by Josh Wood
Saudi’s oil price fallout echoes beyond the bounds of the GCC. For more on how it is affecting Pakistan – Lebanon’s economy has long depended on the Arab Gulf states.
Hundreds
of thousands of Lebanese work there, sending their savings home to
relatives. It is the main destination for exports — both human capital
and produced goods — as well as the leading supplier of investment. There
is often a feeling that without the Gulf’s role, Lebanon’s beleaguered
economy could not survive. But this relationship could be in trouble.
With
global oil prices falling since 2014, the economic diversification
plans touted by Gulf states are finally being put to the test. For the
many Lebanese working in the Gulf, their livelihoods and billions of
dollars in annual remittances, depend on the continued strength of these
economies. More
immediate is the growing divide between GCC countries and the Lebanese
government over the role of Hizbollah, with Saudi Arabia leading the
charge against the group and economists fearing major economic
ramifications on Lebanon.
Lifeblood of Lebanon
With low oil prices, the remittances received by Lebanon from workers in the Gulf are the biggest worry for many Lebanese.
“Remittances
have basically been very important in sustaining the economy in the
sense that we’ve always had a current account deficit … we import much
more than we export. So those remittances have been able to sustain the
economy,” said Simon Neaime, an economics professor at the American
University of Beirut.
Since
2011, remittances received by Lebanon have averaged more than $7
billion (Dh25.7bn) annually, representing more than 15 per cent of the
country’s total GDP. Most of the money was sent from the Gulf, where
experts say between 300,000 to more than 500,000 Lebanese are currently
working.
“Since we have nothing important to export … it’s easy
to export our children since we are not able to create sufficient jobs,”
said Kamal Hamdan, an economist who heads Beirut’s Consultation and
Research Institute. “There are many pushing factors in Lebanon that do
not ensure good work conditions, not only in wage levels, but especially
in terms of social benefits.”
Sending
workers abroad has become a valuable source of income in recent years
as Gulf states drew down their investments in Lebanon and Gulf tourists
stopped visiting Beirut due to Syria’s war. But with low oil prices and
Gulf countries facing their own potential economic problems, Lebanese
working in the Gulf could now feel the pinch.
Weathering the storm
With
remittances still growing last year, economists say that for now,
falling oil prices have not had a real impact on Lebanon’s economy.
Ali
Termos, an economics professor at the American University of Beirut who
has conducted studies on the relationship between oil prices and
remittances from the GCC, said that while there is a positive
correlation between the two, it is not a strong one.
“We expect
that when oil prices go down, there will be a drop in remittances, but
this drop is not very significant,” he said. “Remittances are affected,
they are slowing down.”
But
low oil prices could hurt remittances further down the line partly due
to the multiyear contracts signed by Gulf states currently building mega
projects, Mr Termos warned. Such contracts will hold despite the
oil-price drop and workers will continue to get paid until their
contracts expire.
Already some Saudi companies that rely on foreign labour are struggling.
Major
Saudi construction firms Saudi Binladin Group and Saudi Oger — the
latter owned by the family of former Lebanese prime minister Saad Hariri
— have had cash flow problems this year, and had to withhold salaries
and lay off many workers.
Another reason the oil crunch has yet to be felt is that
Lebanese work in almost every sector in the Gulf, including those
outside the oil or construction industries. While oil remains the major
moneymaker in the Gulf, its economies are developing beyond the oil
industry.
Even if low oil prices further damage Gulf economies, Lebanese might still be able to weather it.
Nassib
Ghobril, head of economic research at Lebanon’s Byblos Bank, said
Lebanese in the Gulf weathered the recession in the late 2000s and may
once again adapt to other changing economic realities.
“Even
if some Lebanese lose their jobs, I don’t see them returning here
necessarily. They could find jobs elsewhere,” said Mr Ghobril. “There
are still [hundreds of thousands of] Lebanese working in the Gulf, not
all of them are going to lose their jobs.”
Cashing in on cheap oil
For now, low oil prices may actually benefit Lebanon.
“There are more positive things from the drop in oil prices than negatives,” said Mr Ghobril.
Lebanon
depends on imported oil for nearly all its electricity generation.
Before the oil price crunch, oil represented about 24 per cent of its
import bill and the country’s treasury was spending about $2bn a year on
oil for power plants.
“When hydrocarbon prices drop,
automatically the transfers of the treasury to EDL [the state-run
electricity company] decline. Last year they declined by 46 or 47 per
cent,” said Mr Ghobril.
He added that lower costs at the petrol station should also boost disposable incomes of Lebanese families.
Some
workers may lose their jobs and remittances may drop eventually, but
economists say Lebanon’s overall economy is better off saving money on
oil.
“What we lose in terms of remittances, we compensate for in
terms of trade and budget deficit,” said Sami Nader, an economist who
directs Beirut’s Levant Institute for Strategic Affairs.
Elephant in the room
While
low oil prices have not yet had a significant effect on Lebanon, the
recent deterioration of diplomatic relations between GCC countries and
the Lebanese government over Hizbollah could.
In February, Saudi Arabia cut $4bn in security aid to Lebanon,
blaming Hizbollah for hijacking the country. GCC states — including the
UAE — followed by imposing travel restrictions to Lebanon and
downgrading diplomatic ties. Saudi Arabia has also levied sanctions on
companies it says are tied to Hizbollah and threatened to deepen its
actions against the group.
In
December last year, president Barack Obama signed legislation that
would impose sanctions on banks that knowingly do business with
Hizbollah.
“US sanctions on Lebanese banks would definitely
affect remittances and would also lead to capital flights out of
Lebanon,” said Mr Neaime, the American University of Beirut professor.
“Any sanctions, if they are applied, will have devastating consequences
on the whole economy.”
So
far, Lebanese banks appear to be complying with the US law. In June, a
bank in Beirut was bombed, with some accusing Hizbollah of trying to
intimidate the banks to keep their accounts open. But immediate fears
over a deeper conflict over Hizbollah’s access to banks has calmed a bit
since then as there has been no subsequent violence. After Riyadh
pledged to punish anyone connected to Hizbollah, including sympathisers,
many in Lebanon feared that Saudi Arabia and other Gulf states could
begin mass deportations of Lebanese, particularly Shiites. So far, those
fears have been unfounded. Still, Lebanon is waiting to see just how
far Riyadh will go with its anti-Hizbollah measures.
Damage control
The
cumulative effects of the schism between Lebanon’s government and the
GCC, the actions against Hizbollah and concerns about Lebanon’s
stability are enough to have an economic impact.
“The more you
talk about something negatively, the more you shake the trust and the
confidence in the sector,” said Mr Nader of the Levant Institute for
Strategic Affairs. “This is the last thing Lebanon needs right now.”
Little
progress has been made on repairing ties with the Gulf. The country’s
foreign minister, whose party is allied with Hizbollah, has repeatedly
refused to capitulate to Saudi demands and formally declare the group a
terrorist organisation. Hizbollah’s leader continues to attack GCC
states, while the GCC and the US continue to target Hizbollah and its
finances.
Experts say more needs to be done to mend ties.
“Relations
between Lebanon and the GCC — whether they are political, economic or
financial or commercial — are essential for Lebanon and we need to
maintain those relations and work on strengthening them to the benefit
of both sides,” said Mr Ghobril.
