Remarks by the UN Special Coordinator for Lebanon Monthly Meeting of the Beirut Traders Association
It is a pleasure to be amongst many key stakeholders of Lebanon’s economy, and drivers of its future potential. In my job as Special Coordinator, I follow not only Lebanon’s political developments, but also the state of the economy, the humanitarian situation, and future prospects for development. Needless to say these are all part of the same, complex reality.
I have been asked to share my perspective on Lebanon’s economy and within this, the realities faced by the private sector. I would especially like to discuss the role of the private sector – yourselves- in fostering long term development, and especially what we like to call “inclusive growth”. Economic inclusion has become an increasingly vital matter for Lebanon in prevailing regional turmoil. Increasingly, inclusion is a matter of stability, and of moderation in the face of the extremist tide.
Inclusive growth must necessarily bring together the public and private spheres into mutually re-enforcing relationship. This has always been a challenge globally, and in Lebanon itself. I would like to point out some successful of global public-private partnerships (PPPs) as examples of what can be done, and then suggest some practical ways in which Lebanon’s private sector, can engage with international partners to maximize opportunities, for your businesses, and for Lebanon’s broader development.
Lebanon’s Economy and Challenges to Private Sector
As a cross-roads between east and west, Lebanon has long occupied a privileged position as a regional commercial and financial centre. In the 25 years since the end of the civil war, the country has experienced a period of sustained - sometimes heated- economic growth, and steady improvements in core social indicators, including for women and girls.
Even in the years immediately following the 2008 financial crisis which so badly affected the global economy, Lebanon continued to grow at levels that Western countries, and many regional neighbours, could only envy. You, the private sector have played a leading part in this post-war success.
Today, the structure of Lebanon economy, with some 70-80 percent of the GDP concentrated in a globally connected services sector (banking, insurance, tourism and hospitality), mirrors some of the most advanced countries in the world, including the United States and the UK. It has a healthy stock of foreign reserves – some $40 billion, equivalent to the
annual GDP - which can help shield the economy in the event of a sudden shock. The banking sector remains resilient.
And yet Lebanon’s private sector faces difficult challenges. The economy has slowed significantly in the past 3 years, with a 0% growth rate projected for this year by the Central Bank, the lowest since the 2006 conflict.
Property sales are down since last year, and fewer construction permits are being requested. Commercial borrowing, by SMEs in particular, has declined by no less than 30 % during 2015, and people are spending 10% less on goods and services. Both imports and exports have decreased. For the third consecutive year, economic stability has depended on sizeable stimulus packages from the Central Bank.
Much of this deterioration can be attributed to the regional context: one aspect of the regional instability is that it has scared investors away, not only from Lebanon, but from the region as a whole – in the past two years, global foreign direct investment has generally trended away from the Middle East towards surer, more predictable markets in Asia and Latin America. And with a doubling of unemployment inside Lebanon since 2011, consumers are less inclined to borrow, and to spend, than they were in the pre-crisis period.
The situation has been compounded by the near breakdown of public institutions and decision making mechanisms and the virtual halt of the legislative agenda during 2015. This has hurt Lebanon economically and politically. And it has hurt Lebanon’s reputation internationally. As you know, The Secretary-General and I, the Security Council, and the members of the International Support Group for Lebanon have loudly and repeatedly called upon Lebanon’s leaders to end the institutional paralysis, most notably by electing a new President as soon as possible. This would do much to restore the confidence of Lebanon’s investors, borrowers, and consumers.
However, we cannot attribute all problems to the current regional crisis and its spill-over into Lebanon. The economy here also suffers from chronic challenges, which I believe you will need to look at more closely:
Regional economic disparities have traditionally been acute, with about 80% of economic output concentrate in the Beirut area. This explains the unequal distribution of business and job opportunities in country, with large pockets of poverty in the North, East and South of the country. I have witnessed this personally in my visits to Tripoli and the Akkar, the eastern Beka’a valley, and villages as far south as the Blue Line. This poverty, which already affected 30 % of people in Lebanon, has risen by another two-thirds since 2011 as a result of the spill over of the Syrian crisis.
An overwhelming majority of Lebanese companies – over 95% - are Small and Medium-sized Enterprises (SMEs). Because they are small, SMEs remain vulnerable (and risk averse) in an
unpredictable economic climate, such as the one we are witnessing today. And because the field is crowded, expansion and growth are difficult. For investors, such as donors or banks, SMEs represent a high risk and sin find it difficult to find financing to expand.
Although vibrant, the business climate in Lebanon is not especially permissive: Out of 189 countries measured in the World Bank’s Ease of Doing Business index, Lebanon currently ranks 123rd. Getting construction permits, credit, even an electricity connection can be difficult, and the rule of law surrounding contracts is tenuous. These obstacles create the conditions for corruption, clientelism, and evasion, to which businesses – SMEs in particular become hostages.
Since the 1990s there has been a growing global consensus that, with the right partnerships and frameworks in place, private and public actors can work together towards effective, and mutually beneficial results. The trend has grown. Two examples include:
The Global Compact, spearheaded by the UN Secretary General in 1999, now includes 8000 companies that have voluntarily agreed to upholding core international standards of human rights, fair labour conditions and the environmental protection. 47 Lebanese
entities are a part of this, including Blom Bank, the co-sponsor of today’s event.
Since 2006, 1200 investment firms have signed onto a framework of Principles for Responsible Investment, also supported by the UN, which enhance environmental and social corporate responsibilities to “better align investors with the broader objectives of society”.
Governments, and increasingly local authorities, have capitalized on the efficiency, expertise and delivery capacity of the private sector to expand solar energy in the Middle East and North Africa, connect public electricity networks to households, ensure universal delivery of potable water, and develop public transit systems in increasingly congested cities around the world. In the past decade, the Global Fund for health has saved 22 million lives from malaria, TB, and HIV-Aids.
Forging such partnerships is not just a matter of public relations or philanthropy. Instead, it reflects a sober calculation: protecting rights, caring for the environment and investing in development are, in the long run, good for business.
What Role can the Private Sector in Inclusive Development here?
PPPs are of course not alien to Lebanon, where the relationship between private and public spheres is particularly close [one might even speak of a “rotating door” in this case!].
But the question which I would like to pose today is how can businesses here, including SMEs, establish partnerships which favour inclusive growth and minimise social and geographical disparities? I do not have a convincing answer to this question. But here some elements which I hope can stimulate our discussion here today:
Look for business opportunities beyond the Greater Beirut Area in order to try distribute economic benefits more evenly in poorer parts of the country.
- Some days ago I visited Tripoli. Both the city and its port have enormous economic potential for growth and job creation. It is home to some of the wealthiest Lebanese families. And yet it continue in a state of underinvestment and neglect at a time when its youth are increasingly at risk of politicisation and extremism. What can be done here?
- Another area is agriculture: A recent report by BankMed says that Lebanon overwhelmingly meets its national food requirement though imports from abroad. Yet domestic agriculture accounts for only 6% of Lebanon’s domestic output. Producing, processing and marketing food locally is cheaper and leaves a smaller
environmental footprint. It also creates jobs in the poorest places. What can be done to invest more in this area?
Look again at refugees: Consider more closely the World Bank’s assessment that the Syrians who have fled the war can become an economic asset if they receive adequate investment.
- More people means more consumers, and more human capital – a 50% increase in the labour pool since 2011.
- According to the Lebanese Contractors Union, 350,000 Syrians are currently employed in the construction sector, distributed across 3400 companies. The value of current contracts is estimated at USD 10 billion. But new residency and labour restrictions mean that many workers are becoming illegal. This is a risk both to workers and their employers.
- We in the UN are strongly advocating with the government to legalise Syrians’ livelihoods opportunities and to broaden their children’s access to education. For us this is matter of stability as well as inclusive growth. Help us by adding your voice to ours.
Keep up the pressure on Government to change: Following the conference of business leader earlier this year, continue to pressure the Government to perform and to reform, including in key areas of legislation. We in the UN are already providing technical assistance for
change in several ministries. You will find we carry the same messages, as do many of our partners.
Engage in the fight against corruption: A market framed by the rule of law opens up space for inclusive growth. The Ministry of Justice is currently seeking to implement Lebanon’s commitments under the UN Convention Against Corruption. We provide technical assistance here as well. The Beirut Traders’ Association is a natural constituency for this. I would invite to engage more closely with us on accelerating progress.
Learn more about the financial instruments that might be available to you if you wish to make a bigger social impact though your business, including by promoting gender equality in the work place, or investing in renewable energy or green industries and technologies. For example, the International Finance Corporation, part of the World Bank Group, has invested over $ 1 billion Lebanese small business since 2006, through loans and guarantees, and provided vital business strategy advice to start-ups.
Find out more about what technical support can be made available through the UNDP, the FAO and the UN Industrial Development Offices here in Beirut, as well as online at the Global Compact website on responsible investment opportunities, partnerships and success stories which you may find relevant to Lebanon.
I will stop here and open up the floor for discussion. But let me conclude with one final thought, inspired by a recent World Bank paper which proposes a new approach to Lebanon and the region:
Investors, banks and businesses generally take political dysfunctions, such as instability, conflict or extremism to be given, external variables with which they must cope. Instead, how can these same actors contribute – pro-actively – to creating peace and stability [which are themselves pre-requisites for inclusive economic growth]?