Does Lebanon Have an Economic Growth Strategy?

Wednesday, August 7, 2019
Opinion by Jean AbiNader

Lebanon has finally caught up with Israel in rankings; in this case it is negative, being tied for second place in the world for water stress, which occurs when the demand for water exceeds the available amount during a certain period or when poor quality restricts its use. The World Resources Institute report ranks Lebanon second after Qatar and tied with Israel at 4.82, which means that Lebanon withdraws an average of more than 80% of its water supply every year. Baalbeck-Hermel province ranks the worst for water stress, with a score of 4.93 out of 5, where five denotes the highest stress levels.

Of the worst 17 countries, 12 are in the MENA region. The report points out that the situation can be reversed if Lebanon rebuilds and revamps its infrastructure to “better store its water supply while increasing agricultural efficiency and recycling its wastewater.” It would seem that this is a more critical issue than who makes the best falafel or who invented hummus. Several water improvement projects are on the CEDRE list, some that have been in the planning stages for years.

Lebanon’s leaders believe that the country can create more jobs by investing in the country’s long-neglected productive sectors. As recently as last week, PM Hariri launched the “National Campaign to Support Lebanese Industry” organized by the Ministry of Industry in collaboration with the Association of Lebanese Industrialists entitled “with the national we support the nation.”

According to accounts of the launch, “The campaign included a fifty second promotional film highlighting the importance of national industry and the interaction of the Lebanese youth with it. The campaign will also organize educational dialogue programs and advertising campaigns on production and industry, in addition to specialized exhibitions in several Lebanese areas and support the participation of industrialists in foreign exhibitions.” It is a puzzle why this hasn’t been done nationally before as Lebanon is mired in an economic slump at an annual growth rate stuck at about 1% with little anticipated change unless significant reforms move forward.

In a case of well-intentioned overstatement, the PM noted “We have more than five thousand factories and we can increase this number and produce, manufacture, and secure our local needs and even export. But what is important is to invest according to our production potentials. Today, the industry’s share of the gross domestic product is close to $4.6 billion. Rest assured that we can double this number after five years and triple it after 15 years. We can also create more than 50,000 new jobs through this sector in the next five years.” While this is helpful, unfortunately, Lebanon needs to create more than that number of jobs annually to meet existing labor supply, and some jobs in factories and agricultural work are not attractive to Lebanese youth.

Lebanon will focus, according to Hariri, on where it has a competitive advantage to satisfy domestic consumption and then produce for export. These include food, pharmaceuticals, furniture, jewelry, fashion, handicrafts, light industries, and others outlined in the McKinsey report. Limiting this strategy are high production costs in Lebanon caused by opaque government regulations that inhibit transparent transactions, and shortages and inefficiencies in power and telecommunications, among other issues.

The plan has four steps: set up industrial zones under favorable conditions for Lebanese industrialists; encourage joint venture with foreign companies; work to open overseas markets for Lebanese exports; and upgrade the vocational and technical education sector to develop the skills needed in the industrial sectors. While this holds some promise and Lebanon has to start somewhere, the challenge is if it will be enough to kick start the manufacturing sector.

Hariri stressed that the overall economy would benefit from a growing productive sector, which would in parallel promote investment in agriculture, technology, and tourism, not to mention the interdependence with the financial and banking sectors. In his conclusion he said that the Lebanese cannot lose hope. “This is Lebanon’s democracy, though sometimes it becomes the enemy of itself, and sometimes we are enemies of ourselves in approaching things in the country. What is important is to look at the interests of the citizens and the youth who are fed up of politics and don’t want to hear our problems. They want job opportunities, medical care, electricity and infrastructure.”

This emphasis on growing the productive sector was the subject of a study by the Lebanese Center for Policy Studies (LCPS) that noted that “the manufacturing sector’s share of the GDP has shrunk from around 10% in 2005 to 6.2% in 2017, despite employing 25% of the labor force. More recently, the sector’s exports dropped from a high of $5 billion in 2012 to $3.9 billion in 2017.” The good news is that Lebanon’s exports are quite diverse, covering some “1,147 products, the majority of which were distributed across the following sectors (based on international classifications): 18% in precious metals, which includes gold and jewelry; 15% machinery, including computers, electric generators, and insulated wires; 14% in metals; 13% foodstuffs, such as processed fruits, raw sugar, chocolate, and other food items; 8.7% chemicals, including packaged medicines, phosphoric fertilizers, and perfumes; 8% paper and wood products; and 5% plastics and rubbers.

With such a broad arrange of products for exports, the study claimed “the country has the advanced productive capacity and know-how to manufacture a wide variety of complex products.” In 2018, Lebanon exported to 171 countries. LCPS concluded that “Providing support and public inputs such as infrastructure and proper regulation to existing manufacturing sectors with the aim of improving their productivity can lead to significant growth and advancement within the sector’s exports.”

Whether or not the country can focus on the steps needed to make this a successful and sustainable efforts is just another challenge on the road to a healthy economy. For an insightful and detailed review of what Lebanon can do to enhance its productive sectors, check out this link to a recent LCPS report.