Economists: Stability key to attracting investment in Lebanon

At a banking forum, economic leaders called for greater public-private cooperation and pushed for political stability in the country.

al-monitor Riad Salameh, the governor of Lebanon's Central Bank, speaks during ACI Lebanon's Golden Jubilee Grand Celebration, Beirut, Sept. 1, 2014. Photo by REUTERS/Mohamed Azakir.

Topics covered

recession, lebanon government, lebanon crisis, lebanese economy, economic recovery, economic stagnation

Apr 7, 2015

Amid the current situation in Lebanon and the region, talks about development are urgent and necessary. This is particularly true with unemployment rates reaching 25%, and the successive crises that have befallen the private sector. As a result, collective shutdowns and layoffs have been rampant, requiring comprehensive development policies.

For this reason, the Union of Arab Banks (UAB), in cooperation with Banque du Liban, the Lebanese Ministry of Economy and Commerce and the Investment Development Authority of Lebanon (IDAL), held the Lebanese Banking Economic Forum: Strategic Orientation for Economic and Social Development. The speeches delivered during this forum stressed on the importance of cooperation between the private and public sector, as well as political stability.

In this context, Wissam Fattouh, the Union of Arab Banks' secretary-general, spoke to As-Safir about the "importance of providing security stability in Arab countries, and Lebanon in particular, as a stepping-stone for real development." Fattouh noted that security constituted the main factor for any economic or financial activity: Every investor has to be reassured about the security situation before investing money and energy in projects. He added, "Lebanon is capable of attracting investments and the banking sector is capable of funding projects. However, the funding cannot take place within a risky investment environment."

Fattouh called on [leaders to] work toward achieving security and political stability to achieve economic, financial and political reform, hoping that the development experience of the UAE, Egypt and other countries be transmitted to Lebanon. Fattouh highlighted the role of Arab banks, saying that Gulf deposits in Lebanese banks were a stark indication of the Arab interest in investing in Lebanon and supporting the economy. "Lebanon is a country that attracts investments. Therefore, the problem does not lie in investment itself but rather in the required security stability," Fattouh added.

The forum was sponsored by Minister of Economy and Commerce Alain Hakim. At the inauguration, Riad Salameh, Lebanon's Central Bank governor, explained that at the beginning of the year the Central Bank decreased interest rates and planned to keep them at this level throughout 2015. Despite this decrease, the Lebanese pound exchange rate remained stable, and the demand for the financial instruments issued by the government and the Central Bank remained high.

Salameh tackled the issue of the price decrease of oil and goods: "It encourages us to preserve liquidity at high levels in the markets, without this threatening the stability of the prices. The aim is to catalyze internal demand at a time where, similar to the other countries of the region, we are faced with a setback in external demand and in Arab intra trade, due to political and security hardships."

Salameh believed that "developing the payments system among Arab countries to become an effective and transparent system will encourage trade among these countries, which are currently in need of such a system. We contribute to setting up this system through joining efforts with the Arab Monetary Fund that is working on achieving this aim."

Salameh said the Financial Markets Authority is seeking to provide a suitable environment to develop a capital market that reassures investors. "For this reason," Salameh said, "we developed our organizational and monitoring skills and provided the needed capabilities. We are issuing permits for investment funds, and such permits are vital, and we are organizing the trade of bonds, currencies and goods. The funds monitor these activities and will expose any violation according to the law. The Financial Markets Authority decided to authorize an electronic market that allows digital trade of stocks, currencies, goods and bonds in which banks, financial institutions and financial intermediary companies will participate."

The president of the Executive Committee of the UAB and president of the World Union of Arab Bankers, Joseph Torbay, said that amid the current situation in the Arab region, Lebanon was naturally affected by the crises. The levels of economic development decreased in the last four years by at least 2% per year. Trade among Arab countries was largely disrupted due to the Syrian war, and the natural movement of people and goods through Syrian territory was cut off. This in addition to the influx of Syrian refugees who currently number 1.5 million, imposing significant economic, humanitarian, social and security challenges on Lebanon. Torbay drew attention to the decrease in exports by 23%, increasing the deficit in the balance of trade and budget, while public debt reached $66 billion. In addition, the agriculture and industry sectors are marginalized in Lebanon: The general budget allocated less than 1% to agriculture, although 20% of the Lebanese work in this sector. The industry is struggling with a stagnation in growth rates, leading to thousands of layoffs.

During his speech, Hakim noted that the Lebanese economy is in recession as a result of receding investment activity. He stressed that there would be no growth without investment, and no investment without a stable political and security situation. He explained that the situation was further exacerbated due to skyrocketing unemployment rates as a result of the Syrian labor force competing for jobs in Lebanon.

Hakim said that without the election of a president, there would be no economic boost, investment attraction, catalysis, sustainable growth or protection of the economy. Hakim said, "It is necessary to improve the public sector, activate public sectors, implement administrative reform, encourage investments through the imposition of security and the provision of a suitable environment, catalyze the creation of work opportunities and develop academic programs that match the labor market and improve infrastructure."

Adnan Kassar, president of the Economic Committees [business group], said, "Amid the developments taking the Arab region by storm and the core changes in the international economic landscape, Lebanon is currently in need of a clear strategic vision for economic and social development that is based on a normal political process presided over by a president of republic."

The chairman of the Association of Banks, Francois Bassil, underlined the importance of partnership between the private and public sector. He noted that this partnership was the first pillar on which any strategic orientation for economic and social development should be founded in the near future, provided that it be coupled with two other pillars: administrative decentralization, and reform and upgrade of public administration.

"Despite the delicate internal and regional situation, the loans granted for the Lebanese economy are still ongoing. The loans granted to the private sector have, in fact, achieved a growth of nearly 7.5% on an annual basis," Bassil said. He warned that if it were not for the current decrease in oil prices, the ratio of public debt to GDP would have increased by 129% to 133%, stressing the importance of working toward reinforcing political stability, activating reform to rationalize expenditures and channeling focus on the human and youth resources that Lebanon has.

The chairman of the board of IDAL, Nabil Itani, affirmed commitment to supporting all potential investors, standing by their side, and providing the needed aid. He also stressed the importance of supporting the banking sector and financial institutions. Itani also called for joining efforts and supporting IDAL. 

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