Numbers that Expose the Pain in Lebanon, and the Possibilities

Wednesday, February 3, 2021
Jean AbiNader
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For reliable data on Lebanon and the Arab world, look at publications of the Byblos Bank Economic Research & Analysis Department. Nassib Ghobril, the bank’s Chief Economist, heads the department, which compiles its own data and reports on international sources and analyses. Its publications include country risk analyses of the region in addition to reports on Lebanese real estate and consumer confidence.

In a current report, two segments warrant mentioning are bad news and a cautionary tale, but worth examining for policy implications.

The first is a World Bank study that examines the increase in food prices in the Middle East and North Africa. Lebanon had the highest increase in the region between February 14, 2020 and January 20, 2021. In the five categories of carbohydrates, dairy, fruits, meats, and vegetables, only bread, highly subsidized for the moment, increased by less than 10%. However, according to caretaker Minister of Economy and Trade, Raoul Nehme, the price of bread will soon increase.

Importing 85% of its foodstuffs has left Lebanon vulnerable to global factors such as market supply and competing demand, as well as the need for US dollars or other stable currency for purchases from suppliers who will not deal in Lebanese pounds. So the Lebanese are hit two ways: not having currency to purchase foodstuffs at stable prices, and the pound shifting value daily so that it is not acceptable for foreign transactions.

There are estimates that hyperinflation is in excess of 150%, while a respected US economist, Steve Hanke, who has been tracking inflation since 2019 estimates it at 274%. An examination of the increases gives concrete indicators of where the actual rate is. While the cost of fresh or frozen beef grew by an average of 10.6% in the region, it increased by 103.4% in Lebanon. Bananas, which were once grown in the country, rose by 88.6% – again, the highest rate in the region which experienced an average increase in 10.5%. The only other outliers were Yemen and Djibouti which posted increases of above 20%.

The price of eggs, again, once a common Lebanese product, jumped by 86%, the biggest increase in the region where the average was 6.7%, while Djibouti, Iran, Syria, and Yemen increased more than 20%. Rice in Lebanon cost 81% more and tomatoes rose 80%, large increases for families making any stuffed vegetables. Onions rose 70% and lettuce 64.6%, this news made even worse by the fact that less than 20 years ago, Lebanon was largely self-sufficient in these vegetables. This is also true of potatoes which went up an average of 4.4% in the region and 64.3% in Lebanon.

Graph courtesy of Byblos Bank Economic Research & Analysis Department

It is unsurprising, given the above facts, that fresh and frozen chicken increased by 61%, second only to Djibouti, while in the region, cost grew by 16.6%. Apples and oranges, again, once a cash crop in Lebanon, rose by 50% and 53.7% respectively; while Lebanon is fortunate to be receiving a shipment of milk and infant formula from Egypt, as processed milk rose 52%, a burden for families with children.

A review of the list clearly and shockingly emphasizes the importance of restarting Lebanon’s agricultural sector and targeting products that would ease the burden of imports, provide employment, and create income from exports. In multiple studies, the agricultural sector is identified as one of the high growth areas for the country.

This brings us to the cautionary tale: quick fixes. Whether it’s the unproven gas fields that are going to save the country or the premise of mortgaging the country’s assets, nothing comes without a price tag and even potential damage to an already crippled economy. This is the concern with those who propose the option of privatization.

A recent study by the Issam Fares Institute for Public Policy and International Affairs (IFI) stated that “Any decision about the privatization of state-owned assets must factor in the long-term impact of such actions on the economy and on the provision of public services, and should aim to improve the socioeconomic conditions of Lebanese citizens.” Why the caveat?

In case after case worldwide, at best, privatization attracts investments, promotes jobs and growth in the sector, expands services, raises quality, and provides fresh income to the state. In the worst of cases, which are quite common, the asset (say the electricity company) is sold to cronies who do not invest in new machinery, lay off workers to cut costs, reduce services to save money, increase the company’s debt by borrowing against the assets, furthering dampening the company’s value, and cutting deals with regulators to avoid contractual obligations.

The range between the two extremes is quite large and the way to have an effective process can be reduced to three terms: contract and operating transparency, clear and applied regulator regime, and performance metrics that are monitored and penalties assessed for non-performance. There are plenty of success stories and plenty of scandals. How would Lebanon manage a privatization or public-private partnership regime when it can’t even assemble a functioning government? Current performance is not reassuring.

The study indicated that the electricity company, airports, ports, and the water authorities could be developed through concessions, lease contracts, or other arrangements, “and have the potential to generate long-term benefits to the country.” In addition, the country’s real estate and transportation (MEA) assets, tobacco monopoly, and telecommunications companies have high privatization potential.

The IFI noted that “Lebanon does not currently have the necessary prerequisites and conditions to conduct a proper and transparent privatization process.” Among the problems it pointed to are poorly implemented anti-corruption laws, an outdated procurement process, structural deficiencies, and regulatory regimes that lack of transparency, are ineffective, subject to political interference, or do not exist.

There are other issues as well, but this tells the story. No easy options to get out of this mess.

The views and opinions expressed here are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon.