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Ferid Belhaj

LEBANON - Economy

Keep the Faith

Director, Middle East Department at the World Bank

Bio

Ferid Belhaj assumed his current position on September 17, 2012, taking charge of work programs in Lebanon, Syria, Jordan, Iraq, and Iran. Before taking up this role, he served as World Bank Director for the Pacific Region between 2009 and 2012.

"Lebanese citizens living abroad play a tremendously dually constructive and stabilizing role when it comes to their country."

As the Director of the Middle East Department, how would you assess Lebanon’s role in the region?

Lebanon is a particularly interesting country. And, despite its relatively small size within the region, it boasts a rich social fabric that is reflected in the way the economy functions. Many compromises are made and deals struck to ensure that each segment of the country and its communities enjoy economic benefits. Indeed, this has enabled the country to weather many of the crises it went through to date. When considering where the country is truly making an impact regionally, the financial sector and banking industry immediately present themselves. The banking industry is active across the region; in Syria, Iraq, including the Kurdistan region of Iraq, and Turkey. The industry is performing so well that some would argue that it is keeping the country afloat. It is the receptacle of the billions of dollars remitted by Lebanese citizens living abroad. These, in many cases, extremely successful individuals, retain a very strong bond to their country. The flow of money returning is absorbed by the banking system, which is a crucial and pivotal instrument of the economy, and, by extension, the country at large. In that sense, and despite shortcomings and some criticism, both within the country and abroad, the banking sector stands out and allows Lebanon to shine throughout its region. Then there is the human factor. The Lebanese people are educated, intelligent, multilingual, and extremely entrepreneurial. And, while resident the world over, they are particularly active in this region. Lebanese people, for example, are strongly represented in the GCC region, and are a dynamic and widespread force within those thriving economies. Thus, through the banking industry and on the strength of its human resources, Lebanon remains extremely influential. However, these activities often remain below the radar, and integrated into the economic fabric of regional countries, despite being both constructive and significant. Lebanese banks are widely established, reading the political economy of the region, taking considerate risks, and betting on the stability of locations that at face value suggest instability, volatility, and considerable risk. With this approach they have demonstrated that beyond the façade of fundamental instability lies considerable opportunity to be tapped into. In fact, wherever a Lebanese business is to be found, one can identify an opportunity to be had. This is what happened with Lebanese entrepreneurs in Africa, the first to invest there to satisfy their natural appetite for high-risk, high-reward ventures. The banking sector is important, as indeed are other service industries. Meanwhile, the Lebanese dominate the media industry in the Arab world—as well as management consultancy, legal services, and accounting.

Youth unemployment is high at 34%. How would you assess Lebanon’s labor market, and what steps must be taken to promote the creation of quality jobs and increase employment levels?

I think the flipside of this whole issue is that Lebanese people do extremely well when they venture abroad. The domestic economy is rather limited in scale, and, unfortunately, many highly educated citizens face the reality of unemployment. Some simply pack their bags and leave in search of better prospects abroad. The local economy suffers from a large number of hurdles, some deriving from the institutional setup itself. It is very difficult to make decisions and implement them swiftly and efficiently, which naturally impedes growth. If you consider the case of public transportation, water, electricity, and telecommunications, and while one can see slow progress, there is a huge untapped potential that is slowing down the country’s competitiveness, and harming its potential edge over competing countries. Indeed, given a more effective institutional framework, the country would be an incredible success story—as it was in the 1950s and 1960s—in a climate of stability. The major obstacle today is politics, both domestic and regional, which makes for a tough playing field, where it remains hard to adopt a clear long- or medium-term view.

Aside from the banking and real estate sectors, what areas have the most potential for growth?

Focusing on what is available today, and without talking about as yet untapped opportunities, the potential for energy generation is huge. In this context, water is an important national resource that remains largely neglected. A glance at Lebanon’s geography reveals mountains and valleys of incredible potential for energy generation. One would think that for the strategic construction of a system of dams, for one, would generate sufficient energy for both domestic and regional consumption. It would make of Lebanon a net exporter of energy. Imagine what Lebanon would look like if it is transformed from an energy-starved country to a net provider. Unfortunately, that is not happening due to institutional and political impediments and the practicalities of electricity distribution. In addition, and overall, if Lebanon is to become an attractive business hub for high-end companies, it requires energy that is both reliable and cheap. It would need a fully functioning telecoms industry, a modern transport network, and a dependable institutional framework conducive to long-term business planning. Yet, despite these shortfalls, many companies are already established here, and the economy is registering modest growth, albeit still far short of its true potential. A study conducted into the potential economic outcome of Lebanon establishing solid institutional foundations revealed a growth potential of around 4%. This means that in a good year, the figure could rise to 7%.

“Lebanese citizens living abroad play a tremendously dually constructive and stabilizing role when it comes to their country.”

What is being done to attract investment to areas other than Beirut?

If you look at the economic fabric of Lebanon, you note that a very large chunk comprises micro-, small-, and medium-sized enterprises. With this in mind, the World Bank has recently approved a project specifically targeting the development of such enterprises. The micro- and small-scale enterprises, in particular, play a key role in developing remote areas and enabling entrepreneurs to develop their own businesses and create economic momentum. By doing so, we are pushing back poverty and creating employment within the businesses individuals are working to establish. When considering SMEs, financing is a primary constraint, and so by working with the banking sector, including the Central Bank, and certain other intermediaries we have been helping small entrepreneurs obtain the urgent financing long unavailable to them. At the same time, we are working at building their capacity to put together viable business plans that represent attractive propositions for the banking sector to finance. In so doing, we not only provide financing opportunities but, also, and perhaps of equal importance, instill the confidence that drives the entrepreneurial spirit. We provide incentives such as partial risk guarantees by working with the Kafalat SAL, an institution that helps filter and increase the funds that the banking sector is prepared to commit to this investment mechanism.

How is the World Bank reacting to the Syrian crisis?

Recently, we worked with Jordan in helping alleviate some of the stress caused by the huge influx of Syrian refugees into its territory. Yet our focus was not on the refugees themselves, but on the host communities. The Jordanian and Lebanese people have been extremely generous in welcoming these refugees. The governments, too, kept their borders open, and, in doing so, are abiding by international law and humanitarian values. This does not mean, however, that Jordan or Lebanon should be left alone to bear the brunt of this responsibility. Indeed, the international community itself, including the World Bank, is part of the solution. In Jordan, we have recently approved a $150 million facility geared at cushioning the economy against the impact of the Syrian crisis. We are working with the municipalities and local governments, too, where refugees actually settle, so as to relieve the additional stress placed on the delivery of basic services such as water, sanitation, education, and health. We are in advanced discussions regarding similar schemes with the government of Lebanon, and we started out with an economic and social impact and needs assessment that would give a clearer view of the intensity of the situation. We hope that the international community will join the Bank in helping Lebanon contain the negative impact of the Syrian crisis, and allow the country to build resilience and maintain its stability. We are keenly aware that Lebanon remains extremely vulnerable to a real and present danger, and we’ll stand firm in helping the country.

What is the dimension of the Lebanese expatriates’ contribution to the local economy?

Basically, Lebanese citizens living abroad play a tremendously dually constructive and stabilizing role when it comes to their country. In fact, it might be said that these individuals are essentially keeping the country afloat. The millions of Lebanese living abroad send back billions of dollars a year. They are mostly channeled through the banking sector, but also serve to boost the real estate sector, for instance. When Lebanon issues bonds and taps the international debt market, one notes that the bulk of interest comes from the Lebanese themselves. This reveals a marked faith in their country even among those who have been abroad for generations, and a link that helps to finance the country, which is rather unique.

© The Business Year – August 2013

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