Executive Magazine

The Syrian refugee crisis in Lebanon

by Kareem Chehayeb December 17, 2018

written by Kareem Chehayeb

In 2018, the Syrian popular uprising-turned-civil war entered its eighth year, and so did Lebanon’s refugee crisis. This past year was critical for Lebanon. Not only did the country hold its first parliamentary elections since 2009, it also saw decreased funding for refugees, a highly controversial policy by the country’s General Security to return refugees to Syria, and ongoing tensions between the foreign ministry and the United Nations High Commissioner for Refugees (UNHCR) over refugee returns.

Donor fatigue worsens

With Lebanon hosting, globally, the largest number of Syrian refugees per capita (only Turkey hosts more in absolute terms), it came as no surprise that international aid was more readily supplied during the early years of the conflict. This aid came in the form of not only direct assistance for Syrian refugees, but also funding to help the Lebanese government mitigate the impact of the refugee crisis on its infrastructure and economy. However, as the conflict in Syria drags on, international donations have stagnated.

In fact, the 2018 funding gap for UNHCR in Lebanon is its worst so far. Despite the need steadily rising, this year UNHCR received just $887 million out of a required $2.68 billion. Factoring in a sum of $310 million that carried over from 2017, the total secured funds amounted to only 45 percent of the required funding for the year.

This is not the first time that UNHCR in Lebanon has received less than 50 percent of its required funding. Need is outpacing willingness to donate. In recent years, from 2015 to 2017, UNHCR in Lebanon received roughly $1 billion per annum, but the funding gap has continued to widen. This situation looks set to continue, with the aid requirements of refugees and their local host communities—many of whom reside in impoverished areas—not diminishing.

Lebanon is not alone in coping with the refugee crisis. Jordan and Turkey are also hosting large numbers of Syrians and must contend with shortfalls in international aid. Unfortunately for all the host countries in the region, key donors are continuing to cut foreign aid. The Trump administration recently pulled US funding for UNRWA and is having second thoughts over their Syria aid program, redirecting more than $230 million earlier this year. Meanwhile, Turkey and the EU continue to squabble over the implementation of the 6 billion euro ($6.8 million) aid package signed in 2016.

Going forward, the cuts to US foreign aid under President Donald Trump will have adverse effects on struggling aid and assistance initiatives. In 2017, the US was the largest single state donor by far, providing $1.45 billion to UNHCR. Germany was the next largest, at roughly $477 million.

Stagnated conditions

Given that these funding gaps have existed since 2012, it should come as no surprise that there has been little marked improvement in the socioeconomic conditions of refugees, despite years of aid. In a 2018 update to the UNHCR’s refugee response plan for 2017 to 2020, the agency stated that more than 76 percent of Syrian refugees live below the poverty line, set at $3.84 per day. A whopping 87 percent of them are in debt, with the average debt amounting to $798 per person. Syrian refugees incur significant costs—for example, 18 percent of average monthly expenditure goes toward paying rent, often for overcrowded housing. Meanwhile, food is the largest monthly expenditure, at 44 percent, and accounts for the greatest proportion of debt.

Although the financial situation of Syrian refugees in Lebanon is dire, a thin, unexpected silver lining presents itself in the form of the continued improvement in the performance of the Lebanese health sector. A study by the American University of Beirut, the World Bank, and Lebanon’s Ministry of Public Health (MoPH) revealed that not only has the sector shown resilience during the refugee crisis it has even improved. Walid Ammar, the director general of the MoPH, told Executive in July that public and private health institutions continue to improve in light of the ongoing circumstances.

Meanwhile, the World Bank continues to oversee several projects in collaboration with the state to create more jobs in an attempt to alleviate poverty. The Creating Economic Opportunities program was established prior to the refugee crisis, and original projections sought to create some 52,000 jobs for Lebanese people over a 15-year-period. However, Zeina Khoury, a private sector specialist at the World Bank, told Executive in September that beneficiaries now also include 3,000 Syrian refugees who are to receive training—but not job placement support or wage subsidies—in sectors in which Syrians have the legal right to work in Lebanon. The program has yet to be formally adopted by cabinet and Parliament.

In any case, the sectors in which refugees are allowed to work are extremely limited. And it appears that UN agencies are anticipating further cuts to their aid programs designed to ameliorate the refugee crisis. In a meeting with the Ministry of Social Affairs in October, it was confirmed that UNICEF would discontinue their cash for education programs for refugee students due to insufficient funding. Around 13,000 households will be affected by this measure.

With diminishing funding, the government suspending UNHCR’s ability to register new refugees in 2015, and severe labor restrictions, the socioeconomic wellbeing of Syrian refugees in urban and rural areas is unlikely to improve in 2019. It appears that refugees will continue to rely on borrowed money for subsistence. These unsustainable conditions could also be a catalyst for some to take the risk of returning to Syria, despite the lack of a political solution to the conflict.

Voluntary returns?

Since last spring, General Security has been publicly documenting countrywide refugee returns organized in coordination with Syrian security and government officials. Photo handouts show refugees crowding around white buses provided by the Lebanese state, or the all-too-familiar green buses synonymous with war-time population transfers in Syria. According to statements released by General Security, the buses cross into Syria mostly through the eastern Masna and northern Abboudieh border crossings, with some buses utilizing the al-Zamrani crossing near Arsal.

The number of Syrians who have chosen to voluntarily leave Lebanon is disputed. Despite the presence of a UNHCR representative to monitor returns, confirmed by both General Security and UNHCR Lebanon Representative Mireille Girare, numbers differ between the two organizations. A General Security statement from early November stated that 87,670 Syrian refugees had returned from Lebanon since July. This statement broke down the number of returns into those who had gone back through a General Security return program (7,670) and those the statement said had returned on their own (80,000). This cleared up some confusion that had existed in the local press, as previous statements from General Security had provided breakdowns of their own returns program and an overall total that was much higher, without explaining the discrepancy.

Nevertheless, the overall number of Syrians returned is still disputed, despite the November statement from General Security. Lebanon’s caretaker State Minister for Refugee Affairs Mouin Merhebi claimed in a November interview with AP that only 12,000 Syrians had returned to Syria. Meanwhile, UNHCR tallied 3,100 returns as of October this year, though UNHCR spokeswoman Lisa Abou Khaled told The Daily Star that these figures represented individual returns, not refugees whose return was coordinated by General Security, and that there were additional “spontaneous returns” that UNHCR was not capturing.

UNHCR’s updated numbers indicate that the number of registered Syrian refugees in Lebanon continues to steadily decrease. As of October 31, UNHCR documented 951,629 Syrian refugees in Lebanon, a significant decline from three years ago, when the organization had roughly 1.2 million individuals registered. Despite these developments, the government continues to estimate the number of refugees (both registered and undocumented) to be significantly higher, at 1.5 million. But in his AP interview, Merhebi said that the number of Syrian refugees was now at around 940,000, following returns or resettlements in other countries.

Is Syria safe enough for refugees to return? Many Syrians have expressed concerns over security risks related to arbitrary detentions or forced military conscription by the Syrian army, its allies, or by opposition groups. There is also the question of the ongoing humanitarian and internally displaced people (IDP) crisis within Syria. In October 2018, the UN Office for the Coordination of Humanitarian Affairs documented over 64,000 displacements within Syria, mostly taking place in the Idlib and Aleppo governorates. The UN agency cited that the displacements were the result of Syrians seeking better security and humanitarian conditions. Human Rights Watch and other human rights organizations continue to document airstrikes on IDP camps and ongoing attacks against civilians by numerous forces on the ground. Merhebi also told AP that 20 Syrians had been killed after returning to Syria from Lebanon, but offered no concrete proof to the newswire, and rights groups monitoring the situation have recorded no deaths.

UNHCR dispute

Though the government has not reached a consensus when it comes to the Syrian conflict and the refugee crisis, the foreign ministry continues to butt heads with UNHCR. In May 2015, the government ordered UNHCR to stop registering Syrian refugees. This left sponsorship by a Lebanese employer as the only option for Syrians to obtain legal residence, a difficult path given the need for wasta that colors such arrangements.

In June 2018, caretaker Foreign Minister Gebran Bassil froze the renewal of UNHCR staff residency permits indefinitely. A statement from the foreign ministry cited alleged “intimidation tactics” by UNHCR, which they claimed were aimed at scaring Syrian refugees out of returning to Syria, by notifying them about the risk of military conscription, the poor security situation, and the fact that returns have not been endorsed by the international community. Despite other ministers and government officials condemning Bassil for the unilateral freezing of UNHCR residency permits, the decision still stands. In response, UNHCR stated that they respect the right of refugees to voluntarily return and do not discourage returns based on “individual free and informed decisions.”

With Bassil expected to continue heading the ministry once a cabinet is formed, it is expected that relations between the two will continue to sour. President Michel Aoun, echoing his son-in-law Bassil, said in a November speech that there are forces “stagnating” returns by “intimidating” refugees, arguably pointing fingers at UNHCR and human rights organizations that have expressed concerns about refugee returns at this point in time.

Given the circumstances, it seems the government’s current thinking is affecting the rhetoric coming from UNHCR and similar organizations. In a panel discussion at Saint Joseph University in Beirut in October, Girard appeared to downplay initial concerns about refugee returns to Syria, focusing instead on UNHCR’s role in ensuring their safety on Lebanese and Syrian territory. Meanwhile, Christophe Martin, head of the delegation of the International Committee of the Red Cross, told Prime Minister-designate Saad Hariri in November that the organization supports the return of Syrian refugees, if their security is guaranteed and the non-refoulement principle is respected.

Speaking from eastern Ghouta, near Damascus, the Danish Refugee Council’s Secretary General Christian Bach said in November that the reconstruction effort must get underway, given that many Syrians, refugees, and IDPs alike, are returning to the ruins that were once their homes. It is therefore likely that the narrative will continue to shift in 2019 to focus on the logistics of repatriation, rather than the legality and security of it.

December 17, 2018 0 comments

Lebanon’s electricity crisis

by Jessica Obeid December 17, 2018

written by Jessica Obeid

Lebanon’s power sector is a substantial drain on the state’s treasury, responsible for 40 percent of the country’s fiscal deficit, according to the World Bank. Significant reforms are required to cut the fiscal shortfall and address structural and governance issues at the root of the crisis.

The country’s power generation capacity is nearly 2,050 megawatts (MW), excluding the capacity of two temporary power barges, while the demand is estimated at 3,500 MW. The electricity tariff is largely subsidized; the average tariff of the state-owned electricity utility—Electricite du Liban (EDL)—is 9.5 cents for each kilowatt hour (kWh) consumed, while the cost of generation ranges from 17 to 23 cents/kWh. EDL thus incurs significant financial losses, between $1.5-2 billion annually, depending on oil prices. The country also relies on expensive heavy fuel oil and diesel oil, unlike the rest of the Middle East where natural gas, considered cleaner, and cheaper, is the largest source for electricity generation.

It is obvious, looking at the figures, that fixing the power sector requires increasing the power generation capacity by adding power plants and restructuring the tariff to reflect the true cost of generation—something that the Ministry of Energy and Water (MoEW) is keen to do. But reforming the power sector also entails immediately confronting deep-rooted structural and governance issues.

Increase generation

In 2018, the MoEW took steps to increase the generation capacity through thermal and renewable plants and temporary power barges, and started the process of switching to natural gas through floating storage and regasification units (FSRUs).

Lebanon signed four contracts in 2018, with the aim of adding 752 MW in power generation capacity in the upcoming years. One contract relates to the Deir Ammar thermal plant and the other three deal with wind farms in Akkar. Two expressions of interest (EoI) for a second round of wind and solar development projects ranging between 410-700 MW were also launched.

In February, the MoEW signed 20-year power purchase agreements (PPAs) to develop three wind farms in Akkar with three different joint-ventures: Lebanon Wind Power (60 MW), Sustainable Akkar (82.5 MW), and Hawa Akkar (70 MW), at the cost of 10.75 cents per kWh for the first three years, and 9.6 cents per kWh the remaining years. The first two of these ventures were later bought by a common entity. These farms are a breakthrough for the Lebanese power sector: they enable a new modality where the public utility purchases electricity from the private sector; they reduce dependence on fossil fuels’ price volatility, contributing to Lebanon’s new target of 30 percent renewable energy by 2030; and they will generate cheaper electricity than EDL’s thermal power plants. However, these wind energy initiatives are significantly more expensive than similar projects in the region and across the globe, with the global cost of electricity averaging 6 cents per kWh for onshore wind in 2017. For Lebanon, the higher cost is mainly due to the uncertainty in the sector, which is driving up the risk premium that companies account for in the projects’ finances. These wind farms, planned to be completed by 2020, face the challenge of attracting a required investment of approximately $360 million and risk setback due to political turmoil, following a five-year delay between the launch of the request for proposal and February’s PPA signature.

In May, Lebanon restarted the construction of a 540 MW power plant in the north of Lebanon at Deir Ammar, expected to come online in 2020 under a 20-year build-operate-transfer (BOT) agreement. In October, Lebanon agreed to change the agreement with the international firm initially contracted to build the plant in 2013, into a BOT, following a dispute over payment of value added tax between the firm and Lebanon’s finance and energy ministries.

The year also witnessed a call for EoIs for a second round of wind and solar energy projects, aiming to develop four wind farms with a total capacity ranging between 200-400 MW, and three solar photovoltaic farms with a total battery storage capacity ranging between 210 and 300 MW, through PPAs. The calls resulted in 42 EoIs for the wind projects and 75 for the solar projects. The first round for solar photovoltaic farms, launched in 2017, resulted in 256 EoIs, of which 42 prequalified companies were requested to submit a proposal by October 2017. The awarding of the first solar round is still pending due to regulatory issues and political conflicts, and the next step for the second round of wind and solar projects is still unknown.

The first step in switching to natural gas

While Lebanon is moving forward in renewable energy, the country is also planning the transition of current and future power plants into using cleaner fossil fuel sources.

Adding natural gas to Lebanon’s fuel mix would improve the country’s energy security by diversifying fuel and supply sources, and reduce fuel costs by approximately 40 percent, according to the energy minister. It would also serve to minimize greenhouse gas emissions. The benefit of such a transition would vastly increase if Lebanon finds and develops offshore oil and gas reserves.

The country’s 2010 electricity plan envisioned that two-thirds of the fuel mix would be made up of natural gas from multiple supply sources. To achieve that, Lebanon will need to develop the necessary infrastructure for the supply and distribution of natural gas, and convert and build new power plants operating primarily on natural gas. Two measures were identified that could achieve this over the short term: the procurement of natural gas through an FSRU and the supply of natural gas to the power plants via a coastal gas pipeline. Moored on the coast, the FSRU would be fed with liquefied natural gas (LNG) imported by ship and, following a regasification process, would feed gas to Lebanon’s power plants via a coastal pipeline or, more realistically, via several smaller pipelines that stretch from one plant to another in its vicinity. Last year, Lebanon launched an FSRU tender, its second attempt. While the original tender outlined that one FSRU would be built at Deir Ammar, the updated EoI calls for three FSRUs: one of each to be located at Deir Ammar and Selaata in the north, and one at Zahrani, south of Beirut. In 2018, 13 consortiums were prequalified to participate in the tender of the project, eight of which submitted proposals in late November 2018. Details of the projects related to the source of LNG and the actual cost of energy, driven by the regular necessary shipments remain unclear at this stage.

Future outlook

Past plans by the MoEW have remained mostly on paper, but the alarming fiscal deficit and the growing frustration of unreliable electricity supply may prompt power sector reforms in the near future. The International Monetary Fund stated in February 2018 that “electricity reforms should focus on expanding capacity and eliminating subsidies.” While it does make sense from a purely fiscal perspective to focus on the sector’s drain on the state budget—which should also account for illegal connections and non-billed consumption—the existence of a strong institutional system is a necessity for achieving true reforms, and authorities in the sector must address the underlying structural and governance issues. Otherwise, even with generation increased to match the current peak demand, the sector will encounter the same shortcomings in the future, as a result of growing demand.

Lebanon’s Capital Investment Plan (CIP), presented in April at CEDRE, includes plans to increase generation capacity and upgrade high and medium voltage transmission lines and the low voltage in the distribution network, in line with EDL’s master Plan for 2023-2030.

According to the CIP, four generation plants of approximately 500 MW each are planned to be completed by 2023: two in Selaata, one in Zahrani, and one in Jiyeh (by modernizing the Jiyeh power plant), in addition to the previously mentioned BOT in Deir Ammar—projected to be completed by 2020. If all these plans come to fruition, expected total installed capacity would reach 4,925 MW, combining all renewable energy projects and existing plants. Two more thermal plants and further renewable energy investments are also planned in the long run, for 2027-2030. All new power plants are expected to run primarily on natural gas, with heavy fuel oil as a fallback option in the absence of natural gas.

The reinforcement of the grid is a priority, as the government has not improved the grid network simultaneously with recent contracted improvements to power plants, causing inefficiencies and losses, and hindering the plants’ ability to operate at full capacity, as was the case when a third power barge was connected to the Zouk plant in August 2018.

The government is also planning a tariff hike, based on a price of $60 per oil barrel. Eliminating subsidies is a necessity for the proper functioning of the sector. However, they should be coupled with an increase in power generation and carefully designed to mitigate the impact on vulnerable households and ensure equity. The sector has failed to achieve this in the past few decades, with different areas facing different blackout hours, leading to higher generator bills for those suffering from the highest shortage in EDL supply. Removal of the subsidies should also be coupled with a drastic cut in non-technical losses otherwise illegal connections might increase in the future.

Unsolicited Proposals

The gravity of the situation has prompted several unsolicited proposals (USPs) from international energy firms to improve Lebanon’s power sector. The growing economic crisis might prompt the government to begin direct negotiations pursuing USPs, which would not be an unusual phenomenon in countries with power crises.

While USPs enable governments to identify innovative solutions to severe infrastructure challenges and capture the private sector’s interest in implementing commercially viable projects, they bring their own set of challenges.

These proposals typically do not fall within a government’s planned energy projects, posing the challenge of integrating the proposed solutions within the strategy for the overall energy sector. They are tailored to meet the objectives, equipment, and technologies of the proposing firm, not the citizens, and might compromise air quality. And, most significantly, in the absence of a transparent and true competitive procurement process, their negotiations increase the chance for low governance and low value for money, and heighten the risk for future public-private partnerships. This was the case when Tanzania embarked on direct negotiations to purchase power, which eventually led to arbitration.

Lessons learned from around the globe show that USPs should be channeled into a transparent and competitive process, granting a fair chance to all interested firms, not only a select few. The government should first launch an EoI or request for proposals before entering into direct negotiations, setting guidelines and allowing firms to bid against each other by showcasing their qualifications and innovative solutions with optimized technologies at cost.

The gravity of the sector might also prompt the government to pursue further temporary solutions, further aggravating the deficit.

One thing is certain: The sector needs a comprehensive, optimized strategy that increases power generation and efficiency at the least possible cost and improves the sector’s governance. Such a strategy should be clearly communicated to the Lebanese taxpayers. Implementing electricity Law 462 (2002), which sought to appoint a regulatory authority and “unbundle” EDL into private generation and distribution companies, is necessary to increase confidence, competition, and draw investments in the sector.

Lebanon’s deficit for the year 2018 is estimated at $4.5 billion, though that figure could grow much higher. In the best case scenario, cutting the current EDL deficit of $1.5 billion would be significant, but this is only a first step in addressing Lebanon’s public finance woes. The government needs to address its structural and governance issues across all state institutions—not just in the power sector—and urgency should not compromise transparency or sustainability.

December 17, 2018 0 comments

Comment Economics & Policy

Lebanon’s waste sector at risk of the same mismanagement as electricity

by Paula Yacoubian December 17, 2018

written by Paula Yacoubian

The waste crisis and the mismanagement of the sector have become a symbol of government incompetence and corruption. Millions of dollars have been squandered, and instead of having modern infrastructure, we have been left with an ongoing disaster affecting our health and draining our resources. There are 941 open dumps in Lebanon, more than 150 of which openly burn waste on a weekly basis. We are polluting our surface, groundwater, soil, and air. A Human Rights Watch report quoted an unnamed environmental journalist who said: “It’s as if you’re inhaling your death.”

Apologists for the disastrous status quo keep saying that no one is offering a viable solution, and present incinerators as the magical fix-all that will make the waste problem disappear. This “waste-to-energy” solution will allegedly solve the waste problem and the country’s other lingering crisis, electricity. For proponents, waste will be the new electricity source, whereas, in reality, it will be the new electricity scandal.

Local solutions needed

The waste problem cannot be solved with fragmented solutions or expensive and complicated technologies. Waste management is a social output and should be adapted to local conditions. Waste management solutions cannot be simply copied. What works well in Monaco will not necessarily work in Lebanon. What is needed is a comprehensive solution that takes into consideration our habits, our waste composition, our administrative and legal framework, our financial means, and our geographic and topographic nature.

We need to start working on waste minimization, enacting laws and providing incentives for reducing the use of plastics, for example, and encouraging waste reuse and recycling. We should start to enforce sorting waste at source to improve the value of recyclables and to limit the contamination of organic waste that can be treated biologically and turned into compost, which has commercial value and can improve agricultural soil. We are currently importing compost from abroad to use in our agriculture sector, even though the majority of our waste is composed of organics (more than 53 percent). Recyclables make up to 30 percent of the garbage we produce and can bring an estimated annual benefit of $65-272 million to the Lebanese market. The remaining fraction of the waste that cannot be recycled can be valorized and transformed into lower grade products, such as plastic crates and boards, or it can be placed in a landfill.

Incinerators, or the proposed “waste-to-energy” solution, cannot be considered an option for Lebanon given that most of the prerequisites for their adoption are not met. Waste incineration can be considered in countries where mature and well-operated waste management systems exist and where community planning systems are stable and able to make appropriate long-term planning decisions (for more than 15 years). This is not applicable to Lebanon, a country that has been implementing emergency plans for the past 20 years.

Another condition is that the calorific value of the waste must be high enough to sustain combustion. The high organic and water content of the waste in Lebanon makes it of low calorific value. To increase its calorific value, energy would be spent to dry the organic fraction and recyclables—especially plastics and materials with high calorific content—should be burnt. This will entail losing valuable resources and energy. The energy produced by incinerators will be minimal and not worth the pollution that mismanagement might cause.

Incinerators cannot be used without a robust legal and institutional framework that can oversee and monitor the emissions and effluents of this technology, enforce compliance with standards, and apply sanctions and penalties on polluters. Incinerators transform waste from a solid physical form to ash and air emissions. Air emissions from incinerators are highly toxic and carcinogenic. A pollution control system is needed to capture those emissions and the toxic fly ash. Proper monitoring of emissions is needed and proper disposal of fly ash in hazardous waste landfills should be secured. No labs in Lebanon are equipped to test for certain pollutants (such as dioxins and furans) emitted by incinerators, and there is no specifically-designated hazardous waste landfill at the national level. Moreover, air pollution levels in the country already exceed World Health Organization standards and are linked to increased risk of cancer and cardiovascular diseases. We do not need additional cumulative sources of pollution in the country.

Finally, incinerators are among the most expensive technologies, costing between 80 and 200 euros per ton of waste. This technology is usually adopted in communities that are able and willing to pay for the increased treatment cost, for example via management charges, tipping fees, tax-based subsidies, or high electricity feed-in tariffs. With the economic situation in Lebanon and the increasing debt, lending $1.15 billion to adopt incinerators is suicide.

Finding an environmentally friendly alternative

Since the end of the civil war, Lebanon has been suffering from an electricity crisis—despite the investment of billions of dollars and the electricity sector being highly subsidized—costing the country around 25 percent of its annual state budget. Looking forward, the waste sector will be the new electricity sector, and the country will drown further.

There is an immediate need to adopt appropriate solutions to the environmental predicaments facing Lebanon. We need to start with a comprehensive strategy that reduces health and environmental risks, recovers materials, and finds alternatives to the incinerator plan, which would cost more than a billion dollars.

We are facing a classic case of corruption: squandering public money for personal gain.

I was promised a special emergency legislative session by Speaker Nabih Berri to address the country’s environmental challenges. We are preparing tens of draft laws aimed at stopping the deterioration of the environment, which is affecting our health, tourism, and economy, and has become a national crisis. There is an urgent need to pass laws to deal with solid waste and wastewater. Enacting laws is important, but even more important is the enforcement of these laws.

The environmental degradation that we are facing is becoming irreversible. We need to act now. Everyone has a role to play, including citizens, deputies, municipalities, ministries, and judges. This is a battle that we cannot afford to lose. Our children’s future is at stake. Unless we unite and join hands, we cannot prevail over the entrenched forces of darkness.

Do not waste our future, and do not make the waste sector the new electricity crisis, dragging the treasury, and the country, into ruin.

December 17, 2018 0 comments

Economics & Policy Vision 2050

A vision for Lebanon in 2050

by Roy Badaro December 17, 2018

written by Roy Badaro

Everyone is aware that we are in a global world, but awareness of globalization’s causes and consequences is not universal. In my humble understanding, globalization shows that the notion of economic independence has become obsolete and that “consuzenship” (a combination of citizenship and consumerism) has replaced the old concept of citizenship.

Nowadays, people are driven by the pursuit of happiness to move to wherever in the world they can to fulfill their needs. This is the real cause of migration from South America to North America, and from Africa or Afghanistan to Europe, and ultimately from Syria to Lebanon—regardless of economic, political, or security motivations. People are moving from citizenship to the more attractive concept of consuzenship, where individuals search for the best state services on offer—provided they can find a way to migrate to new havens.

Onwards and upwards

The Lebanese who migrate to the developed world do so because they are unhappy with their lot. The original and primary mission of governments in all countries, especially in emerging ones, is to bring prosperity and happiness to their citizens. A few developing countries do so by benchmarking with successful countries and trying to close the gap between their standard of living and that of a similar country in the developed world.

The demise of distance and time have had consequences not only for trade, but also the individual—due to the widespread use of technology, such as the internet and smartphones, linking global citizens. This is where I consider globalization the most effective and visible.

Globalization has a tremendous impact on politics and the economy. The very existence of small countries, such as Lebanon, is at stake. How can small economies survive in a global economy where education, infrastructure, technology, markets, defense, laws, regulations—and all other government services—require both a far-sighted vision and capital that lies beyond their reach? We should acknowledge that Lebanon is only a tiny piece in the global puzzle, and thus needs to reshape itself to fit in to the regional and international map, one way or another.

The main question is how to put Lebanon on the highest possible orbit. We do this by starting with our values. In the process of nation-building, our values are the critical pillars on which a nation is founded.

Unfortunately, following the 1975-1990 civil war and the subsequent Syrian occupation, our values retrograded from the ones that we previously shared with the successful countries of the free world to the ones we currently share with failed states. In order to remedy this situation, Lebanon needs a different breed of leaders and a new mode of political governance, one where authority and responsibility coincide. In Lebanon today, authority is shared by many, and consequently no one is held responsible. This produces an unaccountable government—when one is even formed—and leads to increased waste and corruption. Corruption has become deeply embedded in our cultural landscape.

A new breed of leaders should anchor the country to core humanitarian values—values that have been shaped over time by humanity’s greatest philosophers and brightest minds. These values should be at the heart of citizenry from day one, disseminated starting from early childhood all the way through university. I am fully aware it would take time and tremendous effort to reconstruct our values system, but it is the only way to put our next generations on the right track. Do or die.

Real reform

Having said that, the economy could enjoy an extremely favorable and enabling environment, which would allow us to rethink a new inclusive economic model. A “new political economy,” for which I advocate in my book “Un Projet Une Nation,” means building a society where growth is complemented by inclusion, and where inequality decreases not from unfair compulsory policies that make capital flee, but by a fair taxation and harmonious and balanced growth. I am advocating for an intelligent economy with equal opportunities, not one of unaccountable welfare. Everyone should be responsible and play their part in the growth of this future project.

The aim of all this is to avoid Lebanon becoming a dispensable country, and instead make it one with a message and clear mission that promotes the values of freedom, tolerance, and responsibility toward humankind. Are we capable of leading the charge and becoming the example for countries in our region and elsewhere? This is the issue that any new leadership must address.

Lebanon also has a unique opportunity to be a leading country in building bridges between Christianity and Islam. Our country has the practiced experience and the people to advocate for this noble goal. Let us make it a political priority on our national agenda.

We also need to reengineer the whole political and economic system, starting by defining the mission and role of the new state. What is a state for? It is supposed to free its people from their many chains, not imprison them in outdated and unfair laws. After building a consensus for change, we will need to run national workshops on all issues that have an impact on citizens’ daily life—such as the fiscal code, the budget process, labor law, pension funds, etc.—in order to transform Lebanon into a modern country that meets the needs of its people. The world is moving faster than our parliamentarians can legislate—much faster than many minds can even imagine—and this will only accelerate.

We must reform with the goal of decreasing inequalities, raising living standards, and above all, serving humankind. Our education system should promote critical thinking from an early age and seek to build an individual who is responsible to their fellow citizens and their environment, and tolerant toward all human beings regardless of their nationality, religion, gender, ethnicity, or sexual orientation.

Our economy should seek within the near future to become less reliant on exports to Arab countries, as part of our move toward greater political and economic independence. Having a single land border for exports via Syria makes us very dependant politically, and consequently economically, on the Syrian regime. Instead, we should target value-added services in the knowledge economy, which will be exportable not just across our borders but worldwide via information superhighways.

In the next quarter of a century, we should pursue and target an endogenous growth rate above the hurdle rate of 6 percent in order to overcome the dark outlook of our current path. It is possible, provided we accept that we must reform our system entirely as though starting from scratch.

We should take an active role in the fourth industrial revolution and start building our capacity for the fifth one—we should always anticipate beyond the next big thing, not get bogged down in the past and present. Governing is about planning for the future while mitigating risks and preparing for inevitable uncertainties. Let us focus on what makes us indispensable for the region and the world. We need to think outside our obsolete box, move past our out-of-date beliefs, and look forward toward the future of the future. This is a quantum leap we must accomplish, a leap primarily in our minds: We need to create a new way of forward-thinking and a new culture for Lebanon.

This vision is necessary for the future of our country, not least for those we are already leaving behind.

I have in mind the extreme poverty in Akkar and the northern Bekaa Valley, and in many other places within Lebanon. I feel the burden of not having provided an alternative, leaving many fellow citizens forced to turn to illicit activities in order to live a decent life. We are paying the price for our collective shortsightedness and our inability to share prosperity.

I have in mind all the violence against our children and our wives. I have in mind our youth who migrate far from their families in search of jobs.

I have in mind all the workers and entrepreneurs, all the unemployed, the disabled, the old, and the young, from all regions of Lebanon, all ages, all religions, and all faiths, who suffer from indecency in their daily life.

It is time to enter into our age of enlightenment.

This is not the dream of a member of the intellectual elite of this country. It is the fight that started many years ago, and that will never stop, not so long as there is still hope to advance the values of liberty, humanism, and dignity, and to defeat the vices of violence, ignorance, and poverty.

December 17, 2018 1 comment

Economics & Policy Oil and gas

Oil and gas in the Eastern Mediterranean

by Mona Sukkarieh December 17, 2018

written by Mona Sukkarieh

This year saw the translation of international oil companies’ interest in the Eastern Mediterranean—following the discovery of Zohr, in Egypt, in 2015—into concrete projects, and the confirmation of the region’s potential, with a new and promising discovery in Cyprus. Egypt received its final liquified natural gas (LNG) shipment in September and is aspiring to become a regional gas export hub, following an impressive increase in production and the signing of agreements that could see the transport of gas from neighboring countries to feed its LNG plants for re-export.

At the start of the year, Lebanon signed its first offshore exploration and production agreements and is preparing to invite companies for a second bidding round in 2019.

Meanwhile, in Israel, the development of the Leviathan and Karish gas fields are on track. The country also launched its second offshore licensing round, counting on improved conditions this time around. This year also saw the confirmation of regional cooperation among those countries that already enjoy relatively good relationships, and reminded us that heightened political tension in this part of the world could evolve into a confrontation at any time, with a direct impact on companies’ operations.

Geopolitical risks, market conditions, and prospects for monetization will affect the attractiveness of the region’s resources. The decisive factor will, ultimately, be their competitiveness. Here is a quick overview of the major developments and milestones that marked 2018 in the region and an analysis of what to expect in 2019, 10 years after the first major discoveries in the Levant Basin.

Lebanon

The high point for Lebanon was the signing of two exploration and production agreements (EPAs) in January with a Total-led consortium (including Eni and Novatek) for blocks 4 and 9. The exploration plan was approved in May, and preparations are underway for Total’s first drilling in Block 4, expected toward the end of 2019. It will be followed by drilling in Block 9, which will be more politically sensitive, given that it will be conducted some 25 km north of the disputed maritime border with Israel.

The drive toward strengthening transparency in the sector continued in 2018 with the publishing of the EPAs in April (Lebanon is the first country in the Eastern Mediterranean to disclose signed agreements) and the adoption by Parliament in September of an oil and gas transparency law.

In June, Lebanon and Norway agreed to move onto Phase 3 of the Oil for Development Programme, which extends from 2018 until 2020. The initiative has been providing technical support to Lebanese authorities since 2006, particularly in the establishment of the legal and regulatory framework governing the sector.

Lebanon is also completing plans to import LNG for power generation. In May, the Ministry of Energy and Water launched a tender for up to three floating storage regasification units (FSRUs), after publishing the list of the 13 companies and consortia that prequalified to bid. The tender closed on November 21. Eight offers were received from the following bidders: Gas Natural Fenosa; BW, Vitol, Butec, Almabani, Rosneft; Excelerate, Shell, BB Energy; ENI, Qatar Petroleum Int. Ltd.; Golar Power Ltd., CCC sal; Total; Petronas; and the Phoenicia energy consortium (Gunvor, Exmar, EGC Egypt, Petrojet, Maridive, Primesouth). A final decision is expected by early 2019 but will have to wait until after a government is formed.

In May 2018, the government approved the LPA’s recommendation to prepare for a second licensing round. According to a tentative timeline published on the LPA’s website, the tender will be launched by the end of 2018. The absence of a government could be problematic if cabinet formation drags on indefinitely, since there is an intention to amend some of the documents governing the second licensing round, including the prequalification requirements, tender protocol, and the model EPA. If all goes according to plan, the prequalification round will take place between January and April 2019, with the results to be announced in May. Prequalified companies will have six months, between May and October 2019, to submit their bids, and EPAs are expected to be signed by the end of 2019. Delays in forming the government already threaten these deadlines.

Speaking of deadlines, the LPA’s mandate was set to expire on December 3. By law, it is possible to renew the mandate once. It was clear after the first few months of 2018 that this was where we were heading, as the selection process for a new board takes place over many months and no action was seen on this front. In the absence of a government to renew the mandate, Energy Minister Cesar Abi Khalil issued a decision extending the LPA’s term, putting an end to a subject that the LPA, the energy ministry, and the government had evaded publicly discussing throughout 2018.

Cyprus

The year started off on a high note with drilling and a discovery by Eni in Cyprus’ Block 6, and is ending with a promising drilling in Block 10 by ExxonMobil.

In February 2018, Eni announced the discovery of Calypso in Block 6. The field holds an estimated 6-8 trillion cubic feet (tcf) of natural gas and confirms the extension of a “Zohr-like” play into the Cypriot EEZ. An appraisal drilling in 2019 will give a clearer image of the reservoir’s potential. A few days after the February announcement of the discovery, the Turkish Navy prevented Eni’s drillship, the Saipem 12000, from reaching its next drilling target in Block 3. Turkey’s reaction was an unprecedented turn after years of issuing statements and harassing and monitoring drillships and surveyors. Until that point, Ankara did not go so far as to cause the interruption of drilling operations in Cyprus’ EEZ. The Saipem 12000 ultimately retreated, and Eni had to postpone the drilling in Block 3 (and a number of other drillings elsewhere in the Cypriot EEZ) to an unspecified date.

Exploratory drilling resumed in Cyprus on November 16, with two back-to-back drillings by ExxonMobil in Block 10. Turkey, which does not have direct claims to Block 10, did not intervene to interrupt Exxon’s program. But, as Ankara believes that the island’s resources are jointly owned by the Greek and Turkish Cypriots and does not recognize what it calls unilateral actions by the Greek Cypriot administration, it strongly objected to the drilling. Early results of Exxon’s drilling will start to emerge by the end of the year. A significant discovery could be a game-changer on more than one level for Cyprus—new discoveries could make the exploitation of offshore resources more viable than it has been so far, given the modest projections for the Aphrodite field. For various reasons, it has been a challenge to monetize Aphrodite. The fact that resources remained unexploited kept tensions between Greek Cypriots and Turkish Cypriots below a certain threshold. If the exploitation of offshore gas resources is made possible before a solution to the Cyprus dispute is brokered, it will strengthen the Greek Cypriots’ hand in the negotiations. This might explain Turkey’s aggressive behavior following the discovery of Calypso. Ankara’s measured response to Exxon’s drilling can be interpreted as a result of the location of the drilling (no Turkish direct claims on the block) and the profile of the company (American). However, a more aggressive approach, similar to the February 2018 incident in Block 3, is not out of the realm of possibility elsewhere in the Cypriot EEZ.

Nicosia is proceeding with its plans undeterred. On October 3, Energy Minister Yiorgos Lakkotrypis announced that Block 7 (parts of which fall within what Ankara considers its continental shelf) would be on offer for a month. Instead of a proper licensing round, the government decided to grant the license for Block 7 to companies that hold licenses in adjacent blocks, due to geological considerations related to the discovery of the Calypso gas field by Eni in nearby Block 6. Only three companies were invited to bid: Eni, Total, and ExxonMobil. In late November 2018, the energy minister announced that a joint offer was submitted by Total and Eni. A final decision on the award is expected in early 2019, and possibly even before the end of 2018. The political calendar (possible resumption of negotiations) could incite Cypriot officials to speed up the process (this could explain the swift one-month window given to companies to express interest in the block). Heading to the negotiating table with a new set of faits accomplis (new award, new discoveries) would consolidate the position of Greek Cypriots, who could then brandish revenue sharing as a carrot to entice Turkish Cypriots into a deal.

Next to Block 7, Block 8 could witness some changes. Currently, Total is the operator of Block 11 and Eni’s partner in Block 6. However, the company voiced its intention to expand activities in Cyprus, expressing interest in farming into Block 8, currently licensed to Eni. As mentioned above, Total recently submitted a joint offer with Eni for Block 7.

Further south, the government and companies are at pains to find solutions to develop Aphrodite. Cyprus and Egypt signed an intergovernmental agreement in September for the construction of a pipeline that could ultimately carry gas from the Aphrodite gas field to Egypt for liqueficaction and re-export. Aphrodite’s right holders seem to think that this option does not secure a reasonable return on investments and would like to revise the terms of the production sharing contract with Nicosia in order to secure a bigger share of revenues. Cypriot authorities have shown willingness to discuss the issue. An additional obstacle for developing Aphrodite could be the fact that a small part of the reservoir extends into the adjacent Ishai license in Israel. Cyprus and Israel have been negotiating a unitization agreement for years but have yet to reach a deal.

In the meantime, and until Cyprus can produce its own gas, authorities are planning to import LNG, launching a tender for the procurement of an FSRU in October. The deadline to present offers is on January 18, 2019, and the completion of the LNG import terminal is expected by November 2020. A second tender will follow in 2019 for the supply of LNG. Critics claim the project is costly and will increase the price Cypriot citizens pay for electricity, already among the highest in Europe. The Greek firm Energean Oil & Gas has proposed a supposedly less expensive alternative that involves transporting gas by pipeline from gas fields it operates in the northern part of Israel’s EEZ. However, the offer was not accepted as it was unsolicited and was not submitted as per the terms of the tender. An important element to take into consideration is the fact that gas from Karish and Tanin is earmarked for the domestic Israeli market and that Energean needs to apply for a special approval from Israeli authorities to export gas from these two fields.

As is now standard, 2019, like the years before it, will see a series of meetings focused on the proposed East Med pipeline. An intergovernmental agreement is expected in February 2019, but a number of factors need to change to make the project commercially viable.

Israel

The development of Leviathan is proceeding smoothly. Almost 70 percent of the project has been completed, and the first gas is expected to be delivered on schedule by the end of 2019.

The first half of 2019 will see considerable activity in the northern part of Israel’s EEZ. In March 2018, Energean announced that it had secured $1.2 billion in funding to develop Karish and Tanin, and made a final investment decision for the Karish project the same month, after signing a series of gas sale purchase agreements with industrial groups and independent power producers, by offering unexpectedly low prices. In June 2018, Energean announced that it will drill an exploratory well in its Karish license by the end of March 2019. The Greek company refers to it as “Karish North,” and this has already caused alarm in Lebanon over the potential for rising political tensions stemming from drilling near the disputed maritime border. The drilling will be followed by three development wells in Karish Main, with first gas from the field scheduled for 2021.

After years of speculation as to which route Israeli gas was going to take to reach export markets beyond the region, the Egyptian option was quicker to materialize than the rest. Noble Energy and Delek Drilling announced on February 19 the signing of two agreements with Egypt’s Dolphinus, worth about $15 billion, to supply gas from Leviathan and Tamar to Egypt, both for local consumption and re-export. Gas is expected to flow to Egypt in the first half of 2019, 10 years after the discovery of Tamar, Israel’s first major gas discovery. The deal is a major breakthrough: It marks a successful conclusion to years of multi-tracked negotiations to export Israeli gas to Egypt. From an Egyptian perspective, the deal is an important step toward turning the country into a regional gas export hub, but approval depended in part on finding a solution to the $1.7 billion in compensation that Egypt is required to pay to Israeli companies following the halt in supplies in 2012. Egyptian media started reporting in November 2018 that a deal had been reached to considerably reduce the fine and extend the payment period. Another important milestone was the acquisition, by Noble Energy and Delek, of a 39 percent stake in the East Mediterranean Gas pipeline, which will eventually be used to transport the gas to Egypt.

Another, much more modest but still noteworthy export agreement was signed with two Jordanian companies. The Tamar partners signed a deal with Jordan Bromine and Arab Potash for additional volumes. The agreement will go into effect in the first quarter of 2019 and could reach $200 million.

In early November 2018, the Israeli Ministry of Energy and Water Resources announced the opening of a second offshore licensing round. Israel is hoping to generate more interest than it was able to attract in the first bid round, which was completed last year and is banking on an apparent improvement in market conditions and better prospects for exports. Nineteen blocks in five zones are open for bidding, all are located in the southern part of Israel’s EEZ. Bids are due in June 2019 and the announcement of winners is expected in July 2019.

Egypt

Egypt’s natural gas market has been undergoing fundamental changes over the past four years, and 2018 has been no exception. In 2017, the Egyptian Parliament adopted a gas market law, and an implementation decree was approved in February 2018, establishing a gas market regulatory authority and paving the way for the private sector to import natural gas directly, an important step toward becoming a regional gas transit hub. Less than a week later, Noble Energy, Delek, and Dolphinus announced the signing of a deal to export Israeli gas to Egypt. The first natural gas import licenses were expected to be delivered by the end of 2018, but the Natural Gas Regulatory Authority has postponed the issuance of licenses because the private sector was still “unprepared.”

In September, Egypt received its final shipment of LNG, a significant milestone for the country, which will save the country around $1.5 billion a year. Cutting LNG imports was made possible when production from Eni’s Zohr reached 2 billion cubic feet per day (bcf/d). This figure is expected to reach 2.7 bcf/d in 2019. Zohr’s capacity, along with various other new fields, pushed domestic gas production in Egypt to a record 6.5 bcf/d.

Also in September, Eni started drilling in its Nour concession. The public is anticipating a large discovery, although Eni has denied the wild estimations reported in the media. More details will be revealed toward the end of the drilling work in December, or early in 2019.

A series of new awards is expected in 2019. Last May, the Egyptian Natural Gas Holding Company (EGAS) launched a bid round putting 16 concession areas on offer: 13 blocks in the Mediterranean Sea and three concessions in the onshore Nile Delta region. The deadline to place bids was originally set for October 8 but was postponed to November 29. Another tender for Red Sea exploration blocks will be launched by the end of 2018. A new model contract, offering investors friendlier terms in future agreements on undeveloped frontier areas, such as the Red Sea, is expected in the first half of 2019, and will take effect once the Red Sea tender is awarded.

Egypt is also proceeding with payments to international oil companies (IOCs), a further sign of the sector’s good health. By July 2018, arrears stood at $1.2 billion, down from $2.1 billion in February, and from a high of $6.3 billion in 2012. Cairo intends to fully repay IOCs by the end of 2019, although this is not the first time a target date was provided.

On the subsidies front, further reductions to fuel subsidies spending were envisaged by the 2018-2019 budget, down to EGP 89 billion, but Egypt could end up spending much more—as the increase in oil prices since the budget was approved indicates—depending on prices throughout the year (the current budget assumes oil prices at $67 per barrel). This could disturb plans to phase out fuel subsidies in 2019. The public’s tolerance for higher prices will affect a political decision to pursue or postpone plans to reach this target in 2019.

December 17, 2018 0 comments

Economics & Policy Overview

Lebanon faces a lot of big IFs in 2019

by Jeremy Arbid December 17, 2018

written by Jeremy Arbid

Since 2011, Lebanon’s economy has been exhibiting recessionary symptoms. Economic growth slowed from 8 percent in 2010 to 0.6 percent in 2017, as measured by the country’s public bean counter, the Central Administration of Statistics. For 2018, the International Monetary Fund (IMF) projected GDP growth at just 1 percent.

At the time of this writing, Lebanon has not yet formed a government in the seven months since parliamentary elections in May 2018, but there is room for speculation that it may be formed before the end of 2018, or hopefully in early Q1 of 2019. Cabinet formation could unblock decision making that would lead to a reassurance of confidence in the country. Confidence has not dramatically fallen on the financial and banking side of things, but expatriate confidence in particular could use strengthening. There has been a lot of energy channeled toward fear that could be eliminated, so formation of a new cabinet could calm unjustified or excessive fears triggered by uncertainties over the future.

When a new government is formed, it will need to follow through on reform promises made at CEDRE in April 2018 to attract inflows of capital in order to reboot Lebanon’s economy.

Currency concerns

The current economic model is unsustainable and has been understood to be for years now, but was allowed to keep operating, even though it was known that the currency peg was not designed or engineered for the long term. Despite this unsustainability, Freddie Baz, chief strategist and board member at Bank Audi, says Lebanon is not at risk of a devaluation because of the level of foreign currency reserves held by Banque du Liban (BDL), Lebanon’s central bank: “The last several years have seen BDL’s foreign assets as percentage of local currency money supply in ranges above 70 and 80 percent—81.9 percent today. This [percentage ratio] is where you have evidence for the risk of a collapse in the local currency. I am talking about 18 years where the central bank’s foreign assets represent 80 percent of your money supply in local currency; this is a technical buffer.”

Even with such a technical buffer protecting the lira, external factors could spell trouble for Lebanon’s economy and others in the region, the IMF noted in its November 2018 Middle East and North Africa Regional Economic Outlook. The Middle East, the report reads, faces many risks that “cloud the outlook.” These risks include the global interest rate environment that mainly reflects the rise in interest by the US Federal Reserve in a little over two years from 0 to 2 percent, and the IMF also mentions the tariff wars sparked by the US against its major trading partners, the European Union and China, as the rise of trade barriers would certainly reflect on the ability of small economies, like Lebanon’s, to compete in global markets. Another risk mentioned by the IMF as a damper to the region’s economic fortune is geopolitical strains and regional conflicts, or the possibility of economic or financial sanctions on non-state or state actors, or the forced closure of financial institutions, as Executive reported in its November 2018 report on US foreign policy in the region vis-a-vis Iran and Hezbollah.

As countermeasures to protect themselves, the IMF suggests countries in the region should use “flexible exchange rates” to “serve as buffers in the event of external pressures,” but for Lebanon the IMF recommends maintaining the peg for the foreseeable future.

Spending gone rogue

The IMF’s other protective measure from the November 2018 report is that public spending should be adjusted to be “equitable” and “more supportive of growth.” At CEDRE, Lebanon promised to reduce its deficit by 5 percentage points of GDP over five years, and the 2018 state budget featured a 0.06 percent decrease in total spending compared against the 2017 state budget.

But over the first six months of 2018, the fiscal deficit rose sharply by 234 percent in a year-on-year comparison to 2017. State expenditures totally overshot the 2018 budget spending forecast, says Jean Tawile, economic advisor to MP Samy Gemayel. He attributes this rise to the public sector wage increase legislated in late 2017 and hiring in the public sector over the course of 2018.

Tawile’s assertions were confirmed in an early December 2018 public statement issued by the Ministry of Finance that also noted an additional fiscal burden—Lebanon’s current account balance, described by the IMF as the “flows of goods, services, primary income, and secondary income between residents and nonresidents.” From 2000 to 2014, the average annual deficit of the current account stood at $5.1 billion each year. By 2015, $9.1 billion more flowed out of Lebanon than in, and that figure has risen sharply since 2015. For 2018, the IMF projects a deficit of $14.5 billion, and $15.2 billion in 2019.

Unsustainable economic model

Lebanon’s official reserves—foreign currencies, other assets denominated in foreign currencies, and gold reserve—stood at $36.4 billion, according to the IMF. The IMF projects official reserves to dwindle to $31.1 billion next year. In 2015, the figure stood at $36.7 billion and rose to $40.2 billion and $40.6 billion in 2016 and 2017, respectively. This is happening because the country’s traditional economic model relies on internal USD circulation. Lebanon’s model depends on the financial and services sectors, tourism, foreign direct investment mainly in the form of real estate, and remittances and in recent years, not enough dollars have been entering the economy to offset dollars exiting at an increasing rate. Annual tourist arrivals by total number have largely recovered from 2010, a golden year for tourism in Lebanon, but tourism spending has not. In 2010, nearly 2.2 million tourists came to Lebanon and spent roughly $8 billion. By 2016, according to the latest available figures from the World Bank, arrivals were at 1.7 million and spending was at $7.2 billion. Stakeholders tell Executive that in 2017 and 2018 those who have been coming to Lebanon have been spending less overall. Big spenders from the Gulf are not traveling to the country in the same numbers as before, and this is reflected in tourist arrivals by nationality. Instead, budget travelers are coming to Lebanon at higher rates, and this is partly reflected in the occupancy of high-end hotel rooms.

The real estate sector is also not as robust as it was in 2010 and prior. This is in part because Gulf nationals are no longer purchasing property in Lebanon as they once were and instead, according to stakeholders, have been selling off assets. Likewise, Lebanese expats working in oil-producing countries have not been purchasing property back home, amid job security concerns on account of lower oil prices (while oil prices recovered in 2017, they began falling again toward the end of 2018) and job security concerns, as Executive reported in its October 2018 real estate special report.

While the real estate sector may see positive developments in 2019 through increased investor confidence, the sector, alongside tourism and hospitality, may not return as the drivers of Lebanon’s economy that they once were.

An abbreviated history of the real estate, tourism, and commercial sectors as traditional components of the Lebanese economy shows that, at certain points in time following the establishment of the Lebanese republic, these were important drivers of the economy, but not concurrently or linearly.

Real estate as a traditional cache of wealth was always a component of the Lebanese economy, while tourism was not, except for a very narrow period in the 1960s when Lebanon, in terms of transnational infrastructure and aerial linkages, was superior to all other Arab countries. Beirut’s airport was then the gateway to Arab countries—a transit place with appeal for specific types of tourism, mostly casino gambling and other fun-related activities. This was a short-lived period ending with the outbreak of the civil war, when Beirut lost any prospect to position itself as a layover hub in competition with neighboring countries.

When Rafik Hariri first became prime minister in the early 1990s, there were three dream scenarios that Lebanon wanted to revive. The dream was that Lebanon would serve as a tourist hub for Arabs, and as a bridge between the Arab world and the West. This was fulfilled, but not to the large economic scale Hariri sought—perhaps due to the failure of the Oslo Accords. The added double dream of being a financial and commercial hub are interrelated. Lebanon experienced this to a certain extent in the 1950s and 1960s, even though high human capital was mismatched with relatively poor wealth in the country. In terms of real estate, Hariri had dreamed of building Beirut into a showcase on the Mediterranean. Beirut Central District, the emergence of Solidere as a government-controlled investment scheme, and the rollout of infrastructure was part of the dream to make Lebanon a commercial hub. The traditional business of shipping and trading in the region reflected today as the CMA-CGA global shipper—with special mention of the development of their Marseille hub and Chinese links—has not left much to be done locally. Thinking of Lebanon in 2019 and beyond as a center of trade is not feasible because it has become so multicentric.

Rebooting the economy

There is consensus at the political level in Lebanon that the economic model is not sustainable, and that Lebanon is at a point where restructuring the economy is necessary. But there is a difference in opinion on how the state should go about doing so—either by burning the house to the ground and rebuilding from scratch, or through a measured approach over several years. Both routes are politically difficult, and reforms will cause pain especially to beneficiaries of public sector employment —but if Lebanon is able to follow through on the promises made at CEDRE and receives the capital inflows pledged by donors, then a transition can be more smooth. If no compromises are made by the political elite, and the cabinet void persists, this will drive confidence further down, and perhaps precipitate a collapse of the currency or of the economy at large.

There are big ifs all around—if a government is formed sooner rather than later, if it implements a strategy for reform, and if external factors do not get in the way first. But assuming the best case scenario—that Lebanon has a new cabinet before the end of 2018 or just after—the metaphorical house that is on fire can be extinguished and rebuilding and remodeling works can begin.

But what should be the architecture and interior design of Lebanon’s economy in the future?

Lebanon has always been a net adopter of technology and worked as a lab for dissemination of tech into areas that have larger market potential. For auto parts or retail brands, the theory is if it can be done in Lebanon, it can be done in Riyadh or Cairo. So as a test market for the MENA region, Lebanon has been functioning since the second half of the 20th century at varying levels of performance. There is also a history of Lebanese entrepreneurship that has gone to other places to extract resource wealth and then acted as transmitters of that wealth—for example, the Audi’s established business with the Kuwaitis and the Frem’s transferred Western knowhow into Gulf environments. The particular strength and success formula of Lebanese companies has been to take what has been successful in Western markets and translate it to work in the Arab market contexts, re-exporting technologies and managerial skills to where they are needed.

Lebanon has cultural and technological adaptivity and, relatively speaking, a good human capital position, and these could be leveraged into a national function in the digital economy in a context where Lebanon has potential to compete with peers, but not with France, Sweden, China, or the US, in digital capacities. But Lebanon could capitalize on in digital economy relations with countries at a similar level of digital readiness.

However, reports that measure digital readiness and digital competitiveness have not yet shown how digitally ready Lebanon is, but assessing urban development and productivity contexts could create competitive advantages. If Lebanon manages to be an early adopter of digital business structures among other global communities of similar size and capacity, it could become a potent supplier and competitor of high native human capital and high native marketing potential, and the trade heritage of Lebanon could be translated into an economic force for the country.

How can Lebanon make optimal use of these qualities to create a digital turning point and compete in the future global digital economy?

Given the challenges Lebanon faces, it will be up to the next cabinet, once it is formed, to take steps to adopt an all-encompassing digital strategy—including cybersecurity measures and the rollout of e-government to digitize public service provision—that the government said it had prepared in 2018. Should implementation of that strategy begin in 2019, Lebanon will be positioning the economy for the coming decade and beyond.

December 17, 2018 0 comments

Editorial Opinion

Turning point

by Yasser Akkaoui December 17, 2018

written by Yasser Akkaoui

In its 20 years of reporting, rarely has this magazine witnessed a Lebanon that feels as vulnerable as it does today. It seems that the Lebanese citizen has totally surrendered under the weight of seven long years of geopolitical turmoil, which has depleted our self-confidence and enthusiasm along with our economic resources and infrastructure. The little excitement and hope for a better Lebanon that accompanied this year’s elections were quickly replaced with a bitter reality that confirmed the return of the same old faces. Lebanon is once again hijacked politically and economically, and is being used as a bargaining chip on negotiation tables by global powers that have no regard whatsoever for our lives, hopes, aspirations, or dignity.

Lebanon’s private sector has never been deterred or discouraged in the absence of a government, which has always been perceived as irrelevant relative to our larger-than-life resilience and ambition. Not anymore. We’ve reached a turning point that requires a government that has the ability, aptitude, and willingness to execute much-awaited measures essential for rebooting our economy. It is also vital that we elevate our current state of mind to a new and more hopeful perspective, one which defies the haunting worry that Lebanon is heading to an inevitable and self-inflicted demise.

For our 20th anniversary, Executive Magazine has put forward, in addition to our annual Facts and Forecasts, draft recommendations for a collaborative socioeconomic roadmap for the country, with the ambition of reviving our renowned resilient and optimistic ethos. We hope that this integrative approach will allow us to take ownership of the fate that we deserve.

December 17, 2018 0 comments

Brand Voice

Huawei Mate 20 Pro

by Huawei Mate 20 Pro December 4, 2018

written by Huawei Mate 20 Pro

In today’s fast-paced world, time’s value and importance are undeniable. Most people find themselves in a constant race with time, trying to make the most out of every minute of the day. Businessmen, students, employees and many others want to be as productive as possible in the hopes of better managing their day and having a well-balanced lifestyle.

This is exactly the reason why we continuously seek things that could somehow help us stay in touch with our reality and keep up with this rapidly-changing world. We can all relate to this one way or another, and this is where HUAWEI comes into play: It provides us with a state-of-the-art device, the HUAWEI Mate 20 Pro, that happens to be faster and better, supporting and facilitating our daily activities. Its unique features and ground-breaking improvements do not only offer us an exceptional lifestyle upgrade, but also grant us extra valuable time to spend on other things.

To start with, the device houses a high-density 4200mAh battery. With a battery that powerful, you can download intensive games, search the web for hours and receive long calls, without worrying about draining your phone’s battery. The Mate 20 Pro also supports 40W HUAWEI SuperCharge, which means that its battery can reach 70 percent charge in only 30 minutes. Half an hour is all it takes for the device to have a long-lasting battery. Apart from this improvement in battery life, HUAWEI offers a new upgrade: Mate 20 Pro’s battery can support your other devices whose batteries are draining: With the new wireless reverse charging technology, Wireless Reverse Charge, the device can work as a power bank for other electronic devices.

After years of struggling due to current smartphone glitches, HUAWEI Mate 20 Pro presents a device that can solve many of your daily problems, forever facilitating your life: HUAWEI adopts the 7nm process technology for its Kirin 980, which features extremely high intelligence, performance, efficiency and communications features, enabling you to enjoy powerful performance and long battery life at the same time.

Moreover, the pictures taken by HUAWEI Mate 20 Pro are clear to the point that they can be compared to those taken by a professional camera. With that unique camera, people will not waste time editing their pictures before posting them on Social Media. In fact, the device is equipped with a 40MP main camera, a 20MP ultra wide-angle camera, and an 8MP telephoto camera. Together, the trio of lenses supports a wide range of focal lengths. This wider perspective creates a sense of spaciousness and a three-dimensional effect to the images. The HUAWEI Mate 20 Pro also supports macro distance, which enables the camera to focus on objects as close as 2.5cm, exceeding even the capability of the human eye. In addition, it has a 24MP front camera, producing outstanding selfies.

Additionally, the device’s security measures are highly sophisticated: Its in-screen fingerprint sensor differentiates itself from others because it achieves better speed and success rates. It is even able to detect if a finger is hovering above the sensor. It pinpoints the location of a user’s finger on the screen and removes the on-screen prompt immediately when a user removes his or her finger.

Another interesting new feature that helps you save time is the HiVision. By leveraging the Al capabilities of the device, it allows you to identify objects such as historic landmarks or quickly query eCommerce sites for prices of an object you see on the streets. It can also estimate calories contained in food. Instead of waiting in line to get information about a certain product, that time will be spent doing something more valuable.

With a battery that never dies, a camera like no other, a top performance, highly sophisticated security measures and a new way to obtain information, the HUAWEI Mate 20 Pro provides you with unique features and significant improvements that will enrich your current lifestyle, allowing you to make the most out of every minute of the day.

December 4, 2018 0 comments

Profiles

Lebanese podcast profiles

by Dara Mouracade November 26, 2018

written by Dara Mouracade

BBS Stories

How it started: Host Leyla Nahas and partner Rami Obeid were inspired by music mixtapes distributed online by Beirut in the Mix and Ziad Naufal, as well as the work of Radio Beirut, to start sharing positive stories about the city. This formed the blog, Beirut Bright Side, which they launched three years ago. “What started as a blog quickly evolved to become a podcasting platform since music is what we know and has always been our bread and butter and it made sense to create auditory documentaries,” she says. They have released six episodes so far, featuring interviews with the likes of Peter Mouracade, CEO of the Beirut Marathon Association and Bahi Ghubril, the man behind Zawarib.

The Lebanese Politics Podcast

How it started: Noticing a need for more critical and in-depth analysis, Benjamin Redd had the idea to produce a weekly podcast on the main issues in the run-up to the May parliamentary elections. The success of the elections podcast and a growing audience encouraged the team to continue producing an episode each week that provides a critical perspective on Lebanese politics and current affairs. As of writing they had produced 26 episodes, and have recently begun inviting guests on the show to provide further analysis and commentary on major topics.

Queer Narratives Beirut

How it started: Queer Narratives was produced by UK PhD researcher Joy Stacy, and sought over its 16 episode run to explore gender and sexual diversity, including transgender identities and the social and legal limitations on gender and sexuality in Lebanon. Stacy felt podcasting was the best medium as it created an intimacy that was vital when discussing taboo topics, and gave the interviewees a level of anonymity that would allow them to feel safe sharing their stories. She hopes to find funding for a further series in the future.

A Better Beirut

How it started: As the general manager of Aleph printing house, Nicolas Dahan met many people working on positive initiatives to promote Lebanon. It bothered him that no one was taking notice of these initiatives and that news about Lebanon tended to be negative. This inspired him and two collaborators, Farrah Berrou and Samir Balouze, to create a podcast on positive stories. Prior to their launch, they interviewed several stakeholders involved in these initiatives including, Ziad Abi Chaker, Bethany Kehdy, and Habib Battah. Episodes one and two dropped on October 30 and they hope to capitalize on a large number of expats in Lebanon during the holiday season to grow their audience.

Who Run the World

How it started: Marilyn Zakhour and Rhea Chedid, both Keeward alumni, are in the process of launching a new podcast that strives to better understand female leadership through compelling stories from women across industries. The first season will focus on women in the Middle East who either own their own business or are in the top ranks of their corporation. The pair hopes to shed light on what it is like to be a woman working in the Middle East today, and what it takes to succeed. In upcoming seasons, they will focus on women in leadership roles in different fields such as the non-profit sector and politics, among others.

Heyoka/Tell(tale)

How it started: Tell(tale) and Heyoka are planning to launch three podcasts at the start of 2019, according to Camel-Toueg. They plan to release exclusive and lengthy podcast content alongside shorter 10-12 minute YouTube videos that will summarize the interviews and draw in listeners. They plan to create podcasts about Lebanon with discussions and interviews that will primarily target the diaspora, with the belief that these will trickle down into a local interest. Camel-Toueg believes that Tell(tale) and Heyoka can play a leadership role due to their talented team with a variety of radio, music, and film experience.

November 26, 2018 0 comments

Last word Opinion

Targeting the right people for our advocacy

by Badri Meouchi November 19, 2018

written by Badri Meouchi

When Lebanon signed the United Nations Convention Against Corruption (UNCAC) in 2008, our political elite unwittingly embarked on a path toward better governance and more transparency. For many reading this article, this statement will come as a surprise—particularly given the high levels of corruption in Lebanon today and the general perception that no one is tackling this problem.

But perceptions of rampant corruption in Lebanon notwithstanding, it cannot be denied that important work has been taking place behind the scenes over the past few years—work that most Lebanese are unaware of. In 2012, for example, a steering committee at the cabinet level was created, in partnership with the United Nations Development Programme, to begin the work of adapting the Lebanese legal and regulatory framework to comply with the requirements of UNCAC. In 2017, the Access to Information Law was finally approved, having originally being presented as a draft law to Parliament in 2009 by a coalition of 17 NGOs, which included the Lebanese Transparency Organization (LTA), and members of Parliament. This year has also seen numerous positive steps: In April 2018, the government announced Lebanon’s first ever National Anti-Corruption Strategy, and in September 2018, Parliament approved three laws that will further reinforce the legal and regulatory framework in the fight against corruption. These laws focus on whistleblower protection, transparency in oil and gas exploration, and e-government transactions. There are further draft laws, such as a new law on illicit wealth and one on the creation of a National Anti-Corruption Agency, that are still lingering in Parliament, awaiting approval.

And lingering is the right word to use, because while our political elite have set off on a path to reform, there is a clear perception among members of Lebanon’s civil society that this same elite is using every possible delaying tactic. Many would argue that the only reason Parliament suddenly approved three anti-corruption laws in September is because Lebanon desperately needs international support to prop up the national economy, which is at its weakest since the end of the civil war. This support will hopefully be delivered through international commitments made during CEDRE, but only if the new government enacts and implements key reforms, including reforms in the different public procurement processes under its control.

Within this context, what role should the LTA and other like-minded NGOs play? On the one hand, we need to continue advocating for further anti-corruption legislation and learn how to advocate more effectively, through improved use of collective action and other advocacy tactics. On the other hand, we also need to play an active role in enabling the actual implementation of the anti-corruption laws that have already been approved. This will mean working with citizens, the media, the private sector, and our allies in the public sector—acting as a watchdog on the implementation of these laws.

One example of the role anti-corruption activists can play is the current initiative to establish an independent audit committee, chaired by civil society, to monitor the transparency and fairness of the bidding processes managed by the High Council for Privatization and Public-Private Partnership (HCP). The HCP, created back in 2000 as the High Council of Privatization, was mandated as Lebanon’s public-private partnership (PPP) body last year, with the passage of the PPP law. This is significant, as 20 projects under CEDRE are categorized as PPPs, so their bidding processes will be managed by the HCP. These projects include improvements to the electricity sector, waste management, public transportation (such as the expansion of Beirut’s airport), and water management. Each of these projects can have a significant positive impact on the daily life—and health—of Lebanese citizens, and it is our right to be informed about how funds are allocated to and spent within these projects. In this context, the HCP should be commended for enabling this independent monitoring process—a first in Lebanese history, and hopefully an inspiration for other like-minded public entities.

So, who should we be aiming our advocacy at? Who is accountable to us as Lebanese citizens? MPs? Ministers? I would argue none of the above. Indeed, they are all chosen and nominated by just six people—the heads of the political parties that dominate politics in the country. All of our advocacy efforts should be aimed instead toward these six individuals.

November 19, 2018 0 comments