Lebanon is presented with the most serious challenges it has faced in the past decade. The economy is struggling, the internal security situation is deteriorating and the country’s neighbors pose real threats. In these circumstances the very fact that the country continues to operate can be seen as a success. And amidst everything, there are opportunities — not just in newfound offshore oil and gas but also within the country's ingenious population.

As we head into 2013, what can be done to help the country unite, to overcome its challenges and ultimately to grow? Over the course of this week, eight influential figures will address seven important topics, each suggesting one proposal to help the country move forward. In this article, the World Energy Council's Roudi Baroudi calls for measures to protect the country's offshore oil and gas from corruption.

My one hope for Lebanon in 2013 is that all of its various political leaders and factions take and/or allow the necessary steps for sound and sustainable development of the country’s newly promising energy sector.

Why? Because virtually all of the measures involved a) are just common sense; b) require little or no investment of scarce public resources; and c) happen to be the same changes required to reform, rebuild and genuinely reconcile Lebanon as a whole.

On the overall energy front, the first change would have to be one of mindset. For too long, the sector has been treated by officials, their relatives and their cronies as a cash-cow for themselves rather than as an essential ingredient in building and operating a modern nation-state. From heavy industry to the average family, everyone is affected by the chronic power shortfall. We are more than a decade into the 21^st century: doing homework by candlelight should be the stuff of tales told by grandparents, not the current experiences of schoolchildren also learning to use computers. Imagine if those tasked with formulating and implementing energy policy were concerned at last with basic public goals: namely, how best to deliver affordable, reliable and sustainable energy (electricity, LPG “cooking gas”, gasoline, diesel oil, fuel oil) to all Lebanese.

See also: Former Labor Minister Charbel Nahas on rethinking the economy

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In turn, this new attitude could quickly convince Lebanese politicians of the need to follow the law by forming a regulatory authority for electricity, and one for the nascent oil and gas industry as well. This would go hand in hand with a government newly determined to ensure transparency, for instance by disseminating all available general information and specific knowledge about the process(es) by which the future of the oil and gas sector is being planned and managed.

The same enlightened leadership would seek out and adopt the best practices at every stage of its oil and gas venture, starting at the beginning. For example, Lebanon should spend its taxpayers’ money wisely by restricting its paid advertising to globally recognized industry publications and highly regarded professional and financial publications like the Economist and the Financial Times,  and using the websites of the World Bank and the European Commission – for free – in order to ensure the broadest possible international awareness of the country’s hydrocarbon potential. The government could then consult the latter two bodies and other reputable institutions to help understand the experiences of other emerging energy powers and avoid making the same costly mistakes.   

Thus animated, not just by the need to closely monitor oil and gas developments, but also by its duty to keep the public informed, the Ministry of Energy and Water would secure timely and professional analysis of the seismic studies immediately following their completion – then, based on these findings, publish the next steps approved by the government in order to pursue development of the fields.

In addition, with the seismic results in hand, the ministry could commission a well-known and qualified international consulting firm to prepare a comprehensive energy master-plan encompassing the entire industry and each of its sub-sectors. The electricity subsector component would be based on a long-term, least-cost expansion of generation and transmission which would take into account feasible grid interconnections with other countries in the region, the role of renewable energy, and integration of the environmental and climate change dimensions to demonstrate Lebanon’s strategy for reducing its carbon footprints in its production and use of energy.

When it comes to the implementation of specific projects, the ministry would act diligently to ensure not only that all necessary environmental impact studies were being carried out, but also that the implementation of mitigating measures was done in accordance with both international best practice and the requisite environmental and social guidelines applicable in Lebanon.

The same spirit of respecting the law and pursuing the national interest also would cause Lebanese politicians, whatever their party loyalties, to avidly support the continued reform of the judiciary, an acceleration of nominations to fill judicial vacancies, and other measures designed to strengthen the rule of law. All of these steps would magnify the impact of the others by helping to ensure that pieces of legislation passed by Lebanon’s Parliament are no longer regarded as idle suggestions to be ignored at will.

All of the foregoing – flowing from the original wish that Lebanon’s main political actors would stop obstructing oil and gas progress – would ensure a dynamic and profitable energy sector capable of alleviating many national problems, especially poverty. Properly managed, oil and gas would supply ample revenues for decades to come, providing the Lebanese state and Lebanese society with the resources they need to finally end the twin evils of systematic inequality and sectarian resentment.

If we really want our grandchildren not to be doing their homework by candlelight, then real change is needed. With simple steps and more enlightened leadership, we can start to make it happen in 2013.

Roudi E. Baroudi is an independent energy and environmental consultant and Secretary General of the World Energy Council – Lebanon Member Committee

Lebanon is presented with the most serious challenges it has faced in the past decade. The economy is struggling, the internal security situation is deteriorating and the country’s neighbors pose real threats. In these circumstances the very fact that the country continues to operate can be seen as a success. And amidst everything, there are opportunities — not just in newfound offshore oil and gas but also within the country’s ingenious population.

As we head into 2013, what can be done to help the country unite, to overcome its challenges and ultimately to grow? Over the course of this week, eight influential figures will address seven important topics, each suggesting one proposal to help the country move forward. In this first article, former Labor Minister Charbel Nahas argues that the country’s economy needs fundamental reform.

In 2013, I believe it is time to fundamentally reassess the way our economy works.

The Lebanese, all of them, independent from the political discourse, are overwhelmingly supportive of a modern system of management of the economy that is built on two basic principles: (1) A very large reliance on the influence of capital inflows to finance consumption that goes far beyond domestic production. (2) A very attentive management of channels of redistribution of this inflow of capital through the financial system, through public expenditure and through private lending so that these funds do not remain deposits in the banks held by a small number of wealthy people but are recycled to appear as if they were income. This inevitably leads to a huge deficit in our trade balance.

This clientelistic management of the channels of distribution is at the core of our socio-political system. It forms the base of a political system that forces the people to recognize leaders who defend the interests of each sectarian group in order to grasp what they feel is their fair share of the pie. In this sense the notion of production, of social partners, is absolutely absent. It is a predatory system.

This status quo is deeply unstable in the sense that major, vital functions of the economy and of the state have been allocated to each of the groups to give them the power to veto the others. This leaves very little room to address structural economic issues: the equilibrium of such a system is very precarious. It used to work until 2005 because the arbitrator — Syria — was agreed upon. After 2005, when the Syrians were pushed out, the system became blocked and it is still completely blocked.

Second, it is a system very low in economic efficiency. The effect of these inflows of capital are very deep on the economy, in the sense that they favor non-tradable services. It pushes the available resources in capital and labor to services that are linked to the final stages of distribution — commerce, domestic intermediation, education, health, construction — where the openness to international competition is very limited and therefore the potential productivity gains are almost zero. This leads to a stable equilibrium of low productivity and helps increase prices of domestic goods in a systematic manner.

Thirdly, the system is destructive, as it consumes the cohorts of young Lebanese and forces them to emigrate to provide capital for the economy. In their place foreign workers come and are often exploited. Human capital is thus wasted.

Time for change

Most of the debates you hear about the Lebanese economy are linked to the fine-tuning of this system. Fundamentally questioning it is deemed unthinkable. But I believe we are faced with a basic choice: either you think that this system suits Lebanon in the long-term or you do not. Simply, if you do not believe in it then making the system function better is a major error — you give it more chance to deepen its impact.

I deeply believe that this system is absolutely perverse both morally and economically. It generates a type of society where the values of production are absolutely secondary to the predatory attitudes. That predatory attitude cannot continue without strict fidelity to the clientelistic system.

It is not an easy bind to get out of, but we must start with a reallocation of resources. At every element of the chain the choices are not complicated — using an increasing part of capital as investment rather than consumption. This would be the trigger to get out of this scheme by influencing the allocation of these resources. Banks and services would become less profitable, but exporters and industry would be more so. The level of wages would increase in Lebanon, the reliance on poor labor decrease.

To be frank, I tried to do this as a minister — as others did before me — with little success. You are stepping on the toes of large and influential groups — politicians, businessmen and others — who are accustomed to the existing system and have strong interests in preserving it. Trying to force change is a major disturbance and they will oppose it.

But if you are talking about the possibility of changing the DNA of the system, 2013 could present opportunities. Firstly, there has been an increase in alternative movements and social forces. Moreover the fact that the system is blocked makes adjustments more difficult so a moment of truth could appear, meaning we have to make difficult decisions.

If we take, for example, the government’s current predicament over the proposed wage rise, this could prove some kind of trigger. The government essentially sought to increase wages without any meaningful reform and now they have found they cannot afford it. They are faced with three options: renege on the promised wage rise and lose some political credit, do it without serious change in the fiscal basics and risk the financial system, or make serious fiscal changes — but this will require them to hurt their powerful allies.

But more fundamentally, change has to come from the Lebanese people; a major public decision to change public intervention in the economy, instead of favoring the perpetuation of this bizarre system that we have all become so used to.

Charbel Nahas was Lebanon’s Labor Minister until February 2012