GAS COMES NEXT?

Lebanon 2013 | DIPLOMACY | YEAR IN REVIEW

The very fact that Lebanon managed to increase its exports 6.5% over 2012 suggests that this is a nation used to adapting to complex environments. This is not to say the conflict in Syria has not been an unwelcome distraction, as Lebanon itself struggles to deal with political deadlock that is holding back the regulatory environment across the economy.

The very fact that Lebanon managed to increase its exports 6.5% over 2012 suggests that this is a nation used to adapting to complex environments. This is not to say the conflict in Syria has not been an unwelcome distraction, as Lebanon itself struggles to deal with political deadlock that is holding back the regulatory environment across the economy.

The Lebanese economy grew 1.4% in 2012, with the country's strong banking sector again acting as a bulkhead holding the economy together. The Banque du Liban (BDL), the central bank, set a target of 2.3% growth in 2013, a figure that could be hard to reach as investors switch to a wait-and-see mentality and domestic spending slows, affected by the absence of Gulf tourists who traditionally boost revenues in Lebanon's high-end retail sector—a flight from quality can now be observed, with luxury imports dropping by 19% over 1H2013 and the share of luxury cars in overall new car sales falling to just 2%. Travel warnings over Lebanon in the Gulf region have also hit the foreign purchase of real estate, although the continued investment in property by the Lebanese diaspora did help to buttress FDI figures over 2012, which came in at $3.78 billion, 11% higher than in 2011. The Investment Development Authority of Lebanon (IDAL) now warns not to expect great things from the 2013 figure, predicting a 21% drop as regional strife wears on.

Lebanon runs a current account deficit of $8.5 billion as of 1H2013, with imports for the half contracting by 0.8% and exports growing by 6.5%. The presence of more than 700,000 Syrian refugees hasn't had the expected impact on consumption figures, with mass consumption imports growing by just 1% over the same period. In terms of exports, Lebanon's ports have seen an increase in activity since crisis erupted next door, as the Syrian border remains practically inaccessible for regional exports—the Port of Beirut alone announced a 70.6% increase in exports in 1H2013, suggesting the ship has become king. That said, 17% of total exports were sold to Syria, making the country Lebanon's biggest export partner in 1H2013. This can be explained by a breakdown in domestic production within Syria, especially in the agriculture sector, with Lebanese exports to the country in that category registering a monthly average increase of 16.1% in 1H2013.

While conflict in Syria is clouding the vision of investors, finger pointing across the border isn't a strong retort to complaints from voices within industry, many of which protest the lack of government movement on crucial regulations that would promote a rosier investment environment. Political deadlock in the form of a split between major parties on forming a new government has come at the wrong time for Lebanon, as it stands on the brink of a new age in the form of natural gas, discoveries of which should, by now, have heralded further exploration and a roadmap for the wealth they will generate. Following a licensing round that opened in May 2013, 46 companies were prequalified to bid for gas exploration, but the caretaker government lacks the authorization to approve investment projects, of which $270 million worth is awaiting cabinet approval in various sectors.

Other sectors that are poised for a flurry of activity should the demanded regulations come through and, more importantly, be enforced, include ICT. “If I were an investor, I would definitely want to know the policy that the sector has, what kind of environment and regulatory framework I am working in, and how predictable the policy and regulatory framework really are," said Telecommunications Regulatory Authority (TRA) Chairman and CEO Imad Hoballah.

A clearer investment environment would also go a long way toward attracting foreign liquidity into sectors other than real estate, where it has a more muted effect on the economy at large. Agriculture, although employing 15% of the total workforce, accounts for just 1% of GDP and is in massive need of foreign investment and know-how. While on the one hand enjoying an export boom due to shortages in Syria, on the other hand Lebanese farmers are struggling with increasing costs associated with exporting by sea to markets further away. Increased activity at ports is good news for others, however. The Port of Beirut has witnessed an increase of 25.84% in revenues from $69 million in the first five months of 2012 to $87 million over the same period of 2013, and is currently undergoing expansion plans that will add capacity for a further 600,000 TEUs to achieve an overall capacity of 2.1 million TEUs.

Overall, it wasn't a bad year for Lebanon all things considered. The combination of political deadlock at home and conflict in the region is clouding growth predictions for 2013, while investors are playing a waiting game for similar reasons.