Lebanon’s economic hurdles mount

Sunday 23/10/2016
A man carries a sign while attending a demonstration in support of Lebanese banks near the Central Bank in Beirut, Lebanon, last June. (AFP)

Beirut - Many key economic indexes in Lebanon have slumped and the international community is pres­suring the country to introduce further reforms to its financial laws or face restrictions but politi­cal deadlock and fallout from the war in neighbouring Syria make chances of progress slim.

Retail sales dropped 16.5% to a record low in the first half of 2016 compared to the same period last year, according to the Index of Re­tail Sales, which is prepared by the Lebanese Franchise Association (LFA) and the Chamber of Com­merce, Industry and Agriculture of Beirut and Mount Lebanon (CCIB).

The recorded level for this year is lower than that in the first six months of 2012 when the index was introduced, said LFA Presi­dent Charles Arbid, who attributed the downfall to major decreases in key constituent indexes.

“The attires index, constitut­ing 22% of the main index, fell by 7.5% during the same period,” he said. “The index of hotel services, whose share is 19%, decreased by 8%. The tourist services index, contributing 9%, declined by 6.6%. The index of luxury goods, which forms 8% of the main index, lost 9.28%.”

Arbid said he was “extremely worried”, recalling that decreases in retail sales reflect lower con­sumer spending, which makes up 70% of Lebanon’s gross domestic product (GDP). “This means in­comes are decreasing, while retail outlets are running out of money and cannot invest. They may resort to layoffs and hence contribute un­willingly to the vicious circle.”

The Central Administration of Statistics has further worrying fig­ures. Consumer prices fell 0.84% in August compared to July, when the prices increased by 0.16% com­pared to June. On a yearly basis, consumer prices fell 0.79% in Au­gust compared to the same month in 2015.

Nicolas Chammas, the head of Beirut Traders Association (BTA), said: “The situation is very bad.” Since the Syrian revolution started in March 2011 and soon deterio­rated into a war with interventions by regional and international play­ers, “Lebanon’s economy has been gradually weakening, with trade suffering the biggest blow,” he said.

He warned that the middle class, which was the backbone of Leba­non’s economy before collapsing during the country’s 1975-90 civil war, “caught some breath in the 1990s but is now facing downfall again. The country’s middle class includes traders and employees who suffer from decreasing pur­chasing powers.”

Syrian refugees in Lebanon, es­timated at more than 1 million, have introduced different consum­ing habits, especially with the low number of foreign tourists in recent years, a BTA source said. “Lower-end goods are selling better, while higher-end goods are selling less and less. This is understandable since rich tourists from the Gulf do not come here anymore due to se­curity warnings from their govern­ments,” the source said.

Before their governments ad­vised them to avoid travel to Leba­non due to the role of Hezbollah, the Shia militant group, in the Syria war, Gulf tourists mainly came by land via Syria, Pierre Ashkar, head of the Hotel Owners Association in Lebanon (HOAL), said. “Accord­ing to Tourism Ministry figures, the number of Gulf tourists fell by 40.2% in 2011, 57.8% in 2012 and 40.6% in 2013,” he said.

“Shy increases of 12.8% and 6.8% in 2014 and 2015 were not enough,” he said, estimating that tourism’s share of the GDP fell from $7 billion in 2010 to $3.5 bil­lion in 2015. A HOAL source said the verbal exchange between Hez­bollah, which backs the regime of Syrian President Bashar Assad and Saudi Arabia, which backs Syrian opposition factions, was the main reason why Gulf governments al­most banned their nationals from visiting Lebanon.

Another problem is due to the political deadlock that has kept Lebanon without a president since May 2014 and prevented general elections being held since June 2009, forcing parliament to extend its tenure twice. Political bickering has rendered the cabinet of Prime Minister Tammam Salam ineffec­tive.

Parliament, which met in No­vember 2015 for the first time in a year, passed financial laws to avoid an international boycott of domestic banks and approve in­ternational loans that were about to expire. It must meet again soon as Lebanon is being pressed to join the Common Reporting Standard (CRS), formally referred to as the Standard for Automatic Exchange of Financial Account Information. It is a standard for the automatic exchange of information, follow­ing the Organisation for Economic Cooperation and Development (OECD).

The legal basis for exchange of data is the Convention on Mutual Administrative Assistance in Tax Matters, and the idea is based on the US Foreign Account Tax Compliance Act (FATCA) imple­mentation agreements, explained Makram Sader, secretary-general of the Association of Banks in Leb­anon (ABL).

“The CRS is very likely to af­fect Lebanon’s banking secrecy, which has been attractive to for­eign depositors,” he said, urging parliament to legislate protective measures before Lebanon joins the CRS. “OECD found some reforms introduced in November insuffi­cient, and joining the CRS is a must before the end of 2016 to avoid international restrictions against Lebanese banks.”