Syria\'s war highlights economic fragility in Lebanon

August 13, 2017
Deepening problems. A street hosting banks and financial institutions, known as Banks Street in Beirut central district. (Reuters)

Beirut - The conflict in Syria has had an increasingly pro­found effect on Leba­non’s economy, dragging down tourism revenues, hitting the upscale retail sector and squeezing real estate prices. While the outcome may be indisputable, to lay blame for the cause entirely at the door of the war in Syria may be too easy an interpretation.
True, the start of the Syrian con­flict scared off both rich Gulf tour­ists and Lebanese expatriates. The subsequent drop in the numbers of wealthy shoppers depressed high-priced retail and deterred foreign investment in property, resulting in an economic slowdown that led to wage stagnation.
The situation was very differ­ent a few years ago. In early 2012, most people thought the summer’s tourist season would resolve the country’s economic woes. By the time the summer of 2012 arrived, however, the situation in Syria was growing more violent and it be­came clear that Lebanon’s econo­my was facing serious challenges.
Lebanon’s economy has tradi­tionally relied upon a combination of property investment and tour­ism to fuel growth. Much of that came from wealthy Gulf Arabs who regularly made their way to Leba­non before war in neighbouring Syria caused them to reconsider their portfolios.
Another large segment of the tourism and property investment sector was the 15 million expatri­ate Lebanese, who also abruptly stopped visiting in large numbers after the outbreak of hostilities in Syria.
In the case of Gulf tourists, there have been several attempts to lure them back, including large dis­counts on airfares and hotels. For most of the tourists from the Gulf countries, however, price was not as much of an issue as security con­cerns, real or imagined.
While the Lebanese diaspora are beginning to return in significant numbers, sometimes even invest­ing, overall levels of tourism and real estate sales have yet to re­bound to pre-war highs, nor are they expected to anytime soon.
Nassib Ghobril, chief economist and head of the economic research and analysis department at the By­blos Bank Group, noted the stages of war that have roiled the Lebanon economy: “It affected consumer confidence at first, because our politicians helped to import the is­sue (instead of keeping a political distance from Syria’s warring fac­tions). Then we began to see attri­tion in Gulf tourism: 200,000 per year came through Syria on the land route, which ceased immedi­ately.”
He added: “Export transporta­tion through Syria began to be af­fected because of both risk and rising cost, eventually closing Leb­anon’s land export routes to the majority of MENA.”
The effect on consumer confi­dence has been dramatic. Accord­ing to the bank's recent consumer confidence index, the average monthly score during the first quar­ter of 2017 was 44.8%, startlingly lower than the peak registered in the fourth quarter of 2008 of 105.8%.
The effect of Syria’s civil war extended beyond consumer confi­dence. In 2010, GDP stood at more than 8%, with healthy growth in both real estate and tourism. However, just the following year, growth plummeted to less than 1% and has fluctuated near a baseline of 2% since. During 2016, GDP grew 1.8%. It is forecast to grow 2.2% for the current year, the World Bank projected.
Part of the Lebanese economy’s collapse can be attributed to the ar­tificial inflation of certain sectors, particularly property. Once the ef­fects of the Syrian war spilled over, the outcome was assured.
Ghobril noted the effect of a se­ries of domestic political shocks on the economy, such as the forced resignation of Prime Minister Saad Hariri in January 2011, which dealt body blows to the country’s finan­cial health. (Hariri regained his po­sition as prime minister in Decem­ber 2016.)
It would also be wrong to assume that Lebanon’s infrastructure and social structures were thriving pri­or to hostilities in Syria. Further to its over-reliance on a few economic sectors, were the country’s weak public finances, a broken down state-run power company, subpar telecoms and internet quality and a lack of rubbish collection.
“All these problems existed be­fore the Syrian war but the struc­tural imbalance of the Lebanese economy made for a situation in which deepening local economic problems became inevitable from the crisis next door,” said Ghobril.
A variety of key economic indica­tors, such as consumer confidence, the Purchasing Managers Index and housing and apartment sales, remain weak in Lebanon. There is no indication of an upturn soon or any realistic expectation that the Syrian war will come to a sudden and peaceful halt and ease the eco­nomic pressure on the Levant.