The Platform

Restaurant in central Beirut in 2023.

Lebanon’s economic recovery hinges on private sector initiatives and diaspora engagement to bypass political inefficiencies and foster sustainable growth.

The saga of Lebanon’s struggle for economic stability and reform began over two decades ago. The International Conference on Lebanon’s Reconstruction, also known as Paris I, held in 2001, marked the first of several international efforts to bolster Lebanon’s economy through substantial financial aid, amounting to $536 million. These efforts continued with Paris II and Paris III, where Lebanon secured commitments totaling more than $11.8 billion over several years. Despite these inflows, the anticipated reforms in political and fiscal domains largely failed to materialize.

This pattern of unfulfilled promises was starkly evident in the centralization of monetary authority under a single figure — the Governor of the Central Bank of Lebanon, who also presides over key financial regulatory bodies. This concentration of power has not faced significant scrutiny, allowing entrenched political interests to maintain a firm grip on Lebanon’s economic levers without substantial oversight or accountability.

The international community’s patience has been tested, culminating in the CEDRE conference in 2018, which again conditioned nearly $11 billion in aid on credible reform initiatives. The conference underscored a critical shift in international strategy, explicitly recognizing the Lebanese political elite’s refusal to enact reforms that would diminish their control over the nation’s political and economic spheres.

The historical reluctance of Lebanon’s political class to implement necessary reforms has not only stymied economic progress but also exacerbated the vulnerabilities in its economic structure. This pattern of inaction and missed opportunities has underscored the urgency for alternative recovery strategies that bypass the traditional governmental avenues, which have been marred by inefficiency and corruption.

In this context, the private sector emerges as a pivotal player, capable of instigating economic stabilization and growth independent of political influences. Unlike public sector initiatives, which often get entangled in bureaucratic red tape and political patronage, private sector projects typically strive for efficiency and profitability, driven by clear and measurable objectives.

Public-private partnerships represent one of the most pragmatic approaches to circumvent the inefficiencies of the public sector while leveraging the strengths of the private sector. By combining public oversight with private sector expertise and efficiency, PPPs can effectively deliver projects that would otherwise be susceptible to delays or mismanagement in a purely public setup.

For instance, in critical sectors like utilities, telecommunications, and infrastructure, PPPs can bring much-needed capital and innovation. These sectors are fundamental to economic stability and growth, providing the backbone for other industries and services. Improving telecommunications infrastructure can enhance connectivity and support the growth of digital businesses and services, which are crucial for modern economies.

Moreover, private investments in utilities such as electricity and water can drastically improve the quality and reliability of these services. Lebanon’s chronic power shortages are a testament to the need for new thinking and investment in the energy sector, potentially through renewable energy projects driven by the private sector. These initiatives not only ensure service delivery but also promote sustainability.

Private sector initiatives are particularly adept at attracting foreign investment. Investors are generally more inclined to commit funds to projects managed under private sector principles, which promise clearer accountability and return on investment compared to public sector projects. Such investments bring much-needed foreign currency into Lebanon, supporting the stabilization of the Lebanese pound and providing funds that can be used to address other economic challenges.

Additionally, by creating new jobs, these initiatives can alleviate one of the most pressing issues facing Lebanon today: unemployment and underemployment. Job creation not only helps to stabilize individual and family incomes but also stimulates economic growth through increased consumption and investment.

One of the most significant advantages of private sector-led initiatives is their potential to reduce dependency on the political will of Lebanon’s ruling class, which has historically been fluctuating and often obstructive to meaningful economic reforms. By focusing on economic growth through the private sector, Lebanon can start to build an economy that is more resilient to political instability and less dependent on the whims of its political leaders.

The resilience displayed by sectors outside direct political influence underscores the significant potential of private sector-driven initiatives. Particularly, the Lebanese diaspora and local businesses, buoyed by an entrepreneurial spirit, have demonstrated an ability to innovate and thrive even amid economic adversity. This resilience is a testament to what can be achieved in environments that, although challenging, are somewhat insulated from political dysfunction.

The Lebanese diaspora, estimated to be several times the size of Lebanon’s domestic population, represents a vast reservoir of resources, including capital, expertise, and global networks. Engaging this group through mechanisms that harness their patriotic spirit and financial capability is crucial. Diaspora bonds are an innovative financial instrument that can be particularly effective. These bonds allow members of the diaspora to invest in their homeland’s development projects directly, offering them a stake in the country’s future while providing Lebanon with much-needed foreign currency.

Moreover, the diaspora’s engagement isn’t limited to financial contributions. Their global experiences and skills can also contribute to home-grown businesses, potentially leading to the creation of new industries or the transformation of existing sectors through technology transfer and professional knowledge.

For local businesses, creating a conducive business environment means reducing bureaucratic hurdles, improving legal frameworks, and ensuring greater transparency and accountability in government dealings. This environment will attract investment and encourage entrepreneurship, essential for economic diversification and sustainable development.

Remittances are a lifeline for many economies, particularly for Lebanon, where they constitute a significant percentage of the GDP. Enhancing the flow of remittances through official channels by offering tax incentives and higher returns on investments can increase their volume and impact. For example, tax breaks could be provided for remittances that are invested in local businesses or real estate, and higher interest rates might be offered for deposits into Lebanese banks.

Reducing the cost of sending money can also encourage the use of official channels, which helps in the better management of monetary inflows and aids in the stabilization of the Lebanese pound. Programs could include matching funds where portions of remitted money are matched by the government or international bodies when used for specific purposes like healthcare, education, or infrastructure development.

The combined effect of engaging the diaspora and empowering local businesses can significantly stabilize and enrich the Lebanese economy. These initiatives can reduce the reliance on uncertain political will by establishing more stable, sustainable economic growth drivers. The infusion of capital and expertise from the diaspora, coupled with a vibrant local private sector, can create a virtuous cycle of investment and growth, laying the groundwork for a more prosperous Lebanon.

The historical context of Lebanon’s failed reforms, characterized by a consistent pattern of unmet promises despite substantial international aid, paints a clear picture of the need for a paradigm shift. Emphasizing private sector initiatives and diaspora engagement offers a viable path forward, sidestepping the entrenched political obstacles that have long hindered Lebanon’s recovery. While these measures alone are not a panacea, they provide a pragmatic foundation for sustainable economic practices and long-term stability in Lebanon’s challenging landscape.

The historical context of Lebanon’s economic challenges, marked by repeated international interventions and consistent local inaction, highlights the necessity for a paradigm shift in the country’s approach to economic recovery and growth.

The private sector, along with the Lebanese diaspora, holds the key to this transformation. Lebanon can cultivate a resilient and dynamic economic landscape by fostering a conducive business environment, leveraging the entrepreneurial and patriotic spirit of the diaspora, and creating innovative mechanisms for investment and remittance enhancement.

This approach reduces dependency on the fluctuating political will of a historically uncooperative ruling class and paves the way for a Lebanon that is economically diverse, stable, and prosperous. The time for relying solely on international aid and governmental initiatives is over; the future of Lebanon must now be driven by its private sectors and global community, whose combined efforts can ignite the substantial change needed to navigate out of perpetual crisis.

Mohammad Ibrahim Fheili is currently serving as an Executive in Residence with Suliman S. Olayan School of Business (OSB) at the American University of Beirut (AUB), a Risk Strategist, and Capacity Building Expert with focus on the financial sector. He has served in a number of financial institutions in the Levant region. He served as an advisor to the Union of Arab Banks, and the World Union of Arab Bankers on risk and capacity building. Mohammad taught economics, banking and risk management at Louisiana State University (LSU) - Baton Rouge, and the Lebanese American University (LAU) - Beirut. Mohammad received his university education at Louisiana State University, main campus in Baton Rouge, Louisiana.