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Month: August 2018

A Smart Step to Push Economic Development in Lebanon

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In a break from the continuous concern with what’s not helping Lebanon, we recently hosted a delegation who presented some thoughtful steps about how to promote the country’s industrial sectors. The Association of Lebanese Industrialists (www.ali.org.lb), in a program supported by the Center for International Enterprise (www.cipe.org), is working to upgrade Lebanon’s export potential in light of the difficulty of attracting foreign direct investment (FDI) at this time due to security and corruption issues.

Represented by board member Paul Abi-Nasr and General Manager Talal Hijazi, the ALI representatives came to the US to better understand how professional trade-related associations determine their agendas, promote their missions, and develop programs in support of their goals. As Mr. Abi-Nasr explained it, their trip had two purposes: to better understand how professional trade associations function and to evaluate responses to ALI’s message that Lebanon can be a great business partner in the region. He is well-schooled in international affairs, is quite adamant about ALI’s potential, and heads the Young Industrialists Committee.

Mr. Hijazi and Mr. Abi-Nasr believe that the potential is huge for Lebanese companies that are willing and able to be local partners for US companies that want to expand their overseas markets but are unsure of how to work with the uncertainty in the Middle East. Lebanese companies are well-positioned as business partners because they have done business throughout the region, know the business culture and understand how to work with it, and have the capabilities to respond to the needs of changing tastes and preferences. Mr. Hijazi brings more than two decades of experience in business development to his job and believes that Lebanon can take advantage of its historical commercial role to rebuild its economy.

For the members of ALI, there are several important steps to fully represent its members; the first job is to build a detailed catalog of sectors and sub-sectors which reflect their strengths. This includes production to US import standards and building their clustering capabilities for adding value to Lebanese exports. This work is not for the faint-hearted as it often means upgrading infrastructure, human resources, and input sourcing to meet customer requirements.

Another key component is to provide services to companies so that they are export-ready, which is, having the financial strength, legal resources, and production capacity to engage companies that want to buy Lebanese products. It is no longer merely a question of buyer and seller as all countries have established import criteria to facilitate trade and protect consumers against tainted products.

ALI was formed in 1942 so it has been in existence throughout Lebanon’s modern history. It has a great deal of experience and expertise, and “participates in policy-making consultations on a very broad range of issues, including economic and social policy, labor legislation and industrial relations, social security and health care, taxation, policies for small and medium-sized enterprises, education, research and development, technology, and the environment,” according to its fact sheet.

Another major challenge they identified is ensuring that the Lebanese workforce has the necessary skills to contribute to the industrial sector. As in other Arab countries, there is a problem with obtaining qualified labor, as most university graduates shun blue collar jobs and there are not enough graduates in vocational and technical skills to meet the needs of the workforce. ALI has made recommendations for government policies to grow the number of skilled workers and several proposals are being considered in the Parliament.

Of course, ALI’s members want to be seen as a hub for Syrian reconstruction but first have to deal with challenges at home including upgrading the country’s infrastructure and energy sectors. When asked about the conditioned aid from the CEDRE international donors conference and the potential for missing out on the existing World Bank projects, both Abi-Nasr and Hijazi expressed concern that the lack of the government formation and movement on policy reforms only makes their mission more difficult. They are hoping that internal political agendas that are obstructing the needed changes will give way to more common sense in facing the larger task of building better internal security through economic growth, jobs, and a fully functioning infrastructure, serving all the people of Lebanon.

As ALI moves forward with its agenda: to serve as the voice of industrialists’ interests, increase growth opportunities and expand exports, improve awareness of the positive impact of the industrial sector, support its members and the organization, it welcomes potential partners overseas that want to import products from Lebanon and support its sustainability and independence.

Lebanon’s Latest Economic News Raises Old Ghosts – Graduates’ Seeking Work, Parsing the News on Gove

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Poll results noted by Byblos Bank in “Lebanon This Week” (Issue 548, 9Aug2018) pointed out that 90% of Lebanese university graduates responding to a poll by Bayt.com and YouGov, indicated that finding a job is their main challenge. This was followed by 58% who picked ability to afford a basic lifestyle, and discovering what to do in life by 39% of respondents. It was an on-line survey conducted during May and June this year.

The survey also showed that 58% of Lebanese graduates believe that “their lack of experience is the biggest challenge they face,” followed by effectively searching for a job (35%), finding a relevant job (29%), and developing interviewing skills (23%). When selecting an occupation, 52% “consider the nature of work and their passion for the job most important.”

Recognizing trends in the workplace, 58% of graduates believe that computer skills are crucial, followed by language skills (45%), communications and technical skills (39%) teamwork and the ability to adapt to change (29%), analytical skills, and leadership and negotiation skills (16%). Also of interest is that 52% believe that companies hire new graduates because of their low salary expectations, while 71% consider the lack of experience hinders job prospects followed by inadequate skills (58%).

The final data reported is quite telling. Fully 61% use online job sites for their first jobs, networks of family and friends (58%), social media (48%), while 32% applied directly to companies for their first job. It is challenging that 87% of those surveyed “indicated that their college education did not help them identify their employment opportunities, while only 13% believed that their education helped them find a job.”

Unfortunately, it was not possible to find the complete data sets on any of the relevant websites to further analyze the data by university, gender, social indicators, or other useful identifiers. The results definitely bear deeper analyses. Some of the soft skills issues are being addressed in the USAID programs mentioned in my previous blog.

No matter what the statistics say, this is not good news. Despite the spin by Nabil Itani, head of the Investment Development Authority of Lebanon, the agency should be embarrassed by the numbers he cited. He said “65 projects valued at over $1.9 billion have been awarded investment incentives since 2001,”providing about 10,000 direct jobs and 20,000 indirect jobs. He commented that “With our support for investment, we are enhancing the positive impact it will have on the Lebanese economy, either by promoting economic growth rates, creating sustainable employment opportunities, or contributing to the introduction of advanced technology in the production process.”

Given the direct employment of 10,000, this means that each job created cost $190,000 of investment while adding in the indirect number of an additional 20,000 brings it down to a $60,000+ cost per job added. Compared to other non-oil producing countries in the region, this does not promise a bright future for the impact of government supported investment without a strategic and integrated effort to treat the economy as an asset rather than, as critics charge, a cash cow for protected interests. World Bank/IMF studies show that Lebanon’s costs for job creation are twice those in Jordan and four times those in Morocco. Unless these exaggerated costs are addressed in the proposed projects reviewed at the CEDRE international donors conference by widespread and thorough reforms, it will be years before Lebanon’s economy reaches 6-8% growth again, if ever.

In a somewhat critical assessment of the future of cannabis as an option to revive Lebanon’s moribund economy, MiddleEastEye.net took issue with the recommendation by McKinsey that the government seriously consider becoming a legal supplier to growing markets worldwide. According to Bloomberg, McKinsey’s extensive recommendations were presented to Lebanese President Michel Aoun in early July and also include “building a wealth-management and investment-banking hub,” “setting up a construction zone for prefabricated housing that can be used in the rebuilding of war-torn Syria and Iraq,” and getting in on new avocado markets. But the recommendation that drew the most attention was the legalization and commercialization of cannabis.

Of course Lebanese political figures are clamoring to take credit for the idea but the reality remains that it will be quite difficult to pry loose the current production from its warlord and tribal producers. The Guardian’s Richard Hall reports that “most cannabis production in Lebanon is controlled by a collection of powerful clans in the Bekaa,” whose wealth “has made them a power unto themselves – armed to the teeth and willing to challenge the police and army when their livelihood is threatened.” Some of the leading political families are also rumored to be tied up in illegal cannabis business so the reporter wonders if legalization for export can really change or will it be “business as usual.”

Regional Merry-Go-Round – While Key Issues Continue to Dog Lebanon’s Government in Formation, End to

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It has long been said somewhat cynically that Lebanon’s raison d’etre is to serve as the proxy battlefield for everything in contention in the region and beyond. Certainly, contemporary events bear that out as PM Saad Hariri struggles to build consensus around a new government and ministerial statement while regional players continue to shuffle the policy cards to determine what’s next on their agendas.

Distinctions between the players’ existential concerns and their dominate current interests are muddled at best. The Assad regime draws closer to its immediate goal of restoring its punishing control over Syria; Iran seeks to strengthen its regional role despite rising domestic opposition; Turkey is…well Turkey; Russia and Israel look to their interests with fervor; and the Syrian refugees await their fate.

Here’s a quick summary of several current events that are adding to the continued uncertainty despite the latest battlefield outcomes in Syria, a small détente between Israel and Syrian government forces near its borders, Syrian refugees moving in larger numbers back home, and Hezbollah’s quest for meaning after Syria.

Lebanon-Syria relations, always contentious, seem to be the chicken bone in the throat of PR Hariri. Despite prodding from Speaker Nabih Berri, pro-Syrian members of Parliament, Gebran Bassil, the acting Foreign Minister and son-in-law of President Michel Aoun, and others, the PM is standing his ground that the ministerial statement, which outlines the new government’s priorities, will not address restarting formal relations with Syria. Can he hold out? There’s no immediate consensus as there are other MPs supporting the PM. Proponents of the move argue that the step is needed to facilitate the return of Syrian refugees, re-open border crossings to allow goods to transit to export markets to Lebanon’s neighbors, and potentially give Lebanon a piece of the Syrian reconstruction pie.

Syria meanwhile seems to be holding refugee repatriation hostage to resuming relations. Over the past two weeks, a number of statements have come from Syrian sources, as well as its friends in Lebanon, that formal relations are the key to accelerating recent repatriation actions. It is worth noting that despite allegations that the Assad regime has a list of a million or so unwanted returnees, it also craves to be recognized as a legitimate government that can manage the resettlement process.

The reality though may be much different, and Russia has already indicating that it will play a key role as well so that it can task the international community with the cost of reconstruction in exchange for pressuring Syria to work with Jordan, Lebanon, and Turkey on refugee issues. So, as reported by Refugees Deeply, “Russia and Syria are seeking bilateral agreements to begin mass returns. This could be disastrous given that the Syrian government and its allies lack the capacity and perhaps the will to enable refugees to return safely and reintegrate into the country.”

The UNHCR is directly bound up in this quagmire as it serves as the mediating body for the international community on refugee affairs. It has outlined its criteria for conditions required to move ahead with large-scale voluntary repatriations in cooperation with the Syrian government. To date, however, the regime has imposed restrictions on UNHCR activities in Syria, which could leave returnees without adequate aid and exposed to more danger.

While some analysts believe that Russia and the US are winding down their roles in Syria, Israel is exerting greater efforts to ensure that Iran and its proxy Hezbollah do not become an even greater security threat. Israel is concerned with Iran’s role in the region, especially the increasing stocks of various grades and types of Iranian-supplied missiles in Lebanon and Syria; thus its insistence on Iran’s withdrawal from all of Syria. As Stratfor notes, “On the diplomatic front, Israel has focused its approach on the United States and Russia, striving to convince the two superpowers to heed its interests in Syria by containing and limiting Iran’s influence and presence in the country.”

What’s in the cards for Hezbollah’s hands in Syria and Lebanon is a subject of much speculation. Will it return to its traditional role as a political-military state within a state in Lebanon? Will it maintain a presence in Syria to enable Iran to continue to have a pressure point on Israel? Will it maintain an aggressive posture towards Israel so that Israel leans on Russia and the US to exercise what little leverage they have over the Iran-Hezbollah axis to keep tensions from boiling over?

If it remains in Syria, deployed in areas under its control, it is hard to imagine that, despite its alliance with Assad, the Syrian regime will allow it to exercise the same freedom it has in Lebanon. According to an article in Al-Monitor, “There is no withdrawal for now, only redeployments of troops in the various areas,” said one source. “If the situation stabilizes definitely, Hezbollah would pull out from certain regions, but there are areas it considers strategic that it will never leave.”

Nicholas Blanford, longtime journalist based in Beirut, describes the link between Hezbollah’s presence in Syria and Iran’s regional game plan. “Iran will play the long game in southwest Syria by relying either on Hezbollah or Iraqi militant groups. Tehran will also want to extend what Hezbollah has on its Lebanese frontier with Israel, to the Golan, and leverage southwest Syria in its confrontation with Israel in the long run. Iran is trying to shape its strategic interests in Syria as time passes by, to maintain its land bridge there against Israel.”

Ironically, Russia, which, it can be argued, saved the Assad regime, seems to risk a diminishing influence on Iran and Syria as it draws down its military role in the region. Having gained basing rights in Syria, the acknowledgement of all the local players that it is the top player in the region, and with its finger on any eventual peace and reconstruction effort, it is loath to act against Iran in Syria. As Blanford noted, “Israel and the US seem hopeful that Russia will serve as a block to Iranian ambitions in Syria, but this could be wishful thinking.”

So is the other great power, the US, still searching for a regional strategy? It appears that the Trump Administration has conceded that the war in Syria is now at a stage where the US should move on to focus on a formal end to the civil war and reconstruction. Jim Jeffrey, former US Ambassador to Turkey and Iraq, a distinguished fellow at the Washington Institute for Near East Policy (WINEP), who served as the principal DAS for the Bureau of Near Eastern Affairs at the State Department, and deputy national security adviser to President George W. Bush, has been appointed as Representative for Syrian Engagement by Secretary Pompeo. His job is to run US negotiations with other regional players over Syria’s future.

He has extensive experience in the region that should serve him well. As Ambassador to Iraq, he opposed the US withdrawal from the country under the Obama Administration, arguing that without a tangible presence in country that Iran’s influence would prevail. So he has no illusions about Iran’s regional ambitions.

One of his first challenges is to ensure that the latest deal made by the Administration, to have others pay for Syria’s stabilization fund, is carried out effectively. In announcing the US cut of its commitment of $230 million in stabilization assistance, the State Department pointed out that the Gulf States and others have agreed to fund the program. Stabilization aid is intended to provide basic services that allow Syrian residents to return to their homes and some semblance of normal life after a devastating seven-year civil war.

Al-Monitor reported that the “US has elicited approximately $300 million in contributions and pledges from coalition partners to support critical stabilization and early recovery initiatives in areas liberated from [the Islamic State (IS)] in northeast Syria, including a generous contribution of $100 million by Saudi Arabia and $50 million pledged by the United Arab Emirates.” Other commitments have been made by Kuwait, France, Germany, Italy, Denmark, Norway, the European Union, Australia. and Taiwan.

At the same time, a Reuters article noted that The US has also made it clear that “There will be no global reconstruction funding for Syria until a ‘credible and irreversible’ political process led by the United Nations is underway.” The State Department emphasized that “We will continue to provide life-saving, needs-based humanitarian assistance to vulnerable Syrians, support for the White Helmets and the UN’s International Impartial and Independent Mechanism to hold the [Syrian President Bashar] Assad regime accountable for serious crimes, as well as equipment and other measures to counter the effects of chemical weapons in northwest Syria.”

The spokesperson, Heather Nauert, explained that the decision “does not represent any lessening of US commitment to its strategic goals in Syria.” Which again raises the earlier question, does the US have a viable regional strategy that represents its long-term interests in the region?

US-Russia cooperation could ensure safer repatriation of Syrian refugees

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As American policymakers begin to learn more details about the summit between Presidents Trump and Putin in Helsinki, a proposal has emerged to jointly collaborate on a humanitarian plan to address the massive Syrian refugee problem.

The Russians signaled that they would like to work with the Americans in drawing up a joint action plan to bring Syrian refugees back to the homes they fled before the civil war broke out in 2011. “The active advancement in this direction has been helped by the agreements reached by the presidents of Russia and the United States during the summit in Helsinki,” Mikhail Mizintsev, a Russian ministry official, was quoted by TASS as saying. Mizintsev said preliminary assessments indicate 890,000 refugees soon could return to Syria from Lebanon, 300,000 from Turkey and 200,000 from European Union countries.

 

U.S. Secretary of State Mike Pompeo confirmed such a discussion, saying, “There was a discussion between President Trump and President Putin about the resolution in Syria and how we might get the refugees back.” The United Nations, however, is hesitant to declare Syria safe for the refugees to return. The United States rightly agrees, and is cautious about fully embracing any plan until it has some guarantee of the safety of returning Syrians.

 

During a recent visit to Lebanon, the American Task Force for Lebanon (ATFL) met with the representative of the United Nations High Commissioner for Refugees (UNHCR) and returned with the belief that this is a problem beyond the mandate of UNHCR — a higher level of political cooperation is required to move repatriation forward.

Depending on their situation, some refugees want to return home, and could do so safely, but many others find it too dangerous to go back now. The UNHCR is adept at protecting refugees, ensuring that those who are vulnerable understand the consequences of returning, have the correct paperwork to re-enter their homes, and have the support necessary to restart their lives. But the UNHCR is not mandated to get involved in geopolitical issues.

Some Lebanese officials believe it is important to engage with Syria at a higher political level to assess when and how refugees can return home. Others, including the United States, view such an engagement as acquiescing to the Syrian government’s claim that the civil war has ended and it is safe for refugees to return.

It is important for U.S. influence in the Middle East that it remain a principal party in examining the refugee situation and determining a safe process for their eventual repatriation. It would not be in America’s interest to sit on the sidelines while the Russians and Syria’s neighbors devise a plan to alleviate the problem without U.S. input.

Because direct engagement with Syrian President Bashar al-Assad’s government by Lebanon is fraught with potential problems, and the UNHCR is not politically empowered to deal with the situation, the best alternative falls on Russia and the United States. Notwithstanding Russia’s potential ulterior motives for proposing it, and the disagreements between our countries on other Syrian matters, the discussion at the Helsinki summit indicates an understanding of the importance of U.S.-Russia involvement in this humanitarian problem.

The time to repatriate refugees may be debatable, but the time to begin the process is not. A U.S.-Russia effort should start by identifying those who are capable of returning to Syria, determining how to ensure their safety, and the timing for their repatriation. Without U.S. engagement, Russia would have another opportunity to curry favor in the region and place another wedge between the United States and Syria’s neighbors.

Now is the time for the United States to initiate a process that allows it to influence — and, ultimately, guarantee — the safe return of Syrian refugees.

Edward M. Gabriel is president of the American Task Force for Lebanon and former U.S. ambassador to Morocco (1997-2001).

Energy Sector Reform Awaits Action by Parliament and a Government Missing-in-Formation

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When you think that dysfunctional Lebanon can’t get any worse, politicians make sure that there is another “shame on Lebanon” issue. This month, it’s the haggle over electricity, nothing new, but this time the consequences can be more pain for the consumer and more plunder for those protecting their interests in keeping Lebanon energy in-efficient.

First up was the “gift” of a 235mw power barge from Turkey, free of charge for three months with Lebanon paying for the fuel (diesel that is only getting more expensive daily). Not only are Amal and Hezbollah fighting over where it should dock, but the FPM-led energy ministry can’t figures out how to utilize the full potential of the barge, continuing the blackouts for most residents without generators and enabling the private generator operators to acquire more business.

Amal is concerned that the temporary fix will only postpone construction of a permanent facility to serve the South. “But critics seized on the statement as confirmation that Amal’s leaders were in bed with the operators of private generators, who have been making fortunes selling electricity during blackouts at many times the state price,” according to the Turkish press.

This issue has very large financial consequences. The public debt of $80 billion is driven by the electricity sector’s annual $36 billion cost. Much of the anger is directed at the lack of agreement as to how to upgrade and reform the services of the electricity company of Lebanon, EDL. According to a recent article, “There are vacancies in 50 percent of EDL and only two representatives remaining in a seven-member board of directors. A law was issued in 2011 to fill these posts and, yet, seven years later, nothing has been done. EDL was supposed to be restructured and its rules were supposed to be modernized. The private sector was supposed to renovate power plants and take part in the distribution and tax collection process, while the state would keep control of the grid,” a plan that was dead on arrival due to competition over who would benefit from the changes.

Ironically, one of the major cost overruns is fueled by importing liquid gas and diesel fuel to run the generators, even though Lebanon sits on projected very rich gas deposits. Politics are also hindering deals with regional providers such as Syria, Iraq, and Iran that could take advantage of existing pipelines to transfer gas to Lebanon.

At the April CEDRE donor conference, General Electric offered to build power plants in six months that would meet Lebanon’s needs, with a surplus, at a cost less than what the country is currently paying. Nothing has happened, even though the monies are available from the World Bank and the private sector. Without enabling legislation, stuck in the Parliament, nothing can be done without desperately needed reforms. One reason reforms are critical is summed up in the article, “As for EDL’s financial deficit, it can be blamed on several reasons, such as government decisions to exempt some regions from the power bill for security and social reasons. Other regions have been exempted for political reasons, while influential powers do not pay their power bill.”

As another story pointed out, “A lack of investment in energy infrastructure over the years has made it impossible for Lebanon to meet its power demands. The country was ranked 125th out of 127 countries in the World Economic Forum’s Energy Architecture Performance Index (EAPI) released last year, and a worsening economy makes it unlikely that much-needed investment will arrive any time soon.” It went on that EDL only generates about half of Lebanon’s needs, rationing power throughout the country and enriching private generator operators.

Adding to the problem, “With EDL unable to provide 24-hour power, officials are reluctant to increase the price of household bills — set years ago and never increased to reflect the cost of electricity generation today. As such, the government continues to cover EDL’s over $2 billion annual deficit that represents around 15 per cent of the state’s total yearly spend — compared with seven per cent on healthcare or nine per cent on education.”

This stalemate demonstrates the lack of political will to overcome obstacles to needed reforms, delays that have immediate and long-term consequences. Ferid Belhaj, the World Bank’s vice president for the Middle East and North Africa, told reporters in Beirut that the economy is “in a state of fragility,” and that the country should take steps to reform the electricity sector, where the state-owned provider operates on a $1.5 billion annual deficit.”

Belhaj said the World Bank has a portfolio of more than $2 billion of projects in Lebanon, including about $1.1 billion which is still “not converted into actual investment, meaning they are sitting with parliament and the council of ministers.” Saroj Kumar Jha, the World Bank’s regional director for the Middle East said the projects include improving roads in rural areas, building rapid bus transit across Beirut, and improving the electricity sector.