January 01, 1996 | Arabic | Dr. Elie YashouieTowards an Industrial Strategy for Lebanon - The Lebanese Economic Tribune (LET)Industry in Lebanon is characterized by the following realities:
1.Significant industrial concentration in Beirut and its suburbs, as well as in much of Mount Lebanon, to the exclusion of other regions of the country. The percentage of industrial establishments in the Greater Beirut area had reached 55 percent as of 1955, and stood at 44 percent in 1964, 41 percent in 1985, and 44 percent in 1994. Results of an industrial survey conducted in 1994 indicate that 65 percent of large industrial operations (those employing more than 250 workers, which are mostly food-related industries) are located in or near Beirut. Sales in this same region in 1985 constituted half of the sales of the Lebanese industry in the local market, and 63 percent of industrial imports. The Greater Beirut/Mount Lebanon area also has the country's largest concentration of wage-earners: 80,500, representing approximately 57 percent of all wage-earners in Lebanon's industrial sector.
The Province of North Lebanon is the second largest industrial center after the Capital region, having 19 percent of industrial establishments and 12 percent of the country's industrial work-force. The North is followed by the Province of the Biqaa', which has 10 percent of Lebanon's industrial operations and eight percent of the country's industrial wage-earners. Finally, the Province of South Lebanon is home to 8.5 percent of Lebanon's industry and six percent of industrial workers.
Such a pronounced geographic concentration of Lebanese industry does not serve the long-term interests of balanced economic development policies in Lebanon.
2.The dominance of industrial establishments wholly owned by one individual, or companies owned by one family. Industrial concerns owned entirely by one person constituted 60 percent of all Lebanese industries in 1955. In 1964, industries run by single owners comprised 55 percent, while in 1994, this category rose to 76 percent of all Lebanese industries. In part, the significant increase in this category recorded in 1994 reflects a broadening of the sample. For the first time, industrial operations having machines and trained labor (irrespective of their size) were included in the survey. On the other hand, the percentage of stock-holder owned companies has decreased from three percent in 1955 to only one percent (representing a total of 205 companies) in 1994. Deficient wages during the last decade forced many specialized workers to establish their own small and poorly capitalized industrial operations. This obviously leads to a duplication of effort and does not encourage the growth, development, or modernization of Lebanon's industries.
3.Semi-manufactured or intermediate goods constitute just four percent of total industrial sales in Lebanon. This indicates the weak relationship between various industrial establishments, as well as the weakness of their mutual integration. Ninety six percent of Lebanese industry focuses on manufacturing, so the weak representation of intermediate goods indicates that most industrial operations in Lebanon deal only with the final stages of production. Hence, the added value realized by Lebanese industry is low, not exceeding 35 percent on average. Any increase in the added value share of the price of industrial products gives these products a higher national identity, and implies that they should be encouraged through the reduction of taxes. Added value is positively affected by the establishment of industrial districts. Contiguity of related industrial concerns facilitates better industrial integration: for example a textile industry would find it more convenient, not to mention lucrative, to locate its operation next to a weaving industry.
4.Constantly increasing numbers of factories and workers. In 1958, 3,200 factories existed in Lebanon. In 1968, their number had more than doubled, to 7,000. Two years later, in 1970, Lebanon had 9,000 factories. In 1985, the number stood at 12,000 and by 1994 the number of factories had nearly doubled to 22,000. Currently, 72 percent of Lebanese factories employ 27 percent of all industrial wage-earners, offering another indication of the small size and scope of most industrial operations in Lebanon.
In 1994, 80 percent of all industrial establishments employed less than ten workers, while only two percent employed more than 50 workers. Seventy percent of the workers in the industrial sector do not hold any academic or technical certificates. By instituting a program of technical certification for eleven different industrial sectors operating in Lebanon, industrial employment would gain in social value, thus providing an additional incentive for workers to seek employment in this sector. Certification would also improve the technological performance in the industrial sector and reduce the need for foreign labor.
5.Annual industrial exports have reached a worth of approximately 650 million US dollars since 1992. In 1985, industrial exports represented only 15 percent of Lebanon's gross industrial product, but exports are expected to account for 32 percent of the gross industrial product by the end of the current year (1995). In monetary terms, estimated industrial production for the current year is two billion Lebanese pounds.
6.The demand for industrial licenses soared dramatically in 1993. The number of licenses issued in that year reached nearly 2,000 with a total capital worth of 85 billion Lebanese pounds. In comparison, the number of licenses issued in 1992 was just 455, with a net worth of 38 billion Lebanese pounds. In 1994, the number of licenses reached 410 with a capital worth of 64 billion Lebanese pounds. A similar number of licenses is expected in 1995.
The heightened demand for licenses in 1993 reflected the movement of capital towards Lebanon, the majority of which was floating capital. Individuals and institutions investing this capital in Lebanon were more interested in remunerative and quick investments, such as treasury bonds, rather than productive, long-term, investments.
7.Capital investment in industry reached only 76 million US dollars in 1992, rising to 127 million US dollars in 1993, then falling slightly to 117 million US dollars in 1994. The importation of industrial machinery and equipment did not exceed a ceiling of 150 million US dollars annually.
8.Foreign participation (Arab or Western) in Lebanese industry. According to the findings of this researcher, foreigners hold majority shares in 56 industrial operations in Lebanon. Furthermore, capital is equally divided between Lebanese and foreigners in 89 industrial operations, and foreigners hold minority shares in 1,051 other industrial establishments in Lebanon.
A. The Absence of an Official Lebanese Industrial Policy
All of the indications listed above underscore the absence of an official industrial policy, as well as the lack of a clear strategy for Lebanon's overall economic development. This gap in policy and strategy has been filled by random improvisations in decision-making concerning all aspects and dimensions of industry in Lebanon.
In the framework of its general plan to revitalize the Lebanese economy, the Government devised a plan for the industrial sector comprising a number of projects to reinvigorate and strengthen the nation's industrial capability. But apart from the industrial survey, none of the other official projects have been initiated five years after the end of the Lebanese war. Moreover, neither local, regional nor foreign financing for these projects has become available. Four hundred million US dollars (150 million in loans and 323 million for establishing industrial regions) were earmarked, in principle, for industrial revitalization and were to be spent during an interval of ten years. The expenditure was to be distributed as follows: 114 million dollars in the first three years, 600,000 dollars in fourth and fifth years, and 280 million in the last five years.
This schedule of expenditures, as it has been designed, shows a significant decline in financing during the fourth and fifth years. The most important part of the project will not commence before the year 2000. Such a timetable is neither realistic for, nor in harmony with, the urgent needs of Lebanon's industrial sector in the short and medium-terms.
Concerning the designation of the eleven officially suggested industrial projects, the following projects were given first priority: studying the rectification of the use of energy; studying the legal and taxation framework of industry; conducting a comprehensive industrial survey; and providing technical assistance and managerial courses to improve the administrative performance of the Ministry of Industry. But can these projects yield direct results on the industrial level quickly enough to be considered as projects of the highest priority?
The following projects were officially considered to have secondary priority: establishing industrial districts, studying the financing of the industrial sector, and rehabilitating the Institute for Industrial Research and Industrial Credit. This category of projects represents the types of projects that actually yield effective and immediate results in the field of industrial development. It is this category which should have been given first priority.
The project which has been officially classified as having a tertiary priority, but which is usually considered as necessary for the achievement of any industrial policy, is the design of an overall strategy for industrial development. Such a strategy would include vocational training, geographical distribution of factories to suit industrial needs, the integration of all economic sectors as well as encouraging closer interaction between the industrial sector and research institutions. Since the design of strategy has been officially postponed, certain facts may be created "on the ground" in the meantime which will later impede, or perhaps even prevent, the successful implementation of a rationally devised strategy.
B. The Industrial Policy Concept
Industrial policy refers to a set of short-term, coordinated measures which serve the multi-faceted needs and interests of industry. In spite of economic freedoms and the freedom of institutions to work as they see fit, every economic-industrial policy necessarily involves direct interferences in the conditions of industries' operations and strategies. More and more, governments throughout the world are interfering in matters related to industrial production. All industrial policies require the adoption of clear decisions and selective measures which help the various activities of industrial establishments.
The selectivity of industrial policy means that the measures that are adopted do not have to be applied on all industries indiscriminately. Rather, they relate to certain industrial sectors and deal with particular aspects of industrial activity. Perhaps it might have been more feasible to set the percentage of taxation of companies at 20% , and then reduce it, in accordance with the selectivity of industrial policy, to 10% for industries which export, or industries that protect the environment by equipping factories with special anti-pollution devices, or industries which increase their productivity by modernizing their equipment, production methods, thereby enhancing the value of their finished products.
Industrial policies should be devised with the aim of facilitating economic growth, creating new jobs, decreasing the balance of trade deficit, preserving the environment, developing financial and human resources, increasing productivity, supporting good quality and competition, and preventing monopolization and price-fixing.
Industrial productivity is a primary source of wealth in the modern nation-state. National wealth is produced by the continuous interaction between financial investment in industry and industrial productivity. In modern economies, industrial productivity plays such a central role that economic crises today are more often than not crises of production.
C. The Strategy of Industrial Development
Industrial development strategy sets long-term goals for industrial progress. It concentrates on the preferences of industrial production in order to compete regionally and internationally. Industrial development strategy facilitates the adoption of modern, rational methods of operating factories, such as methods for reducing the size of stored materials and products in order to avoid the freezing of capital, and reducing the size of interest during the manufacturing process and the delivery period. Industrial development strategy is also responsible for devising technical systems for products which set the standard weights, measures, specifications and other criteria of manufacturing. The policy also includes the setting of wages, and the establishment of rules for wage increases and price controls. In addition, industrial development policy subsumes the introduction of new industries into various sectors, marketing of products, trade exchange agreements, guaranty of exports, and the encouragement of industrial investment and applied industrial research.
The strategy of industrial development must also address the technical and administrative rehabilitation of the work force. In addition, it should set special industrial prices for public services, such as electricity, energy, transport, etc. (Apparently, Lebanese industries find the use of private electrical generators less expensive than the use of the government's electrical supply). Moreover, the strategy of industrial development leads to an opening of the markets of the public administration to national industries (provided that certain conditions have been met); provides adequate financing for industrial production; offers subsidized loans to certain industrial sectors; establishes special industrial zones; encourages and facilitates basic research; enlarges the base of vocational education and ensures the continuous increase of industrial productivity. In sum, industrial development strategy is a source of many valuable social and economic benefits. First and foremost, industrial development strategy facilitates productivity. Any increase in productivity means an increase in the added value of manufactured commodities, and thus, an increase in profit for industrial establishments. These establishments could then utilize increased profits to raise wages, stabilize prices, provide better services at a higher quality for consumers, achieve higher solvency and thus enjoy greater potential for growth and expansion. All of these benefits and improvements, so needed in Lebanon, are the results of industrial development policy, the study and implementation of which has, unfortunately, been postponed by the Lebanese Government.
To conclude, the priorities which have been adopted by the Government in the framework of its program for industry and overall industrial policy are inconsistent with the appropriate order of envisaging, designing and implementing sound plans on a rational and scientific basis.
D. The Future of Industry in Lebanon
A viable industrial sector will never be realized in Lebanon if industry does not progress according to current world-wide technological developments and guarantees of sales markets. To achieve these goals, the official governmental departments responsible for industrial production and renewal should be strengthened through the establishment of a Ministry of Industry and Foreign Trade. This Ministry would be divided into three general directorates: 1) A general directorate for industrial administration, which would provide guidance to existing industries, monitor the quality and specifications of industrial products, classify industries and prevent second-class industries from establishing themselves in residential zones. 2) A general directorate for industrial development, which would design overall strategies for industrial growth and enhancement. 3) A general directorate for industrial exports, which would facilitate and encourage appropriate trade agreements by seeking out new markets for industrial exports, ensuring reciprocity in treatment, and facilitating and hastening the granting of export licenses.
Lebanese industry must pursue a policy of openness towards industrialized nations and be prepared to embark upon joint ventures with them, such as the manufacture of a part of the finished commodity produced by a foreign industry. This would be facilitated through certain concessions or license agreements. Lebanese industry could also focus more upon industrial projects which require intellectual, as opposed to physical, efforts on behalf of the work force, such as electronics technology. This could be undertaken initially by obtaining certain concessions, and eventually by entering into the final stage of executing original designs. Industrial production in Lebanon could also rely, for the short-term, upon a strategy of imitation and seizing opportunities to attract industries in which the Western countries have lost interest, such as metal-working, but for which there is still a world demand. In addition, Lebanon should also rely on industries in which it has a traditional advantage over other countries, such as the manufacture of clothing, furniture and jewelry, as well as the food industry.
All the possibilities and suggestions outlined above will require the full and explicit commitment of the government and state support of the industrial option for Lebanon, not a backing away or distancing from industrial development. An example of the latter approach was seen in the government's withdrawal from involvement in industrial financing. A backing away from industrial growth was evidenced by the state's privatization of the national bank for industrial and touristic development and by the postponement of loans and credits for industry in the Government's program for the year 2000. It is no longer acceptable in the framework of world-wide economic realities for private capital to finance 65 percent of capital investments and 71 percent of operational capital. Similarly, it is also unacceptable that 65 percent of the small to medium-sized industrial establishments have never received any banking credits due to the prohibitive costs of insurance and the exceedingly high rates of interest on commercial banking loans.
The establishment of a national institute to guarantee loans would enable project financing, since expected cash-flow from new projects is more important than the real estate guaranties. Loan guarantees would also limit the volume of foreign investments in the banking sector, which currently amounts to five billion US dollars. A large percentage of these investments could be invested as local loans in order to revive and strengthen the Lebanese economy and support its long-term growth.
Customs policies are another area where improvement is required. Lebanon's customs policies are governed by certain rules such as: raw materials for industry should be fully exempted from any custom duties if they are not locally produced in a similar quality or in quantities which are sufficient for internal demand. Furthermore, importation of canned foodstuffs should be taxed, not exempted from customs duties, if such foreign products compete with similar Lebanese products. The implementation of protective customs policies is a standard practice for those industries which utilize high technology, and industries which realize a high added value on their products, as well as those industries which continually seek to improve the quality of their product without increasing prices.
Unless special concern and attention is given to the issue of industry and industrial development by the Lebanese Government, and unless industry is given the place it deserves in the State's list of priorities in this period of national revival, there will be no substantial economic growth, no realization of wealth, no enhancement of skills, no balanced economic development, no rural development, no diversification and increase in employment opportunities, no effective confrontation of inflation, no social values, and no escape from rapidly accumulating debts.
