Lebanon’s Economic Dependence on the Gulf: Debunking the Myths
Published Monday, February 23, 2015
Policies in place in Lebanon have pushed the national economy to specialize more and more in serving a rentier regional economy, and made it fundamentally dependent on remittances and cash inflows from abroad to bridge the gap between local GDP and consumption. In this context, there have been many myths about the “magnanimity” of oil-rich Gulf states and their support for the Lebanese economy. However, it is sufficient to examine the sources of these claims to find out that while the Gulf is indeed an important source of inflows and remittances to Lebanon, the magnitude of the phenomenon is much smaller than the media’s political exaggerations would have it.
Contrary to the relief over the positive effects of the decline in oil prices, with lower energy bills and consumer prices expected in Lebanon, many are concerned the remittances sent by expats working in oil-rich Gulf countries will decrease for the same reason. These concerns are amplified by media hyperbole, and a steady stream of false claims to the effect that the Gulf nations are the source of 60 percent of remittances sent by Lebanese abroad, or that direct Gulf investment accounts for 80 percent of all investments in Lebanon.
However, anyone that scrutinizes the data and relevant reports will see an altogether different picture. The economic dependence on the Gulf is much less dramatic than the media has been suggesting, whether in relation to expat remittances or cash inflows, in general. In effect, non-productive real estate investments that do not generate jobs represent the majority of Gulf financial flows into Lebanon.
The World Bank Quarterly Economic Brief published in January with a focus on the plunge in oil prices indicated that Lebanese expat remittances from GCC nations account for only 14.7 percent of total remittances, with the remaining 76 percent coming from OECD countries that include European countries, Australia, and Mexico, with 19.1 percent coming from the United States alone.
Al-Akhbar sought to verify these figures, which completely contradict the data circulating in Lebanon. Wissam Harake, an economist at the World Bank office in Beirut, says the World Bank data covers some GCC countries but not all. Harake said the figures were the result of bilateral remittances surveys and do not include data from Kuwait and the UAE, and therefore are not comprehensive, and could not be relied upon.
The clarification from Harake was not immediate, but came after checking with the World Bank headquarters in Washington, following Al-Akhbar’s, perhaps, embarrassing questions. So did the World Bank make a mistake and publish inaccurate figures? Or was it rushing to contain the fallout from publishing data that undermines the claims regarding Lebanon’s dependence on the Gulf, data that does not suit interests that influence the World Bank?
In any case, the figures in the World Bank report show Lebanon to be less reliant on remittances or inflows from the Gulf compared to other countries in the region. In Jordan’s case, 65.7 percent of inflows come from the Gulf, compared to 19.3 percent from the OECD, including 12 percent from the United States alone. In Syria’s case, 49.8 percent of inflows come from the Gulf, compared to 31.7 percent from the OECD, including 9.8 percent percent from the United States alone. Even in Iran’s case, 32.9 percent of inflows come from the Gulf, compared to 63.8 percent percent from the OECD, including 25.7 percent from the United States.
Regardless of the accuracy of this data, analyzing it leads to the same conclusions reached in the report. According to the report, “As most migrants in the GCC countries today are from South Asia, only an average of 22 percent of remittances outflow from GCC countries go to other MENA countries.”
Further, according to the report, outward remittances from GCC to other MENA countries are broken down as a total of outwards remittances as follows: Bahrain (19 percent); Kuwait (34 percent), Oman (6 percent), Qatar (15 percent), Saudi Arabia (31 percent), and the United Arab Emirates (14 percent). This is not surprising. It is well-known that the Gulf countries have sought to employ millions of workers from South Asia to reduce their dependence on more expensive Arab workers, and also to avoid risks from an Arab “demographic bomb” that could threaten the oil-rich regimes.
Much hyperbole is in circulation regarding the negative effects of the decline in Gulf economies on Lebanon. However, figures from the 2014 report [AR] on the climate of investment in the Arab countries by the Arab Investment & Export Credit Guarantee Corporation paint a completely different picture.
The report puts the share of Gulf investment out of the total inter-Arab investments in Lebanon between 2003 and 2014 at around $1.0685 billion, compared to total foreign direct investment in Lebanon between 2003 and 2013 of $38.582 billion. In other words, Gulf investment in Lebanon accounts for less than 28 percent of total foreign direct investment in the country.
According to the figures of the Investment Development Authority of Lebanon (IDAL), European companies were the main investor in Lebanon in 2013, accounting for more than 45 percent of foreign companies investing in Lebanon. Companies from France accounted for 13.3 percent, from the United Kingdom for 8 percent, and Italy for 4.4 percent.
According to IDAL, the share of Arab companies (not just Gulf companies) of investments in Lebanon declined to 31 percent of total companies investing in the country. IDAL said, “More than 60 percent of these investment projects were made in the Trade/Retail, Tourism and Services sectors.”
Furthermore, according to the data of IDAL’s annual report from 2012, the five main countries investing in Lebanon were the UAE (19.7 percent of foreign investments), followed by Britain, France, Iraq, and Egypt, with 15.2, 9.1, 6.1, and 4.5 percent, respectively. Again, this paints a different picture than the one peddled by those who claim there is an organic link between Lebanon and the GCC countries.
Al-Akhbar tried to get official figures to further clarify the picture about the inflows to Lebanon, which are broken down by country of origin and type (remittances, bank deposits, stocks and bonds, direct investments). According to Wissam Harake, the World Bank does not have accurate data on the shares of various countries of inflows into Lebanon, saying the main source of information for the World Bank is the Banque Du Liban (BDL), which does not publicize this information as he said but only aggregated figures.
Harake said, “Acquiring real estate is no longer the engine of foreign direct investments. Syrians are now the primary foreign purchasers of real estate. Furthermore, Lebanese expats abroad account for a large proportion of real estate purchases, benefiting from subsidized loans provided by the BDL”.
Before 2011, the value of foreign direct investments was about $3 billion annually, “a large proportion of which went to purchasing real estate and other avenues that do not generate jobs.” Harake pointed out that at present, however in the absence of major projects, Syrians are the primary purchasers of real estate, while Jordan attracts a bigger share of Gulf investment than Lebanon.
Figures published by the BDL corroborate Harake’s statements. In 2011, the Gulf accounted for 56.62 percent of real estate investments in Lebanon, led by Saudi Arabia (30.2 percent), Qatar (11.7 percent), Kuwait (7.7 percent), and the UAE (7 percent). In 2014, everything changed. The Gulf’s share of these investments dropped to 34.12 percent, with Saudi leading by 20 percent, Kuwait (10.5 percent), and Qatar (3.6 percent). This is while bearing in mind that the value of total foreign investment in real estate was $2.962 billion, $2.941 billion, and $2.573 billion in 2011, 2012, and 2013 respectively according to the same source.
Project financing: loans and grants
The “Progress Report” issued by the Council for Development and Reconstruction (CDR) in 2014 calculates the value of external funding for projects (run by the council or any other public administration) between 1992 and 2013. According to the report, the estimated value of project funding by the Gulf Cooperation Council (GCC) is $2,519,960 million, while the total value of foreign funding for projects is estimated at $9,942,460 million. Accordingly, GCC funding constitutes about 25.3 percent of the total foreign funding, compared to 29.6 percent for European funding, while the overall value of European funding for projects is about $2,941,000 million.
If the amount of project funds granted by the Arab Fund for Economic and Social Development (AFESD) — about $1,346,180 million — is added to the total amount of funds by the GCC, the percentage of the latter would rise to about 38.8 percent of the total foreign funding. As for Gulf grants — which are part of the overall funds during the same period — they are worth about $1,556,74 million, and constitute about 54.1 percent of the total value of grants worth $2,876,730 million. The total amount of European grants, amounting to $9,560,650 million, constitutes 33.2 percent of the overall foreign grants.
World Bank: unjustified fear
The World Bank’s MENA Quarterly Economic Brief said that remittances by Lebanese expatriates working in the Gulf oil states are expected to grow — rather than decline — by “positive rates that verge on previous forecasts,” with “a slight slowdown” in growth rates. According to the report, the overall impact of falling oil prices on Lebanon’s economy is expected to be positive, and could offset the negative effects of a decline in remittances resulting from a continued decline in oil prices, which may impact the massive financial reserves for the Gulf oil states, their ability to maintain spending levels, and thus the growth of their economies.
According to the report, the most influential factor in remittances is the changes in the GDP of the GCC countries. Therefore, forecasts about remittances are based on the World Bank’s latest forecasts for the growth of the economies of GCC countries contained in a report titled “Global Economic Prospects” released in January 2014. Growth forecasts did not differ much in view of the decline in oil prices, the quarterly report says — since Gulf States have maintained their public spending levels by relying on their “massive” financial reserves. As a result, the quarterly report predicts that remittances will continue to grow, albeit at a slower pace.
This article is an edited translation from the Arabic Edition.