By TBY | Lebanon | Nov 03, 2017
The chronic inability of the state to shoulder the burden of the necessary investment spending due to the accumulation of Lebanese public debt has negatively affected the state’s ability to […]
The chronic inability of the state to shoulder the burden of the necessary investment spending due to the accumulation of Lebanese public debt has negatively affected the state’s ability to provide public services, especially ones such as electricity and public transport. The Lebanese economy is not functioning at a productive capacity, and the state, in light of its budget deficit and the accumulation of public debt, cannot make the investment spending required to stimulate the economy.
PPPs may be able to offer a solution to the sluggish economy, but only if the government creates an enabling environment and supports the collaboration. Currently, the draft law on partnerships does not have the political support to be approved, but agreements made at the Paris III Conference, an international donor conference for Lebanon in 2007, stipulate that Lebanon commit to privatization of the electricity and telecommunications sectors in exchange for an economic stimulus package. PPPs are necessary for any modern economy, the most important of which are the services of electric power, communications networks, and infrastructure in keeping up with modern developments.
To date, only six PPP projects in Lebanon have reached financial closure since 1990. Investment in those PPPs reached USD153 million. At present, three PPP projects are under construction or in operation, with active investment of USD3 million. However, limited government support is hampering the development of PPPs and, consequently, the development of Lebanon’s economy. The government should prepare attractive and credible programs to encourage the private sector. According to the World Bank Group’s PPP Knowledge Lab, PPPs in Lebanon are hardly regulated.
On the other hand, the Lebanese banking sector has more than USD15 billion ready to infuse into joint projects with the state, especially energy, telecommunications, and infrastructure projects, according to the President of the Association of Banks in Lebanon, Dr. Joseph Torbey.
83% of all countries have better infrastructure than Lebanon. According to the Global Competitiveness Report of the World Economic Forum, Lebanon ranked 116th globally in terms of overall infrastructure and 151st in terms of overall competitiveness. The report includes a Global Competitive Index and the Infrastructure Score sub-index. The Infrastructure Score measures the development of transport, electricity, and telephone infrastructure; Lebanon scored 2.73 out of a total possible seven, for a rank of 116th out of 140.
Raising infrastructure in Lebanon to the best level among middle-income countries would improve Lebanon’s ranking by 92 points for infrastructure and 24 points for the overall competitiveness of the economy. Furthermore, growth in the Lebanese economy has been declining since 2011, hitting 0% last year, according to data from the Central Bank. There is no doubt that investment in infrastructure will put Lebanon on the path of growth again, and PPPs could stimulate the economy to reach growth rates of at least 6-7% in four years.
General of the Supreme Council for Privatization, Dr. Ziad Hayek, said that Lebanon’s adoption of the concept of partnership between the public and private sectors enables the economy to be boosted and the creation of employment opportunities through the establishment of infrastructure projects without burdening the public treasury at the present time resulting from investment financing. Infrastructure is the best way to boost the economy, especially in light of the global financial crisis and the specter that follows the recession.
Full privatization is not without its critics and, often, is more politically contentious than PPPs. Though even leading experts recognize the fallibility of PPPs—emphasizing the success of PPPs is very much linked to government support—PPPs could offer a solution. In a tumultuous political environment, political will to spur the economy will have to overcome partisanship to best utilize PPPs as a tool of repair and growth.