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By: Meir Javedanfar - meepas.com

01/06/2005

Introduction

The occupation of Lebanon by tens of thousands of Syrian soldiers has had an impact on Lebanon's political strategy and security arrangements over the last 29 years. Syria's occupation also impacted Lebanon's economy. Now that the Syrian occupation is ending there are a number of important question such as: what was the overall impact of Syria's occupation on Lebanon's economy, and what will become of the Lebanese economy now that Syria says it has withdrawn?

This analysis by meepas© will answer the aforementioned questions by first addressing the impact of Syria's involvement on Lebanon's economy. It will conclude by forecasting the immediate future of Lebanon's economy after the withdrawal.

The Syrian Impact

Syria's presence in Lebanon had a number of positive impacts on the Lebanese economy. These included the availability of cheap Syrian labour which allowed some Lebanese businesses to produce goods at lower costs. Cheap Syrian imports also provided savings to the Lebanese consumer as they had to pay less to purchase their needed goods. Furthermore Syrian businessmen and labourers are believed to hold close to $5 billion in savings and deposits in Lebanese banks.

Syria's occupation also had its disadvantages for Lebanon's economy. This is due to the fact Syria's leaders (the Assad family) bought the loyalty of Syria's intelligence organisation, top generals and businessmen by offering them influence and business opportunities in Lebanon's economy.

Therefore in many cases the Syrian officials abused their influence in Lebanon by conducting deals and passing laws which was to their interest at the expense of the Lebanese economy.

Lebanon's small medium size private sector businesses are one of the victims of Syria's economic influence in Lebanon. Over the years Syrian officials are known to have pressured some owners of private businesses to pay hefty bribes. In other cases Lebanon's private sector companies lost public contracts and deals to companies owned and controlled directly by Syrian officials.

Cheap Syrian imports flooding the Lebanese economy also caused damage to Lebanon's small to medium size private businesses who were unable to compete on equal terms. This was done with the full knowledge of the Lebanese government which was either unable in some cases or unwilling in others to stop the imports due to Syria's influence on the Lebanese government.

Lebanon's public sector utility sector has also been affected by Syria's presence. Examples of inefficiency and lack of competition in this sector of the Lebanese economy include the State Electricity Company (Electricite du Liban) which has been making losses for a number of years (last year it lost $400 million) whilst providing inadequate service with high tariff charges to the Lebanese consumer. Other example includes Lebanon's mobile Telecommunication sector which with only two operators charges the highest tariffs anywhere in the Middle East. Lebanon's Water sector is another example where despite enjoying abundant rainfall and access to fresh water resources the Lebanese consumer and the agriculture sector suffer from intermittent services and high tariffs due to lack of investment and reform in this sector. Privatisation and reform of all the aforementioned sectors has been on requested by Lebanon's creditors and have been on the government agenda for the last ten years with no success. One of the main reasons behind the lack of success in the privatisation plan is due to the fact that Syrian players and their backers in Lebanon constantly block such moves as privatisation and reform would lead to loss of their business interests.

The long term damage caused by Syria's occupation and involvement in Lebanon's economy is estimated to be between $25- $30 billion over the last 29 years. This figure is calculated by including damages such as the fact that some Lebanese businessmen decided to move production abroad whilst others simply shut down as a result of Syrian occupation and pressure. At the same time in cases where businesses did stay open Lebanese jobs were lost due to the abundant availability of cheap Syrian workers in Lebanon. The remittances sent by Syrian workers from Lebanon also translated in transfer of wealth from Lebanon to Syria (estimated at $1 billion per year for the last 10 years).

Furthermore loss of production by Lebanese manufacturers due to availability of cheap Syrian imports also hurt the Lebanese economy in terms of loss of exports and reduced growth domestic product (GDP) rates. Other damages include reduced investment in Lebanon by foreign firms who were unable to enter parts of the Lebanese market as they were controlled by Syrian officials or their Lebanese front men. The informal economy in Lebanon a great part of which had Syrian involvement also hurt the economy in terms of loss of tax income for the Lebanese government.

However one of the main damages caused to the Lebanese economy as a result of Syrian occupation and influence is the huge losses racked up by the public utility sector due to their inefficiency and lack of reform. Syrian resistance to reform in such crucial sectors as electricity, telecommunication and water caused a huge burden on Lebanon's budget deficit. Furthermore the unreasonably high tariffs which the Lebanese consumer has had to pay to purchase service from the aforementioned state companies also created a loss for the Lebanese economy. Indirect losses incurred by Lebanese companies in this case include loss of productivity due to inefficient services provided to them by crucial infrastructure service providers.

The economic impact of Syria's departure from Lebanon is not expected to be felt immediately. This is due to the fact that it will take some time before Syrian workers start to leave thus opening the market for Lebanese markets. At the same time parts of business interests of Syria's hierarchy are expected to remain and operate in Lebanon albeit in a more covert manner than present.

New opportunities

However what is certain is that with Syria's withdrawal there are now new opportunities for the Lebanese economy to progress according to its own interest and agenda. Whether or not such opportunities are taken advantage of depends on two factors. First factor is stability in Lebanon in terms of security. If the Lebanese government manages to prevent future violence through stringer security measure it will improve Lebanon's image as a safe destination for tourists and investors both of which are crucial for the health of the Lebanese economy. The second factor is political stability. Internal political wrangling (complicated by Syrian influence) has in the past held up much needed decisions for the reform of the Lebanese economy. Now that Syria has less influence in Lebanon the Lebanese government has the opportunity to implement the recommended reforms for the economy.

The meepas© prognosis for the immediate future of the Lebanese economy after the Syrian withdrawal is moderately positive. This forecast is based on the hypothesis that immediately upon Syria's withdrawal there may be acts of violence by pro-Syrian elements. However now that for the first time since 1975 Lebanon is free of foreign forces the majority of the country who turned out to oppose Syria's occupation will want it to keep it that way by assisting security forces in their efforts to track down and arrest terror suspects. Furthermore it is expected that post occupation Lebanon in the short term will attract more investment by expatriate Lebanese who have been looking for business opportunities at home but did not invest due to Syria's influence on the economy. Furthermore Arab investment in Lebanon's real estate sector is expected to pick up in the short term as investors will be looking for bargains in the expectation that prices will rise significantly in the future.

The long term future of Lebanon depends on the outcome of the government's efforts to reform the economy. Experience of many Lebanese abroad has shown that given a level economic playing field and an open market Lebanese entrepreneurs are able to turn businesses into roaring success stories. Telemex which is Latin America's most successful Telecom company and Swatch which is one of the world's most famous watch companies are a few examples in the book of Lebanese business success stories outside of Lebanon.

The question is how long will it take before the Lebanese government takes action to create an open economy which allows Lebanese businessmen to create similar success stories on home soil instead of foreign shores.

End of Analysis

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