Industry: Its role and perspective in Lebanon’s economic growth

Untapped Potential to Compete in Global Industry

Untapped potential to compete in global industry

The manufacturing industry is a core engine of economic growth for developed and develop

ing countries; a fact reconfirmed by recent studies. On this premise, it is natural that the Association of Lebanese Industrialists (ALI) play a major role in economic and social policy. As Lebanon faces the worst economic crisis in its history, ALI is committed to surmounting the challenges ahead, while continuing to foster the development of Lebanese industries and supporting their response to new challenges in global competition and international integration.

Faced with the prospect of globalization, ALI has long determined core objectives of improving the business environment, reducing the various burdens placed on industrial firms, and reforming Lebanon’s labor market. Achieving these goals will help to accelerate the structural reforms needed to create growth and employment and make a major contribution to the modernization and globalization of the Lebanese economy. In this regard, supporting the internationalization of Lebanese SMEs stands out as one of ALI’s most important strategic tasks.

In our association’s perspective, the main challenges facing Lebanese industries prior to the financial crisis and the port explosion are listed below, and they still persist:

Loss of state dignity and respect.

Excessive number of unemployed graduates, as well as brain-drain.

Negligence of vocational and technical education, which are condemned as socially inferior, while the country is in dire need of these skills and sectors. High rate of unemployment.

High rate of poverty and extreme poverty. Deadly bureaucracy.

Increased balance of payments deficit despite contraction of trade deficit.

A large trade deficit that from the industrialists’ perspective is often fueled by unfair reciprocity with countries, where Lebanon signs trade agreements despite imports being much higher than exports.

LEBANON’S GLOBAL POTENTIAL

Many of these challenges have been exacerbated by the financial collapse, the ramifications of the port explosions, and the Covid-19 pandemic. These new challenges are:

The destruction of jobs in many vital sectors of the economy, such as food and beverage (F&B) and tourism

The drop in the value of the Lebanese lira, which led to a decrease in Lebanese salaries and wages, with the following results, based on ALI’s analysis:

The minimum wage has fallen from 450$ to 90$ per month due to continuing devaluation.

The Informal economy now covers 60 percent of the whole economy.

Listing the challenges, ALI sees the need to address the current state of the Lebanese economy on the national level. Lebanon has unmatched financial potential in the global economy, and distinctive human capital: skilled and specialized people, educated youth, entrepreneurs and businessmen and women who uphold Lebanon’s image locally and internationally.

Facing up to the challenges, ALI took the initiative back in 2014 to propose a socio-economic program which would allow Lebanon to overcome the stalemate, and the porosity of the economy due to the prevailing conditions in the region. This initiative is coherent with actions taken by the government in the past few years.

The Lebanese government hired McKinsey to prepare a study about the Lebanese economy requesting specific recommendations in order to boost the business cycle. The recommendations submitted by McKinsey, published under the Lebanon Economic Vision report, clearly pointed to governmental mistakes in implementing economic policies during the last decades, because the government’s policies did not rely on Lebanon’s productive sectors. Unlike the negative view taken by policy makers on the productive sectors and their role in the national economy, the McKinsey study recommended for the Lebanese government to focus and rely on productive sectors, such as industry and agriculture. Moreover, the study mentioned four sectors capable of enhancing growth: tourism, agriculture, industry, and technology.

In our meeting with persons responsible for undertaking the McKinsey study, we agreed that all industrial firms who continue to survive despite the lack of governmental attention and support, are capable of becoming economic levers.

In addition to our collaboration with McKinsey, ALI and the Lebanese Center for Public Studies (LCPS) cooperated in 2017 to prepare a study about Lebanese export capacity. This study found that it is possible to increase Lebanese exports by $1 billion in different industrial sectors, such as agro food, pharmaceuticals, jewelry, clothes, furniture, leather, and electrical and industrial equipment.

Undoubtedly, the Lebanese economy has the potential to achieve more growth, and create job opportunities for the Lebanese youth. It is worth noting that the Lebanese industrial exports expanded from $800 million in 2000 to $3.6 billion in 2012 according to Lebanese customs statistics, and only started to witness a decline in light of the region’s political and economic reality.

It is the vision of ALI that Lebanese industrial businesses will lay the foundation of a new system that relies on design, creativity and innovation, aiming at manufacturing added value products in Lebanon and distributing them around the world in cooperation with the Lebanese diaspora. Industrial investment cooperation agreements could furthermore be signed with countries such as Iraq, Iran, and African countries, where opportunities are available and factors of production are low. Cross-border collaborations will ultimately pave the way to a holistic economic system that Lebanese industrialists will be well positioned to lead.

It is our position that the Lebanese industry can motivate the whole economy just as agro food industries motivate the agriculture sector. The manufacturing industry is able to create sustainable jobs, further expanding an economic sector that contains 195,000 employees, per the United Nations Industrial Development Organization.

In the current cash crisis, each $1 million worth of locally produced industrial goods will preserve 70 percent of scarce cash in Lebanon (the remaining 30 percent spent on importing raw material) and boost the economy. On the other hand, importing $1 million worth of wafer (the food-stuff), for example, leads to 80 percent drainage of scarce cash to the country of origin, while only 20 percent of this money stays in Lebanon. In addition, according to UNIDO, each job created in the industrial sector creates 2.5 jobs in other sectors. This shows the importance of Lebanese industry in revitalizing the economy.

Approaching the current crisis, ALI envisions a path for creating new jobs that can be summarized as follows:

1. Adopt a package of new economic incentives covering all sectors to secure growth, sustain jobs for the Lebanese, and create new job opportunities. a) Adopt solutions to the issue of energy intensive industries. b) Encourage international investment in new industries, like the automobile industry, or in new industrial cities, like Tripoli, or in new private investments. c) Adopt an action plan in partnership with traders to increase exports from Lebanon and to reduce the trade deficit d) Prioritizing Lebanese nationals in the process of recruitment.

2. Taking necessary measures to develop public private partnerships.

3. Develop a clear vision for the exploitation of oil and gas.

It is possible to increase Lebanese exports by $1 billion across sectors, such as agro food, pharmaceuticals, jewelry, clothes, furnities, leather...