Socio-Economic Environment Of Lebanon
Lebanon is a small, high-middle-income country bordered by Syria and Israel while overlooking Cyprus across the Mediterranean Sea. It has a population of 6,1 million, of which half of the population lives in capital Beirut (Worldometers, 2018). From the year 1923 to 1943, French authority governed Lebanon under the Mandate for Syria and Lebanon, founded by the League of Nation after the World War I and the fall of Ottoman Empire. On November 22, 1943, Lebanon gained its independence. According to the National Pact, the President was to be a Maronite, the Prime Minister a Sunni Muslim and the Speaker of Parliament a Shia Muslim; however, the Maronite sect, the Christian group who adhere to the Syriac Maronite Church remains in the dominant role in its political atmosphere.
In 1975, tensions inherent to the distribution of power contributed to the outbreak of civil war that lasted for 15 years. The war destroyed the country’s infrastructure and held back the economy. Between 150,000 and 200,000 people, including civilians, are killed in the battle (LA Times, 1991). As a result, annual GDP per capita growth rate dropped significantly to negative 40%, and GDP per capita decreased by almost 50% during the civil war. On September 22, 1989, the Taif Agreement was signed to end the decades-long Lebanese Civil War, provided the basic needs for citizens, and reach political stability in Lebanon (Krayem, 2012).
It took the name of Ta’if, Saudi Arabia, where the agreement was negotiated with mediation and participation of Saudi Arabia, the United States, and Syria (Hudson, 1997). The treaty further advanced mutual coexistence among different religious sections in Lebanon and shift political representations in the parliament, abolishing political sectarianism and enhancing the balance of the powers between Sunni and Christian. On October 13, 1990, the Lebanese civil war officially ended on.
During the war, foreign investments are low due to political stability. As one of the top remittance-receiving countries in the world, Lebanon benefitted from remittances that financed education and healthcare during wars and reconstruction followed by the civil war. Post-war policies and reconstruction effort during the 1990s lacked a sustainable plan vision for the Lebanese economy as the government mainly focused on physical infrastructure (National Human Development Report).
According to the World Development Indicators, Lebanon’s economy is mostly based on financial services, trade, and tourism. Lebanon has a higher GDP per capita compared to most of the countries in the Middle East and North Africa region, but the Lebanese economy is highly vulnerable to external shocks due to the lack of diversification. The government’s expansionary public expenditure policy resulted in a rapid increase of the public debt (Jarrouj, 2012).
That means Lebanon spent more money on import goods than creating revenue from export goods. Trade as a percentage of GDP decreased by 75% from the year 1990 to 2000. Although the Taif Agreement was signed, only partial accords were implemented, and government policy failed to address social inclusion; consequently, sectarian divisions in Lebanon continues to challenge the efficiency of the public and private sectors.
In 2000, Prime Minister Rafic Hariri was elected to the office. Harri was an essential figure in the continuous post-war reformation and launched a series of economic reforms to improve socio-economic conditions in the country, particularly in changing the landscape of central Beirut district. The reconstruction was made possible through international aid, public debt, and private investments. In 2005, Hariri was assassinated in a car bomb explosion, which resulted in civil turbulence. The shock of these events dramatically and negatively affected the foreign direct investment (FDI) within the same year; however, through a series of a recovery program implemented by the parliament, it soon recovered and restored the public’s confidence.
In July 2006, as Lebanon’s economy just started to recover, Israeli launched a massive attack against Lebanon and resulted in severe damage in economy and society. According to the International Bank for Reconstruction and Development (IBRD) report, thousands of civilians were killed or injured, and the country’s infrastructure was once again destroyed. The war costs 5 billion dollars. Israel never declared war on Lebanon and claimed it only attacked Lebanese governmental institutions that associates with Hezbollah.
Then Prime Minister Fouad Siniora called on U.S. President Bush to exert all his efforts on Israel to stop its aggression on Lebanon. On August 11, 2006, UN Security Council Resolution 1701 was approved by the United Nations Security Council to reach a comprehensive ceasefire that ended the hostilities. At the end of 2006, continuous aggression between the two parties in Lebanon resulted in an 18-month long political stalemate between 2006 and 2008 and paralyzed the country once again. The political party March 8 Alliance demanded more power and veto rights to the March 14 Alliance party.
In 2007, sit-ins, protests, and clashes escalated the divisions in the country. By May 2008, both political parties agreed to end the stalemate as they met in Doha, Qatar and signed the Doha Agreement which “laid out the essential steps for long-term stability that the different parties would agree to and established the approach for a presidential election (IBID).” On May 25, 2008, a year after Michel Suleiman the leader of the Independent Party became president, GDP proliferated compared to previous years. GDP per capita growth rose from 1% in 2007 to 9% in 2009 due to rising domestic demand and steady economic growth. Tourism rate also increased due to political stability.
The Lebanese banking sector is known for its conservative practice and was not affected by the 2008 global financial crisis. With political stability and healthy economic growth, the government is spending more than its revenues from taxes and trade. These deficits resulted in the drop of GDP per capita increase (See in Figure 7). In 2009, Lebanon’s public debt was 148% of GDP, and such high public debt makes a service-oriented economy unsustainable and vulnerable to external shocks such as decreased foreign investment or political instability (World Bank, 2010). Overall, Lebanon enjoyed a relative calm and prosperity when the political atmosphere allowed economic growth, but turbulent domestic and regional issues continue to challenge its sectarian politics and financial management.
Since the outbreak of the Syrian Civil War in 2011, Lebanon suffers sudden overpopulation and financial burdens of the Syrian refugee crisis. According to UNHCR, Lebanon receives 976,002 registered Syrian refugees as of July 31st, 2018, and 30% of Lebanon’s population is currently Syrian refugees . Syrian refugee migration has expanded Lebanon’s existing social and economic challenges. The forced displacement has affected Lebanon across all sectors. Since 2011, Lebanon’s trade as the percentage of GDP and trade in service dropped significantly due to the ongoing Syrian civil war and loss of importers in the region.
Foreign Direct Investment continues to shrink due to the uncertainty of the future in the area. As a small, lower-income country, Lebanon desperately needs international aid to develop programs that address issues related to Syrian refugees’ education, healthcare, sanitation, recourses, and unemployment. Although Lebanon continues to receive donations from all over the world, the country hardly receives a promised amount of aid each year, leaving refugees live in less than 3.84 dollars per day (UNHCR, 2018). Lebanon is one of the most water scarcity countries with annual water availability is 933.8 cubic meter per person, which is 1,000 cubic meters below the water scarcity threshold (Aquastat, 2014). In the coming years, Lebanon will experience water shortage given growing demand for water from citizens and refugees.
Although Lebanon receives a right amount of aid and foreign investment from the U.S. and European Union, corruption is a significant threat to its private sector and overall economic performance. Its “inefficiency bureaucracy, lack of transparency, and absence of accountability mechanism” creates an environment that is inconducive for business and investment, despite its open-market economy (Jarrouj, 2012)." In 2017, Lebanon ranked 133 out 190 countries in the Ease of Doing Business Index (Doing Business database, 2018). Moving forward, The role of the Lebanonese government should consider a holistic approach to social reforms and pursue a diversified economy.
