Lebanon’s Voodoo economics explained
Any outside person who tries to make sense of consumption patterns in Lebanon is confused by what she sees. Lebanon is notorious for low wages (Wanted: Architect with minimum 5 years experience. $800), yet it is impossible to deduce that from observing the cars on the streets, the people in clubs, in restaurants and in fancy shops mushrooming here and there.
My brother, who recently graduated from LAU and tried working in Lebanon, came up with a theory. He concluded that in Lebanon, we have two kinds of employees:
The first kind is made of the people who are stuck in the rat race. They struggle to make ends meet and to save at the end of each month. They sometimes have two jobs. They are always angry at the government and are constantly complaining from low pay. Their ultimate goal is to find a rich spouse, a job in the Gulf or an immigration ticket to Canada.
The second kind is the more interesting one for this post. It’s made of the sort of people who net $900 a month but drive $70,000 cars. They work for pleasure, prestige, or for the pursuit of a sense of accomplishment and growth, but not to pay the bills. They are mostly women who graduated from top universities but whose fathers wouldn’t let them travel. They are a special breed of YUPPIES: their pay-cheques are their disposable incomes, but the essentials (accommodation, utilities, transportation, cell-phone bills, health-insurance) are simply “taken care of.”
This stereotyping is of course just a caricature, but there is nothing that can symbolize the Lebanese economy better than that second category. As economist Marwan Eskandar explained in Annahar today, the Lebanese economy is a different kind of beast.
In response to an IMF official who predicted for the last 10 years that the Lebanese economy should soon collapse, Mr. Eskandar explained that this would be the logical conclusion for any economist who doesn’t account for that most important of Lebanese factors, Lebanon’s sugar daddy: the mighty Diaspora.
Mr. Eskandar proceeds with figures: 35% of able and willing Lebanese workers work outside of Lebanon. Their remittances to their families exceed the sum of all wages paid in Lebanon. This accounts for the uninterrupted expenditure on consumption and for the surplus in the balance of payments.
Another significant statistic he sites is this one: Bank deposits are almost 60 Billion Dollars (much higher than Lebanon’s GDP,) 83% of which belongs to Lebanese people. This statistic is not necessarily a healthy thing, he concedes, but it’s very important because it injects the economy with an estimated 2.5 Billion Dollars in interests yearly. Add that to the estimated 5 Billion dollars the Lebanese abroad send every year as remittances, and you have 7.5 Billion dollars primarily aimed for local consumption.
Mr. Eskandar warns that focusing the government’s economic efforts on academic studies on the different sectors would be bypassing one of the major pillars of our economy: Lebanese-owned Multinational companies who chose to have their headquarters in Larnaca and Dubai instead of Beirut because of complex politics and excessive red-tape and taxation.
He sites 10 Lebanese family groups with a collective turnover of 12 Billion dollars per year. They employ 100,000 Lebanese who send remittances that cover the salaries and pensions of 500,000 employees inside Lebanon. Those groups work in Industry, like the Frems and Ghandours, Hi-tech, like the Hariris and the Miquatis, Trade, like the Daguers and the Dahers, Air and Sea Transportation services like the Ghandours and the Saadehs, Software like the Eddehs, and Education like the Bustanis, Saads and Abushakras.
Mr. Eskandar asks the politicians to leave their squabbling aside and ask those Lebanese Entrepreneurs about what should be done for them to bring their businesses to Lebanon.
That simple step, he says, will help invite many others to come and invest here.
| Print: 
The beirut spring is a blog that is interested in Lebanese society and its politics. It started in February 2005 after the assassination of Prime Minister Rafik Hariri
May 21st, 2006 at 11:31 am
Interesting Mustapha.
But is Iskandar saying no one else knows how to interpret Leb economic and banking data? Or that the official data are flawed? In the latter case where do his numbers come from?
May 21st, 2006 at 12:10 pm
Well, Josey, I guess what he’s saying is that the sustainability of the Lebanese economy cannot be explained using orthodox methods that people at the IMF usually use(like local productivity and employment growth),
I have now attached the link to his article. The newspaper wasn’t online yet when i first wrote this post.
May 21st, 2006 at 12:28 pm
Voodoo indeed. Interesting assessment by Mr. Eskandar. But, don’t you agree we’ve all known this for years, that this political class that’s running the show………
What else is new? :(
May 21st, 2006 at 2:02 pm
Let me contribute to this discussion by adding that a state that oversees a population that receives a disproportionately high level of remittances can be considered to be “rentier.”
in other words, the state does not have to foster a productive society which it can then tax and provide services to. The reason, Mustapha, is because individuals, like you and your family, me and my family, and the majority of Lebanese emigrate… contribute to other countries’ economies and send our remitances to those family members we left behind.
Of course I don’t need to explain this dynamic because we all take part in it. But just immagine how much pressure is lifted from our political elite because their “subjects” are content to be spoon-fed from their relatives over-seas!
These remittances may be what saves our economy from collapse… but maybe what lebanon really needs IS an economic collapse!
May 21st, 2006 at 4:43 pm
Raja,
Very interesting proposal! But what do you think the reaction of the Lebanese people be if the Economy collapses? Will they put their sectarian differences and unite?I doubt it. There is no better time for them to forget their differences other than this time and yet see the dirty politics they are playing (especially Aoun et al).
May 21st, 2006 at 9:48 pm
I’m one of the few workers IN Lebanon being paid by khalijees and Americans at competitive rates. I guess that’s why I scream about the government and refuse to buy anything expensive here. I’ll pay just as much or more in Milan for clothes because I know where my money is going. I will not pay a penny to already rich Lebanese who have monopolies over their sectors. I also don’t want to pay taxes (particularly the VAT) to a government that can’t do anything for itself. I don’t want to feed the importation corruption at the ports. I don’t want to pay three times as much for a water heater as I can get for the same thing in Dubai. I don’t want to pay overly high prices for horrible service.
Ways I spend my money in Lebanon: restaurants, wine, argile, books, transportation, internet, phone calls, movie tickets, rent, fertilizer and garden equipment, etc. I wish I didn’t have to pay the stupid government for my bad internet and bad cellular. They really mess absolutely everything up.
I’m an impulse buyer. I don’t feel the impulse to buy anything in Lebanon. I go insane in Dubai, but I have trouble spending money in Lebanon. My company chooses not to headquarter a number of sectors in Lebanon because we couldn’t make a profit if we did. Instead, we’ve got a bunch of Lebanese and Iraqis working in Saudi.
May 22nd, 2006 at 12:21 am
Marwan Iskandar among many other Lebanese are perpetuating a myth. The level of consumption in Lebanon is not any higher than the macro figures suggest that it should be. To be more specific, you mention luxury cars that most Lebanese also love to mention as a symbol of their prosperity etc… How many new cars are sold in Lebanon each year and what are the best selling cars? Once you look into the details you learn that not many new cars are sold each year and that most of the ones sold are inexpensive models. The luxury cars stand out because many of them are bought second hand in Europe or the Gulf. Actually many of them are stolen in Europe and sold in Lebanon. As to the Night Clubs and the fancy Boutiques, these are not patronized by the average Lebanese, their usual clientele represents only a small sliver of privileged people. Come on let us face it as grown ups, the average Lebanese is barely above the local poverty line and as you have rightly stated Lebanon would be a basket case had it not been for the remitances. No country should be proud that its survival is a function of remittances.
I am surprised that Marwan Iskandar thinks that 2.5 Billion is an adequate rate of return on 83 billion.No one that I now off would ever settle for such a miserly rate of return that is not even sufficient to kep up with inflation. If it is true that Lebanese have Bank deposits of $83 billion in order to generate an income of $2.5 billion then they are definitely are not rational investors to say the least.
May 22nd, 2006 at 2:31 am
It pains me to say this but objective conclusions regarding the Lebanese economy are not any better than its record in the purely political aphere. Lebanon is a failed state politically and a failed state economically.
Witness the latest( 2003) GDP per capita figures ($PPP):
World $9300
Lebanon on the other hand ranks as 130 with a GDP per capita of $5300. Some of the countries with a lowe GDP per Capia are: El Salvador; Albania; India; Cuba and Vietnam. It is also noteworthy that the Lebanese figure is below that of such countries: China; Ukraine; Fiji; Gabon and Swaziland!!!
Furthermore we are one of the very few countries in the world whose real GDP per capita in 2005 is BELOW that of 1975!!! The only countries that can match such an unenviable record are some subsaharan countries ans a few CIS countries.
The Lebanese macroeconomic data tell a very sad story indeed.I know of no credible figures about income distribution in Lebanon, but I will eat my hat if they are not, again, some of the worst in the world. It wouldnot surprise me to find a Gini coefficient of 0.65 or even more. Lebanon has always been and is becoming even more so an oligarchy.It is unfortunate indeed to hear that some suggestions for reviving the Lebanese economy are those that want to increase the power of the oligarchs. Oligarchs stiffle competition, do not encourage creativity and are bad for competition, freedom and democracy. The last thing that Lebanon or any society needs is less economic democracy.
May 22nd, 2006 at 7:13 pm
Another Rentier society is MExico that feeds off remittances from the US where a quarter, can you believe it, a quarter of their workforce works.. As to Lebanon, i think both Ghassan and Iskander are right. Lebanon is a terrible place for work, high utility costs, bad infrastructure, corruption, bureaucracy, stupid wakeel system etc… but I am sure the real GDP/capita is higher, I would gather that undeclared flows are significant.
May 25th, 2006 at 6:18 pm
The tragedy is where we are compared to our potential
If I remember correctly in 1975, the Leb economy was in some ways comparable to South Korea and better than Spain’s.
We’ve gone backwards, they shot forward.
Instead of discussing the economy and how to improve lives, we are mired in Shebaa, Iranian nukes, Lahoud, and our relations with our even more failed sister.
December 12th, 2007 at 4:31 am
[…] Personally, I’m enjoying the weather and driving around Lebanon and checking out the Christmas decorations in the various malls. (If you’re wondering why the malls are full with people despite the economic malaise, read my old post in which I explained how our “Sugar Daddy Economy” works ) […]