The impact of the Syrian crisis on Lebanon: Small advantages, huge damage, and overwhelming racism

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FILE - Syrian workers take a break from work at a construction site in Beirut in 2010. Al-Akhbar/Haitham Moussawi

By: Mouhamad Wehbe

Published Monday, January 5, 2015

Former Lebanese Labor Minister Charbel Nahhas believes that all talk about the positive effects of the Syrian refugee presence in Lebanon is inaccurate. He says that the cited increase in consumer demand is negligible compared to the massive damage to income distribution, as the overwhelming trend in the labor market has been “replacement” rather than “integration” of the production cycle.

Yet, according to Ghassan Diba, head of the Department of Economics at the Lebanese American University (LAU), this argument – which was been perpetuated by the World Bank – exaggerates losses and fuels racism against refugees.

The debate surrounding the repercussions of the Syrian crisis on Lebanon will not stop any time soon. However, most concerned parties and people focus on particular aspects of this impact, rather than the overall picture. That is, they focus on the negative economic effects of the refugee crisis, while ignoring the positive impact and its true extent.

The Lebanese government has outsourced its policy on this issue to the World Bank. As one might expect, the World Bank has taken a narrow “accountant’s” view of the issue, ultimately fueling hostility and racism against Syrians. But, what is the overall picture, and what are the real implications of the refugee presence on the Lebanese territory?

The World Bank’s perspective

On December 15, the World Bank showcased its quarterly bulletin on the Lebanese economy to Business Administration students at LAU. The World Bank experts presented the results of Fall 2014, indicating that Lebanon is the largest host of Syrian refugees, who now number around 1.2 million on Lebanese territory. The World Bank experts said that the relatively calm security situation around mid-2014 helped the recovery of several sectors that had seen a marked decline in the past three years – specifically, tourism, trade, and real estate.

The World Bank report shows that the current account deficit remains high, but that it is lower than before the crisis. Capital inflows – upon which Lebanon depends to cover its balance of payments – continue, in part thanks to foreign aid allocated for displaced Syrians.

The report goes on to state that the financial situation in Lebanon continues to deteriorate. It predicts that the deficit could reach up to 10.2 percent of GDP in 2014, compared to 9.4 percent in 2013, with the debt to GDP ratio rising from 143.1 percent, at the end of 2013, to 149 percent.

“The political stalemate and the spillover from regional conflicts limit the ability of the economy to grow if the situation should worsen,” the report warns. The World Bank states that the Lebanese economy incurred losses to the tune of $7.5 billion, due to the repercussions of the Syrian crisis, which has put pressure on public finances, various sectors, and public services.

Hyperbole and racism

After the presentation, a Q&A session ensued between the students and World Bank experts, until Ghassan Diba, head of the Economics Department at LAU, intervened. Diba argued that World Bank figures were not accurate and that they had overlooked the positive impact of the refugee presence.

Speaking to Al-Akhbar, Diba said that three central elements of the Syrian crisis and refugee influx to Lebanon have been obfuscated. “There are economic advantages to having this many refugees. The negative figures are exaggerated, misrepresented by the World Bank, aggravating racism against the refugees,” he added.

In Diba’s view, middle class Syrians who fled to Lebanon increased consumer demand by spending their savings and international aid. Furthermore, Syrian workers now spend their earnings on the Lebanese market, unlike before, when Syrian workers used to send most of their wages back to Syria.

“The local market has been using local material instead of the goods and products it used to get from Syrian factories. This has revitalized local industries,” Diba said.

The LAU professor pointed out that the World Bank exaggerates the negative effects of Syrian refugee presence in Lebanon. He said, “It is obvious that a jump in the number of poor people by about 170,000 is illogical. The same goes for the World Bank figures on unemployment rising from 10 to 20 percent… these figures are inaccurate. Refugees in Lebanon spend hundreds of millions of dollars, so we must not consider the issue solely from an accountant’s point of view. Lebanese infrastructure was not in good condition to begin with.”

Diba continued, “The $7.5 billion figure, calculated as the cost to the Lebanese economy, is hyperbolic and unscientific, and is being abused by the media to inflame anti-Syrian sentiment. This figure is not a cost that the Lebanese have paid in cash to the Syrians.”

Primary and secondary effects

Minister Charbel Nahhas, meanwhile, parses the repercussions of the Syrian crisis by distinguishing between its primary and secondary effects, so as to evaluate the benefit and damage to the economy. He believes that the main consequences of the crisis are to be found in the export and ground transportation sectors. “This is enough to hit a country's economy,” he says. “True, the crisis has limited secondary benefits, but the damage is massive and broad. There is no equilibrium between the two.”

In addition to stimulating domestic demand and increasing reliance on local products – as opposed to products imported from Syria – the crisis has benefited Beirut International Airport, which is now serving Syrian air passengers, as well as the Beirut Port, which is now the closest route to Damascus, according to Nahhas. However, as Lebanon’s economy was never about productive capacities, he continues, the influx of Syrian refugees into the labor market far outweighs the benefit of their spending, regardless whether it comes from their own savings, international aid, or other sources.

Therefore, Nahhas argues, the impact of this spending should be measured as part of the equation above. “If Lebanon indeed needed more agricultural and industrial labor, the effects of the presence of Syrian workers – who come from refugee families – could indeed be considered a gain,” he says. “However, production in Lebanon was not disrupted because of labor shortages. In all likelihood, the additional labor will not cover the shortage in resources available to local production. Rather, it will probably replace Lebanese labor of the same category, namely the poor, or replace foreign workers already present in Lebanon.”

“The overwhelming trend is replacement not integration in the labor market,” Nahhas continues. “True, the human influx increased consumer demand, but this can only be considered a secondary effect, along with increase in certain types of consumption, bearing in mind that businesses benefited from this increase, while other businesses benefited from the process of labor replacement (cheaper Syrian labor). However, the effects of this trend on the distribution of income, productive capacity, and the incomes of those living in Lebanon, is a completely different matter, because, in practice, replacement will reduce workers’ incomes.”

This means that the secondary benefits, which result from the partial correction in consumer demand, do not change the big picture. Therefore, he concludes, saying that the positive effects outweigh the negatives is not realistic. As for cash inflows, which Lebanon is swimming in, Nahhas says that while Syrian investments replace existing investments, they fail to attract dollar-denominated investment as new investments are supposed to do.

This article is an edited translation from the Arabic Edition.

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