Dr Alain Hakim, Lebanon’s Minister of Economy and Trade, casts aside some of the misconceptions held in certain parts of the international community and reveals the true nature of doing business in Lebanon and what the country and its people have to offer, based on not only opinions but also facts.
The Republic of Lebanon is currently in one of the most critical periods of its economic history. However, despite the circumstances, the GDP increased last year by 2%. And as for the Syrian crisis, the prospects for 2016 are rather positive. What are, in your opinion, the factors that will allow the Lebanese economy to grow sustainably from 2016 or 2017 on, depending on the forecasts?
Many international institutions (specifically the IMF and the World Bank) have forecasted GDP growth in Lebanon to reach 2% in 2015 and 2.5% in 2016.
However, and for the fourth consecutive year, the Lebanese economy has been suffering from political tensions, security challenges and regional unrest combined with the spillovers of the ongoing Syrian crisis, which have led several entities to forecast a growth percentage ranging between 0% and 1%.
According to our estimates, growth in 2015 does not exceed 1%.
Despite all these circumstances, the Lebanese economy has proven nothing but resilience. In fact, most of our key performance indicators (KPIs) have been positive and portrayed improvements on various fronts.
As such, I can’t but be proud of the current economic situation, for despite all these challenges, the economy has been able to achieve real growth due to three main components that enabled it to maintain this strength:
1. The banking and financial sector, as in a stable monetary policy and a solid and highly liquid banking sector, besides the increase in deposits that have reached more than $145 billion last year. This allows the confidence in the Lebanese banking sector to be enhanced and thus more deposits are encouraged.
2. The dynamic private sector.
3. The steady flow of remittances from the Lebanese diaspora that reached more than $7.5 billion in 2015, invested in consumption and real estate.
Of course, the country can’t solely depend on these components but they have been the most functional and have witnessed growth and improvements.
Regarding the refugee crisis, there are around 1,7 million refugees, not only Syrians, as everyone thinks, but also Palestinians, with around half a million refugees. What are the measures that the government is taking in order to collaborate with the European Union and with other institutions in order to mitigate the impact of this huge number of refugees, which accounts for around 35% of the population?
Allow me first of all to note that the Lebanese economy and society withstood the hosting of an unprecedented number of displaced Syrians, whose number exceeded 1.5 million people, accounting for more than 40% of the Lebanese population. This unexpected situation has resulted in a weakening in the social, economic and security situation. The impact on our economy has been substantial since the start of the crisis.
Losses have exceeded $20 billion in various sectors and many sectors have been affected more severely than others, of which we can mention three: electricity, waste and education.
Regarding electricity: electricity expenses range approximately between $750 million to $1 billion annually. It took the government quite a long time to achieve one extra hour of electricity supply, and now with the Syrians consuming more than two hours of electricity per day, it will take the government maybe another 10 years to achieve the level it has been working on to date.
In terms of waste: waste costs are adding up to more than $400 million, with the refugees participating in more than 40% of its volume.
Finally if we analyze education: there are more than 250,000 Lebanese students nowadays attending public schools, add to them more than 450,000 Syrians attending the same schools. The costs have become drastic and many teachers are running double shifts to be able to keep up with the increasing number of students.
There are many other sectors that are suffering from the spillovers of the Syrian crisis besides the security situation that has been deteriorating. Numbers show that more of 34% of crimes are committed by refugees. Maybe this cost cannot be calculated, however the safety of our citizens is at risk.
European countries are in a war against terrorism and we are in it too. However, they only saw it by far while we have been in direct confrontation from the start and it has been harder to control with the growing number of refugees.
I would like to finally mention one of the major effects of the Syrian crisis on Lebanon: the increasing rates of poverty and unemployment.
More than 170,000 Lebanese have been pushed below the poverty line, adding to the 1 million already living in poor conditions. This is besides the unemployment rate that is expected to reach more than 25% due to the competition of cheap Syrian labor.
To be frank, not all refugees that have crossed our borders are here because of security matters or because they are against the Syrian regime. Some are here to benefit from the humanitarian aids that are being given by the United Nations and the European Union and are taking advantage of it, and simultaneously residing and working freely in Lebanon. They are what we call the “economical refugees”.
In a Global Economic Prospect report published by the World Bank on January 13, 2015, the World Bank estimates that the improvement of the economic situation will start from 2017, when the Lebanese government is going to be able to start decreasing the budget deficit, which accounts for around 150% of the GDP. Which are the priorities or the plans from this ministry in order to start decreasing this big fiscal deficit?
As I’ve mentioned before, our economy has proven nothing but resilience over the past five years, and even before that. If we go back to the 2006 war against Israel, Lebanon reached a 0.3% growth, however it bounced back to more than 7% without any significant changes in the economy being made.
As such, the three main pillars that we will work upon are: confidence, stability and continuity. If these are achieved and maintained, our economy will be able to beat the odds once again and deliver as it should.
How will they be achieved?
The election of the President of the Republic is by far the most important priority in 2016. The president will help regain the trust in our economy that is very much needed.
Moreover, once the cabinet is formed and the parliamentary elections take place, we will be able to prepare a proper economic and social reform action plan for the next five to seven years that will help in improving Lebanon’s business environment, attracting investments, and enhancing the economy’s sectors as a whole.
And I say this is the most important priority because now with just views being exchanged regarding the president, our KPIs are performing better, such as real estate for example.
Another important priority is preparing a budget that has been absent for more than 10 years.
The budget will allow us the curb expenditures and limit the constantly growing public debt that has reached more than $70 billion.
Now with regards to the two main points that I find a need to stress on, I would like to mention the promising oil and gas sector and public-private partnerships, (PPPs).
I consider the PPP to be one of the main pillars to help our economy grow. I usually call it the PEPEPE because the partnership process requires the environment, energy and the economy.
The PPP is a need to enhance infrastructure, a component that has been hindering economic development and constituting a main challenge even before the Syrian crisis.
Last December the shareholders of the European Bank for Reconstruction and Development (EBRD) approved plans by Lebanon to become a shareholder of the bank, with a view to becoming a recipient of ERBD investment at a later stage. What are the benefits for Lebanon in becoming a member of the EBRD, and also vice versa, which are the benefits for the bank, having Lebanon as a partner?
The EBRD is very reputable bank and I believe that Lebanon can highly benefit from what the bank has to offer in terms of services, especially with regards to improving the business environment and enhancing SMEs, whether by facilitating their access to finance or the provision of advisory services.
The EBRD on the other hand can benefit from Lebanon’s very dynamic private sector, from its strategic geographical location, and from its wide reaching diaspora.
Despite the difficult economic situation that you just portrayed, Lebanon was the only country to grow in terms of FDI in the MENA region, increasing its FDI last year by 6% when the average for the region was a decrease of 4%. In your opinion, what are the main reasons of this increase of FDI level?
This 6% you’re mentioning is a correction for the 23% decrease in FDI witnessed back in 2013.
Lebanon has managed to maintain a steady level of foreign direct investments amounting to $3.1 billion in 2014, compared to $2.83 billion in 2013.
This positive performance was mainly facilitated by the formation of the cabinet in February of 2014 – after a stalemate of 11 months – which created a positive climate and led to a slight improvement in economic activity.
FDIs were mainly being directed towards the tourism and the real estate sectors.
Which other sectors would you then define as attractive sectors right now in the Lebanese economy, besides tourism and real estate?
Lebanon has a resilient mindset, a highly skilled labor force, a wide-reaching diaspora, and a service-oriented economy. In light of these factors, potential sectors in Lebanon for economic development include the IT sector and the knowledge industry.
The IT sector is a very promising sector that is employing more than 70,000 employees in more than 300 companies till now. The sector is growing by more than 20% every year.
In regard to the knowledge industry, with Lebanon’s highly qualified human capital, many innovative ideas can be turned into successful businesses that can benefit the economy as a whole and create many employment opportunities.
Other sectors include: banking and finance, transformative industries, civil engineering, construction and related sub-sectors, infrastructure, agro-foods, pharmaceuticals, medical materials equipment, cosmetics, logistics, and fashion.
How is the government working in order to improve infrastructure? We see in Lebanon over 90% of the roads are paved, which is not common in the region. How is the government is pushing through PPPs in order to make big projects become a reality?
The PPP file is unfortunately still in its initial phase, however decision makers are well aware of its importance.
As long as I’m Minister of Economy of Trade, I will push forward with this file because I am confident that a public-private partnership will enhance the economy’s stance.
Lebanon has one of the biggest diasporas in the world. There are many sources that say that Lebanon has around 18 million people spread all over the world, 13 million in Brazil. Most of them are very successful abroad. In many African countries (Ghana, Côte d’Ivoire, Nigeria…) Lebanese are managing the country and its biggest companies. How is the government working in order to attract these people?
In the context of the economic diplomacy, we are exploiting every possible opportunity for increasing our exports, opening up new markets and benefiting from the presence of more than 18 million Lebanese abroad.
As such, we conducted discussions with a multitude of countries through their ambassadors or ministers of concern. We are developing our relations with untapped European markets such as the Netherlands, Hungary, and Poland. We also developed in the ministry an action plan to enter the Latin American markets where numerous areas of business opportunities remain untapped and unexploited.
As for the Mercosur countries, several meetings have been made between both parties where discussions took place on ways to strengthen the exchange between Lebanon and these countries and to secure the appropriate legal framework for this exchange.
However, the opening of these markets requires the support of the productive capacity of the Lebanese economy, the improvement in the quality of our production, and an adequate political and security condition to secure the investments needed by the economy.
In this context, I would like to stress the importance of business councils between Lebanon and countries where this diaspora is found in order to enhance the linkages and reach our goals of economic and trade development.
Moreover, we are working at the ministry on several draft laws that aim at facilitating investments and decreasing taxes to attract more investments into the country.
Many people see Lebanon as an unsafe country. However, you recently stated that historically, Lebanon has been a land of safety since the 50s and also that the country, apart from a land of safety, is a modern, cosmopolitan country and an example of solidarity. Could you please describe the values and the essence of Lebanon in order to change external misperceptions?
I can start by saying that our country is a country of values and of a profound culture, a culture that has emerged from various civilizations over thousands of years. It was home to the Phoenicians and was subsequently conquered and occupied by the Assyrians, the Persians, the Greeks, the Romans, the Arabs, the Crusaders, the Ottoman Turks, and the French.
Despite all the challenges we have faced and are still facing, the Lebanese have proven their love for life, their strong will power and their commitment to a stable, sovereign, independent, and prosperous Lebanon, and are always working to meet Lebanon’s immense potential.
The Lebanese believe in hard work and through hard work we have reached far far places, and our wide reaching diaspora is proof of that.
What is your dream for the youth in Lebanon in the future years, for your children, for the next generation?
I would like to have them with us on board, for the youth in Lebanon have been shying away from the public sector and the political landscape in general. They are the future and they are the ones who we are working for.
Therefore, they need to be part of the decisions made now, as it will affect them in the future. They are the force that can push change and can shape the future.
The message I would send to Lebanese youth: be present, don’t resign, don’t leave the country, don’t search for opportunities abroad, opportunities are here in Lebanon. However before I can ask of them to make such a decision, we must do our jobs first and provide them with these opportunities, a task we are trying fervently to accomplish.
We are working on fighting all sorts of corruption to create jobs for this youth.