Lebanon’s economic hurdles mount
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.”