Focus: Lebanon’s economic vision

I Have a Plan

Sep. 7, 2019

The release of an economic vision for Lebanon in 2018 shed light on the failings of the present economy, though the report itself has been criticized as well.

In 2018, the Ministry of Economy unveiled an economic vision plan on its website. Developed by the New York-based McKinsey & Company at the cost of USD1.3 million, the report sets out to provide a diagnostic account of Lebanon's economy and its shortcomings, while offering a prescription that includes 160 recommendations to set things right.

The project was commissioned by the government to the American firm in 2017, so that the authorities could capitalize on the plan in the then-forthcoming CEDRE conference in Paris to attract international aid. Some have lashed out at the government for not having an economic roadmap of its own in the first place. Critics of the plan have also mocked the massive document for its over-reliance on visuals and graphs and its generous use of clichéd business buzzwords, with some calling the commissioning of the plan a classic case of throwing good money after bad.
In all fairness, being jargon filled is not enough grounds to discard the plan, though roadmaps, economic visions, and policy documents more often than not get thrown to the side anyway.

The usual suspects

The report blames the absence of a robust wealth generation mechanism for the troubles of the country's economy and goes on to explain how the vicious cycle caused by this problem leads to the formation of a “highly volatile" economy. The list of the usual suspects also includes poor infrastructure and corruption, which discourage potential investors.
The country's volatile economy, according to the McKinsey report, is fairly unhealthily based on the cash injected to the economy by international donors and Lebanese living abroad. This cash flow often ends up in unproductive and unsustainable enterprises rather than kick-starting the local industry and service sectors and enabling them to stand on their own feet. In particular, over 65% of the country's budget is spent on the salaries of an unnecessarily large government.
The report maintains that while this dysfunctional arrangement has been the status quo in the country's economy for four decades, the situation has deteriorated since 2011, to the extent that productive sectors currently account for only 16% of GDP.

An overseeing unit to the rescue

The economic vision developed by McKinsey may agree that the government is already oversized, but it also maintains that the present chaos is, in part, due to the absence of a crucial entity in the government: a planning unit.
Truth be told, Lebanon did have such a government body—the Planning Ministry—but it was deemed unnecessary and closed down some 47 years ago. To right that wrong, the report proposes the formation of a Performance Management and Delivery Unit (PMDU) which will work under the Council of Ministers to oversee Lebanon's economic reformation and orchestrate the actions of other government bodies.

How will it all work?

Once Lebanon has launched the PMDU, the unit can work on two national vision plans for 2025 and 2035, says the McKinsey document. The economic overhaul will be carried out over these vision plans, while PMDU will keep its focus on five areas in particular: tourism, financial services, knowledge economy, industry, and agriculture. A restructuring of these five key areas is expected to not only create jobs but also give Lebanon the incremental wealth generation engine it requires.
Opponents, however, have pointed out the generality of this game plan; with the exception of tourism, the plan's recommendations are extremely abstract and without much consideration for Lebanon's specific setting. Even in tourism, the McKinsey document pictures Lebanon as a kind of medicinal cannabis hub, which has raised angry voices already.
The report elsewhere predicts that Lebanon can count on its knowledge economy—as one of the aforesaid key sectors—to add USD2.2 billion to its GDP by 2025, though the steps the country needs to take remain largely unspecified, or at best are limited to general explanations laden with business catchphrases.

As of 2019, the government is behind schedule. Regardless of the McKinsey document's merits or lack thereof, the country's decision-makers should first decide if they want to engage in top-down government overhauls, particularly as strategic plans developed at the top level have a poor track record in this part of the world.