Nowhere to go

The influx of refugees from neighbouring Syria is hitting Lebanon’s economy hard. \nWith GDP growth slowing to 1 percent in 2012, the crisis is set to get tougher this year as the flow of migrants shows no sign of slowing
By Mona Alami
Sat 27 Apr 2013 11:06 AM

The issue of syrian refugees is becoming increasingly problematic in Lebanon. Recent figures from the Lebanese government show that a staggering 900,000 Syrians now reside in the country. This massive influx has had significant repercussions on the Lebanese economy.

Hamra Street is bustling with activity on this Friday night. People walk by fashion boutiques and beggars hustle for money – to the untrained eye it’s business as usual. Many of the passers by, including the homeless, are speaking a Syrian dialect, an indication of the inpouring of Syrian refugees.

“It’s hard to overstate the magnitude of the refugee crisis in Lebanon,” say Rima Abou Chakra, a journalist who also raises funds for Syrian refugees.

According to UNDP figures released last year, the average number of hosted Syrian refugees per Lebanese household reached eight in the Bekaa and seven in northern Lebanon. In addition, 51 percent of homes in the north hosted refugees for more than a year and, in some cases, a very large group of 25 individuals.

“The Syrian refugee crisis has had a significant direct and indirect impact on the Lebanese economy,” highlights Marwan Mikhael, head economist at BLOM Bank.

Among the indirect consequences linked to the Syrian refugee problem in Lebanon is the deteriorating security situation of the country, with cases of transnational weapon and fighter smuggling as well as border clashes increasing.

“The security angle is the first and foremost issue in terms of the country’s economic impact. The picture is blurry as to who is entering Lebanon, with the number of security incidents rising, which in turn has reflected negatively on the level of uncertainty. And one has to keep in mind that investors do not like uncertainty,” adds Mikhael.

The economist underlines that uncertainty has resulted in an estimated 50 percent decline in foreign direct investment (FDI) between 2011 and 2012, although accurate figures have yet to be released. A negative trend that further exacerbated the country’s overall economic slowdown was GDP growth shrinking from 3 percent in 2011 to 1 percent in 2012.

A lack of security in border areas, which have seen clashes between the Syrian regime and rebels, as well as the presence of landmines in farming land, have prevented local populations from accessing their agricultural lands or grazing lots. “We cannot work our land because of the constant clashes between the Syrian army and local fighters,” complains Abou Francois, who owns land in Qaa along the border with Syria.

Another indirect impact from which local communities are suffering is the drop in border smuggling activity and trade. “In Wadi Khaled and Ersal, smuggling was one of the main sources of livelihood for many families,” explains Raghed Assi, programme manager at the UNDP.

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The neighbouring war has made it more difficult for Lebanese to export their products to Syrian markets as well as to other regional markets reached through Syrian territories. Exports dropped by 11 percent between 2011 and 2012.

However, rampant insecurity and a drop in smuggling and border trade are not the only issues afflicting the Lebanese economy. Syrian refugees are being increasingly viewed as a significant burden, as most communities hosting exiles are among the poorest in Lebanon. Northern households that are housing a large number of refugees are located in the Akkar area where, according to the latest poverty census conducted in 2008, over 63 percent of people live under the poverty line. In Tripoli, the capital of the north, the figure is 58 percent; in Hermel, poverty levels are at 33 percent; and in the West Bekaa they sit at around 31 percent.

“Poverty levels have definitely increased since the Syrian crisis, although exact figures are unavailable,” says Mikhael.

Lebanese households that are hosting families have increased expenditures and are now struggling with inflation. The expansion of the consumer market, beefed up by the new refugee influx and the subsequent injection of large amounts of cash into the specific areas of Tripoli, Wadi Khaled and Ersal, have affected the price of goods and led to regional inflation.

According to a UNDP report published last August, over 80 percent of the local population in north Lebanon stated that their cost of living has gone up due to increased bills for food, medicines, education, utilities and transportation. In the Bekaa, it was reported that total household expenses increased by at least 15 percent.

“Yes, definitely there is something called regional inflation, but again, it is very difficult to estimate,” says Mikhael. Lebanon’s consumer price index has already shot up since 2011 by 10.1 percent.

Among the other direct repercussions Mikhael highlights are the added pressure on Lebanese infrastructure caused by increasing numbers of refugees in terms of solid waste collection, treatment services and education.

“Another important point is that many Lebanese used to rely on the Syrian infrastructure for basic services, because they were much cheaper on the other side of the border,” says Assi.

The closing of the borders has left both Lebanese and Syrian families without access to basic services that they can’t afford in Lebanon and used to receive across the border.

According to the UNDP study, over 90 percent of people in the Bekaa cannot afford healthcare in Lebanon. Over 93 percent of people also said they cannot afford education in Lebanon. Similarly, in north Lebanon, the Syrian war has left over 69 percent of the population without access to healthcare and education.

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The accrued pressure on basic social services in Lebanon is weighing down the budget, say experts, leading to increasing deficits in education and healthcare systems. This is compounded by the country’s severe budget deficit – which jumped by 67 percent in 2012 to $3.93bn – as well as the political instability.

“The Lebanese government needs to reign in its deteriorating fiscal situation. If not, it could be at risk of a downgrade of its sovereign risk, which would in turn lead to an increase in bank interest rates, subsequently widening the national deficit,” points out Mikhael. The situation has been aggravated by the recent demand by the public sector to increase wages in the public sector. The current fiscal deficit is estimated at about 9 percent of GDP compared to 5.7 percent in 2011.

“We used to benefit from a primary surplus [equal to revenues minus expenditures] before our debt service, which was 4 percent of GDP. This level entered negative territory in 2012 – a very bad indicator of Lebanon’s financial health and its debt burden,” warns Mikhael.

Besides the burden on the country’s infrastructure, the inflow of refugees has also meant increased competition in the job market. This is mostly happening in the agriculture and construction sectors, and among non-skilled and semi-skilled workers specifically, says Assi. Experts say that while there are no real figures on unemployment (estimates were at 8 percent during the peak period of 2009 while some believed it to be 20 percent), it is certainly increasing in the more vulnerable tranches of the population. Syrian workers often accept half the wages of their Lebanese peers.

“Some Syrians are even starting their own businesses in many fields such as mechanics and car maintenance, and are charging lower prices than their Lebanese counterparts,” adds Assi.

However, the impact of the refugees is not all gloomy, experts say, although the negatives outweigh the positives. During the first inflow of refugees, many belonged to the wealthy merchant class of Aleppo and Damascus, who filled up many of the residential and furnished apartments in towns like Dhour Choueir and Bologna. In addition, Bekaa households are also renting out their residences to Syrian refugees. Refugees who have settled in Tripoli are creating more demand in an already over-stretched housing market. The result has been skyrocketing rents and a shortage of units, according to an article by English daily the Daily Star. The newspaper reported that the monthly rent for a 50 sqm apartment is now more than $300 and all “apartment buildings are overflowing with tenants, making it difficult for residents, especially young people, to find housing.”

The port of Beirut has also profited from the war in Syria. According to an article published in the Daily Star, most international shipping companies have redrawn traditional trade routes in order to divert cargo away from the Syrian port of Latakia and come to Beirut instead.

“Freight volumes at Latakia in the last quarter of 2012 were 39 percent lower than in the same period in 2010. By contrast, activity at the Port of Beirut has risen continuously for the past two years. The Port of Beirut received a total of 1,041,000 TEUs of freight in 2012 – 45 percent of which was transshipment cargo destined for different countries – compared to 1,031,000 TEUs in 2011,” the article said.

Former prime minister Najib Mikati acknowledged this trend, saying in a recent interview with CNN “[Lebanese] are exporting goods to Syria, all payment is in cash and... because in Syria there [is] a need for such [goods]... any goods [are] coming from Lebanon, especially food and other daily industry uses and we are exporting to Syria, so for this reason we are... benefiting.”

Lebanon could have profited much more if it had been able, like the UAE, to attract large Syrian investments. Syrian businesses, however, have not been encouraged by Lebanon’s uncertain political outlook and the country’s slow legal framework compounded with high costs. Sanctions on Syria have also limited financial inflow to Lebanon, which range, according to Mikhael, between $600 and $800 million.

In general, Mikhael and Assi both believe that the Syrian refugee situation is largely negative for Lebanon, especially considering that the numbers are growing every day and that many host communities have had to take out loans or sell assets to cope.

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