Cri­sis econ­omy

In­flows of hu­man­i­tar­ian aid into Le­banon have helped mit­i­gate eco­nomic losses

Executive Magazine - - Contents - By Jeremy Ar­bid

For many Le­banese, from gov­ern­ment min­is­ters to taxi driv­ers, the cause of the coun­try’s eco­nomic down­turn is clear: 1.16 mil­lion Syr­ian refugees. While a pop­u­la­tion in­crease of more than 25 per­cent has cer­tainly strained in­fra­struc­ture and fur­ther chal­lenged the state’s abil­ity to pro­vide ba­sic ser­vices, the no­tion that the refugees are di­rectly re­spon­si­ble for slug­gish GDP growth since 2011 sim­ply does not cor­re­spond with the facts. Mir­ror­ing its re­gional neigh­bors, the Le­banese econ­omy be­gan to cool down as large scale, antigov­ern­ment protests moved from one Arab coun­try to the next, be­gin­ning in Tu­nisia in late 2010. The un­cer­tainty the so called Arab Spring in­spired helped drag Le­banon’s GDP growth down to 2 per­cent in 2011 from 8 per­cent in 2010. The Le­banese econ­omy has been in cri­sis mode since. Since 2011, the coun­try’s ex­ports have con­sis­tently de­creased, con­sumer con­fi­dence has steadily de­clined and the in­flows of for­eign di­rect in­vest­ment into Le­banon have plunged sharply, with de­mand for high end real es­tate also fall­ing. Mean­while, tourism and ho­tel bookings have dipped in line with travel warn­ings and bans from GCC gov­ern­ments, cit­ing nu­mer­ous bomb­ings and other se­cu­rity in­ci­dents that have desta­bi­lized Le­banon in re­cent years.

By Fe­bru­ary 2012, ac­cord­ing to the UN, months of protests in Syria had turned into civil war. The con­flict in Syria has dis­rupted tra­di­tional trade part­ner­ships and tran­sit routes for Le­banon, but in the first nine months of un­rest few refugees headed to Le­banon. By Jan­uary 27, 2012 — the ear­li­est ref­er­ence date avail­able on its web­site — UNHCR had reg­is­tered only 6,290 Syr­ian refugees in Le­banon, though eco­nomic growth for 2011 had al­ready dropped sig­nif­i­cantly com­pared to the pre­vi­ous year. The vi­o­lence in Syria, how­ever, in­ten­si­fied, forc­ing more and more Syr­i­ans to flee their homes in search of safety — an es­ti­mated 7.6 mil­lion Syr­i­ans are in­ter­nally dis­placed, ac­cord­ing to Novem­ber fig­ures from the In­ter­nal Dis­place­ment Mon­i­tor­ing Cen­ter, and an ad­di­tional 3.7 mil­lion Syr­ian refugees are cur­rently reg­is­tered with the UNHCR in Le­banon, Turkey, Jor­dan, Iraq, and Egypt, with the largest num­ber re­sid­ing in Le­banon.

Pre­vi­ous re­search had in­di­cated the spillover ef­fects of the con­flict in Syria had sig­nif­i­cantly af­fected the Le­banese econ­omy. For ex­am­ple, a World Bank re­port from 2013 iden­ti­fied losses to eco­nomic ac­tiv­ity, in­come and public ser­vices, and noted di­rect and in­di­rect im­pacts on trade and tourism as well as health, ed­u­ca­tion, and other so­cial ser­vices. The re­port es­ti­mated that the Le­banese econ­omy would in­cur a cost of $7.5 bil­lion by the end of 2014 due to the refugee in­flux. That said, new re­search from the United Na­tions Devel­op­ment Pro­gram (UNDP) shows that host­ing th­ese refugees has not been a to­tal loss for the Le­banese econ­omy. With the refugees came a steady flow of hu­man­i­tar­ian aid that has helped mit­i­gate losses in­curred from the con­flict in gen­eral and from the refugee sit­u­a­tion in par­tic­u­lar.

A 2014 study by the In­ter­na­tional Res­cue Com­mit­tee was among the first to con­sider whether the refugee ‘bur­den’ had any pos­i­tive im­pli­ca­tions upon the Le­banese econ­omy. UNHCR’s win­ter­i­za­tion pro­gram dis­bursed $41.4 mil­lion in cash, chan­neled via ATM cards, over a three month pe­riod be­gin­ning in Jan­uary 2014. The re­sults found that each dollar spent by ben­e­fi­cia­ries gen­er­ated $2.13 for the Le­banese econ­omy — i.e. a mul­ti­plier ef­fect of 2.13. How­ever, the study is prob­lem­atic for two rea­sons. First, it uses a gen­eral math­e­mat­i­cal for­mula not specif­i­cally tweaked for Le­banon to com­pute a mul­ti­plier ef­fect and, sec­ond, it uses the spend­ing habits of Jor­da­ni­ans as a ba­sis to es­ti­mate how Syr­ian refugees in Le­banon might have spent aid money.

The more re­cent UNDP study writ­ten by the Con­sul­ta­tion and Re­search In­sti­tute (CRI), a Le­banese com­pany familiar with the lo­cal econ­omy, found that an es­ti­mated

$800 mil­lion in hu­man­i­tar­ian aid that flowed into the Le­banese econ­omy in 2014 brought with it a 1.6 mul­ti­plier, mean­ing ev­ery $1 in hu­man­i­tar­ian aid re­sulted in $0.60 in ex­tra spend­ing. The re­port does not of­fer a pic­ture of growth in the en­tire econ­omy for 2014, yet as­sum­ing all other fac­tors are con­stant, it shows that hu­man­i­tar­ian aid had a 1.3 per­cent con­tri­bu­tion to Le­banon’s GDP. Adding con­text, the study fac­tors in losses in tourism and ex­ports in 2014 — “While it helped mit­i­gate the ef­fects of the refugee cri­sis, the hu­man­i­tar­ian pack­age did not com­pletely off­set those ef­fects,” the re­port notes, con­clud­ing that “the com­bined ef­fect of a 23 per­cent de­crease in tourism vol­ume, a 7.5 per­cent de­crease in ex­ports, and the in­jec­tion of the same aid pack­age ($800 mil­lion) re­sults in neg­a­tive GDP growth of -0.3 per­cent in­stead of the ini­tially ob­tained pos­i­tive growth of 1.3 per­cent.” With­out the aid money, the study notes, tourism and ex­port losses would have dragged growth down by 1.6 per­cent­age points.


“We wanted to un­der­stand, if we in­ject $800 mil­lion into the econ­omy, spent in the par­tic­u­lar man­ner they were spent in, how much you would have a mul­ti­plied im­pact into this econ­omy,” Rola Rizk Azour, a se­nior eco­nomic ad­vi­sor at the UNDP, ex­plains. Azour also clar­i­fied that “we con­sider the econ­omy [to be] a closed box. We in­sert the $800 mil­lion re­ceived and — bar­ring any other changes in the en­vi­ron­ment — [mea­sure] what is the out­come. We wanted to see where this hu­man­i­tar­ian as­sis­tance has had the most im­pact.” To do this the UNDP con­tracted CRI to sim­u­late the ef­fects of hu­man­i­tar­ian spend­ing on the econ­omy in 2014 us­ing ex­pen­di­tures of the four UN agen­cies from that year — es­ti­mated at $800 mil­lion.

The ex­er­cise mea­sured which eco­nomic sec­tors were af­fected via the dis­tri­bu­tion of hu­man­i­tar­ian aid. As ex­pected, Azour points out, aid money was spent pri­mar­ily on food prod­ucts (27 per­cent) re­lated to the World Food Pro­gram card voucher pro­gram. Other sec­tors where aid spend­ing con­cen­trated were: real es­tate (which in­cludes rent, 14 per­cent), chem­i­cals (i.e. medicine and gaso­line, 9 per­cent) and ed­u­ca­tion ser­vices (7 per­cent). The hu­man­i­tar­ian aid spent ac­cord­ing to the dis­tri­bu­tion keys within the sim­u­la­tion had an over­all mul­ti­plier ef­fect of 1.6, Azour ex­plains.

“It’s a huge num­ber crunch­ing ex­er­cise — [and tells] only part of the story of this econ­omy,” she says, adding that the UN sys­tem and hu­man­i­tar­ian aid should not be cel­e­brated for any growth the econ­omy might record for 2014. The re­port cuts straight to the point in its con­clu­sion, and Azour stresses the no­tion, “while it helped mit­i­gate the ef­fects of the refugee cri­sis, the hu­man­i­tar­ian pack­age did not com­pletely off­set those ef­fects.”

Azour re­peat­edly points out that the hu­man­i­tar­ian aid flow­ing into Le­banon was not the only thing af­fect­ing Le­banon’s GDP for 2014 — “there were other fac­tors in this econ­omy that were also not taken into con­sid­er­a­tion, like the stim­u­lus pack­age of the [cen­tral bank].”

Le­banon’s cen­tral bank in­tro­duced its first stim­u­lus pack­age of $1.4 bil­lion in 2013, which the bank says con­trib­uted 1.5 per­cent to GDP growth that year. The bank in­jected an­other $800 mil­lion into the Le­banese econ­omy in 2014, though about half of that was left­over money from the pre­vi­ous year’s pack­age, Ex­ec­u­tive has re­ported. The bank’s gover­nor, Riad Salameh, an­nounced in Oc­to­ber an­other stim­u­lus pack­age of $1 bil­lion for 2015.

Clearly the re­sults of the sim­u­la­tion show that aid dis­tri­bu­tions cen­tered on the sta­ple items of food, hous­ing and medicine to al­le­vi­ate suf­fer­ing and mit­i­gate the refugee cri­sis that the war in Syria in­sti­gated — the UNHCR and the WFP are among the largest dis­trib­u­tors of th­ese sub­cat­e­gories of aid in Le­banon. The study, it should be noted, looked at only four UN agen­cies de­liv­er­ing hu­man­i­tar­ian aid in Le­banon — UNDP, UNHCR, WFP and UNICEF. While the four ac­count for “at least 70 per­cent of UN hu­man­i­tar­ian aid within the con­text of the Syr­ian refugee cri­sis” in Le­banon, the study re­ports that other donor money ar­riv­ing through other chan­nels was ex­cluded, mean­ing the true im­pact of hu­man­i­tar­ian aid money was not fully as­sessed.



The aid Syr­ian refugees have re­ceived has been sig­nif­i­cantly in­ad­e­quate. Due to the short­fall in fund­ing, the WFP an­nounced in De­cem­ber that it had suspended pay­ments of food aid to Syr­ian refugees, not only those in Le­banon but also across the re­gion.

In 2014, or­ga­ni­za­tions dis­tribut­ing hu­man­i­tar­ian aid in Le­banon re­ceived only 50 per­cent of the $1.7 bil­lion ap­pealed for in that year’s Syria Re­gional Refugee and Re­silience Plan. Ninette Kel­ley, head of the UNHCR in Le­banon, ad­dressed the im­pact of fund­ing short­falls to the or­ga­ni­za­tion in a De­cem­ber in­ter­view with Ex­ec­u­tive say­ing, “the level of as­sis­tance that we can pro­vide con­tin­u­ally needs to be heav­ily tar­geted and we’re sim­ply un­able to meet all needs.”

In the Syria Re­gional Refugee and Re­silience Plan for 2015, hu­man­i­tar­ian or­ga­ni­za­tions, in­clud­ing the UN agen­cies, have ap­pealed for $4.5 bil­lion to ad­dress the refugee cri­sis across the re­gion. As of late

Fe­bru­ary, those or­ga­ni­za­tions dis­tribut­ing aid in Le­banon have re­ceived only 3 per­cent of the nearly $2 bil­lion re­quested in ap­peals.


The UN Com­mis­sion for In­quiry on Syria — set up to in­ves­ti­gate vi­o­la­tions of in­ter­na­tional hu­man rights oc­cur­ring dur­ing the coun­try’s four year civil war — said last month in a press re­lease an­nounc­ing its lat­est re­port that “un­think­able crimes con­tinue to oc­cur daily in Syria.” The re­port nei­ther im­plies that sta­bi­liza­tion in Syria is likely soon nor does it sug­gest Syr­ian refugees will be able to safely re­turn to their homes in the near fu­ture. That is to say the refugee cri­sis will likely con­tinue for years to come.

The out­look is grim. The on­go­ing war in Syria sug­gests that Le­banon’s econ­omy will con­tinue its poor per­for­mance due to the tur­bu­lence and bar­ri­ers to eco­nomic sta­bil­ity that an un­pre­dictable se­cu­rity sit­u­a­tion im­plies. Like­wise, fund­ing short­falls in hu­man­i­tar­ian aid dona­tions means less money that refugees can spend in the Le­banese econ­omy on ba­sic ne­ces­si­ties for their fam­i­lies. Syr­i­ans seek­ing refuge in Le­banon have no other choice but to stay and scrape by. But ad­dress­ing the im­me­di­ate needs of refugees is not Le­banon’s only dilemma — the coun­try is also con­cerned about crum­bling phys­i­cal in­fra­struc­ture and the de­clin­ing qual­ity of health and ed­u­ca­tion ser­vices. The World Bank es­ti­mated in 2013 that $1.6 bil­lion would be needed to main­tain ac­cess to qual­ity health, ed­u­ca­tion and so­cial safety nets for the pe­riod 2012–2014, and in­vest­ing in th­ese ser­vices has been found to have a sig­nif­i­cant im­pact on eco­nomic growth in the long term.

Due to the state of Le­banon’s in­fra­struc­ture, the in­ter­na­tional com­mu­nity needs to sup­port the coun­try in main­tain­ing ser­vice de­liv­ery to refugees, the pres­i­dent of the World Bank Jim Yong Kim noted dur­ing a school visit in Beirut in June 2014.

“The data now is over­whelm­ing,” Kim says in a re­cent in­ter­view with Freako­nomics Ra­dio, “in that in­vest­ments in health and ed­u­ca­tion, for ex­am­ple, are crit­i­cal as­pects of a growth strat­egy [and that] fun­da­men­tal in­vest­ments in hu­man cap­i­tal lead to growth.” A group of econ­o­mists, led by Lawrence Sum­mers — a for­mer direc­tor of the Na­tional Eco­nomic Coun­cil ad­vis­ing US Pres­i­dent Barack Obama — wrote in Global Health 2035 that “the re­turns on in­vest­ing in health are im­pres­sive,” with the study con­clud­ing that in low and mid­dle in­come coun­tries roughly 24 per­cent of eco­nomic growth ex­pe­ri­enced be­tween 2000 and 2011 was due to bet­ter health out­comes.

With no end to ei­ther the refuge or eco­nomic crises in sight, Le­banon will need sup­port to main­tain and im­prove its ba­sic ser­vices such as wa­ter, san­i­ta­tion and roads, as well as in so­cial ser­vices like health and ed­u­ca­tion. To do this, the World Bank had part­nered with Le­banon’s gov­ern­ment to es­tab­lish a mul­ti­donor trust fund in March 2014. “The Bank deals with devel­op­ment is­sues,” writes Mona Zi­ade, a com­mu­ni­ca­tions of­fi­cer in the World Bank’s Beirut of­fice, in an email to Ex­ec­u­tive, adding that the fund “is strictly for devel­op­ment projects that will help boost the re­silience of the Le­banese host com­mu­ni­ties.” Derek Plumbly, for­mer UN Spe­cial Co­or­di­na­tor for Le­banon, re­marked in a state­ment an­nounc­ing the fund that “this is the only one es­tab­lished specif­i­cally to pro­vide as­sis­tance to the gov­ern­ment and mu­nic­i­pal­i­ties, es­tab­lished specif­i­cally to mit­i­gate the im­pact of the Syr­ian cri­sis.”

Le­banon’s eco­nomic woes will not sim­ply evap­o­rate — more hu­man­i­tar­ian and devel­op­ment aid will be needed in the com­ing years. Aid will con­tinue to help Le­banon al­le­vi­ate refugees with money to be spent meet­ing ba­sic needs of food, cloth­ing and shel­ter, that does flow back into the econ­omy; sim­i­larly, devel­op­ment aid will help Le­banon to in­vest in main­tain­ing in­fra­struc­ture and ser­vices, set­ting up the econ­omy for fu­ture growth.


Never enough. Each year global ap­peals for Syr­ian refugees fall short.

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