EditorialOpinion

Pursuit of excellence

by Yasser Akkaoui
written by Yasser Akkaoui

The vicious survival cycle that Lebanese corporates are stuck in comes at a price. To sustain their existence, they have to constantly bend the rules and outsmart the system, while suffering the inefficiencies and lack of vision that come from the absence of the state.

In short, corporates adhere to a short-term management style, winging most decisions in order to provide for the next day. This behavior is destructive to say the least, and its repetition develops bad habits and builds bad practices. It is only when you have a vision for your greater purpose that you begin to commit to long-term objectives. Corporates should be reminded of their purpose and develop their participative strategies in a wider national context accordingly—a challenging proposition in the absence of national policy.

The one industry that demonstrates how commitment to purpose pays on the micro and macro level is our banking industry. After the chaos of the 1980s, which left vulnerable citizens manipulated and impoverished, came the 1990s, and the renewed commitment and role of the banking industry was re-established and reinforced, putting at the disposal of the citizens reliable, trustworthy services that protected their assets with fairness, commitment to best practices, rigorous controls, and astute oversight. Adherence to such standards paid off, and the contrast that exists today between the financial industry’s space and the rest of corporate Lebanon is so clear in terms of both corporate performance and human resources welfare. Not only did the banking industry survive every crisis since 1992, but none of the serious participants stopped growing, while one bank which ventured into unethical behavior was quickly flagged and liquidated.

The integrity of our financial system’s health rests in the vision and character of Riad Salameh, the governor of the central bank. His ability to commit to the good that this industry brings to Lebanon alongside his mastery in identifying unnecessary risk without neglecting the development and growth of the industry, his consistency, his passion, and his hard work have allowed the banking industry to flourish and gain respect. All this was achieved by nurturing relationships, both nationally and internationally, and keeping things in balance for the national well-being.

Other industries that operate in less regulated environments can watch, learn, and mimic the success of our banking industry, and hopefully deliver to and protect all their stakeholders and participants in a manner we have come to expect from Lebanon’s banks.

Elevating our commitment to excellence pays, regardless of the uncertainties that plague our nation.

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CommentEconomics & Policy

Closing the infrastructure gap in Lebanon

by Talal F. Salman
written by Talal F. Salman

With the world’s population expected to grow by 2 billion—reaching almost 9.5 billion by 2040—one of the major structural changes that would need to keep pace is the development of infrastructure. The world is expected to need close to 100 trillion dollars worth of infrastructure investment by 2040, mainly in developing countries, according to estimates by the UN and the World Bank. This sum is required to meet the demands of clean water, sanitation, electricity, transport, and telecommunications, in addition to schools and hospitals. The sum is also likely to increase, given the escalating impact of climate change. Around 20 percent of the required funds will not be available if national economies, which are financially interconnected now more than ever, do not plan accordingly. The availability of funds is a blessing that a country such as Lebanon might not realize. While other developing countries might struggle to generate savings or attract investment in their local economies, the Lebanese financial system is sitting on 320 percent of GDP in deposits—one of the highest in the world. There is no doubt that the infrastructure in Lebanon has been severely neglected since the end of the civil war. The lack of proper investment in electricity, telecoms, sanitation, transport, and water is causing major costs to the economy, to the productive capacity of all sectors, to household income, and to the health of every individual.
The deposits in the Lebanese financial systems, with the proper use of available cheap international loans and guarantees, can help Lebanon close its infrastructure gap while minimizing borrowing.

Economic Stimulus
The CEDRE investment conference on April 6 was testament to the commitment of the international community in helping Lebanon to achieve the economic security it needs and to compensate for the seven years of near zero growth, due to the impact of the Syrian war. The repercussions for the Lebanese economy—which stands at $53 billion in size currently—is around $30 billion so far, a massive challenge for any country. The support that Lebanon received at CEDRE provides much-needed confidence, and can have great results if properly executed. The right investment in infrastructure is known to boost growth—in the case of Lebanon it could lead to a 3 percent increase in GDP in the current environment. However, the Lebanese economy has the potential to grow at 6 percent a year in the absence of external factors impacting our ability to grow, and within a proper policy-making framework.
The involvement of the private sector through public-private partnerships (PPP) is important to attract capital. However, the cost of infrastructure projects that are not commercially viable and thus not eligible for PPP—$11 billion out of the $17 billion worth of projects proposed—are intended to be financed through concessional loans. This means that even if the cost of debt is low, it is still debt being added to the third most indebted country in the world (Lebanon has a public debt equivalent to 151 percent of GDP). Debt service cost is around 10 percent of GDP, 50 percent of government revenues, and 36 percent of total government expenditures, all among the highest in the world. Therefore, adding debt to the government’s balance sheet does not seem to be the best approach. Let’s take a look at PPP and what is the best model for Lebanon to use the pledged investments from the CEDRE conference to its advantage:
Firstly, PPP is not privatization, which is the complete divestiture of a public asset to the private sector, and it is not a procurement contract where the government hires a private company to construct a road or a power plant for example, or to provide a service. Even though the term is globally used to encompass a wide range of relationships between the public and private sector, a proper partnership is one that defines two major factors needed for the success of infrastructure projects—especially greenfield ones, which are new projects as opposed to upgrades to existing infrastructure. Those two factors are financing and risk. The allocation of financing refers to what portion is to be invested by the private sector and what portion is to be invested by the government. The allocation of risk determines who is responsible for the design, implementation, operation, and maintenance of the project.
The usual steps in a PPP project are first to define and design the project, second to structure the financing for the cost of implementing the project, third to build the physical resources, and forth to operate and maintain these assets.
Governments tend to benefit from PPP structures by attracting capital they do not possess, by implementing a project at a lower cost, and by delegating operations and maintenance to the private sector, which generally, albeit not always, does a better job.
From the point of view of the private sector, PPP infrastructure projects are attractive because they provide a steady and strong cash yield with low volatility, are a natural hedge against inflation, and have low correlation with other financial assets.
A third important factor when it comes to PPP—in addition to financing and risk for developing countries’ projects—are guarantees provided by multilateral organizations, such as the World Bank. Guarantees to the private partner in case the government does not meet its cash payment obligations reduces the risk of investment, and hence reduces the required rate of return.
The PPP law that Lebanon enacted last year organizes this process clearly and monitors it, and the intention was to have projects financed 100 percent through private partners who would be responsible for financing, construction, operation, and maintenance of a project. The government would be responsible for collecting the fees for the services provided and transferring the agreed upon cash flows to the private partner in return for their investment and operations.

Electricity First
Naturally, some projects, such as wastewater and the construction and maintenance of roads, are not profitable for the government. Therefore, in the absence of a budget surplus and in the presence of high borrowing costs, concessional financing might seem like a good idea. It is not, however, because it means more debt for the government when there is an alternative method of financing those projects without the need for the government borrowing.
The solution is to start with PPP projects that can have a direct impact on the fiscal deficit. By that, we obviously mean electricity. The electricity deficit is responsible for 40 percent of our national debt and 3 percent of GDP in yearly deficit (around $1.5 billion, depending on fuel prices), not to mention the major costs to the economy, businesses, and households. The annual household spending on private generators is around $2.5 billion in the informal substitute market for electricity. A simple calculation shows that if the government provides electricity efficiently, a major reform by itself, it can not only eliminate the deficit caused by fuel subsidies to Electricité du Liban but also become profitable to the tune of around $1 billion, without any added cost to households. Other promising projects would be those that can increase the governmant revenues, such as expanding the airport, building a second one, and improving the capacity of ports, moves which would all be profitable for both the public and private sector.
Reversing a deficit into a significant surplus would offer room in the budget that could be spent on projects that are not profitable for the government but crucial for society and the economy, such as wastewater and roads. The maximum absorptive capacity of an economy like Lebanon with regard to infrastructure is 2 percent of GDP yearly, or in Lebanon’s case $1 billion. The absorptive capacity refers to the ability of government institutions and the size of the economy to translate infrastructure investment into sustainable growth in output. Therefore, since the investments proposed will be implemented gradually, starting with the right ones will make others possible without the need to add to the government’s debt burden.
We can use the international support received at the CEDRE conference in two ways. First, to direct the concessional financing provided toward PPP projects and not toward the balance sheet of the government. Any private partner in a PPP project will be looking to finance the project through a combination of equity and debt to maximize his returns; the debt portion will be borrowed from a commercial bank and the interest rate level will be based on the risk profile of the private partner. If the private partner is given access to concessional financing, his returns would be improved, which means the government can indirectly benefit from better terms in the PPP structure by channeling its access to concessional financing toward PPP projects. Secondly, the availability of guarantees that donors and multilateral organizations could provide to investors would reduce the risk premium investors request when they invest in developing countries with low credit ratings such as Lebanon. Additionally, the availability of funds in the Lebanese financial system means that the financing structure of PPP projects can include investment contributions from small Lebanese depositors. This means the Lebanese population can reap a portion of the future cash flows generated by the projects, which will offer a higher return than the deposit rate from their point of view, and will give an opportunity for the Lebanese financial system to diversify its use of funds. The latter would create an improved economic cycle as a portion of the profits would remain in the Lebanese economy rather than being repatriated as profits by foreign entities.
The CEDRE conference was a step in the right direction, but the real success would be to achieve the needed projects with no additional debt on the government through an innovative financial structure, proper use of funds, and proper implementation. This would result in increased return for investors, the government, the economy, and society. The only way to achieve that is to start building electrical power plants (instead of renting expensive barges) using concessional financing provided to the private sector, coupled with a portion from local deposits, and turn the budget deficit into surplus to be used for other crucial projects in a gradual manner that ensures economic, financial, and operational efficiency.

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Last wordOpinion

The patriarchy problem

by Carmen Geha
written by Carmen Geha

Lebanese voters will head to the ballot boxes in just a few days. One of the major changes to the electoral scene after thrice-delayed parliamentary elections has been the increase in the number of female candidates, up from 3 percent of overall candidates in 2009 to 14 percent this election. This time around 111 women initially registered to run, and 85 made it onto lists.

Lebanon’s numbers show progress in the bid to increase the number of female members of Parliament, but not nearly enough. We need to have a national discussion about why we are so far behind other countries in the region, and what obstacles Lebanese women must overcome to obtain their basic right of representation in Parliament. The overarching theme of these challenges is the pervasive ideation and institutional influences of sectarianism and patriarchy. These trickle down into electoral battles favoring strong men, father figures, and former heads of militias. The patriarchy is further entrenched when a man is chosen to head a ministry solely responsible for executing policies and programs to advance the rights of women. But more worryingly, women now have to appeal to this minister, and other men, to step aside or to grant them the equal opportunity to be ministers, parliamentarians, and mayors.

Because of sectarianism and patriarchal influences, the electoral system favors men time and time again. One exception is the all-female list running in Akkar, but even independent lists emanating from civil society could barely secure a 30 percent representation of women. Men make the deals, negotiate the alliances, and head the lists as spokespersons and representatives. Men already embedded in the political system who are more likely to retain their seats. This is what sectarianism and patriarchy reproduces, a system with the man as the savior and the facilitator of a woman’s access to votes and visibility.

The second part of this problem is the argument that there are no competent women willing to enter politics. Out of a total of 75 electoral lists, just 48 include women. This leaves 36 percent of lists all-male. The official line is shared across most parties: Not enough women could be convinced to run. Other parties placed emphasis on the traditional role of women in the home as a barrier to their involvement in Parliament. Women, it seems, are required to pass a test of competence and availability not placed on their male counterparts. 

The third problem is that political parties and civil society have got it all wrong. Women do not need to be put in rooms and trained to be good candidates. They do not need female branches within political parties to identify female candidates and groom them into becoming mouthpieces of their leaders. For women to be better heard and represented we need to move away from the political discourse of sectarianism and patriarchy. Recent literature shows that fighting patriarchy would go against the customs rather than codified rules of Lebanon’s political power-sharing system. It would require the end of secretive deals between men that craft legislation and regulations, form governments, make political appointments and employment decisions across state institutions, and ultimately divide the spoils amongst themselves.

Lebanon is failing to do justice for its women and needs to create bonds of political solidarity on structural inequalities that require different solutions. Lebanese women do not have the same rights as Lebanese men: they cannot pass their nationality to their children, they suffer discrimination in divorce and custody battles because of the absence of a civil status law, they earn less than men, and women remain bound electorally and administratively to the ancestral district of her father or husband. To improve the representation of women is to make the system less patriarchal and less sectarian. But that would require focused structural political reform. Until then, we shall enjoy a male minister hailed for supporting the candidacies of women and male heads of lists bragging about including one or two token women within their ranks.

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Hospitality & TourismInterview

A dynamic heart

by Nabila Rahhal
written by Nabila Rahhal

Executive sat down with Mounir Douaidy, board member and general manager of Solidere, to discuss progress in the company’s master plan for Beirut Central District (BCD), and how the planned developments could contribute to the revitalization of BCD as a tourist destination that encompasses the essential pillars of hospitality, retail, and cultural activities.

E   Today, Solidere is in Phase 2 of its master plan described as the development of the Waterfront area and the eastern marina.  When can we expect this to be completed?

The area is currently closed off for works, and excavations are underway to create the marina, which will be completed within the next two years.

Once this is done, it will be the second marina, the first marina being the western marina where Zaitunay Bay is, and there will be a marina on each side of the reclamation area [between Zaitunay Bay and Waterfront]. This is going to be another prime tourist component of the BCD, which will probably also have what the western marina has around it today in terms of restaurants, activities, maybe even hotels eventually.

E    Why did Solidere decide that a second marina was needed in BCD?

There is an under supply of mooring space. The current marina is overloaded, and we have many people who want spots, but can’t find any. The eastern marina will take relatively smaller boats and yachts (between 16 and 30 meters), while the western marina can also take larger boats and yachts.

Also, regardless of the demand, [we are committed to doing it] because it is in the master plan and part of Solidere’s obligations to execute all these main infrastructure components. We already completed the infrastructure of the whole [Waterfront] area, we did the western marina, and now there is the eastern marina.

And the fourth element that we still have to do—and which also goes under the big heading of tourism—is to landscape this [Waterfront] area. When we do that, this should also attract bigger footfall and stronger tourism.

E   What will the landscaping of the Waterfront area include? And what is the time frame for that?

It is planned, but its execution should come in sequence after we have finished all these big groundworks. Since all the other infrastructure has been completed—meaning everything that is underground [in terms of the network of utilities which includes water, electricity, drainage, and sewage] and the roads and lighting on top—we will finish the eastern marina, and the only thing left to do will be the landscaping.

The landscaping will consist of the 70,000 square meter public park [located between Zaitunay Bay and the Four Seasons Hotel] which will happen in the next three years, and there is also the plan to landscape the whole 1.3 kilometers corniche starting from Zaitunay Bay and running all the way along to the Seaside Arena.

Parts of the walkway are already open for bicycles and pedestrians, but it’s not all open for cars yet. You should imagine Waterfront with all the plots that are destined for development built, and in front of it you have the corniche road, which will also be landscaped. All this landscaping will enhance the environmental and esthetic image and quality of Waterfront and will [also] drive footfall and tourism to the area. 

E   Beyond the Waterfront area, what, from Solidere’s master plan, remains to be done in terms of landscaping in Beirut Central District? Martyrs’ Square area, for example, is currently rather drab.

Fifty percent of Solidere’s surface area is public space, and the remaining plots are all private plots which already have buildings or where new projects may be built. Thirty percent [of the public space] is designated to be all green, including the park, corniche, and all the other open spaces that exist south of the corniche such as Martyrs’ Square.

Under Martyrs’ Square, there is a public parking lot planned. … Since the land belongs to the municipality, it is principal the municipality that is normally entrusted with such projects in the city but it has to be done before  Solidere can landscape the top part.

E   What about plans for the Garden of Forgiveness (a garden representing reconciliation to be situated in the Nejmeh Square-Maarad Street intersection amidst several places of worship)?

The Garden of Forgiveness is a historical location and is a spot that we have obviously planned to do, but that we have not been able to start executing for many reasons,  namely the country’s circumstances including the different events that happened around the area especially after 2005 in terms of sit-ins and road blockages.

Nevertheless, it is something that has to be done, and the idea keeps going from one year to another until the time comes when, hopefully, the circumstances and required funding will allow its execution.

E   Retail is a major driver for tourism. How would you evaluate the performance of the Beirut Souks, and what projects are still being undertaken by Solidere there?

The department store designed by Zaha Hadid is being completed and will take around a couple of years to open and is the last component we have to do there.

The footfall has been fairly good. Obviously there are times when we have a much larger footfall and others, such as during the weekdays, when there is not as much footfall. But it also all depends on the activities within the Souks area. We have been creating activities in addition to all the activities that are proposed to us by third parties such as NGOs and event organizers.

All these activities are looked at from the point of view of how much footfall they bring and how much of a push they give to the tenants of the Souks. Supporting complimentary activities is something Solidere has been very active at, and this has yielded very positive results over the last few years.

The two main areas where events take place are the Souks and Saifi Village, and occasionally Zaitunay Bay, which Solidere does in conjunction with the Bay’s management.

E   Waterfront has also been used as a space for large-scale events such as the historic visit of Pope Benedict XVI in 2012. Do you see an ongoing potential in Waterfront for such events?

When the Pope came, we had not started exploiting the land yet; it was open and flat, and not much was happening there. But now, many projects have been created, namely a number of what we call temporary activities, which operate for around five years.

E   By temporary activities you mean the hospitality venues and similar projects? What is Solidere’s strategy behind these venues?

It all started several years ago when we felt that we had all this land that is up for sale lying idle while the infrastructure works were being completed.  So what we thought was that, while we are waiting to sell all these plots, we can put up some activities of a temporary nature.

There was Biel to start with and then came the One, then Kidzmondo and the Music Hall, and in the last few years, we have agreed with certain operators to bring in other activities such as Kahwet Beirut, 7 Sisters, or Garten, but this is about it now as space has become very limited.

What we have today is good to keep the footfall going, and it was a way to introduce the public to Waterfront. The public knows Waterfront from physical activities, such as jogging or biking, and now there are also these hospitality activities.

E   How long are the contracts on average?

About four to five years, and there is no intention to have them renewed.

E   We noticed that there are already some permanent developments being constructed in Waterfront. Could you tell us more about that?

Two developments have started and will continue, albeit at a slow pace given that the situation in the country is not very encouraging. But I think the starting point is there; we have been advised that BLOM will be starting construction very soon—within a month or two—and the moment that one building comes up, others will follow.

E   Do you think that once developments in the Waterfront area are complete, and the area becomes a mix of commercial and residential use, its contribution to tourism will diminish somehow?

Not necessarily. Look at what happened in the Minet el-Hosn area where all the restaurants are today. You have all these buildings that came up, whether residential or offices, but what do you have on their ground floors?

E   Restaurants.

Ok, so the same thing eventually may and will happen on Waterfront. You will have all this mix of buildings, but on the ground floors it is, of course, allowed by Solidere to have commercial activities including restaurants.

So it is not that if you have residential or office buildings on Waterfront, you will not have any hospitality components. On the contrary, there will be a hospitality component in each building plus the two marinas. Even facing the marina, which is under construction now, there are all these plots that we have not yet put up for sale, and which are envisioned by us as a good location for hotels eventually. We will encourage investors in the coming five to 10 years who want to buy these plots to [build] hotels if the economic situation in the country permits.

E   Are there any cultural developments planned for BCD? For example, at what stage of completion is the History of Beirut Museum, and what can you tell us about it?

It is a collaboration between Solidere, the Municipality of Beirut, the Ministry of Culture, the [Council for Development and Reconstruction] CDR, and the Kuwaiti fund, which contributed $30 million several years ago for the construction of this museum. It will not be enough to finish the museum, and so what is needed beyond that will be contributed by Solidere in conjunction with the rest of the Tell area—an archeological site adjacent to the museum which encompasses four or five different civilizations. All efforts are being made to have it done by 2020.

E   Finally, is the idea of a Beirut Opera House still viable?

The opera house is an idea that has been proposed to us many times either in Waterfront or in different spots in the city. Solidere itself was not going to do an opera house because it is not our business to do that, but we encourage and support people who would bring this idea to execute in Lebanon.

Of course, it requires institutions or individuals who are ready to bring the idea, and they would have to make agreements with an international opera house abroad (probably Paris or London). They would have to find the spot in Lebanon that is suitable, and there has to be funding. Solidere can create the framework for this funding, but it cannot put in all the money for this.

So far, the few investors who came along for this did not find a location that was 100 percent appropriate among the ones we proposed for this project. We hope that one day there will be an opera house or a big congress center in Waterfront, which will incorporate a place where you can organize operas and other types of functions, such as conferences or a big theater—and in fact, I am sure it will happen eventually.

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Hospitality & TourismReviving Downtown

A Beirut spring

by Nabila Rahhal
written by Nabila Rahhal

The telltale signs that herald spring in Lebanon are already in full swing: the longer days, the blossoming streetside flowers and trees, and the mounds of janarek (sour plums), freize (strawberries), and akidinya (loquats) at roadside fruit stalls have all made their early appearance this year. This is in addition to the most indicative—and sad—sign of all, the almost eerie emptiness of Beirut on weekends and holidays. In winter, this void is not as obvious in the city simply because few pedestrians are about anywhere and car traffic is always overbearing. But come spring, people head to their village homes.

It is arguably normal for city dwellers everywhere to decamp to the mountains or seaside for a change from their routine or a breath of fresh air during their time off work, and more so in Lebanon where distances—the dreaded traffic jams aside—are short, and thus encourage weekend escapes. But, in Beirut, the desire to flee this city seems to run so deep that there is a mounting and tangible sense of discontent among its inhabitants that intensifies with every sunny weekend until the last day of summer. Could this be because of the low quality of urban life the capital is providing its residents with? More and more Beirut dwellers are complaining about the endless traffic gridlocks, the increasing levels of pollution, the lack of well-maintained and easily accessible public green spaces, the systematic destruction of Beirut’s urban heritage and cultural fabric, the heightened cost of living, and the list goes on.

The trouble is not only with the city’s waning appeal to its natives and residents. Beirut’s touristic appeal has been declining as well, with foreign visitors heading to cleaner sea shores north or south of the capital or to more authentic and culturally interesting experiences in Lebanon’s rural areas. Ezzat Koraytem, managing partner of Its.—a media and events organizing company—and secretary general of the Beirut Cultural Festival (BCF), believes this is especially true with regards to  summer cultural festivals, adding that this was the driver behind the inception of BCF.

“In all other cities across the world, there are activities going on in the summer, but in Lebanon these activities happen in areas outside the capital. Beirut is neglected, with people only landing at the airport, and then spending most of their time out of the city. So we thought that someone should take care of Beirut, and so, we created the Beirut Cultural Festival in 2015. The goal of the organization was to make sure that the heart always beats in all of Beirut,” Koraytem explains. The first edition of BCF, originally planned for 2015, was meant to take place in Nejmeh Square but got canceled because of its closure to the public following protests in the area. Since then two editions of BCF have taken place—in the Waterfront district in 2016 and in the Beirut Hippodrome in 2017—and indeed the now annual event has contributed to placing Beirut on Lebanon’s cultural festivals map. But the BCF, while commendable, is nowhere near enough to reclaim Beirut’s position as a summer cultural destination.

Beirut is in dire need of revitalization. There needs to be a clear and shared vision that guides public and private stakeholders and civil society toward realizing concrete solutions for the main challenges facing urban life in Beirut—complete with a strategy to achieve them and a delegation of responsibility. This will not only make the quality of life of its citizens immeasurably better; it will also draw tourists back to Beirut.

Reimagining Beirut

There is no better time than this second quarter of 2018 to embark on this mission of reimagining Beirut—and not just because it happens to be spring season right at the time when Beirut is in need of its own rebirth. The CEDRE donor conference in April secured pledges for funding needed to implement Lebanon’s Capital Investment Plan (CIP). Many of the projects proposed in the CIP address issues facing Beirutis, including the lack of public transport and proper infrastructure. The CIP also includes projects under the heading of culture, tourism, and industry relating to “the restoration of unspecified archaeological sites and heritage buildings, the support of unspecified museums, and allocations of money to cinema, the arts, public libraries, and educational facilities” (see article in Executive’s April 2018 issue). It is hoped that at least some of these projects will be in Beirut.

Through a series of upcoming articles, Executive will be addressing the many dimensions of reshaping urban life in Beirut. We want to start right where the urban landscape contrasts its greatest tourism and hospitality potentials with the greatest desolation in spring and summer: the city center. Downtown Beirut, rebuilt in stages beginning in the 1990s under the mandate of The Lebanese Company for the Development and Reconstruction of Beirut Central District sal, better known as Solidere, is where the potential to revitalize hospitality and tourism in the capital is logically concentrated. With its wide spacious roads, pretty buildings, numerous glitzy hospitality venues, yacht marina, and largely landscaped roads it is easy to assume that Beirut Central District (BCD) and its historic political core, Nejmeh Square, is already a touristic hub. But, as the saying goes, not all that glitters is gold. There are several elements that need to be addressed in the area, including the lack of public green spaces and venues for cultural activities, before it can meet the needs of the modern day tourist or urban dweller.

As part of its master plan for BCD, Solidere believes that Waterfront—a landfilled district on the north side of Downtown which is still under development—and several other projects that are yet to be completed in BCD will have elements that offer a more complete tourism package to Beirut’s visitors, as well as an improved quality of life for its dwellers.

Waterfront today houses several night clubs that are more than happy with the surrounding emptiness, which allows them to pump up the volume as high as it goes with no complaints from the nonexistent neighbors—the area’s central location does not hurt business either. These concepts are certainly successful contributors to nightlife in Beirut and have proven so for Rabih Fakhreddine, chief executive officer of 7 Management which operates three out of the nine hospitality venues in the district.

He tells Executive that on average over 5,000 people flock to Waterfront venues each weekend night. The downside of the arrangement, however, is that the venues there are all on short-term non-renewable contracts as the area is designated by Solidere to be of mixed use with both commercial and residential buildings as well as second marina in the works. This overall plan means that Waterfront might not be lost to hospitality entrepreneurs, given that both types of development projects would entail opportunities for venue operators to bring new concepts to market. The time when these opportunities would present themselves, however, could be quite a long ways off if the district’s slow track record of attracting upscale developments is any indication. While Solidere banks on the long-term potential of Waterfront, company officials hope in the meanwhile, and for the next few years, that hospitality operators will turn their attention to other opportunities in the heart of Beirut (see interview with Solidere General Manager Mounir Douaidy).

Dare to dream

It is also to be hoped, in the interest of the hospitality entrepreneurs and of Solidere, that the lessons learned from relatively recent experiences in Zaitunay Bay (almost none of the original venues on the bay are still in operation today, and they have been largely replaced with more affordable establishments) and Uruguay Street will not be forgotten. Concepts developed in the area need to cater to both tourists and locals in Lebanon, not all of whom are necessarily wealthy. Also, an overarching management of the Waterfront area would do well to enforce consistent and unified regulations on hospitality operators to avoid unpleasantness such as overcrowdedness and chaotic offerings.

Solidere’s vision for BCD also includes a 70,000 square meter public garden in Downtown and a museum of Beirut’s history that will be adjacent to an archeological site. Once they are completed, both of these developments will go a long way in making BCD an attraction for tourists and locals alike.

Meanwhile, Nejmeh Square, which was reopened to the public on December 31, 2017 with a memorable New Year’s Eve countdown event, presents a potentially exciting opportunity to address what is missing in Beirut with regard to tourism. The square has had its shares of ups and downs and has emerged from its most recent down—its closure to all local visitors following protests in 2015, though it had been largely empty even prior to that due to numerous sit-ins and business closures—as an almost empty canvas ready to be utilized.

Aside from the few restaurants that remained in operation despite all odds, venues in Nejmeh Square have slowly shut down throughout the years when footfall was low or non-existent. The Municipality of Beirut’s plan is to incentivize interested past owners to reopen their shops and attract new investors into the area, but this is difficult. Investors have been hurt by past experiences in Nejmeh Square and are extremely cautious. They are waiting for other operators to take the plunge, in addition to security guarantees ensuring that the area will not be closed again. Given the current dismal economic situation in Lebanon, it may be a while before someone risks their cash on an uncertain investment.

Meanwhile, the square is being utilized as an events venue with several planned festivities taking place in the area, following the success of the New Year bash. Koraytem, who says he is the advisor of Prime Minister Saad Hariri regarding events intended to revive Nejmeh Square, is the first to admit that these events are not a long-term solution to revitalize the area: “Events bring people but then people leave. We have to find a way to convince investors to come back.”

To do so, Koraytem says Its. proposed a three-tier plan to the prime minister. “In addition to the events, you have to have a very strong communications network on social media to show people what is being done so that they become convinced that what is being done is sustainable and meaningful. Once this is done the investors will see that there are good events, things are well communicated, and there is a clear vision so they will at least consider [investing in] the area. But investors also need strong incentives to be convinced, including the sense that what they are investing will be protected,” he says, adding that his plan proposed a unified management structure for future venues in the style of hospitality clusters.

It is, however, not so easy to implement such plans in Nejmeh Square since there are multiple owners and stakeholders—from both the public and private sector—involved. The future of the square beyond the frequent events and festivities, such as the upcoming jazz festival, therefore remains uncertain. But if one were to dream a little dream, and reimagine parts of Beirut, would Nejmeh Square not make a wonderful designers and artisanal craftsmen hub? Or a setting for different cultural spaces, such as a public library and art galleries?

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Entrepreneurship

Why successful entrepreneurs give back

by Endeavor
written by Endeavor

As the technological entrepreneurial ecosystem in Lebanon continues to grow with the support of the public and private institutions, non-governmental organizations (NGOs) and the central bank of Lebanon’s Circular 331, a significant driving force comes from the entrepreneurs themselves who, beyond scaling their own businesses, commit to supporting the next generation of entrepreneurs.

When founders of companies begin to invest in other businesses, an ecosystem is born. A crucial support system in entrepreneurial ecosystems often overlooked is the network of entrepreneurs supporting each other through mentorship, investment and inspiration. A firm believer and catalyzer of this system is Endeavor, an international non-for-profit organization. Endeavor has been building a culture that encourages successful entrepreneurs to reinvest in their local networks in order to multiply the impact of entrepreneurs and foster a spirit of contribution to the local economy. Endeavor is committed to supporting high-impact entrepreneurs who can scale up, are innovative and showcase the drive to mentor and invest in earlier-stage startups and the future generation of entrepreneurs. There is a firm belief that successful founders can channel their knowledge across the entrepreneurial ecosystem to ultimately grow economies.

“There is a sense of purpose that is shared by successful entrepreneurs revolving around giving back, supporting and paying it forward to the communities in which they live and operate,” explains Christina Chehade, Managing Director of Endeavor Lebanon. “In Lebanon, we have been identifying high-impact entrepreneurs and equipping them with skills to scale up, stimulate and give-back to the entrepreneurial ecosystem, having a direct impact on economic prosperity” she adds.

This tangible impact of giving back and knowledge sharing is demonstrated on the Multiplier Map, a result of a yearlong study conducted in 2017 by Endeavor Lebanon, in collaboration with Endeavor Insight and the World Bank. The Multiplier Map, being the first of its kind, seeks to gauge the contribution and impact of local tech founders and their companies. The study sought to map the tech ecosystem literally; with each time a founder is cited as an influencer their circle grows—whether through inspiration, employment ties, mentoring or investing.

Data from 85 Lebanese tech entrepreneurs was gathered (out of 120 surveyed), and their companies landed on the Multiplier Map showing connections with other companies. Within the ecosystem, connections and links were drawn based on who inspired them to become entrepreneurs, where they were employed before becoming entrepreneurs, who invested in their companies and who mentored them as they built their businesses. As responses were analyzed, patterns indicated that when founders of companies support each other, a remarkable impact on the ecosystem flourishes.

An example is the growing circle of influence of Diwanee founder and Endeavor entrepreneur Hervé Cuviliez. After establishing and scaling up Diwanee, Cuviliez co-founded Leap Ventures, a tech-focused entrepreneur-led venture capital firm, which streamlined his give-back to the entrepreneurial ecosystem.

“What lies at the core of the entrepreneurship spirit is the valuable support that passes from entrepreneur to entrepreneur in the shape of investment and mentorship,” says Cuviliez. “Who better to inspire an entrepreneur than a peer with common challenges and advice for best practices to scale up and overcome shared challenges,” he adds.

Endeavor Lebanon found that when successful entrepreneurs give back to the ecosystem, their impact multiplies. Ninety-percent of Endeavor Lebanon Entrepreneurs are active promoters of high-impact entrepreneurship. They go on to serve as angel investors or venture capitalists with $33 million invested and countless hours of mentorship donated since 2011. Additionally, Endeavor Insight research shows that Endeavor entrepreneurs are four times more likely to inspire others, eight times more likely to serve as a mentor and four times more likely to invest.

Chehade concludes: “If we help bridge the gap between entrepreneurs and allow them to exchange best practices, the entire economy will reap the benefits—where more jobs will be created, stimulating the economy and supporting dynamic minds to achieve more.”  

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Economics & PolicyOil and gas

Don’t get caught up in the hype

by Mona Sukkarieh
written by Mona Sukkarieh

It is tempting for resource-poor countries to overestimate the promise of newly discovered hydrocarbon resources, particularly in times of need. Cyprus’ experience after the discovery of the Aphrodite gas field in late 2011 is revealing. Back then, during a time of economic crisis, many placed unrealistic expectations on this potential offshore wealth, hoping  it would save the country from financial collapse. The Cypriots also exaggerated the geopolitical stakes involved, which led them to the wrong conclusions. The Cypriot experience illustrates a series of missteps that we are all too familiar with here in Lebanon, and offers precious lessons as the country embarks on oil and gas exploration.

In 2013, Cyprus’ finances were in disarray. In March, Michalis Sarris, the Cypriot finance minister, flew to Moscow in a last-ditch attempt to seal a deal that would secure Russia a stake in Cyprus’ offshore gas resources in return for financial support to spare the country the need to seek a bailout—the dreaded word that evokes the painful Greek experience and comes with harsh conditions attached.

Hopes were high. Just over a year earlier, the country detected significant gas resources offshore, with expectations of more to come. This new resource wealth, it was thought, would turn Cyprus into a gas exporter and provide Europe with a much-needed source of energy that would ease its reliance on Russian exports. A boon for Europe. And certainly, a boon for Russia, if it were to secure a share in these resources to offset Europe’s move away from Russian gas. The geopolitical stakes were high, and all the big players were competing to get a share.

So the prevailing wisdom claimed at the time. But Russia could not be tempted. “Their proposals were to set up a state company with the transfer of assets of gas fields and to offer Russian investors the chance to join and purchase bonds that will be changed over into shares later. Our investors looked into that and did not show interest,” Anton Siluanov, the Russian finance minister, was quoted as saying at the time.

The delegation flew home empty-handed. Days later, a 10 billion euro international bailout was announced, imposing capital controls and the restructuring of two local banks, with substantial losses to bondholders and depositors.

Sober judgements

If the scenario makes you feel uncomfortable as you look at Lebanon’s finances, it should. That was Cyprus in March 2013. The outlook for Lebanon today is equally grim.

Misplaced expectations and a distorted reading of the situation are sure to skew conclusions. Cyprus was tempted to misinterpret the facts. Officials hoped, until the last minute, that Russia would provide help because it was supposedly in their interest to spare Cyprus a bailout program that would also threaten Russian citizens’ bank accounts in Cyprus—Russian nationals were estimated to hold around 30 percent of the 68 billion euros deposited in Cypriot banks at the time.

Cyprus failed to pick up on Russian reservations. A source at the Russian finance ministry, speaking to the RIA Novosty news agency in March 2013, said that the Cypriot delegation’s energy proposals in Moscow failed to generate interest from Russian companies. “They invited us to take part in a tender for fields in which the seismic survey work has not been completed,” he said.

It is common for resource-poor countries to get caught up in the hype following the discovery or anticipated discovery of hydrocarbon resources. But a good tip is to assume that international interlocutors, whether big producers or financial institutions, have the necessary experience to put things in perspective where your enthusiasm might be affecting your judgement.

Lebanese authorities have so far struggled to manage expectations. The trend started in 2013, just before the launch of the first oil and gas offshore licensing round, with a massive billboard campaign by the Ministry of Energy and Water telling citizens that Lebanon now has an oil wealth that can be used to develop transportation networks, support the armed forces, and finance the healthcare and education sectors. It continued with officials giving unrealistic estimates of the size of hydrocarbon resources, with one minister even claiming in front of Lebanese University students that “we have more gas than Qatar.” You would expect financial institutions to be more pragmatic, yet Lebanese banks have, one after the other, released oil and gas reports filled with inaccurate data that grossly overestimates the value of an oil and gas wealth that has not yet been discovered. The trend continued with the awarding of exploration and production agreements to a consortium made up of France’s Total, Italy’s Eni, and Russia’s Novatek. It was an occasion to launch a new slogan: “Lebanon is a petroleum country,” repeated by almost everybody, from the prime minister, the cabinet, and MPs, to stories splashed across Lebanese media. Even landowners are now advertising their assets by pointing to the promises of oil and gas, promoting certain lands expected to “overlook future petroleum activity.” It is as if the entire country has joined in a collective frenzy.

No quick fixes

With a public debt of around $80 billion, a total cash deficit of $3.7 billion in 2017, a stagnant economy, and rising youth unemployment and poverty rates, it is no surprise that Lebanese citizens and the political class are looking for a silver bullet. With few real economic prospects on the horizon, authorities are banking on two opportunities to retain confidence and keep hope alive: offshore oil and gas exploration and postwar reconstruction in Syria. But these are both entirely out of the government’s control. When the Syrian war will end is anybody’s guess. The time it will take until Lebanon’s first commercial discovery is similarly indeterminable.   If our stars happen to align, these are, at best, medium-term prospects.

In addition, the presence of over a million Syrian refugees is seen by the political class as a guarantee that outside actors will not permit the country’s collapse. After all, it would not be in their interest to transform the millions of Lebanese and non-Lebanese residing in Lebanon into potential refugees banging on Europe’s doors. Europe cannot afford that, the reasoning goes, echoing the belief in 2013 that Russia would save Cyprus to preserve its own interests in the country. This is exactly how Lebanon  interprets the international mobilization that resulted in the organization of three conferences this year: Rome II to support the armed forces, CEDRE to support the economy, and Brussels II to help Lebanon manage the impact of the Syrian refugee crisis on the country. On these occasions, Lebanese discourse directed at our international partners has been much more measured. Concerning oil and gas, the government’s Vision for Stabilization, Growth, and Employment, and its Capital Investment Plan, prepared ahead of the CEDRE conference, stayed clear from brandishing the kind of opportunities that cannot materialize in a reasonable period of time.

It is not unusual to resort to a double discourse, one addressing international partners, and another for local consumption. But we are not doing citizens any favors by inflating their expectations. Nor are we doing our country any good by presenting potential offshore resources as a panacea for Lebanon’s economic woes or ruling out a possible collapse simply because it would supposedly not be in the interest of outside actors. Be realistic when assessing your strong points. Do not invoke shaky arguments to rule out risks, prepare for them. And above anything else, keep expectations in line with reality.

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Economics & PolicyElectoral law

The illusion of change

by Zeina Ammar
written by Zeina Ammar

Lebanon is set to elect 128 Members of Parliament (MPs) on May 6, based on a long-awaited proportional system. Proportionality, in theory, ensures better representation of the population by allocating for each list a number of seats that is proportional to the number of votes it received. This is a clear step up from the majoritarian rule whereby all seats within an electoral district are allocated to the list with a simple majority of votes, which can leave more than half of voters unrepresented. However, the picture is not as straightforward in Lebanon, where the representativeness is called into question by several factors inherent to the law itself.

An elimination threshold

Elimination thresholds are not uncommon in elections around the world. Unlike here, however, they are usually set at a low and fixed percentage. The Lebanese law introduces a district-specific threshold (the total number of valid votes in a district divided by the number of seats in the same district) that determines whether lists qualify in the electoral count. Any list with a number of votes lower than the threshold is eliminated from the race and the votes it received are discarded. The allocation of seats then happens based on a second calculation similar to the first threshold but with a new total number of votes after subtracting the votes of the eliminated list(s). Dividing by a smaller total raises the overall proportion of votes for the lists that were not eliminated. This two-step calculation is not a technical necessity. It is designed to raise the required number of votes necessary to secure one seat on the one hand, and inflate the proportion allocated to the qualifying lists on the other.

Electoral districts, large and small

One of the hailed changes brought about by the new law is the enlarging of the electoral districts by reducing their total number from 26 to 15. Generally speaking, larger districts equal fairer representation and fewer disenfranchised voters and this indeed is a step forward. Yet the new law offers a peculiarity in this regard: some of the 15 large districts are divided into two, three, or four smaller districts and voters can only cast a preferential vote for a candidate running in their sub-district. This greatly limits voter choice and their ability to influence the ranking of candidates within their chosen list.

Sectarian variable

True to the terms of the Taif Accord, the new electoral law allocates a set number of seats per religious sect. This is meant to ensure fair representation of all 18 religious communities in the country. However, the number of seats allocated per sect does not correspond to the current demography. Setting aside this flawed premise of fair sectarian representation, the sectarian variable greatly reduces representativeness of voters’ will. It effectively means that the candidates who make it to Parliament are not the candidates who received the most votes within a given district but the candidates who received the most votes within their sect, within their district.

A unique take on preferential votes

While preferential votes are usually used to determine the order of candidates within a list, this law uses them to determine the order of the candidates across all the winning lists. In order to determine which candidates will fill the seats secured by each list, the candidates of all the winning lists are ranked in one combined list according to their overall percentage of preferential votes by sub-district. This gives priority to major parties in filling the allocated seats and to preferential vote-getters in districts or sub-districts with lower overall vote totals. The fairer alternative would be to rank candidates based on preferential votes within each list, order the lists from right to left based on popularity, and proceed in filling the seats by going through the lists horizontally, taking one candidate per list every time.

Coupled with the sectarian variable, this translates into major parties securing the seats of the major sects of each district, leaving only minority seats to be potentially taken up by minor lists. This arrangement ensures that there is no threat to the major zu’ama’s claim to parliamentary seats in their home district.

While the new law allows for a greater possibility that minor coalitions will gain representation, the shift in that direction is marginal. All in all, it would take years of political organizing for any new players to effectively work around it and be represented.

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Economics & PolicyFiscal policy

Mapping the money

by Jeremy Arbid
written by Jeremy Arbid

At the end of March, Lebanon passed the 2018 state budget, the second budget passed in a six-month period after almost 12 years wihout any budget at all.

The 2018 state budget features a 0.06 percent decrease in total spending compared against the 2017 state budget, with current expenditures declining 4 percent and capital expenditures reduced by 12.6 percent.

For fiscal year 2018, the state’s total spending allocations declined about $9 million from 2017’s budget to around $15.8 billion (LL23.9 trillion).

In 2018 almost 46 percent of public spending—$7.3 billion (LL11 trillion)—will go toward common expenses, such as paying for interest on public debt, salaries and pension payments, and to subsidize the failing electricity utility Electricité du Liban (although the government claims this subsidy was not written into the 2018 budget). The budget’s common expenses declined about 4 percent when compared to 2017 allocations.

The Ministry of National Defense, responsible for the finances of the Lebanese Armed Forces, will receive about $2.1 billion (LL3.2 trillion) in allocations, a near 14 percent increase over its 2017 allocation. The Ministry of Education and Higher Education, overseeing the budgets of Lebanon’s public schools and public university system, will be allocated almost $1.4 billion (LL2.1 trillion), an increase of 22 percent over 2017. This year, the Ministry of Interior and Municipalities, responsible for domestic security forces, Lebanon’s prison system, and for organizing parliamentary elections, will receive $1.1 billion (LL1.6 trillion), an allocation increase of 10 percent. Allocations to the Presidency of the Council of Ministers—responsible for such agencies as the Court of Accounts, the Council for Reconstruction and Development, the Central Administration of Statistics, funds such as the council of the south and the higher relief council, as well as the recently reactivated Economic and Social Council—declined by just over 1 percent to about $1 billion (LL1.5 trillion). The next largest spending priority was health, with the Ministry of Public Health at $483 million (LL729 billion), an allocation increase of 3 percent. The Ministry of Finance will be allocated $482 million (LL727 billion), a 15 percent increase over its 2017 allocation.

[media-credit name=”Ahmad Barclay & Jeremy Arbid” align=”alignright” width=”590″][/media-credit]

[media-credit name=”Ahmad Barclay & Jeremy Arbid” align=”alignright” width=”590″][/media-credit]

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Economics & PolicyFiscal policy

Budgeting for the future

by Jeremy Arbid
written by Jeremy Arbid

Lebanon passed its second state budget in less than six months at the end of March, after being without one for almost 12 years. The 2018 state budget was hastily pushed through cabinet and Parliament ahead of early April’s CEDRE infrastructure investment conference in Paris, and it mandated spending cuts meant to please international donors. The government’s concluding statement at CEDRE promised to reduce Lebanon’s deficit by 5 percentage points of GDP over five years. The cuts to spending may be an indication that local politicians want to do something about the deficit, but not much can actually be done to lower state spending without solving some of Lebanon’s more pressing structural fiscal problems, or by increasing revenues to the state treasury.

At the time of writing, Article 49 of the 2018 budget law was suspended by the Constitutional Council, following an appeal of several articles of the law by the Kataeb Party, the council is expected to appoint a rapporteur to produce a report on the appeal after which the council will issue its final decision. Before the challenge, Executive had received the budget’s high-level spending allocations from the Ministry of Finance, which outlines an overall reduction of about $9 million to $15.85 billion (LL23.89 trillion), a reduction of 0.06 percent from the previous fiscal year. In 2017, total allocations reached $15.86 billion (LL23.91 trillion).

Budget reductions included a 4 percent cut in current spending allocations from $15 billion (LL22.65 trillion) to $14.4 billion (LL21.72 trillion), while capital expenditure allocations were reduced by 12.6 percent from $1.6 billion (LL2.48 trillion) to $1.4 billion (LL2.17 trillion). Increases to the budgets of the Ministry of National Defense (14 percent), Ministry of Education and Higher Education (22 percent), and the Ministry of Interior and Municipalities (10 percent) offset much of the savings.

The numbers that Executive received from the Ministry of Finance, however, are too high-level to discern where exactly the cuts occur (see budget expenditure infographic). According to Mounir Rached, public financial management advisor at the Ministry of Finance, the reductions, in general, include material spending cuts across state institutions, such as stationary and utility bills, and a reduction of allocations to capital expenditures, such as roadwork maintenance around the country. Overall cuts to current spending are probably not significant, Rached says.

Ironically, capital expenditures in the 2018 budget were reduced. At the beginning of April, Lebanese officials had pitched an infrastructure investment plan to donors and multilaterals (see post-CEDRE story). The plan would raise debt to implement the projects, and pledges totaled around $11 billion, mostly in the form of concessional financing. Rached indicates the reduction of capital investment spending in the 2018 budget was cosmetic as most years allocations are not usually fully disbursed. From 2010 through 2016 total capital investment spending averaged just less than $600 million annually, according to the Ministry of Finance’s Public Finance Monitor (PFM) issued at the end of 2016.

Can these reductions impact the deficit? About 46 percent of 2018 allocations—$7.3 billion (LL11 trillion)—will go toward common expenses, such as paying interest on public debt, and salaries and pension payments.The budget’s common expenses declined roughly 4 percent when compared to 2017 allocations, while the government claims that subsidies to the failing public utility Electricité du Liban (EDL) were not written into the 2018 budget.

In 2016, the last full year figures were published in the PMF, public spending reached nearly $14.9 billion (LL22.4 trillion) in spending. According to fiscal sheets also published by the Ministry of Finance last year Lebanon had a primary surplus of nearly $1.5 billion (LL2.2 trillion), however due to debt obligations the bottom line was a total cash deficit of $3.7 billion (LL5.6 trillion).

Target the waste

The efficiency of public spending and revenue collection is not well documented. No audit of public finances has been conducted since 2003. Because no audit was conducted before the passage of both the 2017 and 2018 state budgets, public finance rules and articles of the constitution may have been violated. A clause in the 2017 budget law provided a sort of workaround, postponing an audit for a period of up to 12 months. Because the budget law was not available at end of April, it is unclear whether this 12-month period was extended or whether an audit will be conducted before the end of this year. It is also unclear what time period such an audit might cover, for example dating back until the last audit or further, or only covering last year’s spending.

There are areas where wasteful public spending can be targeted for reduction. Rached advises a deficit reduction and a balanced budget be implemented as soon as possible, which he projects can be completed in less than five years. How? First, by limiting subsidies to EDL. Depending on fuel oil prices, the treasury subsidizes EDL to the tune of around $1.4 billion each year, or 2.5 percent of Lebanon’s GDP. This drain on the state treasury can be lowered significantly by filling much of the gap in unsupplied electricity. The government’s plan in the near term is to fill that gap by renting electricity barges, but the tender has been on hold for nearly a year. Once the electricity gap has been closed, EDL could raise the electricity subscription rates at which it charges its customers. The International Monetary Fund also recommends a return to gasoline excise tax levels of pre-2012, which would mean higher prices at the pump for motorists. Between electricity and gasoline these would be two major changes.

Jean Tawile, economic advisor to MP Samy Gemayel, says the path to lowering the deficit is to increase revenues by curbing tax and customs evasion. He points to a 2017 Bank Audi study that calculated tax evasion and other types of fraud at $4.2 billion annually, and figures customs revenue evasion at between $800 million to $1 billion per year. Added together, he says the state is missing out on revenues of about $5 billion every year. Tawile also says that  capturing these lost revenues would improve the business environment and make markets more competitive. But he argues that amnesty proposals for evaders would reward bad behavior at the expense of those that comply, adding that an amnesty would not be constitutional, and that it has already been tried twice since the end of the civil war, in 1999 and 2001.

Rached says if the state can achieve a deficit reduction of one percentage point of GDP per year, while implementing the Capital Investment Plan (CIP) presented at CEDRE, the deficit would remain high at 9 percent of GDP. A larger deficit, he says, implies Lebanon’s sovereign credit rating may go down, which would imply a hike to interest rates. A high deficit coupled with high debt and high interest rates indicates low growth rates for the economy because of the size of interest payments on state debt and the high cost of credit to private businesses and consumers.

While the numbers are not yet publicly available, the International Monetary Fund projects Lebanon’s public debt to reach 180 percent of GDP by 2023 if the CIP is implemented and no fiscal adjustments are made.

All in all the 2018 budget did succeed in slightly lowering total allocations but the Lebanese state has a poor record of sticking to its spending promises. Between 2005 and 2017 Parliament did not authorize the government to spend or collect money in the form of a state budget. Though it could continue spending at 2005 budget levels, due to inflation and changing needs that amount quickly became chump change. To keep the government open, the state treasury advanced more than $22 billion (LL33.4 trillion) over 472 treasury advance decrees examined by Executive from that 12 year period.

It seems obvious then that Lebanon will need to radically change how it manages public money or else risk CEDRE becoming known as the fourth failed Paris-orchestrated rescue plan.

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