui, have achieved some strides forward in their sectors.

These could be short-lived gains though. The seemingly ineluctable predisposition of ministers to view their sectors as personal fiefdoms undermines any kind of policy continuity between administrations. Efforts to develop independent and technocratic management of the sectors with informed and empowered regulatory bodies is consistently blocked. If the ministerial deck is shuffled in the weeks and months to come we can expect fresh teams of advisors sporting new plans for their sectors.

One major economic policy of Mikati’s government was the public sector pay increase. The debate surrounding how to fund the wage hike presented the government with a chance to embark on administrative reform, tackle corruption and waste, and rebalance the economy away from its disproportionately high dependence on the real estate and banking sectors towards the productive sectors. Such moves would have provided greater popular legitimacy to the policy and potentially a more equitable and sustainable society.

Instead the government rushed through half cooked plans at the 11th hour and in doing so they missed a trick. Just before resigning Mikati sent the draft bill to parliament for debate, where many will wonder whether they’ve just been handed a fiscal time bomb.

Will the economy collapse now Mikati’s government has gone? The simple answer is no. Lebanon has endured a lack of coherent leadership before and the economy can weather a brief period of political reordering.

But another protracted political vacuum would impact Lebanon’s already fragile security. With the country’s sectarian divisions brimming, a lack of political leadership — no matter how flawed that government may be — could leave the door open for hostilities to run wild. This is surely the greatest threat to the economy, and all attempts must be made to shield the country from the noxious winds blowing in from the war next door.

Zak Brophy is a freelance business journalist based in Beirut

March 27, 2013 0 comments