Can Lebanon avoid the Venezuela meltdown scenario?

Can Lebanon avoid the Venezuela meltdown scenario?
A youth walks with a shoeshine kit past a burnt down branch of a Lebanese bank after it was set on fire and vandalised by protesters earlier, in Al-Nour Square in Lebanon's northern port city of Tripoli on June 12, 2020. (AFP/File Photo)
Short Url
Updated 25 August 2020

Can Lebanon avoid the Venezuela meltdown scenario?

Can Lebanon avoid the Venezuela meltdown scenario?
  • Economic collapse looms as the most damaging of the multiple crises the country faces
  • Without urgent action by international financial powers and the elite, the threat is dire

DUBAI: A former economy minister of Lebanon has coined a word for it: “Libazeula.” Nasser Saidi, who ran the economy at the turn of the century and was also No. 2 in the Banque du Liban, the country’s central bank, says Lebanon faces a scenario that could see it reduced to the chaotic impoverishment of Venezuela, once the richest state in Latin America but now a byword for political, economic and humanitarian failure.
Without urgent action by Lebanon’s discredited ruling elite, and the international financial powers that have the means to resuscitate the country’s economy, the threat is dire.
“Lebanon is on the brink of the abyss of depression, with gross domestic product (GDP) declining by 25 percent this year, growing unemployment, hyperinflation, humanitarian disaster with poverty exceeding half of the population,” Saidi told Arab News.
“Throw in food poverty that could grow to famine conditions, and a continuing meltdown in the banking and financial sectors, and the collapse of the currency, all leading to mass migration. This is the ‘Libazuela’ scenario.”

Of all the many crises Lebanon faces in the wake of the explosion that tore the heart out of Beirut on Aug. 4, the economic peril looms as one of the most damaging and intractable.
Without some progress on the economic and financial front, it is difficult to see how there is a future for any Lebanese beyond a small clique of warlords and kleptocrats fighting over increasingly worthless chunks of the economy — a classic failed state by any definition.
Given Lebanon’s geographic location in the heart of a volatile and incendiary Middle East, it is a global challenge as much as a regional issue.
“With Lebanon being the fulcrum of a geopolitical confrontation between the US and Iran, local actors will play strategic games at the expense of an expendable Lebanese population,” Saidi said.
The Beirut explosion has added an extra level of urgency to what was already a desperate attempt to resist economic and financial gravity in the country.

Some estimates have put the immediate requirement — for humanitarian aid at the scene of the blast, through to the cost of rebuilding essential infrastructure in the city — at $15 billion.
But that amount, mind-boggling on its own, pales into insignificance compared to Lebanon’s longer-term financial requirements.
The most recent self-assessment of the country’s financial requirements, by Ghazi Wazni, the finance minister who quit with the rest of the government last week, showed total losses in the banking system at $83 billion, as well as a black hole in the central bank’s accounts of some $50 billion.
Together, those two liabilities amount to more than twice the country’s GDP. To put that in context, it is as if Saudi Arabia was suddenly on the hook for $1.5 trillion.

A youth inspects damage at a local bank branch which was vandalised by protesters earlier, in al-Nour Square in Lebanon's northern port city of Tripoli on June 12, 2020. (AFP/File Photo)

How did Lebanon get into this economic mess? In the wake of the Beirut tragedy, the focus has narrowed to the actions of a relatively small number of Lebanese economic policymakers, power brokers and businessmen who effectively ran the country’s economy for their own benefit for many years.
It has been well documented now that this class of people — in many cases the descendants of the factions that fought Lebanon’s long and destructive civil war in the 1970s and 1980s — operated what would have been known as a “Ponzi scheme” in the corporate world.
Banks, often owned by the same corrupt factions, offered high interest rates to lure in US dollar accounts, which were then lent out to Lebanon’s central bank to keep the whole structure going.
More than half of the Lebanese banking system was denominated in US dollars, and the opportunities for corruption and capital flight were enormous.
Last year, the long-serving central bank governor, Riad Salameh, warned that unscrupulous bankers and businessmen were transferring multimillion amounts of assets abroad as the economic situation deteriorated, even as he imposed capital restrictions on ordinary Lebanese account holders, preventing withdrawals of relatively small amounts.

A woman wearing a face mask against the Covid-19 coronavirus walks past a closed money exchange office in the Lebanese capital Beirut on June 11, 2020. (AFP/File Photo)

“We will do everything in our power to investigate all transfers abroad,” he declared. Just last week, reports alleged that foreign companies linked to Salameh had invested $100 million in assets in real estate in the UK, Germany and Belgium over the past decade.
As the guardian of Lebanon’s financial probity over many years, the case of Salameh was the most notable of many allegations of the country’s economic elite exploiting the situation for their own pecuniary advantage.
In this teetering economic structure, the COVID-19 pandemic exploded like a bomb. As global economic activity ground to a halt in April and May, the Lebanese diaspora worldwide found itself on short-time work or out of work, unable to send remittances back home.
In Lebanon, already-creaking infrastructure simply began to fall apart, resulting in street protests that met with a predictably forceful reaction from security.
Power cuts, water shortages, unemployment, and lack of essential services stoked public outrage against the elites. Then came the Beirut explosion.

Young Lebanese women wearing protective masks and gloves against the coronavirus pandemic, stand on August 5, 2020 amid the rubble in Beirut's Gimmayzeh commercial district which was heavily damaged by the explosion. (AFP/File Photo)

The incredible scenes of death and destruction that day produced widespread and genuine sympathy for the plight of ordinary citizens, and a desire to help with the financial reconstruction that was needed now more than ever.
But it also hardened attitudes in the international economic community toward the corrupt economic system that had allowed the tragedy to happen.
One Lebanese banker based in Dubai, who did not want to be identified, told Arab News: “Of course you want to help people in those horrible circumstances, but do you want to line the pockets of the people whose negligence and criminality caused it?”
Those countries and organizations with the financial firepower to assist were guarded in the aftermath of the tragedy.

A man sweeps glass off the ground along a street outside the local branch of a Lebanese bank after it was vandalised by protesters earlier, in Al-Nour Square in Lebanon's northern port city of Tripoli on June 12, 2020. (AFP/File Photo)

Kristilina Georgieva, managing director of the International Monetary Fund (IMF), said: “It is a terrible tragedy, coming at a terrible time. Lebanon has been struggling with profound economic and social challenges, aggravated by a pandemic, but even more so by the shortage of political will to adopt and implement meaningful reforms the people of Lebanon have been calling for.”
French President Emmanuel Macron, during a tour of the Beirut devastation, was even more forthright in his condemnation.
“In a situation like this, it’s perfectly understandable that people hope to get rid of their political leadership,” he said, while committing France to work with others to help with the reconstruction.

Nurses from the Saint George hospital clean one of the damaged rooms, in Beirut's neighbourhood of Ashrafieh on August 13, 2020, more than a week after the massive blast. (AFP/File Photo)

A subsequent fundraiser conference organized by the French got commitments from international organizations for around $11 billion in loans and aid that would go some way to helping with the immediate aftermath of the explosion.
But nobody is in any doubt that this is nowhere near the full requirement for Lebanon to stave off financial and economic catastrophe. “Much appreciated, but multiply by 10 times please,” the Dubai banker said.
The IMF, seen by many as the would-be savior of the country, is sticking to the line it announced earlier in the year, before the pandemic and the Beirut explosion, when Lebanon defaulted on a $1.2 billion bond repayment.
The IMF wants a genuine commitment by Lebanese leaders to reform and economic transparency before it agrees to large bailout packages.

A man clears the rubble inside an apartment in the partially destroyed Beirut neighbourhood of Mar Mikhael on August 13, 2020, more than a week after the massive blast. (AFP/File Photo)

After the mass resignation of the government last week, such commitments seem further away than ever.
Saidi is not optimistic this will come to pass. “The reform scenario requires concerted pressure by the international community, including the imposition of personal penalties and sanctions, on Lebanese bankers and politicians and policymakers for the implementation of reforms,” he said.
“The entrenched kleptocracy, a corrupt political class, banking and financial sector cronies are unwilling to make reforms that would uncover the extent of their corruption, criminal negligence and incompetence. Currently, the Libazuela scenario is more likely.”


Twitter: @frankkanedubai

Saudi CITC pushes for more tech listings on Tadawul

Saudi CITC pushes for more tech listings on Tadawul
Updated 02 August 2021

Saudi CITC pushes for more tech listings on Tadawul

Saudi CITC pushes for more tech listings on Tadawul
  • The CITC is aiming to enhance the investment environment in the telecoms and IT sectors

RIYADH: Saudi Arabia’s Communications and Information Technology Commission (CITC) signed an initial agreement with the Saudi Stock Exchange pushing for more listing of technology operators in the Kingdom on the Saudi stock market.

The CITC is aiming to enhance the investment environment in the telecommunications and information technology sector, the postal sector and delivery applications, SPA reported.

Financial market listings provide greater investment opportunities and helps companies to expand and enter new markets, and develop products, CITC said.

It also contributes to strengthening corporate governance with a regulatory framework of high quality and institutional value.

This agreement comes in line with the Vision 2030 objectives aimed at making the Kingdom a leading global logistics platform and a connecting hub for the three continents.

Saudi mortgage lending surges 27 percent in first half of 2021 — SAMA

Saudi mortgage lending surges 27 percent in first half of 2021 — SAMA
Updated 02 August 2021

Saudi mortgage lending surges 27 percent in first half of 2021 — SAMA

Saudi mortgage lending surges 27 percent in first half of 2021 — SAMA
  • Saudi banks and financial institutions lent SR79 billion for residential mortgages H1 2021

RIYADH: Residential mortgage financing in Saudi Arabia jumped by more than a quarter in the first half of the year even as new lending slowed in the second quarter, central bank data showed.

Saudi banks and financial institutions lent SR79 billion for residential mortgages in the first six months of 2021, up from SR62.1 billion in the same period last year, SAMA said in its monthly bulletin. The number of transactions increased 14.2 percent to 153,054 in the period.

The value of mortgages provided in the second quarter slid to SR31.1 billion riyals from SR49 billion in the first quarter as the supply of new properties fell amid changes to the building code.

“The number of contracts increased in the first half, but temporarily decreased in the past three months, but due to the reorganization of property evaluation by the Real Estate Fund, and the application of the new Saudi building code with the temporary ambiguity until it is well understood, and the lack of supply of ready housing units,” Mohamed AlKhars, a member of the housing program advisory board and the chairman of Innovest Property Co. told Arab News.

“I expect the volume of financing and the number of contracts to gradually increase in the fourth quarter of 2021,” he said.

Financing for villas accounted for 80 percent of residential real estate loans in the first half of the year, with 15.9 percent for apartments and the remainder for land, the SAMA data showed.

“Villas are still more desired by citizens and more available in the market, and apartment supply is still low now, as the developers are still focusing on building villas due to low interest in apartments which might continue for a while,” AlKhars said.

The mortgage market has seen stratospheric growth since SAMA began collecting the data in 2016 when a total of 22,259 real estate loans were issued. In 2019, that number jumped to 179,220 from 50,496 the previous year, before reaching 295,590 in 2020.

Brent crude falls below $75 amid Chinese economy concerns, OPEC output

Brent crude falls below $75 amid Chinese economy concerns, OPEC output
Updated 02 August 2021

Brent crude falls below $75 amid Chinese economy concerns, OPEC output

Brent crude falls below $75 amid Chinese economy concerns, OPEC output
  • Chinese factory activity posts slowest growth since before pandemic
  • OPEC output reached 15-month high in July - Reuters survey

LONDON: Oil prices dropped, sending Brent crude back below $75 a barrel after a report showed Chinese factory activity declined as the world’s second largest oil consumer battles a resurgence in coronavirus infections.

Brent crude dropped 2 percent to $74.81 a barrel at 2:15 p.m. in London, after ending July at the highest level in more than two weeks.

The international oil benchmark climbed 2.5 percent last week after a rollercoaster month that saw it swoon from a two-year high of $77.16 on July 5 to $68.62 on July 19 before recovering to end the month at $76.33.

Concerns over the effect a resurgence in coronavirus cases might have on demand for crude were allayed on Wednesday when a report showed a bigger-than-expected drawdown of crude stockpiles the previous week.

US West Texas Intermediate (WTI) crude futures dropped 0.8 percent today to $73.24.

Chinese factory activity slowed in July to its lowest level since the start of the pandemic, data showed Saturday, as manufacturing was impacted by slowing demand, weak exports and extreme weather.

The Purchasing Managers’ Index (PMI), a key gauge of manufacturing activity in the world’s second-largest economy, dropped to 50.4 in July from June’s 50.9, the National Bureau of Statistics said. A reading above 50 indicates growth.

“China has been leading economic recovery in Asia and if the pullback deepens, concerns will grow that the global outlook will see a significant decline,” Edward Moya, a senior analyst at OANDA, told Reuters.

Oil prices were also damped by a Reuters survey that showed oil output from the Organization of the Petroleum Exporting Countries (OPEC) rose in July to its highest level since April 2020.

An exchange of words over an attack on an Israeli-managed oil products tanker off the coast of Oman on Thursday appeared to provide little support to the crude market.

Iran will respond promptly to any threat against its security, a foreign ministry spokesman said on Monday, after the US, Israel and the UK blamed Tehran for the attack..

The robot apocalypse is hard to find in America’s small and mid-sized factories

The robot apocalypse is hard to find in America’s small and mid-sized factories
Updated 02 August 2021

The robot apocalypse is hard to find in America’s small and mid-sized factories

The robot apocalypse is hard to find in America’s small and mid-sized factories
  • Only one of 34 companies visited by MIT researchers had spent heavily on robotics
  • Bulk of machines were from before the 1990s

CLEVELAND: When researchers from the Massachusetts Institute of Technology visited Rich Gent’s machine shop here to see how automation was spreading to America’s small and medium-sized factories, they expected to find robots.
They did not.
“In big factories — when you’re making the same thing over and over, day after day, robots make total sense,” said Gent, who with his brother runs Gent Machine Co, a 55-employee company founded by his great-grandfather, “but not for us.”
Even as some analysts warn that robots are about to displace millions of blue-collar jobs in the US industrial heartland, the reality at smaller operations like Gent is far different.
Among the 34 companies with 500 employees or fewer in Ohio, Massachusetts and Arizona that the MIT researchers visited in their project, only one had bought robots in large numbers in the last five years — and that was an Ohio company that had been acquired by a Japanese multinational which pumped in money for the new automation.
In all the other Ohio plants they studied, they found only a single robot purchased in the last five years. In Massachusetts they found a company that had bought two, while in Arizona they found three companies that had added a handful.
Anna Waldman-Brown, a PhD student who worked on the report with MIT Professor Suzanne Berger, said she was “surprised” by the lack of the machines.
“We had a roboticist on our research team, because we expected to find robots,” she said. Instead, at one company, she said managers showed them a computer they had recently installed in a corner of the factory — which allowed workers to note their daily production figures on a spreadsheet, rather than jot down that information in paper notebooks.
“The bulk of the machines we saw were from before the 1990s,” she said, adding that many had installed new computer controllers to upgrade the older machines — a common practice in these tight-fisted operations. Most had also bought other types of advanced machinery — such as computer-guided cutting machines and inspection systems. But not robots.
Robots are just one type of factory automation, which encompasses a wide range of machines used to move and manufacture goods — including conveyor belts and labeling machines.
Nick Pinkston, CEO of Volition, a San Francisco company that makes software used by robotics engineers to automate factories, said smaller firms lack the cash to take risks on new robots. “They think of capital payback periods of as little as three months, or six — and it all depends on the contract” with the consumer who is ordering parts to be made by the machine.
This is bad news for the US economy. Automation is a key to boosting productivity, which keeps US operations competitive. Since 2005, US labor productivity has grown at an average annual rate of only 1.3 percent — below the post-World War 2 trend of well over 2 percent — and the average has dipped even more since 2010.
Researchers have found that larger firms are more productive on average and pay higher wages than their smaller counterparts, a divergence attributed at least in part to the ability of industry giants to invest heavily in cutting-edge technologies.
Yet small and medium-sized manufacturers remain a backbone of US industry, often churning out parts needed to keep assembly lines rolling at big manufacturers. If they fall behind on technology, it could weigh on the entire sector. These small and medium-sized manufacturers are also a key source of relatively good jobs — accounting for 43 percent of all manufacturing workers.

One barrier for smaller companies is finding the skilled workers needed to run robots. “There’s a lot of amazing software that’s making robots easier to program and repurpose — but not nearly enough people to do that work,” said Ryan Kelly, who heads a group that promotes new technology to manufacturers inside the Association for Manufacturing Technology.
To be sure, robots are spreading to more corners of the industrial economy, just not as quickly as the MIT researchers and many others expected. Last year, for the first time, most of the robots ordered by companies in North America were not destined for automotive factories — a shift partly attributed to the development of cheaper and more flexible machines. Those are the type of machines especially needed in smaller operations.
And it seems certain robots will take over more jobs as they become more capable and affordable. One example: their rapid spread in e-commerce warehouses in recent years.
Carmakers and other big companies still buy most robots, said Jeff Burnstein, president of the Association for Advancing Automation, a trade group in Ann Arbor, Michigan. “But there’s a lot more in small and medium-size companies than ever before.”
Michael Tamasi, owner of AccuRounds in Avon, Massachusetts, is a small manufacturer who recently bought a robot attached to a computer-controlled cutting machine.
“We’re getting another machine delivered in September — and hope to attach a robot arm to that one to load and unload it,” he said. But there are some tasks where the technology remains too rigid or simply not capable of getting the job done.
For instance, Tamasi recently looked at buying a robot to polish metal parts. But the complexity of the shape made it impossible. “And it was kind of slow,” he said. “When you think of robots, you think better, faster, cheaper — but this was kind of the opposite.” And he still needed a worker to load and unload the machine.
For a company like Cleveland’s Gent, which makes parts for things like refrigerators, auto airbags and hydraulic pumps, the main barrier to getting robots is the cost and uncertainty over whether the investment will pay off, which in turn hinges on the plans and attitudes of customers.
And big customers can be fickle. Eight years ago, Gent landed a contract to supply fasteners used to put together battery packs for Tesla Inc. — and the electric-car maker soon became its largest customer. But Gent never got assurances from Tesla that the business would continue for long enough to justify buying the robots it could have used to make the fasteners.
“If we’d known Tesla would go on that long, we definitely would have automated our assembly process,” said Gent, who said they looked at automating the line twice over the years.
But he does not regret his caution. Earlier this year, Tesla notified Gent that it was pulling the business. “We’re not bitter,” said Gent. “It’s just how it works.”
Gent does spend heavily on new equipment, relative to its small size — about $500,000 a year from 2011 to 2019. One purchase was a $1.6 million computer-controlled cutting machine that cut the cycle time to make the Tesla parts down from 38 seconds to 7 seconds — a major gain in productivity that flowed straight to Gent’s bottom line.
“We found another part to make on the machine,” said Gent.

HSBC profit more than doubles as economies rebound, loan-loss fears ebb

HSBC profit more than doubles as economies rebound, loan-loss fears ebb
Updated 02 August 2021

HSBC profit more than doubles as economies rebound, loan-loss fears ebb

HSBC profit more than doubles as economies rebound, loan-loss fears ebb
  • HSBC reinstated dividend and released $700 million set aside for bad loans
  • Pretax profit was $10.8 billion versus $4.32 billion a year earlier

HONG KONG/LONDON: HSBC Holdings on Monday reported forecast-beating first-half pretax profit that more than doubled from a weak performance last year when it made huge provisions for pandemic-related bad loans.
Encouraged by an economic rebound in Hong Kong and Britain, its two biggest markets, HSBC reinstated dividend payments and released $700 million that had been set aside to cover potential bad loans. That compares with $6.9 billion in loan-loss provisions made in the same period a year ago.
Pretax profit for Europe’s biggest bank by assets came in at $10.8 billion versus $4.32 billion in the same period a year earlier and was higher than the $9.45 billion average of 15 analysts’ estimates compiled by the bank.
Revenue, however, fell 4 percent due to the low interest rate environment.
HSBC said given the brighter outlook globally as economies recover better than expected from the pandemic, it expects credit losses to be below its medium-term forecast of 0.3 percent-0.4 percent of its loans.
The bank also said that for the year, it could even make a net release of funds from earlier provisions rather than add to them, but it was hard to say definitely due to the unknown impact of government support programs, vaccine rollouts and new strains of the virus.
It plans to pay an interim dividend of seven cents a share after the Bank of England scrapped payout curbs last month.
Reflecting its better than expected loan performance, HSBC will move to within its target payout range of 40-55 percent of reported earnings per share within 2021, it added.