REMARKABLY RESILIENT

Lebanon 2013 | INDUSTRY | REVIEW: INDUSTRY

The conflict in neighboring Syria has proven to be both a curse and a blessing for Lebanese industry.

While Lebanon's economy in 2013 found itself increasingly in the grip of a slowdown, mainly due to the ongoing civil war in neighboring Syria, the country's industrial sector proved remarkably resilient. Industrial exports in the first seven months of 2013 amounted to $1.97 billion, which represented a 12.9% increase compared to the same period in 2012.

The result reflected a strong uptick, knowing that the IMF had forecast in September 2013 that Lebanon's overall economy was likely to grow by 2% at most, while unemployment was set to double to over 20%. The Lebanese industrial sector is the country's second largest employer after the public sector. It employs some 140,000 people, which is about one-quarter of the national workforce, excluding some 1 million immigrant laborers.

Some 40% of Lebanon's industrial production is destined for export. The main export commodities in 1H2013 were jewelry (23.2%), mineral products (13.7%), metals (13.3%), electrical equipment (11.4%), and food items (6.4%).


Nearly 60% of Lebanon's industrial exports are destined for the Arab world, followed by Asia (13.1%), Africa (12.8%), and Europe (11.3%). Syria, however, is a bit of a double-edged sword. On the one hand, the security situation in Lebanon's eastern neighbor does not allow for Lebanese exports to transit to Iraq and the Gulf states. On the other hand, it is estimated that some 80% of Syria's industrial base has been destroyed, which has led to an increase in demand for Lebanese goods.

In 2012, exports through Syria as a percentage of GDP declined from 1.8% to 1.3%. Yet, exports to Syria increased from 0.5% to 0.7%, which is its highest level since 2008. The trend continued in 2013. Likewise, agricultural exports witnessed an increase of 34.4% to amount to $102.6 million in the first half of 2013, against a decline of 4.1% during the same period in 2012. Meanwhile, both Syrian imports, as well as imports transiting through Syria, recorded a decline.

Total industrial imports amounted to $193.8 million in the first seven months of 2013, up 12.6% when compared to the same period in 2012. Italy was the main source of such imports with 21.2%, followed by Germany (18.4%) and China (14.2%). Some of the main imported goods include oil products, cars, machinery, and chemical products.

MORE SUPPORT NEEDED

“Industry is the last defense line for the Lebanese economy," said Lebanese Industrialists Association (ILA) head Nehmat Frem on June 18, 2013, Lebanon's self-proclaimed “Industry Day." According to him, none of the sector's 140,000 employees had been sacked as of that day.

Former Minister of Economy Adnan Kassar stressed that wrong economic policies had crowded out key Lebanese industries, as the sector's share of GDP dwindled from 27% in 1999 to less than 18% in 2012. Lebanon's industrialists have long complained that the Lebanese government does very little to make their life any easier.

High expenses make it very hard to compete with Arab countries such as Jordan and (normally) Syria. Due to the country's major power shortages, for example, which outside the capital Beirut run up to 8 or 12 hours a day, companies rely on private generators. Consequently, many entrepreneurs state that electricity accounts for up to 15% of their expenses.

In 2005, a 50% reduction in export taxes was introduced, yet never implemented. In January 2012, the government raised the minimum wage from $340 to $450 a month and, despite years of talking, Lebanon still has no special economic or industrial zones offering tax incentives.

Illustrative of Lebanon's political priorities is the fact that the Ministry of Industry's annual budget amounts to just over $5 million, which is a bit more than half the budget of the Ministry of Sport.

Yet, it was not all bad in 2013 in terms of support. In January, the Banque du Liban announced a stimulus package of $1.47 billion for the Lebanese economy. While most was aimed at propping up the real estate market, some 14% was meant to help the country's productive sectors. Over half of the subsidized loans of $101 million went to industry.