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22 December, 2021updated 12 Aug 2022 15:35

Teddy Rahmeh

Lebanon’s path to prosperity depends upon its ability to reform and attract FDI

The co-founder of ZR Group Holding states that Lebanon needs internal reform and external investment if its crisis situation is to end.

Lebanon is in a perilous state. After two years of acute financial crisis, our country is close to ruin. Years of underinvestment and poor infrastructure have meant that households and businesses cannot even rely on getting enough electricity to sustain their daily requirements. Restaurants cannot keep their fridges on, children cannot do their homework. Everywhere we look, the country is creaking.

The entrepreneurialism and resilience of the Lebanese people has papered over the cracks and held together an otherwise doomed state – but this cannot continue forever.

Restoring Lebanon requires both a proper diagnosis of what ails it and a powerful prescription to return it to health. We need proper leadership to guide us out of this crisis so that Lebanon’s potential can be realised. Without it, I fear for my country’s future. We have all experienced the terrible toll the civil war took on our communities in the 1980s.

Lebanon needs its leaders to lead it out of crisis

It is now up to our leaders to make sure that our country is viewed as an attractive destination for regional and international capital, ensuring that the country will be returned to its status as an entry point for foreign investment to the Middle East. This investment will only return in earnest when Lebanon puts its house in order, but every day without reform and real leadership sees Lebanon’s economy lose ground. UN figures show that foreign direct investment (FDI) stocks in Lebanon plummeted from $68bn to $17.7bn between 2019 and 2020.

We have to demonstrate to the world that we are not a lost cause. We are fortunate that the Lebanese are renowned for our hard work and business acumen and there is no doubt that the Lebanese people are well acquainted with adversity. Lebanon must act now to give others the confidence to invest in our country once again and enable Lebanon to rebuild.

Lebanese businesses and entrepreneurs are up to the task and can be a crucial engine of reform. Removing the state’s control over key industries and services will enable competition that delivers effective services, rather than the sectarian one on which too many public services presently depend. There is international consensus that this is the right course of action. In 2019, McKinsey ranked Lebanon 113th of 137 countries in terms of infrastructure, and challenges are widespread. The World Bank identifies our “low grade” infrastructure as a long-term structural vulnerability due to a dysfunctional electricity sector, water supply shortages and inadequate waste management.

Lebanon needs a major reform

The system requires a complete overhaul. Contracts need proper oversight and an effective tendering process. A dedicated privatisation agenda must sit at the core of these efforts. This plan must be ‘top-heavy’, prioritising the most significant divestments in its first steps to win back international credibility. Competition, for example, should be introduced to the electricity sector with the privatisation of companies such as Electricité du Liban.

Remodelling Lebanon’s economy will ultimately require an audit of all that has beset it in recent years. This is not just imperative to the Lebanese to restore the country’s national honour, it is also a key demand of the international financial institutions and developed countries whose support will be critical in securing the fruits of a new economic agenda. Lebanon’s youth, who have regularly taken to the streets in recent years to protest corruption, rightly demand nothing less.

We have also seen a lowering of investment from an important source: our friends and near neighbours in the Gulf Cooperation Council (GCC) countries. There are many reasons for this, and the Syrian Civil War is an obvious cause. As Lebanon’s neighbour, Syria formed an important trade route through which goods were exported to the GCC. The disruption and chaos brought on by the war closed Syria as a viable route, increasing the costs and disruption GCC countries faced when importing from Lebanon.

Concerns over the war’s spillovers also caused GCC investment into Lebanon’s services sector to suffer, with Saudi Arabia falling from its position as the biggest investor in Lebanese real estate services – one of the country’s biggest export sectors – while many GCC states advised against or banned travel to Lebanon in the wake of the conflict, further harming investment through tourism and business travel. However, the early November visit of the United Arab Emirates foreign minister to Syria to begin to normalise relations perhaps demonstrates that there is a willingness to move forward. We should ensure we do all we can to boost spending by our Gulf neighbours back to the levels of previous decades.

According to the Carnegie Middle East Centre, at least 76% of FDI came to Lebanon from the Gulf states between 2003 and 2015. Since 2016, it has all but dried up, and with 50% of Lebanon’s exports going to the GCC, many fear further economic hardship should there be a GCC-wide ban on Lebanese imports. This leaves Lebanon in a precarious position, given the importance of good relations with our Gulf neighbours to responding to the threats Lebanon faces.

Lebanon’s progress after the civil war was helped immensely by GCC investment and the millions of Arab visitors we received every year. Diaspora remittances from these countries are also vital, with $2bn flowing from Saudi Arabia alone. Gulf states helped Lebanon rebuild after the 2006 war and their support will again be crucial to reconstruction efforts after the Beirut port blast and ongoing political mismanagement.

My message to all those who wish to lead Lebanon out of this crisis is to make increasing FDI an immediate priority. We must seek partnership and support from our historic friends and investors, such as the GCC countries, the US, the UK, France and Egypt, to help us overcome these difficult circumstances and catapult us into a prosperous future.

The young people calling for change rightly demand jobs and a stake in Lebanon’s future. We must increase investment to have a chance of giving them this opportunity.

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