Lebanese economy hammered by debt

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A restaurant offers a 30 percent discount in downtown Beirut. (AP)
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A restaurant offers a 30 percent discount in downtown Beirut. (AP)
Updated 24 August 2018

Lebanese economy hammered by debt

BEIRUT: Ahmad Harb opened his perfume shop on the main street of Beirut’s commercial Hamra district 35 years ago, and his business has weathered security and political crises in this volatile country, including a civil war.
He said this year has been the worst he’s seen: Sales dropped by 90 percent and after the landlord raised the rent, he was finally forced to close the shop and move to a smaller, less expensive location nearby.
“There is no business. Nothing works in this country, everything is very expensive,” Harb said, standing woefully outside his now shuttered shop.
Nearly four months after Lebanon held its first general elections in nine years, politicians are still squabbling over the formation of a new government amid uncertainty over a long stagnating economy, struggling businesses and concerns over the currency.
Years of regional turmoil — worsened by an influx of 1.5 million Syrian refugees since 2011 — are catching up with the tiny, corruption-plagued Arab country. Lebanon has the third highest debt rate in the world, currently standing at about $81 billion, or 152 percent of the gross domestic product. In the absence of a new government, Lebanon has been unable to access billions of dollars pledged by foreign donors for foreign investment in infrastructure and other projects.
Meanwhile, many businesses are closing, some companies are laying off employees and even Lebanese living in the Gulf region have seen a drop in their business and income due to a drop in oil prices, translating into a decrease in remittances.
Amid this tight situation, many Lebanese who have cash are now spending less, fearing for the future. Residents complain they have to pay double for everything including private generators to deal with chronic electricity cuts and water trucks to cope with the dry summer months. Adding to the downward spin, the government earlier this year stopped awarding long-term housing loans with low interest rates because high demand has depleted money available.
Hardly a day passes without politicians warning that the worst is yet to come, raising fears among residents that the Lebanese pound, pegged at 1,500 to a dollar for the past two decades, might lose some of its value.
Harb wonders where he will get the money next month when his children return to school.
“The country is heading toward bankruptcy,” he said, referring to shops that have already closed down in Hamra Street, one of the top shopping districts in Beirut.
On a walk through downtown Beirut in August, when restaurants would normally be packed with expatriates and tourists, the depression is easy to spot. Some restaurants have closed while others offer 30 percent discounts. Some shops are offering up to 70 percent off.
Maamoun Sharaf, owner of a money exchange shop, said the delays in forming the Cabinet have had bad effects, but the situation had been bad even before that.
“This year the economy did not do well. Even our business dropped by 50 percent,” he said.
Political disagreements have led to a delay in the implementation of loans and grants pledged at the CEDRE economic conference in Paris held in April. International donors pledged $11 billion for Lebanon but the donors sought to ensure the money is well spent in the corruption-plagued country.
Despite the crisis, the state last year approved a salary scale for civil servants that will cost an extra $800 million annually. The government imposed new taxes to fund the new salary structure, increasing the burden on a population that has already been suffering under high taxes with no return in the form of stable services such as water and electricity. Indeed, daily electric outages are a common occurrence.
Central Bank Governor Riad Salameh has repeatedly released statements assuring people that the currency is stable.
Some Lebanese banks have been raising interest rates on the local currency for clients who agree to change US dollars to Lebanese pounds and put them in blocked accounts for a specific period of time. The move is backed by the Central Bank, which has been boosting its foreign currency reserves.
“There is a government paralysis in Lebanon but right now the Lebanese pound is safe. The Central Bank is trying to have dollars to boost its reserves in case of any economic crisis,” said economist Kamel Wazne.
He acknowledges, however, that the economy “is not well” and warns that state institutions and financial policies cannot be activated in the absence of a government.
Prime Minister-designate Saad Hariri, who has lobbied Western governments for assistance, is bogged down with the details of forming a government and divisions among politicians over whether Lebanon should resume normal contacts with Syrian President Bashar Assad’s government.
Hariri’s pro-Syria opponents have been pressuring him, saying normal contact should be resumed to help boost exports from Lebanon through the Naseeb border crossing with Jordan, which was recaptured by Syrian troops from rebels in July. Hariri is a harsh critic of Assad and is against having normal relations with the Syrian president.
“The international community stood by Lebanon and what is needed now is for Lebanon to stand by Lebanon and to form a Cabinet quickly, because this delay negatively affects the economy,” said Wazne, who also referred to the debt that is expected to grow in 2018 by $5 billion due to a huge budget deficit.


Virus pressure tests Saudi Arabia reforms as Aramco has Forbes debut

Updated 28 May 2020

Virus pressure tests Saudi Arabia reforms as Aramco has Forbes debut

  • ‘In terms of profits, the Saudi companies have done well. We will see more companies rising in the next few years

RIYADH: Saudi companies such as oil giant Aramco are displaying resilience in the face of the coronavirus pandemic because of reforms introduced before its arrival, say analysts.

The world’s largest oil company has become emblematic of wider corporate reforms triggered by the Saudi Vision 2030 blueprint for social and economic change.

Saudi Aramco this month appeared in the top five of the Forbes Global 2000 list, which ranks the world’s 2000 largest companies.

It comes as the world’s most profitable company reported profits on $88.2 billion last year.

This year’s rankings arrive amid a global pandemic which has devastated the earnings of some companies, improved the position of others and tested the resilience of all.

It has also shone a spotlight on the ability of the the Kingdom’s top companies to withstand the twin shock of the COVID-19 lockdown and the collapse of oil prices.

Saudi Aramco debuted on the prestigious Forbes list after completing the world’s largest initial public offering last year.

The rankings are based on a combination of sales, profits, market capitalization and assets. Three of the top five companies on the list are from China, including Industrial and Commercial Bank of China in the top spot for the eighth straight year with more than $4.3 trillion in assets.

Forbes noted that many of the companies on its list have come through a particularly difficult first quarter as a result of the COVID-19 pandemic, or what it describes as “The Great Cessation.”

“Many companies and organizations have faced difficulties in managing and mitigating the impact of COVID-19 crisis. However, there are some companies that have prepared well and put in action plans to avoid this crisis with the least damage,” said Fahad Alfaifi, a Saudi-based strategy and business planning consultant.

The pandemic has come at a time of historic change in the Kingdom’s corporate landscape driven by economic reforms which form a major part of the Vision 2030 agenda. This aims to reduce the country’s reliance on oil revenues and stimulate investment in sectors of the economy that create new jobs for a youthful population.

This backdrop has meant many companies in the Kingdom were already changing the way they did business before the arrival of the pandemic and the collapse of oil prices created new challenges.

Last year’s annual Global Competitiveness Report, issued by the World Economic Forum, placed the Kingdom third among G20 counties and 11th globally

in terms of IT governance which rates a country’s ability to adapt digital technologies such as e-commerce and financial technology.

Such technology skills are becoming increasingly important for economies as they to re-calibrate and adapt to the post-pandemic world.

Nasser Al-Qarawee, the director of the Saudi Study and Research Center, attributed the success of some Saudi companies to the great achievements made by the private sector lately and predicted that more Saudi companies would eventually join Aramco on the Forbes list.

“The national economy has seen enormous improvements and development in terms of laws and legislation that have helped reduce restrictions and bureaucracy, while the government has worked at the same time on reducing dependency on oil. Vision 2030 will further cement the Kingdom’s strong presence globally and make it have a larger influence on global decisions, not only economically but also politically.”

Tawfiq Al-Swailem, CEO of the Gulf Bureau for Research and Economic Consultations, said that many Saudi companies would emerge from the pandemic in a strong position.

“In terms of profits, the Saudi companies have done well, although the entire world is living through a state of ferocious economic war,” he said. “We will see more Saudi companies rising in the next few years.”