Lebanon: Lebanon’s Economic Dependence on the Gulf

Policies in place in Lebanon have pushed the national economy to specialize additional and additional in serving a rentier regional economy, and made it fundamentally dependent on remittances and cash inflows from abroad to bridge the gap between local GDP and consumption. In this context, there have been a lot of myths about the “magnanimity” of oil-rich Gulf states and their support for the Lebanese economy. However, it is sufficient to examine the sources of these claims to find out that while the Gulf is indeed an significant source of inflows and remittances to Lebanon, the magnitude of the phenomenon is much smaller than the media’s political exaggerations would have it.

Contrary to the relief over the positive effects of the decline in oil prices, with lower energy bills and consumer prices expected in Lebanon, a lot of are concerned the remittances sent by expats working in oil-rich Gulf nations will decrease for the same reason. These concerns are amplified by media hyperbole, and a steady stream of false claims to the result that the Gulf nations are the source of 60 % of remittances sent by Lebanese abroad, or that direct Gulf investment accounts for 80 % of all investments in Lebanon.

However, anyone that scrutinizes the data and relevant reports will see an all different picture. The economic dependence on the Gulf is much less dramatic than the media has been suggesting, whether in relation to expat remittances or cash inflows, in general. In result, non-productive real estate investments that do not generate jobs represent the majority of Gulf financial flows into Lebanon.

Expat remittances

The World Bank Quarterly Economic Brief published in January with a focus on the plunge in oil prices indicated that Lebanese expat remittances from GCC nations account for only 14.7 % of total remittances, with the remaining 76 % coming from OECD nations that include European nations, Australia, and Mexico, with 19.1 % coming from the United States alone.
[E]xpat remittances from GCC nations account for only 14.7 % of total remittances, with the remaining 76 % coming from OECD nations…, with 19.1 % coming from the United States alone.

Al-Akhbar sought to verify these figures, which completely contradict the data circulating in Lebanon. Wissam Harake, an economist at the World Bank office in Beirut, says the World Bank data covers some GCC nations but not all. Harake said the figures were the result of bilateral remittances surveys and do not include data from Kuwait and the UAE, and therefore are not comprehensive, and could not be relied upon.
The clarification from Harake was not immediate, but came next checking with the World Bank headquarters in Washington, following Al-Akhbar’s, perhaps, embarrassing questions. So did the World Bank make a mistake and publish inaccurate figures? Or was it rushing to contain the fallout from publishing data that undermines the claims regarding Lebanon’s dependence on the Gulf, data that does not suit interests that influence the World Bank?

In any case, the figures in the World Bank statement show Lebanon to be less reliant on remittances or inflows from the Gulf compared to other nations in the region. In Jordan’s case, 65.7 % of inflows come from the Gulf, compared to 19.3 % from the OECD, inclunding 12 % from the United States alone. In Syria’s case, 49.8 % of inflows come from the Gulf, compared to 31.7 % from the OECD, inclunding 9.8 % % from the United States alone. Even in Iran’s case, 32.9 % of inflows come from the Gulf, compared to 63.8 % % from the OECD, inclunding 25.7 % from the United States.

Regardless of the accuracy of this data, analyzing it leads to the same conclusions reached in the statement. According to the statement, “As most migrants in the GCC nations today are from South Asia, only an average of 22 % of remittances outflow from GCC nations go to other MENA nations.”

Further, according to the statement, outward remittances from GCC to other MENA nations are broken down as a total of outwards remittances as follows: Bahrain (19 %); Kuwait (34 %), Oman (6 %), Qatar (15 %), Saudi Arabia (31 %), and the United Arab Emirates (14 %). This is not surprising. It is well-known that the Gulf nations have sought to employ millions of workers from South Asia to reduce their dependence on additional expensive Arab workers, and as well to avoid risks from an Arab “demographic bomb” that could threaten the oil-rich regimes.
[G]ulf nations have sought to employ millions of workers from South Asia to reduce their dependence on additional expensive Arab workers, and as well to avoid risks from an Arab “demographic bomb” that could threaten the oil-rich regimes.

Direct investments

Much hyperbole is in circulation regarding the negative effects of the decline in Gulf economies on Lebanon. However, figures from the 2014 statement [AR] on the climate of investment in the Arab nations by the Arab Investment & Export Credit Guarantee Corporation paint a completely different picture.

The statement puts the share of Gulf investment out of the total inter-Arab investments in Lebanon between 2003 and 2014 at around $1.0685 billion, compared to total foreign direct investment in Lebanon between 2003 and 2013 of $38.582 billion. In other words, Gulf investment in Lebanon accounts for less than 28 % of total foreign direct investment in the country.

According to the figures of the Investment Development Authority of Lebanon (IDAL), European companies were the major investor in Lebanon in 2013, accounting for additional than 45 % of foreign companies investing in Lebanon. Companies from France accounted for 13.3 %, from the United Kingdom for 8 %, and Italy for 4.4 %.

According to IDAL, the share of Arab companies (not just Gulf companies) of investments in Lebanon declined to 31 % of total companies investing in the country. IDAL said, “Additional than 60 % of these investment projects were made in the Trade/Retail, Tourism and Services sectors.”

Furthermore, according to the data of IDAL’s annual statement from 2012, the five major nations investing in Lebanon were the UAE (19.7 % of foreign investments), followed by Britain, France, Iraq, and Egypt, with 15.2, 9.1, 6.1, and 4.5 %, respectively. Again, this paints a different picture than the one peddled by those who claim there is an organic link between Lebanon and the GCC nations.

Al-Akhbar tried to get official figures to further clarify the picture about the inflows to Lebanon, which are broken down by country of origin and type (remittances, bank deposits, stocks and bonds, direct investments). According to Wissam Harake, the World Bank does not have accurate data on the shares of various nations of inflows into Lebanon, saying the major source of data for the World Bank is the Banque Du Liban (BDL), which does not publicize this data as he said but only aggregated figures.
In 2011, the Gulf accounted for 56.62 % of real estate investments in Lebanon, led by Saudi Arabia (30.2 %), Qatar (11.7 %), Kuwait (7.7 %), and the UAE (7 %). In 2014, everything changed.

Harake said, “Acquiring real estate is no longer the engine of foreign direct investments. Syrians are presently the primary foreign purchasers of real estate. Furthermore, Lebanese expats abroad account for a large proportion of real estate purchases, benefiting from subsidized loans provided by the BDL”.

Before 2011, the price of foreign direct investments was about $3 billion annually, “a large proportion of which went to purchasing real estate and other avenues that do not generate jobs.” Harake pointed out that at present, however in the absence of major projects, Syrians are the primary purchasers of real estate, while Jordan attracts a bigger share of Gulf investment than Lebanon.

Figures published by the BDL corroborate Harake’s statements. In 2011, the Gulf accounted for 56.62 % of real estate investments in Lebanon, led by Saudi Arabia (30.2 %), Qatar (11.7 %), Kuwait (7.7 %), and the UAE (7 %). In 2014, everything changed. The Gulf’s share of these investments dropped to 34.12 %, with Saudi leading by 20 %, Kuwait (10.5 %), and Qatar (3.6 %). This is while bearing in mind that the price of total foreign investment in real estate was $2.962 billion, $2.941 billion, and $2.573 billion in 2011, 2012, and 2013 respectively according to the same source.

Project financing: loans and grants

The “Evolution Statement” issued by the Council for Development and Reconstruction (CDR) in 2014 calculates the price of external funding for projects (run by the council or any other public government) between 1992 and 2013. According to the statement, the estimated price of project funding by the Gulf Cooperation Council (GCC) is $2,519,960 million, while the total price of foreign funding for projects is estimated at $9,942,460 million. Accordingly, GCC funding constitutes about 25.3 % of the total foreign funding, compared to 29.6 % for European funding, while the in general price of European funding for projects is about $2,941,000 million.

If the all of project funds granted by the Arab Fund for Economic and Social Improvment(AFESD) — about $1,346,180 million — is added to the total all of funds by the GCC, the % of the latter would rise to about 38.8 % of the total foreign funding. As for Gulf grants — which are part of the in general funds during the same period — they are worth about $1,556,74 million, and constitute about 54.1 % of the total price of grants worth $2,876,730 million. The total all of European grants, amounting to $9,560,650 million, constitutes 33.2 % of the in general foreign grants.

World Bank: unjustified fear

[R]emittances by Lebanese expatriates working in the Gulf oil states are expected to grow — rather than decline — by “positive rates that verge on previous forecasts,” with “a slight slowdown” in increase rates.
The World Bank’s MENA Quarterly Economic Brief said that remittances by Lebanese expatriates working in the Gulf oil states are expected to grow — rather than decline — by “positive rates that verge on previous forecasts,” with “a slight slowdown” in increase rates. According to the statement, the in general impact of falling oil prices on Lebanon’s economy is expected to be positive, and could offset the negative effects of a decline in remittances resulting from a continued decline in oil prices, which may impact the massive financial reserves for the Gulf oil states, their ability to maintain spending levels, and thus the increase of their economies.

According to the statement, the majority influential factor in remittances is the changes in the GDP of the GCC nations. Therefore, forecasts about remittances are based on the World Bank’s new forecasts for the increase of the economies of GCC nations contained in a statement titled “World Economic Prospects” released in January 2014. Increase forecasts did not differ much in view of the decline in oil prices, the quarterly statement says — since Gulf States have maintained their public spending levels by relying on their “massive” financial reserves. As a result, the quarterly statement predicts that remittances will continue to grow, albeit at a slower pace.