Ex-Minister: Lebanon’s Rentiers Ruin the Economy
|June 26, 2014||Posted by Staff under Editorials|
This 2014 excerpt of Lebanon’s Alakhbar, Jun 17, by Alain Tabourian, industrialist, Minister of Energy and Water from 2008 to 2009, and graduate of the Harvard Business School.
I do not see any future for industry in Lebanon, and definitely not a world-class industry.
Private investors who enter into partnership with the public sector in an unstable region of the world assume a Weighted Average Cost Of Capital (WACC) of 15 to 20 percent.
Still, a major international company reached out to us for collaboration on establishing a world-class production unit in the food industry, which would have employed 1,000 people. It was found not to be feasible due to the high price of agricultural land, which was about 10 to 20 times the global average.
High land prices here have no corresponding economic justifications. Who could believe that our locations produce 10 to 20 times more than elsewhere?
High hotel room rates keeps Lebanon off the global tourism market.
Everything has high prices because of excess liquidity that has no room to be invested productively except in inflating bank deposits or buying up real estate. Acquisition of real estate does not result in any cost. A person may keep a piece of land for 30 or 40 years without paying any fees, then sell it at a huge profit without paying any tax.
Investors in the real economy bear many risks even as they employ people. If these investors profit, they pay taxes, first on profits, and second on distribution. Is that fair? Does this encourage productive investments?
The solution is not to increase tariffs. Doing so would reduce the consumers’ purchasing power, reducing their demand for the rest of goods and services, and subsequently, cause the entire economy to contract.
The rentier economy is also directly responsible for the migration of our young people. The Lebanese economy does not create enough value-added jobs that can accommodate the capacities of educated young people.
These young people send remittances to support their families. Meanwhile, we import low-wage workers for simple jobs, and these workers in turn send a large part of their incomes to their home countries.
We had a war that caused widespread destruction, and we had to rebuild. We benefited from external cash inflows, which drove consumption up. At the same time, oil prices rose, and the incomes of Lebanese expatriates improved, increasing the size of their remittances to Lebanon. Of course, the energy bill skyrocketed, but money was available to pay it thanks to remittances. We also benefited from the global debt crisis of 2008, which reduced interests to zero in the major economies, reducing the cost of our debt and increasing the flow of capital. However, all these factors are precarious.
Ed. Notes: It is painfully ironic that economic troubles are easy to solve logically and hard to solve politically. Imagine if Lebanon taxed land or instituted land dues; there goes speculation and the inflated price for locations. Imagine if Lebanon repealed taxes on wages and on profits from actual output; there goes the scarcity of capital as domestic savings and investments from outside pile up. Imagine if Lebanon did not subsidize any industry or product, not even fuel for heating homes; there goes waste to be replaced by upgrading the means of production. Make these geonomic reforms and maybe Lebanon could lead the Middle East to peace and prosperity.