Lebanon: Feeling The Pinch Now

As problems in Lebanon escalate, tourism and the import-export industries are suffering the consequences.

As the summer of 2012 approached, various tourism establishments were getting ready for the season. Hopes, as usual, were high. The crises besetting the Arab world had not reached Lebanon yet. However, things changed rapidly and previous assessments were reversed.

According to the General Secretary of the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Pastries, Tony Ramy, this market lately dropped by 50 percent. “That dealt a blow to the various institutions that had been preparing themselves for the summer season,” he said

Ramy explains that in previous years there had been a monthly influx of 50,000 tourists of all nationalities coming to Lebanon through Syria.

“These people come to Lebanon for tourism, not only to Beirut. Their spending benefits the capital and institutions in other areas as well,” he said.

But there has been a sharp decline in the influx of tourists with the persistence of the problems in Syria and the escalation of tensions in Lebanon.

The tourism sector is one of the basic pillars of the rentier and unproductive Lebanese economy. In 2011 it declined due to tensions in the region, specifically in Syria, leading to a drop in the number of tourists by nearly 25 percent after the record 2.1 million tourists that came the year before.

According to predictions by the World Travel and Tourism Council that were issued early this year, the tourism sector in Lebanon was expected to contribute US$4.3 billion to the national economy this year, that is about 10 percent of the Gross Domestic Product (GDP).

People working in the tourism industry were expected to increase to about 130,000 workers, which represents 9.5 percent of the total labor force.

The tourism sector affects many other sectors and its impact is felt all over the economy. However, with the discernible downward spiral of events and experts’ predictions, tourism is likely to drop further yet, which will translate into a wave of employee layoffs.

Basic Exports

The export industry, where precious metals, especially gold, top the list, is also suffering. The decline in foreign demand has led to a drop in the export of gold fashioned and worked at factories by almost half, according to the former head of the Syndicate of Jewelers, Walid Mouawad.

“This decline is caused by the continued political and security events (in the region as a whole) for over a year,” he said.

In 2011, Lebanon imported 36.8 tons of unprocessed gold. This precious metal is then exported after it is fashioned and worked. Sixty percent of these exports go to Gulf countries. This year however, the number of exports declined by half.

The decline in demand is due to the loss of confidence in Lebanese and Arab consumers who “do not wish to spend money on buying a luxury item like gold. The psychological factor plays a very important role in this process,” says Mouawad, adding that this in turn has a strong impact on local factories, as some of them are laying off workers.

Nevertheless, Lebanese factories are not despairing yet. According to Mouawad, “they are currently trying to expand their presence into European markets to make up for the decline in selling their products in Gulf countries. It helps that Lebanese prices can compete with European prices for a quality similar to that of European products.”

European markets are the only ones available and they are currently undergoing major economic problems. It is not possible to compete in East Asia because the cost of Lebanese production is four times higher than the rate there.

The Machines Broke Down

Another major export that is threatened because of developments surrounding Lebanon is electrical machinery and equipment manufactured locally.

Experts in the field explain that the basic problem in this sector is that factories are under the obligation of foreign contracts signed in countries like Iraq, Gulf countries and Iran.

In the first quarter of this year, Lebanese exports of electrical machines, devices and equipment dropped to US$116.3 million compared to US$128.8 million in the same period last year.

Exports of electrical machines and equipment dropped by nearly 31 percent between 2010 and 2011.

According to the same experts, the sanctions on Iran and Syria played a role in this decline. Scrutiny and harder procedures for obtaining bank credit hinder import and export operations.

Manufacturers’ contractual obligations are push them to take bigger risks. They are continuing to export, even though land routes have become more expensive due to security pressures in Syria. Much of Lebanon’s electrical machines and equipment exports go to Iraq, Saudi Arabia, Jordan, Kuwait and the United Arab Emirates, which means they have to pass through Syria first.

Foodstuff

The head of the Syndicate of the Importers of Foods, Adel Abi Chaker, explains that Lebanon imports products from various markets - the Americas, the European Union, Thailand, China and Arab states. Consequently, the size of imports is not affected by regional problems.

Troubles inside Lebanon, however, do have an impact. They will lead to a decreased demand in the Lebanese market.

Abi Chaker points out that what is happening in Syria has not caused any changes in the size of imports from Arab markets. But the barriers to imports have increased, especially because Saudi Arabia has required Syrian drivers to have a visa to enter its territories. So, imports through land routes declined in favor of using sea routes, which in turn has increased the waiting period on imported goods and simultaneously increased the cost of imports.

Lebanon imports many food items from Arab countries. To benefit from the Agreement to Facilitate and Develop Trade Among Arab Countries that cancelled customs duties for the movement of goods between signatory states, some international companies started manufacturing in a number of Arab states like Egypt, Jordan and some Gulf countries.

The exports of food industries have not been affected by what is happening in the Arab world, according to the head of the Food Industries Association, George Nasrawi.

The markets to which Lebanon exports its food are still the same: Europe, Latin America, Canada and Africa.

He points out that the rate of exports to Arab countries has not changed, but shipping has changed from land to sea. He says the cost has not risen much but now it takes weeks for the goods to reach their destinations.

Nasrawi stresses that the local Lebanese crisis has a bigger impact than regional conditions on exports because internal escalation undermines confidence in the Lebanese source, which results in a drop in international and regional demand for its products.

In addition, if the internal crisis develops, it might be impossible to reach manufacturers in the countryside, which would mean a decrease in the size of exports. Nasrawi points out that currently the internal market is witnessing a recession while the size of the exports is still stable.

Difficulties in Transit

The head of the Farmers Association, Antoine Howayek, explains that the size of agricultural exports is stable except for bananas, whose exports to Syria have declined from 95,000 tons to 35,000 tons annually.

This is because the Syrian authorities decreased customs duties on importing bananas. This led to a decrease in the demand for Lebanese bananas whose price in the Syrian market is higher than imports from other countries.

Howayek stresses that the transit movement of agricultural products through Syria is still the same, but the cost of the transfer is higher as a result of the increased risk of passing through Syrian territories.

As such, the prices of Lebanese agricultural products designed for exports have increased by 50 percent on most products.

The consumption of agricultural products dropped at a rate of between 30 and 40 percent, depending on the product, in 2011 compared with 2010.

The importing of fruits and vegetables is still the same, even though most agricultural imports are from Saudi Arabia, Egypt, Jordan and Syria. Howayek points to the rise in the size of imports after cancelling the agricultural calendar in early 2012.

(Al-Akhbar)
This article is an edited translation from the Arabic Edition.