GRAND DESIGNS

Lebanon 2013 | DIPLOMACY | INTERVIEW

TBY talks to Michel Sleiman, President of the Republic of Lebanon, on developing the Lebanese economy in times of regional strife, and the potential effect of natural gas on growth trends.

HE Michel Sleiman
BIOGRAPHY
President Michel Sleiman entered the Lebanese Armed Forces in 1967, and graduated as a second lieutenant in 1970 from Lebanon’s Military Academy. He had a well-decorated military career, commanding a number of infantry brigades, as well as being a trainer and Army Staff officer. He was appointed Commander of the Armed Forces in 1998, and served in this position before becoming the 12th President of the Republic of Lebanon in 2008.

Lebanon is a leading name in the world of trade and services, in addition to its high standards in the fields of tourism, education, and healthcare. How can the Lebanese economy further develop its potential and boost its competitiveness?

Experience has shown that political and security disturbances have repeatedly had a major negative effect on economic activity and growth. This sensitivity is due to the volatile nature of our main economic sectors. Tourism, financial services, construction, and real estate respond quickly and, more often than not, significantly to an escalation in political tones, intensification of armed skirmishes, kidnapping outbreaks, or tension at the borders. Past administrations have been unable to undertake the necessary reforms and create the adequate framework to allow for the budding of basic sectors that are less vulnerable to turbulences, such as industry, agriculture, and international trade. Greater efforts should have been devoted to create a robust network of bilateral and multilateral trade agreements to facilitate exports, set-up adequate regulatory bodies to monitor product quality, and build confidence in the “Made in Lebanon" brand and a strong reputation for its brands and image in general. However, for an efficient utilization of these conduits, competitiveness should be boosted and preserved at high levels. This, in turn, cannot be realized without a relatively cheap and abundant energy supply, easily accessible and diversified transportation systems, productive labor force, and an advanced telecommunications and information platform. Regrettably, the period during which telecommunications and information technology started developing at a dizzying pace worldwide, Lebanon was immersed in a protracted conflict, which calls for a forceful catching-up process. All of the above need not be perceived as shortfalls, but rather as a vast unrealized potential that opens limitless investment avenues, very promising business opportunities, and a job creation machine that is needed to absorb the yearly 25,000 new entrants to the Lebanese labor market.

Following new offshore discoveries, what are the prospects for the Lebanese energy sector and its impact on the national economy?

The prospective natural gas and possible oil resources will constitute a new frontier for Lebanon. Despite what is expected to be a declining path for gas prices due to large new discoveries and the exploitation of shale gas, the impact of new supplies and substantial additional revenues from exports on a small economy like ours will be momentous. First, it will radically decrease our energy bill, which, given the endemic deficits of Électricité du Liban, will rapidly improve budget deficits with beneficial ripple effects on macroeconomic parameters, such as a decline in interest rates that free liquidity for private sector credit in a “crowding-in" effect likely to boost growth and employment. One risk of this scenario is inflation, and this is why a set of accompanying measures have to be introduced and monetary aggregates carefully monitored. Second, an increase in exports will help correct the imbalances in our trade sector and alleviate the need for substantial balance of payment surpluses every year to stabilize our current account. Third, the decrease in energy tariffs that will inevitably ensue and, beyond their direct effect on competitiveness for enterprises, will free chunks of disposable income for individuals that will uplift their consumption and saving patterns with positive consequences on investment. It is important to note also that the moment prospection zones are allocated, it is expected that oil and gas companies are going to start investing massively to rent offices, buy cars, hire accountants, lawyers, and employees. Experts say that the inflow during the first year, that is three to four years before gas is effectively produced, could reach $1 billion.

Why is Lebanon an attractive destination for FDI and what are you expecting for 2013 in terms of inflows?

Lebanon is an attractive destination for FDI flows because of all the potential I outlined,but also in view of the fact that rates of return are consistently very high. In addition, it is a known fact that the country has never defaulted on its debt, nor has any bank been allowed to collapse, despite the extremely difficult circumstances that we have been through. Therefore, domestic, regional, and international investors have never suffered from the type of ordeals that they have sustained in other countries. Even real estate, which slows in periods of tension, has never witnessed a bust, although it has gone through double-digit price increases for prolonged periods of time. The reason behind this healthy environment is a draconian set of measures related to real estate lending, which impose high equity requirements. We can add to all this a good quality of life with a vast array of cultural, touristic, and leisure activities as well as high-quality services delivered by an educated, multi-lingual population. But maybe most of all, it is because Lebanon is a free society. We have paid a hefty price in the past for this openness and this freedom, but we shall remain committed to its ideals. Freedom is one of the pillars of our culture. As for our expectations regarding FDI flows for 2013, they are modest given the difficulties in Syria. However, hopes are high that once political stability is restored, Lebanon will greatly benefit from reconstruction efforts. Prospects, therefore, remain extremely appealing especially given that, contrary to other countries that face economic difficulties, the space for reform in Lebanon is vast. A simple correction of electricity subsidies and an improvement of custom duties and tax collections (without the passing of any new taxes), will immediately decrease budget deficits and generate a virtuous economic circle. The vitality and the multi-dimensional contribution of the Lebanese diaspora also remains a major asset for Lebanon and the prospects of its development.

“ The prospective natural gas and possible oil resources will constitute a new frontier for Lebanon. "

What is your vision for Lebanon's economic future?

The ultimate economic objective is wellbeing. We want to guarantee all citizens access to education and health services of a decent quality, as well as a job, allowing each individual to earn a living in a dignified way. We also need to ensure, for retirees, pension levels commensurate with a rising cost of living and a safety net to protect them from the vagaries of old age. To fulfill these aspirations, we need to create a framework that compounds the joint inputs of both the public and private sectors given the major importance of private enterprise in the Lebanese economy. Our feeling is that what is needed, first of all, is an extensive assessment of the domestic economy and its limitations. It should be followed by serious consideration of what the nature of the economy is we want in order to reinforce the production sectors and limit volatility. Concerted efforts in this regard imply serious legislative action on the part of the public authorities to motivate a determined investment drive on the part of the private sector. We firmly believe that a law on decentralization, another on public-private partnership (PPP), and a battery of decrees to enhance the credibility and dynamism of the capital markets have become an urgent necessity. Investment is unquestionably the main pillar of growth. Consequently, everything should be done to encourage it and to give investors a feeling of safety and the assurance that their interests are protected. This ranges from responsible fiscal continuity to shoring up the legal apparatus by modernizing and upgrading the Lebanese courts. The lack of transparency, accountability, and proper governance is a very costly deficiency because the economic price of impropriety has a direct effect on competitiveness, and it is the public authorities' responsibility to address these issues and cure them radically. Extensive reform is overdue in so many areas and the task is colossal, but it is a sine qua non condition to realizing the double-digit growth we should aim at reaching and maintaining for the coming decade if we want to satisfy our legitimate ambitions. We have the means, and now we need a stronger will and a higher political sense of responsibility. Besides, in a way, the fact that so much remains to be done is in and by itself a reason to invest in Lebanon, for had we been a mature economy, margins for windfall returns would have been much narrower. What might help in harmonizing all these different thoughts is the setting up of a new ministry in charge of planning; not in the classical centralized-economy understanding, which is an outdated notion, but rather a vehicle for developing visions, perceiving prospective trends, and accommodating policy on a permanent basis to fluctuations in those trends.