There is very little policy discussion and effort among decision makers to actively boost Lebanon’s exports, even though there remains a high potential of improvement if the right measures are taken. The country’s manufacturing exports have been steadily decreasing, from a high of $5 billion in 2012 to $3.9 billion in 2017. The situation does not appear to be any different this year: The trade deficit deteriorated even further in the first half of 2019 and is projected to continue for the rest of it. This is unfortunate since the sector has been able to sell some of its products competitively in world markets, and so, boosting exports could dampen the trade deficit, but also create jobs and raise growth relatively quickly.
A recent LCPS study shows that Lebanon has a comparative advantage in 337 exported products out of a total of 1,147. It means that, for these specific products, it is able to sell more of its share in the world market, and so has a relative advantage in producing and exporting them. In economic jargon, we say that the revealed comparative advantage (RCA) of these products—their share of the country’s total export divided by the share of the product in world total exports—is greater than 1. If a product has an RCA greater than 1, the country enjoys a comparative advantage in that product. For 132 products, Lebanon has an even a higher comparative advantage with an RCA greater than 5, and for 41 of them it has an RCA greater than 10.
These 337 products make up 30% of the total exported products and were valued at $2.7 billion in 2017. This represents 70% in value of the total exported products in 2017. These products are also well diversified across 16 sectors, indicating competitiveness: 19% are in prepared foodstuffs, 17% in natural or cultured pearls, 15% in chemical and allied industries, 13% in machinery and electrical products, 11% in base metals, 7% in vegetables, 6% in pulp of wood, 4% in textiles, 4% in plastics and rubbers, and 5% in other industries.
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Products from the agro-food and chemical sectors seem to consistently have a high comparative advantage. There are 24 products from the agro-food sector with an RCA greater than 1, with an overall untapped export potential of $140 million, and 10 with an export value greater than 10 (worth $231 million). More precisely, the three top products with the highest untapped export potential are: Fruit juices (HS 2009) worth $24 million, chocolate (HS 1806) worth $22 million, and water including mineral water (HS 2202) worth $17 million. Agro-food exports are mostly destined to Arab countries like Saudi Arabia, Kuwait, and the UAE.
If we look more closely at the product level, we can identify for each product the exact markets that need to be targeted through identifying global demand and market accessibility characteristics/indicators. For instance, for chocolate (HS 180631), the two greatest markets are Saudi Arabia with an untapped potential of $4.4 million, and Kuwait with $1.4 million. This is followed by Egypt with $1.3 million, Algeria with $692,000, and Bahrain with $586,000. Another example of prepared foodstuff is non-alcoholic beverages (HS 220299) with an untapped potential worth $4.4 million to Jordan, $386,000 to Saudi Arabia, and $924,000 to the US.
Accordingly, improving the position of competitive agro-food products can increase exports to the Middle East market.. As a matter of fact, 40% of Lebanon’s total exports are destined to neighboring Middle Eastern markets, including the UAE, Saudi Arabia, Turkey, Iraq, Syria, and others, making the region central to Lebanon’s industry. However, Lebanese exports to these markets have been facing serious challenges and witnessing a continuous decrease worth $324 million over the past five years. The largest was recorded to Lebanon’s largest importers: Saudi Arabia ($178 million), the UAE ($81.7 million), Jordan ($62 million), and Syria ($47 million).
Similarly, the chemical sector managed to sustain a limited increase in competitiveness across the years by specializing in the production of luxury chemicals, like fragrances and other beauty products, among others. There are about 110 different items produced in this sector, including basic chemicals, soaps and detergents, cosmetics, plastic, rubber, oil refining, and paints and varnishes. Looking at the chemical products with an RCA greater than 1, there are 13 with an overall untapped export potential of $68 million. Unlike agro-food products, the potential markets are not concentrated within the Arab world only. In fact, many of the products have the potential to be sold in European markets such as the Netherlands, Belarus, Spain, Portugal, and Switzerland. If we take paints for example, Lebanon has the potential to promote exports by $815,000 as follows: $341,000 to Kuwait, $290,000 to Belarus, and $152,000 to the UAE.
Hence, beyond improving exports to neighboring Arab countries, chemical exports provide opportunity to diversify market reach. They open up new markets and production ventures, and shift the position of Lebanon’s industrial sector. Chemical productions that are considered medium complexity help Lebanese products identify new higher complex markets that are considered more difficult to compete in, such as Europe or North America. In addition, technologies and capacities employed to produce chemical items can promote more innovation within the sector by facilitating the production of new and more complex products.
Hence, Lebanon’s competitive exports provide a springboard toward wider market access and opportunity to further diversify productions. In order to capitalize on this position, necessary support and coordination should be achieved between the government and industrialists. This requires that both the Ministry of Industry and the Association of Lebanese Industrialists cooperate to strategically promote specific productions that exhibit high competitiveness and match demand changes in the global markets.
Simple support, however, is not enough; it should also be complemented by trade agreements that facilitate access to different markets for Lebanese industrialists. The lack of institutionalized and sophisticated marketing channels to access EU markets, and of accreditation and certification, the poor performance of local laboratories, and the inability to meet international standards pose a major challenge and are impeding Lebanese products from entering freely into foreign markets.
Industrialists must also step up their game: Discrepancies with safety and traceability standards remain one of the main obstacles for those who wish to enter international export markets. Indeed, over 50% of Lebanese agro-food exports are rejected by European markets because of labeling and packaging irregularities, and 35% are declined because of illegal additives. Industrialists therefore need to make more efforts to follow foreign regulations.
Finally, Lebanese authorities and industrialists should invest in research and development activities, to stay up-to-date on global trends and consumers’ behavior, but also to focus on product development and innovative scientific research activities, which little venture in. There is a lack of in-depth studies on foreign markets that are essential in order to develop an effective export strategy, and more effort should be made on that front too.
Lebanon is capable of exploiting its competitiveness in various sectors and products, and it should not wait any longer to put together a plan to actively boost its exports.
[i] The seven sectors that are included under “other industries” are as follows: 1.2% in animal or vegetable fats and oils; 1% in animal and animal products; 0.9% in stone/glass, 0.6% in raw hides, skins, leather, and furs; 0.5% in footwear and headgear; 0.3% in wood and wood products; and 0.2% in mineral products.
