Why optimism is in short supply as Lebanon marks Beirut blast anniversary

Lebanon had been in a state of steady collapse for nearly a year already when swathes of the capital were reduced to rubble, over 200 left dead, thousands injured, and thousands more displaced on August 4, 2020.

Now, the country has succumbed to literal darkness as the government – that never succeeded in providing 24 hours of power – has failed to provide electricity for more than a few hours a day.

Where costly generators used to plug the gap, even they’ve had to lower operations as a fuel shortage expands and lines at gas stations across the country extend far beyond the pump. Fuel and bread prices have gone up too, as the government failed to keep its promise to subsidise the most basic of goods.

Medicines, still subsidised, are scarce and expats going back and forth to their home country pack their suitcases with Panadol, coffee mate, and “fresh dollars”, as they’re called in the country, whose banks imposed capital controls in mid-October 2019 as realisations of a dollar shortage took hold and protests broke out nationwide.

Lebanese have barely had access to their bank accounts since the end of 2019, with daily restrictions put on withdrawals and transfers abroad. Meanwhile, the wealthy and politically connected, seeing the impending collapse, started moving their money out of Lebanon before the end of 2019 – only hastening the collapse in the country where dollars and lira were once used interchangeably.

Dollars were and are needed to pay for imports, which Lebanon is reliant upon as it produces little. Speaking with importers and exporters, they told Arabian Business about the challenges they’ve faced since the onset of the crisis and over the last year.

In what seemed like a glib question to even ask, as someone who lived in Lebanon through the 2019 protests, I asked businesspeople if there was anything to be optimistic about. Their answers were a resounding “No”.

Dollars were and are needed to pay for imports, which Lebanon is reliant upon as it produces little

“It’s not that we keep the optimism, we keep being pragmatic, and then we try to hold on until things get better,” Hani Bohsali, chairman of the syndicate of importers of foodstuffs, consumer products and drinks, GM Bohsali Foods, said.

Those in his syndicate have to buy dollars at the so-called black market rate which now sits around LBP20,000 to $1. The official, pegged rate, still stands at LBP1,507 to $1.

“Where LBP100,000 used to be $67, it now is around $5,” said Hadi Maktabi, owner and curator of Hadi Maktabi carpets, who holds a PhD in Islamic Art from Oxford.

The rate fluctuates though; when a new prime minister was named it dropped to around 16,000 after hitting 23,000 when former Prime Minister designate Saad Hariri resigned.

I asked Bohsali what had been the hardest goods to source, but the real issue, he said, was securing greenbacks.

“There’s so many issues and problems, you start by having difficulty sourcing your dollars at any rate. It’s not just the rate, it’s the availability,” he said. “There’s no banking or financial tools to hedge any risk because it just doesn’t exist and now the banks are working as cashiers only.

“We’ve smashed down to a cash paper economy and you work on a daily basis. There’s nothing at all that can give you any guarantee.”

Lebanon was once known for its high quality medical sector, boasting some of the best hospitals in the region

Missing medical supplies 

Myriad problems have made life hard for all importers, and in the medical sector, shortages have emerged. Anaesthesia, pace makers, and laboratory tests are all in short supply, said Salma Assi, the head of the medical equipment importers’ syndicate.

“It’s a complete mess with the importation and this is becoming very, very dangerous,” she said.

Where the Ministry of Health is giving pre-approvals to import at a subsidised rate, the central bank must also give the pre-approval.

On Monday she learned the latter hasn’t given a pre-approval since May. “Which means what? We are obliged to sell subsidised, ok, but we don’t have any guarantee that it will be covered by the central bank, which means we will be bankrupt soon,” she said.

Lebanon was once known for its high quality medical sector, boasting some of the best hospitals in the region. Where imports used to come from the US, France and Germany, Assi said now lower quality medical supplies have made their way from Turkey, Iran, China, India and Pakistan. However, she said that new importers were emerging outside the syndicate and she was unsure how they’ve managed to get goods in while her companies struggled.

“We were the hospital of the Middle East because of the calibre of the product that we have but unfortunately that’s not the case today,” she said.

The Martyrs’ Monument in Beirut.

Strikes, delayed processes, fees 

Making matters worse for importers, port workers went on strike earlier this week over unpaid dues and salaries.

“Today the port of Beirut is in a standstill, and whenever it works you have a problem in the Ministry of Economy or one in the Ministry of Agriculture,” Bohsali said, adding that the demurrage fees – or the charge levied by the shipping line to the importer – add up daily.

“The port authorities and the ministries, there’s so many strikes and there’s Covid-19,” he said, mentioning the pandemic almost as an afterthought.

The coronavirus pandemic has hit Lebanon hard. It hit the country’s informal sector harder as daily wage workers couldn’t afford to not work. Lockdowns brought protests in the impoverished northern city of Tripoli. It was just one more thing.

Nevertheless, the port today is operational again after the explosion last year, but investigations are still being carried out, and have been blocked by the government, as to how the explosive ammonium nitrate was allowed to sit in the port for years. A Human Rights Watch report issued this week found that government officials knew and failed to act to move the chemicals.

“Systemic problems in Lebanon’s legal and political system are allowing them to avoid accountability,” Human Rights Watch said in the report.

Amid the political problems, however, are businesspeople trying to stay afloat through the turmoil.

When asked how he was managing, Maktabi said: “Locally it’s gone to bits. It’s fallen apart. There is hardly any purchasing power left in the country, so the great majority of our local regulars have not been able to buy anything.”

He said his colleagues in furniture and building supplies, art, antiques, and paintings have all struggled.

For Maktabi’s rare and antique carpet market, his client base is primarily international, which has allowed him to stay in operation.

“There is a minority with dollars stashed aside or with income from abroad, who have not been affected in the same way, but that’s not a mainstay for any industry or business,” he said.

The port today is operational again after the explosion last year

Tangible assets 

In mid-to-late 2019 some began looking to convert their dollars into tangible assets to hedge against further devaluation. As fears grew that it couldn’t get any worse and that 2,000 would be the ‘end of the world’, it did, the figure was surpassed and now stands at around 20,000.

“At the very beginning of the financial crisis, when the inflation rate wasn’t that bad and the discrepancy wasn’t that bad between the real and fake values, most businesses were accepting lollars, or the local bank currency, but it’s now a multiplier of 14 or 15, so no one does that anymore and we have to take dollars,” Maktabi said.

Asked if people were still moving their dollars into tangible goods as Maktabi had revealed a year ago that sales of rare and antique carpets had gone up.

“The demand is there, it’s a matter of purchasing power,” he said.

“So when people were able to dispense of their banking funds there was a rush. You know, the millions were set aside for real estate, the hundreds of thousands were set aside for jewellery, and the thousands for antiques and paintings and carpets.”

Now, he said, regulars who used to come in quarterly to buy a carpet, come in annually and they’re shopping with lower budgets.

Agri-exports still making their way out 

Agriculture exporters seem to have found a small silver lining in the mess.

“Due to the lira devaluation we’re becoming more competitive for export of produce,” said Nadine el-Khoury Kadi, president of the board of Qoot, the first agrifood innovation cluster in Lebanon.

But she said that packaging, which still relies on imported raw materials, has become more expensive, which ultimately makes the products slightly more costly.

Out of the crisis though, the agriculture sector has found ways to adapt. The country previously imported up to 80 percent of its food needs, according to UN data. Now, the sector has upped local production and has found ways to make local mayonnaise, some cheeses, shrimp, salmon, zaatar and certain fruit juices. Khoury said they’ve also found ways to make more “healthy bars”, like those involving cornflakes, locally.

While the primary export market has always been Saudi Arabia and the wider GCC, Lebanon’s agriculturists are now exploring how to get European certificates.

Lebanon previously imported up to 80 percent of its food needs, according to UN data

Private sector bootstraps itself 

The private sector in Lebanon has always found a way to muddle through, even when the government provided little support or seemed to be actively working against them.

Former Finance Ministry director general Alain Bifani resigned in June 2020 as talks with the International Monetary Fund for a bailout had stalled. I spoke with him a little over a year after his resignation, and he cautioned against the assumption that the entire private sector was altruistic.

“Private sector is a very broad term. There are people who are doing an amazing time surviving in very difficult times,” he said, referring to industrialists managing to export, farmers still producing and the tourism sector that’s trying to cope.

“This system has made it incredibly difficult for the true entrepreneurs to survive, and it’s full of people who are completely backed by the existing elite who are stealing public and private markets from them that are competing on totally unfair ground by sometimes not paying taxes, electricity, sometimes not even paying the cost of the land, bringing people who work with no social security,” he said.

Najib Mikati, who has also formerly served in the position reserved for a Sunni politician, has now come back to the premiership and will attempt to form a government

The year ahead 

Last year, following the explosion, and failing to get talks with the IMF off the ground, Prime Minister Hassan Diab resigned, and former Prime Minister Saad Hariri looked poised to come back before ultimately stepping down. Najib Mikati, who has also formerly served in the position reserved for a Sunni politician, has now come back to the premiership and will attempt to form a government – something he’s not managed yet.

Bifani was critical of the system which has allowed Lebanon to rot from the inside out. Asked if he thought cabinet formation was a step to reengaging with the IMF, he said: “I don’t even think they want to.”

Bifani was the architect behind the crisis exit plan that ultimately was not adopted.

“So either they demolished the process without coming up with an alternative, and this is criminal, or this is exactly the alternative they wanted and this is even more criminal. So we’re dealing with criminals and we cannot rely on them to bring Lebanon back on track,” he said.