30‏/10‏/2015

The Lebanese Economy is shaped by the refugees but cannot bear its structural damage

Rasha Abou Zaki *

It has been over four years since the start of the Syrian revolution, and throughout this period, several Lebanese politicians have tried to shift the blame for the country’s economic crisis on the Syrian refugees.
Some ascribe the persistent electricity shortage to the refugee presence. But the sector’s production rates have not improved despite annual expenditures exceeding $2 billion; the crisis is in fact the same as it was before the displacement of the Syrians to Lebanon. Accusations concerning water, telecommunications, the Internet, and other sectors naturally prove baseless, as well.
Some even blame the refugees for rising crime rates, citing statistics that show that the number of Syrians under arrest is swelling. But they know that the arrests are for not carrying residency papers that the government has only recently required the Syrians to acquire.
Between politics and economy, there are the facts and figures. According to a UNDP study, «The Effect of the Humanitarian Aid on the Lebanese Economy,» expenditures for aid for refugees totaled around $800 million in 2014, which contributed a 1.3 percent growth to the economy.
The principal spenders were UNHCR, UNICEF, the World Food Program, and UNDP.
As the number of refugees mounted, aid grew proportionately. Of the $800 million spent, 44% went to direct, beneficiary aid (a large portion of it as food vouchers), 40% was injected as real purchases from the Lebanese market, and 14% was disbursed as salaries to employees of the UN and its local partners.
Each dollar spent on humanitarian aid stimulated $1.60 dollars of production in the local economy, according to the study; so the $800 million spurred $1.28 billion of economic growth.
In terms of the sectorial distribution of the spending, food production accounted for 27% of the aid expenditures, followed by real estate (rentals) at 14%, then chemical materials (pharmaceutical production) at 9%, and education and social services at 7%. The injection of aid money contributed to growth in local production, labor extraction, capital returns, and customs and tariffs.
For his part, Nassib Ghobril, the chief economist of Byblos Bank, analyzed the effects of the Syrian crisis on the Lebanese economy, and confirmed that much of what the politicians are saying about the effects of the displacement on the Lebanese economy is populist rhetoric and political posturing.
He says: «The Syrian labor force has been present in Lebanon since the 90s, and fluctuates seasonally according to demand from the agricultural and real estate sectors». He considers that the Syrian domestic worker is just as good as any other foreign domestic worker, who works in sectors that the Lebanese usually don’t dare enter.
He confirms that the industrial sector, especially heavy industry, has benefited from the growing number of displaced Syrians in Lebanon, contrary to what is commonly being said. How?
«The displaced Syrian worker needs work, and he accepts lower wages than the Syrian worker did before the start of the crisis. So Lebanese institutions began to employ this segment of Syrian workforce, and reduced the cost of production, while they were unable to control other operating costs».
A World Bank report titled «The Effect of the Crisis in Syria on Commerce in Lebanon» reveals the outcomes are two-sided; official statistics from commerce permit researchers to evaluate the repercussions of the Syrian crisis. The report states that the decline in Lebanese commercial exports that was recorded between 2011 and 2013 appears to be the result of factors not related to the war, but to the retreat in jewelry and precious metals exports, particularly to South Africa and Switzerland.
Looking at Lebanese exports to Syria, the study found that exports of drinks, tobacco, and some food products grew, as Lebanese production replaced declining Syrian food production. For example, wheat exports to Syria multiplied 14 times between 2011 and 2013. At the same time, other food product exports were negatively affected.
Export services, which count much more towards the Lebanese economy than commercial exports, contracted due to the war, the study explains, and the tourism sector was the exemplar. Travel restrictions against the country, especially from the GCC nations, and mounting insecurity negatively affected the sector.
Yet the demand resulting from the Syrian refugees in Lebanon catalyzed service production in the country. For every 1% increase in the number of refugees registered, service production grew by 1.6% after two months.
Ghobril stresses that internal factors – and the weakening of economic reforms – are what shapes Lebanon’s economic reality. The level of economic competitiveness retreated by 24 points over the last four years, and this is tied precisely to the worn-out infrastructure, and the state of the electricity and insurance, and administrative routines, and the absence of structural reforms to improve the investment climate. Ghobril asked, «Was it the displaced Syrian who stopped the laws to improve the investment climate, or blocked the public budget over the last 10 years?».
He added that the growth forecast at the start of the year was at 3%, but today it cannot be estimated save between 0 and 1%.
Credit to the private sector declined from $2.2 billion in the first half of 2014 to $926 million for the same period this year, Ghobril’s study finds, and bounced checks reflect the liquidity crisis in several sectors. 119 thousand checks were returned in total in the first half of this year, compared to 112.5 thousand over the same period last year, while the value of the returned checks reached $794 million, an 11% increase over the same period last year.
Nabil Itani, the president of the Investment Development Authority of Lebanon, says that the investment crisis is not directly tied to the Syrian refugee presence. He instead attributes it to the ongoing war, and the associated repercussions to Lebanon’s internal affairs, which have disposed Gulf capitalists to abstain from the country’s market.
«The border closures, the impediments to reaching regional markets in some of the Arab countries, and the Gulf country warnings in 2011 and 2012, in addition to the general atmosphere in the Middle East region – all these factors impacted the anticipated investments from Arab and international institutions, which used to consider Lebanon the nexus for projects in the Middle East», Itani says.
Lebanese investors at home and abroad have covered a meager portion of the retreat in the investments, according to Itani. He points out that the volume of investment in 2010 was around $4.9 billion, which fell to $3.8 billion in 2011, and $2.7 billion in 2012, but rebounded in 2013 by 5% and in 2014 by 6% to reach $3.15 billion. In comparison with what is happening in other countries in the area, the retreat is not a disaster, despite the collapse of the economy’s annual growth rate. Still, for 2015, in the event of no positive surprises in the remaining months, growth will be anemic, and investment will remain within the bounds of $3.2 to $3.3 billion.
A recent World Bank study reports that Lebanon needs an investment of $2.9 billion to return to the pre-crisis economic reality.
While the value of the Lebanese exports in 2014, and according to the certificates of origin statistics ratified by the Chamber of Commerce, Industry and Agriculture in Beirut and Mount Lebanon, has amounted to $ 3.7 billion approximately, compared with $ 2.9 billion in 2013 with an increase of 2.9%, and an increase of 2.4% compared with 2012, and 19.8% compared with 2011.
In a related context, a World Bank report titled «Economic Horizons in the Middle East and North Africa, 2015» states that Lebanon’s growth rate is tied to the Syrian crisis. It forecasted a growth rate of 2.2% in 2015 and 2.9% in 2016. It says that Lebanon suffers the repercussions of the ongoing war and the unremitting flow of refugees, who now comprise 26% of the Lebanese population, a matter that constitutes an impediment to economic stability.
For its part, Middle East Committee of the UN World Tourism Organization reports that Lebanon recorded 21% growth in its tourism sector in the first quarter of 2015, compared to the same period the year before. Jean Beiruti, the president of the Union of Tourism Institutions in Lebanon, said in a media interview that the Gulf boycott has not lifted for four years, and tourism income during this period has crashed from $8 billion in 2010 to $3.5 billion in 2014.
Despite the data, Mohammad Choucair, the president of the Chamber of Commerce, Industry and Agriculture of Lebanon, holds the Syrian refugee presence responsible for the economic crisis, and he says 2015 has been the worst year yet. He inculpates Syrians for the rising crime rate, which influences security perceptions and scares off investments.
He adds, «from another perspective, the Syrian worker takes the place of the Lebanese worker in the labor market, while the proliferation of illegitimate Syrian institutions affects the formal economy and decreases state revenues from taxes and fees and so forth. According to the World Bank, Lebanon’s losses on additional services provided to Syrians has reached $7 billion».
«The industrial sector suffers, and the commercial sector has contracted by 20% compared to last year because the border closed to agricultural exports. By the numbers, there are no positive consequences to the refugee presence in Lebanon, given that investments have been wiped out. Some plans have been on hold for 3 years, as the crisis continues to grow,» Choucair says.

* Head of economic supplements at “Alaraby Al Jadeed” and Lebanese specialist trainer in investigative journalism

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