December 2012
Syria and Lebanon: The Costs of Political Instability will Spare no One

During last week’s economic forum, Lebanese officials contended that the economy is immune from the regional crisis. This is not the first time officials uttered unproven, if not, outright false claims. In fact, during the 18 month sit-in period in 2007 and 2008 by March 8, officials reached the same conclusion: Lebanon’s economy is resilient. 
 
Not only is the immunity argument a fallacy, on the contrary, there is a substantial cost to political instability whether it comes from domestic or regional sources. Since the revolt broke out in Syria, Lebanon’s economic situation took a downward trend. The economy’s growth rate fell to 2% this year, exports plunged by 30% and foreign direct investment is down by more than half compared to previous years. The growth rate of bank deposits, which is considered by some officials and bankers to be a measure of the country’s economic well-being, has taken a dip lately to half of what it is used to be.  If these are not enough to get officials worried, consumer confidence hit rock bottom in June 2012, based on the Byblos Bank / AUB consumer confidence index.
 
The costs of the economy’s poor performance on every citizen are significant but poorly measured. A recent study by Nisreen Salti for LCPS shows that political instability reduced every citizen’s income by 5.6% per year between 2005 and 2007. This actually amounted to a loss of $665 per person in 2006 and $640 in 2007, which is no small fry for families surviving off a modest income.
 
The economic costs of political instability are even greater today. With Syria burning, the effects on the Lebanese economy are compounded. For one, the environment is not conducive for investment or consumption beyond the necessary items for most Lebanese. Investors both local and foreign are less inclined to pursue new projects, tourists from the Gulf are concerned over their safety, exports routes via Syria have been disrupted and costs driven up and unemployment and emigration are on the rise. Add to the mix the political uncertainty at home that is straining under the burden of Syria and the influx of refugees and we have a whole new set of challenges before us.
 
For one, the flow of at least 100,000 refugees along with the families of the 300,000 Syrian migrant workers is already straining Lebanon’s weak and crumbling infrastructure. As the Syrian crisis endures more refugees will be crossing the border and they are likely to be poorer than those that fled before them. The stress will be mostly on shelter and basic services. The government has weak capacity to actually locate them as many refuse to be registered as refugees fearing political and sectarian retaliation. What is more, the impact of the refugees will disproportionately hurt the poor and low skilled Lebanese as the increase in the labor supply of unskilled labor will put downward pressure on the wages pushing more Lebanese from this labor bracket into unemployment. Add to this economic competition a sectarian tension operating in a slow growing economy and you have a sure recipe for social instability.
 
While the North and the Bekaa are brewing with social and sectarian tensions, officials at the Ministry of Finance seem unaware or indifferent to the situation on the ground. The Ministry has recently proposed to impose new taxes that fall largely on poorer segments of society while leaving richer ones largely unscathed.  Meanwhile, the government has failed to secure the financing of the salary adjustment approved several months ago.
 
Confronting these challenges does not fall squarely on the government. All the political camps, whether they be in or out of the government, are responsible. Those in power must address or mitigate the challenges ahead while all players have a duty to try and quell the tension and unrest that threaten the streets of Beirut and Tripoli. Both camps must work towards adopting a new electoral law that ensures political representation and hold parliamentary elections on time. The government must reduce the burdens on citizens by meeting its obligations regarding salary adjustments as well as not imposing more taxes on them. 
 
Just as there is a cost to political instability, there are economic dividends for political stability with the LCPS study showing that the economy grew by 6% following the Doha agreement. With the ruling class failing to live up to its responsibilities the prevailing economic malaise burdens everyone regardless of their political colors. Shamefully, it is the poorer segments of society who are footing the bill in so many ways.