Lebanon Shows Weak Rankings in Terms of Readiness for Change, Human Capital Development, and Support for SMEs. Russia Deepens in Influence in the Region.

August 12, 2019

The recent weekly summary on the Lebanese economy published by the Byblos Bank Economic Research and Analysis Department carried a story on Lebanon’s ranking in the 2019 KPMG Change Readiness Index (CRI). The CRI measures how effectively a country’s government, private and public enterprises, as well as people and civil society anticipate, prepare for, manage, and respond to change and cultivate opportunities. It is based on 150 variables grouped into three equally-weighted baskets: Enterprise Capability, Government Capability, and People and Civil Society Capability.

 

It will be of little surprise that Lebanon scored best on the enterprise capability with a global rank of 71, and worst on the government capability with a score of 93. Lebanon has rather weak rankings relative to others, coming it at 77th among 140 countries and 7th in the Arab world, although this is an improvement of its 2017 ranking of 92nd worldwide and 14th among Arab countries.

 

According to the UNDP project director for fiscal reform in Lebanon, the country placed 86th out of 157 countries on the Human Capital Index (HCI) with a score of .54, meaning that its productivity in terms of human capital is just 54% of what it could be. His analysis, published in Executive Magazine, said that “Lebanon has failed to design and implement developmental policies for its own population." Due to low-quality public education and limited years in school, the HCI estimates the effective school years for Lebanese students is just 6.8 years, compared to the regional average of 7.6 and the world average of 7.9. If comparing the country to developed countries, Lebanon shows an even greater learning gap of 3.7 years.

 

In this light, he calls for an “emergency plan” to understand the problem with the added burden of the Syrian refugee population that is overtaxing the educational system, the low quality of public versus private education, curricula needs, how to improve teacher quality, and the linkages between education, health, and an overall economic plan, “because society is not a sum of the parts—it is a whole to which success is as good as that of its weakest member.”

 

Another indicator related to the education performance of Lebanon, is the vitality of the emerging private sector – is it dynamic, stagnating, or incrementally growing? One measurement is the growth of small and medium-sized enterprises (SMEs), which are critical to creating jobs and expanding economic diversity, both in terms of output and the regions of the country.

 

Of concern here is the report of the Kafalat Corporation, a state-sponsored organization that provides financial guarantees for loans for the set-up and expansion of SMEs in industry, agriculture, tourism, high technology, crafts, and energy. In the first half of 2019, loans decreased some 85.1% from $28.8 million in 1H2018 to $4.3 million in 1H2019. There were 223 guarantees issued in 1H2018 while only 34 were made in 1H2019, down some 84%. Among the regions receiving the guarantees, Mount Lebanon stood at 50%, the Bekaa at 25%, Beirut with 11.1%, North and South with 5.6% each, and Nabatieh at 2.8%. These represented 36.1% to the industrial sector with tourism and agricultural projects at 27.8% each, specialized technologies at 5.6%, and handicrafts at 2.8%.

 

Russia continues its broad offensive to become a key force in the Levant. Its latest steps being a closer security relationship with Iran and the outcomes of the recent Astana process meeting. An article in Al-Monitor noted that “Russia and Iran are deepening their military ties in a joint challenge to perceived US hegemony in the Middle East.” A memorandum of understanding (MoU) between the Defense leadership on both sides envisions an expanded military relationship, which illustrates that despite other disagreements such as their respective roles in the reconstruction of Syria, that there is a great deal of common military and maritime interests, the latest featuring a joint naval exercise in the Straits of Hormuz.

 

As reported by a Turkish journalist, the latest session of the Astana process, held in Nur-Sultan, resolved some agenda items while others are still pending. The first item on the agenda was the composition of the constitutional committee, with Russia able to pressure Turkey to accept proposed changes to the membership. “In the final communique, Turkey, Russia, and Iran expressed satisfaction that work on establishing the committee and its procedural rules was nearing conclusion and pledged support to make sure it convenes in the shortest possible time.”

 

Turkey is representing opposition groups supported by Turkey, and the remaining issues are related to the functions and working principles for the committee. Disagreements include a time frame for drafting the new constitution, the specific time and frequency for committee meetings, and what the majority percentage should be for decision-making.

 

As the author concludes, “A constitution-drafting process excluding the self-rule administration [the Kurdish enclaves], which holds nearly a third of Syria’s territory, could hardly claim inclusiveness and produce a durable solution. What is more, it remains doubtful whether a committee that has taken so long to create could work with determination, consistency, and efficiency.”

 

Given Russia’s long-term interest in dominating the region, it is no surprise that leading Russian companies, already maneuvering for Syrian reconstruction projects, are being joined by midsized firms looking to cash in. The former head of Russia’s Trade and Economic Division at its embassy in Damascus wrote in Al-Monitor that there are good reasons for these companies to seek out Lebanese partners.

 

These include access in Lebanon to international service providers in consulting, auditing, financial insurance and banking services, “which minimizes risks related to anti-Syrian sanctions imposed by the United States and EU;” extensive holding of Syrian deposits in Lebanese banks anticipating reconstruction opportunities; access to international partners that prefer operating in Lebanon’s business environment; and the well-positioned and trained human resources available in Lebanon. In addition, cross-border business is a staple of commerce between the countries, and there are many successful joint ventures and family partnerships between the two.

 

If Russia continues its expansive influence campaign at the expense of Iran and Turkey, its companies will be well-positioned to command key roles in Syrian reconstruction while American firms will be standing outside waiting for the US government lights to turn on.

 

 

 

 

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