After over a decade of dormancy, Lebanon’s Economic and Social Council (ESC) was reactivated last November. The ESC is an advisory body to the government, and its opinons are non-binding. Executive met with the economist Mazen Soueid, one of 71 individuals named to serve on committees of the ESC, to understand how the institution can address both business and civil concerns, prospects for the coming CEDRE infrastructure investment conference (also known as Paris IV) in April, and getting Lebanon’s economy working again.
E What is your role at the Economic and Social Council?
I’m the president of the committee that looks at the productive sectors: industry, trade, banks, insurance, and the power sector. I think one of the most important achievements of this government and the new presidency was the appointment of the first council in over 17 years.
E Is the ESC meeting already and, if so, what are the outcomes of these meetings?
Of course, several [times], and there are already some questions that have been sent to the council. Let me explain the process: the government issues decrees, Parliament ratifies laws, and the council issues opinions. These opinions, when they are issued by the council [and published in the Official Gazette following a majority vote by the council’s general assembly], have a very strong moral power and empower the parties that will benefit from such opinions. The council represents various sectors, so it’s a space for economic and social dialogue. And it’s a space where you have controversy. Sometimes, there are decisions that will have winners and losers, and this is the best place to discuss them to see whether the benefits of the winner outweighs the loss of the loser, and how we can mitigate the losses for the loser or ensure they are minimized. The council is the best place for such dialogue, and obviously there is a need to make use of it.
E It is clear from the indicators that Lebanon’s economy is not in a good way. Is this a recession, or are we nearing the cliff’s edge?
Lebanon has been suffering from a protracted low growth period since 2011, when growth collapsed from over 9 percent to less than 2 percent. We have had six years of recession in the country, and we’ve had two previous recessions: one from 1998 to 2000, and the other in 2005 to 2006. The first recession was because of political shock—the ousting of the late Prime Minister Rafic Hariri—and the second recession was also due to political shock: the assassination of Rafic Hariri, followed by the July War. This [current] recession has eroded a lot of what Lebanon had gained in terms of buffers throughout the times of high growth. The main reason for this long recession is the war in Syria, and it continues to be one very important reason because it has affected key sectors in the Lebanese economy: tourism, exports, and foreign direct investment, especially into real estate. For six years, the largest neighboring country, and the only one with whom Lebanon has a diplomatic relationship, has been at war, and that has affected our economy. Then came, of course, the presidential void for two and a half years, leaving the country without a president and with a paralyzed Parliament and a very weak government. This also eroded confidence and added to the pressure that Lebanon has been facing.
E The low growth period of the last six or seven years alongside other indicators, such as trade exports, but also anecdotes from business leaders printed in this magazine, suggest that businesses across the private sector are really struggling.
In times of low growth, the cake is shrinking, and in order to keep the same pie, one’s share has to increase. Everybody is trying to increase their share, and I’m not talking here about political parties—that is, of course, taking place—but the Economic and Social Council is concerned with the various sectors [of the economy] and their stakeholders. Today, if you are an industrialist, and the pie is shrinking, the only way you can sell the same is trying to impose some measure in order to substitute import for local production. But then you are stepping on the toes of the traders. Trade is value added at the end because it gives the consumer choice, and this empowers the consumer and the producers because they can import cheaper goods or materials. Today, lots of these sectors are trying to expand at the expense of other sectors, specifically because of the low growth environment. When growth is high, the cake gets bigger, fights are easier. Henry Kissinger used to say, ‘The smaller the stakes, the bigger the fights.’
E What is your take on April’s CEDRE conference? There are many needed infrastructure projects that are being put forth. But it seems that many of the potential donors from the international community, and also the investors, are expecting some level of structural and administrative reforms.
The CEDRE conference will be a game changer. It will allow funds for infrastructure in Lebanon without having to [further burden] the fiscal situation. It will allow Lebanon to ease a serious supply bottleneck: Growth rates will not rise again to between 7 and 9 percent unless Lebanon increases its infrastructural base. [Lebanon may also need to] allow Syrian refugees to work again in the construction sectors, rather than competing with Lebanese in the restaurants, or other low paying jobs that usually low-skilled Lebanese work. I think it’s very important for the government to take seriously the call for reforms that international organizations are, I wouldn’t like to say imposing, but requesting, from Lebanon. And even after CEDRE, in order to get disbursements, Lebanon needs to take active reforms. I think the Economic and Social Council should play a very important role in the coming period because we are dealing with six or seven years of a low growth environment and there is lots of pent-up demand. And there is a need, as we saw during the unfortunate events of the garbage problem, to give civil society a space where it can express its opinion rather than take to the streets.
E What can the ESC do to help the Lebanese deal with the needs and requirements that will be connected to CEDRE? Because evidently it will not happen without reform.
There will be a lot of painful reforms requested by the international community on Lebanon. And Lebanon today has to swallow that bitter pill. It would have been much better if we had swallowed that pill in times of high growth. Now, we have to swallow that pill. Why? We need the international community, and the international community understands that in order for Lebanon to spend efficiently, it has to undergo reform. Reforms by definition are costly, and by definition, entail winners and losers. In order not to create any social pressures by having to conduct reforms, the council can basically build in support for these reforms through economic and social dialogue, where all involved stakeholders are represented to have a buy-in for these reforms.
E What, in your opinion, is the reform of top priority?
Reforms in Lebanon will have to start with the electricity sector; that is the most urgent need. It is bleeding the budget by around $1.5 to 2 billion per year. [The public utility’s subsidy] is a highly ineffective and highly inequitable subsidy because it goes to the pockets of those who produce electricity, people who live in palaces and villas [and have a] high consumption of electricity, and it significantly reduces the fiscal space in the budget that should go to social spending on education and health. So I think here, rather than increasing tariffs, because the people who are going to immediately feel the heat of paying more are the poor, the council can play a role.
E Has the ESC discussed reforming the electricity sector?
Not yet. We are still a few months old, and in the end, the process is that the government needs to ask us questions for us to [deliberate]. Then we can go to the general assembly and vote on the opinion that is produced by the committee, and if it is adopted by over 50 percent of the members then it is published in the Official Gazette, and is considered an official opinion. We can generate an opinion without the government asking us, but we the need two-thirds of the assembly to vote.
E What would you say to those who might think the ESC is populated by 71 highly-paid individuals sitting around and issuing opinions that are not binding?
This is an excellent question because the answer is extremely simple. Members of the council are not paid, we are not on the payroll of the government, we do not get any privileges. It is a favor that you are doing for your own sector and supporting that sector in the place where there is a dialogue on social and economic issues. The overall budget per year of the council, the one that will hopefully be approved, is less than $2.5 million.
E Going back to CEDRE and the prospect of change, and investment and infrastructure: We heard from some sources that the timeline for implementing any kind of infrastructure improvement after receiving pledges and commitments will still require a multi-year period before shovels hit the dirt on the first projects. Alleviating supply-side bottlenecks that you mention, and the 250 projects in the Capital Investment Plan, compared to the need that Lebanon has and the demands for immediate project implementation: How do these all work together?
Lebanon needs a lot: in the short term, in the medium term, and in the long term. Our infrastructure is significantly degraded, our port and our airport are not enough to support the growing flow of Lebanese and non-Lebanese in and out of the country, electricity is a mess—so you need a lot of short-term and quick infrastructure fixes. I think that the World Bank has already pledged around $4 billion for key sectors, and in order to unlock [World Bank funds], the Lebanese government needs to find the money for expropriation spending, because the World Bank does not pay for [that]. So hopefully Lebanon can use some of the [investments] from CEDRE on expropriations, and that would unlock the $4 billion [from the World Bank].
E We’ve talked about the donor appetite and their expectations. But what role will the private sector play in financing Lebanese infrastructure, and do the private investors hold dear the same sort of KPIs or reforms as the international community does?
Yes, absolutely. For the banks there is a big role, and now we have a public–private partnership law. So the private sector can play a very important role by funding part of these projects, but it is very important for the government to appoint regulatory authorities that will make sure that these sectors will be run in an efficient and equitable way, and this is one of the requests of the international community.
This story first appeared in the April 2018 print issue of Executive Magazine, #223.