Home Economics & PolicyComment Lost cause or redeemable opportunity?

Lost cause or redeemable opportunity?

by Carlos Naffah

Lebanon has been profoundly impacted by the influx of Syrian refugees since the outbreak of the Syrian civil war in 2011. With about 2 million Syrian refugees according to government estimates, Lebanon is home to one of the largest refugee populations globally. This massive influx has strained Lebanon’s already fragile economy and infrastructure, creating significant challenges in integrating these refugees into the country’s economic fabric. However, it’s crucial to recognize that Syrian refugees also present potential economic opportunities, particularly through their labor, which, if harnessed effectively, could contribute significantly to the Lebanese economy.

The sudden and substantial increase in population, mostly since 2013, has placed an enormous strain on Lebanon’s public services and infrastructure with the healthcare and education systems bearing the brunt of this pressure. The surge in students between the ages of 6 and 15 has, from 2014 until now, led to overcrowded classrooms, schools operating on double shifts, a decrease in the quality of education, and a strain on the student-teacher ratio. Similarly, the healthcare system has been overwhelmed, resulting in longer waiting times, a decline in the quality of care, and a strain on medical resources. The World Bank estimates that between 2012 and 2014, Lebanon incurred between $308 million and $340 million in costs for healthcare, education and social safety nets, and $589 million for infrastructure, underscoring the urgent need for support and investment. The increased pressure on public services has also exacerbated infrastructure challenges, such as inadequate power and water supplies and waste management systems, further deteriorating living conditions for refugees and host communities.

Expansion of the informal economy

The informal economy refers to economic activities that are not regulated by the government and do not contribute to the official GDP. Many Syrian refugees lack legal work permits, especially because the Ministry of Labor only allows Syrian nationals to work in three sectors that are unappealing for most locals: agriculture, construction, and cleaning. This pushes them to work in the informal economy, which is characterized by low wages, poor working conditions, and no social protection. The informal sector, at estimates of 30 to 40 percent of all economic activity and already an obstacle to sustainable economic growth, has by some unconfirmed estimates doubled and become more crowded to the disadvantage of all who compete for jobs in this segment. 

Duly registered enterprises, who have to contend with increasing tax burdens and other competitive disadvantages, say that growth of the informal economy hinders the performance of formal businesses by creating unfair competition. This can lead to a decline in formal business activity and a loss of tax revenue. The lack of oversight in the informal sector also makes it difficult to protect workers’ rights, leading to exploitation and abuse.

The integration of Syrian refugees in the informal economy has increased social tensions and economic disparities. Lebanese citizens, especially those living in poorer communities, often view refugees as competitors for limited resources and employment opportunities. This perception has fueled social tensions and resentment towards refugees, complicating efforts to integrate them economically and socially, especially since around 1.5 million refugees receive humanitarian assistance from international agencies. Although an almost equal number of needy Lebanese also benefit from various forms of donor support, displaced Syrian recipients who simultaneously work in the informal economy are seen as having a competitive edge over poor Lebanese. 

The social explosivity of the situation has been underlined by a recent World Bank survey, which found “a significant increase in monetary poverty from 12 percent in 2012 to 44 percent in 2022 across surveyed areas”, namely five Lebanese governorates. The fact that one third of Lebanese are living below a revised poverty line and have frequently been forced by the economic crisis to take on lower paying, low-skilled work, exacerbates the competition for the same informal jobs with Syrian workers whose families live up to 90 percent under the 2022 poverty line. 

This has resulted in incidents of discrimination and hatred against refugees, especially in the poorest areas, creating an atmosphere of hostility that hinders the ability of refugees to integrate economically and socially. Efforts to address these social tensions have been inadequate due to a lack of human and financial resources, and these initiatives have often been limited to pilot programs with limited experimental impact.

The Lebanese economic and labor market situation before the Syrian war

Before the Syrian conflict, Lebanon’s economy was characterized by significant fluctuations in Gross Domestic Product (GDP), as economic growth was overly concentrated in areas such as service banking, tourism, and real estate. Lebanon’s GDP, which according to Banque du Liban, Lebanon’s central bank, reverted from an average annual rate of 8 percent between 2008 and 2010 to an average of 2 percent between 2010 and 12, underwent significant fluctuations in the first two decades of the century but was supported by a relatively stable political environment and strong monetary inflows from the Lebanese diaspora and Gulf countries. Downside risks were extensive, however, including stubbornly high public-debt-to-GDP ratios and massive fiscal deficits as well as lack of infrastructure investments, political cronyism, and corruption that hindered sustainable economic development.

Impact of the Syrian War on Lebanon’s Economy

The Syrian war profoundly impacted the Lebanese economy from the early 2010s, leading to a significant contraction in economic activity and increasing fiscal pressures.   The economic challenges that were reflected in the aforementioned sharp drop in GDP growth for 2011-12, were in the next few years exacerbated by the influx of refugees that peaked between 2013 and 2015. 

The increased demand for public services and infrastructure and the loss of revenue due to disrupted trade and tourism strained government finances. The fiscal deficit widened, and the public debt-to-GDP ratio rose to more than 150 percent. The economic slowdown has also led to higher unemployment and poverty rates, exacerbating socio-economic challenges. For instance, a study by the World Bank found that the Syrian refugee crisis has cost Lebanon an estimated $18 billion in lost GDP, demonstrating the scale of the economic impact.

The expansion of the informal economy has posed significant challenges for the Lebanese government. It has hindered efforts to regulate the labor market, enforce labor standards, and collect taxes. The prevalence of informal employment has also reduced social security contributions, limiting the resources available for public services and social protection. Addressing these challenges requires comprehensive policy reforms to integrate refugees into the formal labor market and support decent working conditions.

Syrian labor’s potential for the Lebanese economy

Despite the significant challenges, the influx of Syrian refugees also represents potential economic benefits. A study by the Lebanese Center for Policy Studies highlighted that refugees have increased their available skill set and significantly boosted domestic consumption by injecting humanitarian aid into the economy. This aid, worth more than $1 billion annually, has an estimated multiplier effect of $1.6 for every dollar spent, stimulating local markets and benefiting Lebanese businesses, especially in the food and housing sectors.

Many Lebanese investors have benefited from the abundant Syrian labor force willing to work for low wages, reducing costs, increasing profit margins, and enhancing market competitiveness. This has also contributed to the establishment of small and medium-sized factories, especially in the food industry. Refugees also contribute directly to the economy as consumers, as increased demand for goods and services positively impacts production and sales.

Humanitarian aid has played a crucial role in mitigating the economic impact of the refugee crisis, stimulating local markets and creating jobs. International donors have provided significant financial support to Lebanon from the beginning of the crisis to today, helping to meet immediate needs and support public services. For example, the European Union has provided nearly $3 billion to Lebanon from 2011 to today. Aid programs have supported infrastructure projects, such as the rehabilitation of schools, healthcare facilities, water networks, municipal empowerment, and support for small and medium-sized enterprises, creating jobs for Lebanese citizens and refugees alike.

The presence of a large number of Syrian refugees has offered an opportunity to leverage Syrian labor for Lebanon’s economic growth and to fill gaps in the labor market. For example, Syrian refugees with expertise in construction, agriculture, and various trades can contribute to these sectors, which are vital to the Lebanese economy.

Successive Lebanese governments from 2011 to today, in minimal coordination with international organizations and NGOs, have implemented programs to facilitate the integration of Syrian refugees into the formal labor market within the permitted professions with the knowledge of the relevant Lebanese ministries. The Lebanese Ministry of Education and Higher Education has facilitated the implementation of vocational training and education programs for Syrians, even if they do not have identification papers.

Despite Lebanese officials ignoring Syrian entrepreneurs’ potential, many have shown their entrepreneurial spirit and resilience by setting up businesses in Lebanon. These range from small retail shops to more substantial construction, agriculture, tourism services, and more ventures. Registering and legalizing these businesses can lead to an influx of Syrian diaspora funds into Lebanon to finance and develop investments, stimulating economic activity and creating jobs for both Lebanese and Syrians.

Potential Roles and Actions for Lebanon in Syria’s Early Recovery Phase

Lebanon has an excellent opportunity to contribute to the early recovery phase in Syria, given its geographical proximity and the presence of a large number of Syrian refugees, primarily since the eighth conference to support the future of Syria and the neighborhood, which concluded in Brussels on May 27 of this year, raised the value of the early recovery fund in Syria to 560 million euros. Furthermore, international agencies will implement projects that contribute to reducing the burden on Syrian citizens who are still in Syria, so long as implementing companies are not government or opposition- affiliated, which could be a distinct opportunity for Lebanese companies.  

Lebanon can also play a crucial role in building the skills and capabilities of the Syrian workforce through a program that empowers refugee students with skills relevant to Syria’s future. This includes providing vocational training and education programs for Syrian refugees and returning refugees and supporting initiatives to rebuild and strengthen Syria’s education and training systems.

Lebanese policymakers are encouraged to abandon traditional guardianship policies and deadly political gridlock and turn the crisis into an opportunity. Lebanon can work with other regional countries to promote regional cooperation and stability. This includes active participation in regional forums and initiatives to support a comprehensive political solution in Syria and address broader regional challenges.

Pressure on public services and infrastructure, the expansion of the informal economy, and social tensions are substantial obstacles that must be addressed. However, by tapping into the Syrian labor force and supporting the safe and voluntary return of refugees, Lebanon can not only mitigate the economic impact of the refugee crisis, but also indirectly support Syria’s recovery. Through strategic actions and regional cooperation, Lebanon can turn this difficult situation into an opportunity for economic growth and development, benefiting both countries and contributing to regional stability.

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Carlos Naffah

Dr. Carlos Naffah is a University professor and consultant with expertise in refugee crisis management and public policy. He has been a member of the regional committee for the Arab Standard Classification of Occupations (ASCO) and represented the German Academic Exchange Service (DAAD) and the Senior Expert Service (SES) gGmbH.

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