Trade Balance: Imports & Exports
In 1995, less than five years out of the civil war, Lebanon was already standing out as a rising star in the Middle East. This was particularly the case as the government of Prime Minister Rafic Hariri embarked on a very ambitious program of reconstruction. The rebuilding of the Central District of Beirut, through the project known as Solidere, the reconstruction of the road network, the privatization plans for the water, electricity, phone, post and telecommunications sectors were all headlines for the Hariri period. In 1995, Lebanon achieved a high economic growth rate between 7 and 8%. It was believed that this rate would continue for at least four or five years, all sufficient to rebuild the entire economy in a very short period of time.
Apart from the numerous obstacles that faced the ambitious plans of these governments, particularly political and administrative reforms, the increasing foreign and internal debt, and the opposition to privatization, the region was struck by an economic recession in 1997 following the crash of the Asian financial markets, a crash that had substantial negative impact worldwide and even reaching Latin American and European markets. Lebanon was ultimately hurt by this prospects, and by the end of 1997, economic growth was hardly above 3%.
Another important factor that affected the economic situation in Lebanon was the sluggish progress in the peace process. Hariri had based most of his economic plans on the completion of the peace process in the Middle East to be crowned with an Israeli withdrawal from South Lebanon in a couple of years. The political situation remained gloomy, and even so today despite the withdrawal of Israeli troops from South Lebanon in May 2000.
Following the presidential elections that brought Emile Lahoud to power in 1998, Hariri left office and was replaced by the more conservative Prime Minister Selim Hoss. Facing a huge public debt whose servicing was obviously beyond the resources and abilities of the Lebanese economy, Hoss embarked on severe five-year austerity plan. The plan was ultimately very unpopular, especially that it was based on increasing taxes and customs in addition to other aggressive measures that were deemed necessary to increase public revenues to cope with the fast growing debt service. Regardless whether the plan was indispensable or not, regardless whether it was successful or not, the ultimate result was disastrous, especially with respect to international trade. By the end of the third quarter of 2000, it was obvious that the economy did not only fail to grow, but it even contracted by about 0.5%, and to worsen the situation more, international accreditation institutions have threatened to reduce the credit ranking of Lebanon, a serious development that might easily impair Lebanon’s ability to acquire external debt.
Another serious problem that has had a negative impact on the overall performance of the Lebanese economy is the high interest rates, a policy adopted since 1993 in order to maintain the stability of the Lebanese pound, to convince creditors to loan the Lebanese government and to maintain a steady cash flow into the economy. Even though interest rates remained high, they seem to have failed in attracting international investors at the expected rate, and accordingly, the price of acquiring capital remains very high and discouraging in Lebanon, a factor that has ultimately hurt investment, capital expansion, and industrial and agricultural growth.
Lebanese International Trade
For most of the post-war period, Lebanese exports stood at a ratio of about 9.5% against imports. Since 1999, however, the hard-hit Lebanese economy started to witness some positive change in this ratio in favor of exports. For example, during the first half of 2000, Lebanese agricultural and industrial exports grew by 19.3% in comparison to the same period in 1999. Imports, on the other hand, dropped by 2.4% over the same period. This positive change, however, did not take place as a result of improvement in the performance of the economy, but rather, as a result of the collapsing purchasing ability of Lebanese consumer. This collapse in the purchasing ability was reflected in the declining aggregate demand in the economy, hence discouraging importers from importing foreign goods into the local economy. This was further aggravated by the fact that the Lebanese government had increased customs and tariffs dramatically which in turn discouraged buyers, pulled the aggregate demand for imported goods down, and forced importers to minimize their activities.
Trade balance exports and imports
Statistics from the Port of Beirut also reflect the decline in international trade activities, especially imports. Hence, the number of containers during the first half of 2000 dropped by 0.3% in comparison to the same period in the previous year. Similarly, the tonnage of merchandise arriving the in Port of Beirut dropped by 15% while the number of ships with registered entries at the port dropped by 15% in comparison to the first half of 1999.
Total imports for the first two quarters of 2000 have dropped by 2.4% in comparison to the same period in the previous year, thus reaching $2.961 billion only. At the same time, total exports reached $346 million only, yet recording an increase of 19.3% over the previous year. The ratio of exports to imports has thus improved from 9.6% only to 11.7%.
Historically, despite the vast difference between imports and exports in Lebanon, the Lebanese economy has usually maintained a positive balance of payments. Such an achievement has been the result of the continuous inflow of international investment and cash flows from Lebanese expatriates worldwide. In 1998 and 1999, however, this has not been the case, and for the first time in its modern history, Lebanon suddenly acquired a deficit in its balance of payment. This was definitely the result of a combination of events, namely the recession, the failure of the peace process, and the gloomy economic prospects for Lebanon. So far, and through the second half of 2000, Lebanon seems to be heading towards another year of deficit in its balance of payments. According to public statistics from the Ministry of Finance and the Central Bank, the deficit by the end of the second quarter of 2000 has been $295 million, and it is expected at least to double before the end of the year.
Breakdown of Imports & Exports
The largest single category of imports to the Lebanese economy are food products, constituting 18% of all imports. Minerals come second at 16%. Electrical appliances and products constitute 14% whereas vehicles and chemical imports constitute 9% each. Textiles only constitute 6% of all Lebanese imports.
Lebanon’s leading import partners are Italy and France, standing at 12% and 9% respectively. Lebanon share of American and German imports stands at 8% of all imports for both countries whereas 7% of imports come from Switzerland and 5% from China.
Cement and stone items constitute the largest single export category in the Lebanese economy, standing at 22% of all exports. Food products follow at 16% whereas jewelry and metal products constitute 10% of all exports each. Paper exports stand at 7% and mineral products at 5% only.
The major export partners of Lebanon are the UAE (13%), Saudi Arabia (10%), France (5%), the US (5%), Kuwait (4%) and Syria (4%). Apparently, while Lebanon imports almost half of its needs from Europe, it only exports 5% of its products to the continent, and precisely only to France which has a special trade relationship with Lebanon dating to the nineteenth and twentieth century.
The relationship between imports and exports has always been problematic for Lebanon. Lebanon’s reliance on cash inflows to make up for its deficit in the balance of trade shows how fragile this policy can be, especially that in the past two years, a deficit has been registered in this balance. Obviously, this calls for an urgent action plan to correct the situation especially that there are no guarantees that cash inflows will be able to cover the deficit in the trade balance in coming years.
The problem of trade deficit in Lebanon has roots traced to several causes. First of all, local industrial and agricultural sector have been very weak, and they were weakened farther more during the destructive war and later on in the post-war period in the absence of supportive governmental plans and programs. Secondly, over the past five years, the Lebanese economy has witnessed a continuous decline in aggregate demand and purchasing and consumption power. For example, the share of national income devoted to debt servicing grew from 14.5% in 1999 to above 16% in June 2000, that is, an equivalent of 103% of government revenues altogether. As part of its emergency five-year plan, the government anticipated the debt to GDP ratio to be 126.7% but according to most analysts, and based on the performance of the economy and the government so far, this ratio will not be less than 140% before the end of the year.
With respect to the prospect of Lebanon’s joining the WTO, there are many questions that need to be answered, specifically in the light of the declining performance of the Lebanese economy and the growing deficit in the balance of payments.
One interesting argument that might surface at this point is that Lebanon’s joining the WTO will not actually have a negative impact on the performance of Lebanese industries or on Lebanese balance of trade. This argument is based on the fact that things cannot get any worse, especially that the Lebanese government does not in effect support or subsidize the ultimate majority of Lebanese industries, let alone the agricultural sector. This argument, while true to some extent, happens to ignore a number of important factors. To start with, joining the WTO will require the opening of the Lebanese markets in front of foreign goods, products and services, all which are definitely much more advanced and competitive in compared to existing Lebanese industrial and agricultural sectors. It is true that Lebanese industrial and agricultural sectors do not receive considerable support and subsidies from the Lebanese government, but it is also true that indirect protectionism is already in application in Lebanon, particularly with respect to the increase in tariffs and customs, both which are negatively affecting imports and indirectly supporting exports. Although like most other developing countries Lebanon will be given a grace period of up to ten years, the government’s increased dependence and reliance on tariffs and taxes will only lead to disastrous results. In effect, what will happen is that by the time Lebanon joins the WTO, tariffs and customs will have to be adjusted and changed in accordance with WTO requirements and standards, and in this respect, Lebanese industries and the agricultural sector will suddenly become vulnerable in the absence of these protective tariffs and customs. It is not difficult to imagine that the main reason for the sudden growth of the ratio of exports against imports in 2000 was the result of increased protectionism through the augmentation of tariffs and customs. Another problem that might arise in the coming couple of years is the response of Lebanon’s trade partners. Already several importers of Lebanese exports have expressed their annoyance and grudge with regards to the increase rate of tariffs and customs. Several countries such as Saudi Arabia, Egypt and Jordan have even threatened to apply the same policy to Lebanese exports out of comity. In other words, the positive improvement in the ratio of exports to imports that was achieved in 2000 might soon be reversed such that in the coming year or two, exports will level again at 9% against imports.
Lebanese merchants have roamed the globe ever since civilization existed along the ancient coastal cities of this small country. Today, not much has changed, except perhaps that imports have excessively been outperforming exports almost in every agricultural and industrial sector. The long civil war from 1975 through 1991 continues to bear the blame for most of this situation, but while this is true, it is not really the only reason behind the lingering poor performance of Lebanon in international trade.
Following the war, Lebanon went through an extensive reconstruction plan that started in 1993 through the present time. This plan was very ambitious and was mostly based on borrowing from external factors. However, since the plan expected a high growth rate in the economy since it was believed that the Middle East peace process would soon be concluded, the delays in the peace process resulted in a recession that started in 1996 and continues through the present. In 1995, the Lebanese economy witnessed a growth rate of more than 7% but this rate has been declining steadily, and as for 2000, it is expected that the growth rate is somewhere between –0.5% and 0.5%. The lack of reliable statistics, the increasing public debt, high unemployment, the cost of debt servicing and the chronic deficit are the major problems paralyzing the economy. High tariffs, taxes and customs are also among the factors hindering international trade in Lebanon. On the other hand, the stability of the currency, the lack of inflation (inflation was rated at 0% for the first two quarters of 2000 according to the Lebanese Central Bank), and finally the sudden and peaceful Israeli withdrawal from Lebanese occupied territories at the end of May 2000 are considered among the positive aspects to be considered.
This section constitutes a preview of the situation of international trade in Lebanon, together with a description and analysis of the causes and factors contributing to this situation. A number of key industries will be discussed, reflecting where Lebanon stands today with respect to international trade.
The Agro-industrial Sector
Historically, the Lebanese boasted the image of Lebanon as a greenery surrounded by desert terrain. In ancient times, Lebanon even witnessed some of the most advanced developments in agriculture, irrigation and the development of food produce. Today, the agricultural sector is one of the most ailing in Lebanon which currently imports more than 70% of its need. Despite its relative richness in water supplies and fertile land, the country has been rated as one with a serious problems in water and food sources. This is partly due to the population increase, the fast spread in construction at the expense of fertile land, but above all, the fast decline in agriculture as an industry. Lebanon’s terrain today can hardly support a real agricultural industry, especially when competitors in the region are producing their crops at much lower prices. Still, while agriculture in general is on the decline, agro-industries seem to be flourishing, especially in international markets, but then to a limited degree.
According to the Beirut Chamber of Commerce and Industry, there are more than 2000 registered companies in Lebanon that manufacture agricultural and food products. However, of these 2000 companies, only six employ more than 250 people. Moreover, 56 companies are owned by non-Lebanese whereas 89 are jointly owned by multinational corporations. Of the 2000 players in the market, only 150 are large enough to export products to other countries.
The industrial companies in this sector produce two types of products, namely processed food such as pickles and jams, and packed foods such as biscuits, chocolates and sweets. Importers are also divided along the same criteria. Despite this large number of players, the agricultural sectors has only contributed to 3% of the local need during the second half of the 1990s.
Many problems face trade in this sector. To start with, local supplies are not sufficient, and in many cases, there is no local supplies at all, especially that Lebanon’s small area cannot support large and diversified production at the same time. Another problem is that the “Made in Lebanon” label cannot be applied to many products since international trade standards require that at least 30% value be added in the processing country. However, quite an increasing number of manufacturers have succeeded in surpassing this limit, in some cases even hitting the 70% added value objective.
Local manufacturers still enjoy a lot of protection from the government, especially that tariffs on imports range between 4% and 104% thus driving the price of imports high and allowing Lebanese local products to compete effectively in the local market.
The canned food is the strongest segment in this sector, with companies such as Conserves Chtaura, Al Wadi Al-Akhdar, Cortas, Sonaco and IFCO dominating the market. These companies claim that more than 70% of their production is exported to international markets, hence constituting 21% of all exports recorded by Lebanese industries.
But while exports are booming at around $200 million a year at best, imports are still around $1 billion, that is, five times the amount of exports recorded annually. This is despite the heavy protection that the local industry enjoys and in spite of the fast growth that some exporters are reporting every year. Several large exporters believe that the future of this industrial sector is to diversify, mostly into turning Lebanon into a processing site. Accordingly, local companies would import raw foods and then process them for export to other countries in the region. Others believe that attracting international investors and entering into joint ventures with regional and international players may resolve the problems of the sector. Meanwhile, it remains obvious that the sector is dominated by an old mentality and family-oriented business and thus requires extensive restructuring particularly in the fields of human resources management, marketing, and product development. Moreover, the integration of agriculture and industry remains a challenge that has to be faced if the sector is to improve.
Juices & Soft Drinks
This sector is also treated as an agro-industry and constitutes a growing industry in Lebanon. In 1996, imports in this sector reached $9 million in contrast to exports of $4 million. Importing juices naturally numerous challenges, especially that it requires licensing from a number of ministries and official agencies. This is not to mention the high tariffs that exceed 25% and a 1.5% fee on port clearance and freight.
Products in this sector are divided into three distinct segments, namely products that contain less than 25% real fruit, those that contain between 25% and 90% and finally those that contain more than 90% real fruit. Most of the local products are focused on citrus juices and the flourishing markets for Lebanese products are Jordan, Russia, Hungary, Iraq and Libya.
At the same time, Lebanon even exports juices whose fruits are not available in Lebanon. The manufacturers simply import the concentrates from countries such as Egypt, Brazil, India and China, and then process the food and re-export it to other countries in the region as Lebanese produce.
Most packaging, however, is imported from Europe due to a number of reasons. First of all, exported products have to meet certain quality standards otherwise access to international markets would be denied. Such packaging is not found in the local markets, and if found, it is much more expensive that it is available in foreign markets.
Analysts in this industry believe that the local market is almost totally saturated and that export is the only way for survival and growth. The problem, however, is that many restrictions face Lebanese exporters. Among these is the fact that Lebanese products face import restrictions similar to those imposed by the Lebanese government on imports. Another reason is that there is a lack of integration between agriculture and industry. Thirdly, the costs of labor, lack of investment in machinery, the high cost of electricity and the high tariffs on imported raw materials are all driving Lebanese costs of production high, and thus negatively affecting the ability of Lebanese products in this sector to compete in foreign markets.
Bottled water is perhaps the only sector where Lebanese local producers tend to strongly dominate the market. Every year, more than 8 million boxes of bottled water are sold in the Lebanese market, only 5% of which are imported, mostly from France. Three major companies tend to dominate the market. Sohat claims 35.1% of the market, Rim some 12.3% and Tannourine some 10.3%.
Yet, the number of other players in the industry is huge as there are more than 180 illegal competitors in the local market. Illegal competitors are those water bottling companies that do not have a license, many of which sell their products without having them properly tested in labs. The severe water shortage in a number of areas in Lebanon due to lack of infrastructure has led to a flourishing illegal business over the past five years.
Despite the strong control that local companies enjoy in the Lebanese market, the situation with respect to international trade does not seem to be as promising. In 1999, for example, Lebanon exported $480,923 worth of bottled water to foreign market while importing about $1.21 million. Still, the exports are increasing, and this is due to a very important reason, namely the shifting of the leading exporters from the PVC to PET bottles, thus meeting the environmental and quality standards of European and other regional markets. This change is considered to be of great importance since it has eliminated what was considered in the past to be an insurmountable barrier to export.
Still, another barrier that this industry faces in foreign markets is high tariffs. Till the early 1990s, the Gulf countries were considered the major market for Lebanese bottle water. Today, most of these countries have already constructed their own water bottling plants and are even exporting to Lebanon. What is even worse is that these countries are imposing protective tariffs and customs in order to weaken the competitive abilities of Lebanese exporters. Similar problems are faced in other markets.
Nonetheless, the positive factor that is so far contributing to the increase of Lebanese exports in the past two years is the acquisition of the ISO and other international quality certificates. This transformation alone has opened new possibilities for Lebanese manufacturers to export their products to markets to which they were denied access before, especially in Europe.
Still, quality and health certification alone do not resolve the exporting problems for this sector. After all, freight remains one of the most considerable costs creating obstacles of trade for Lebanese manufacturers. For example, a single container shipping 750 boxes by land costs up to $1,500 and this is making it difficult for Lebanese products to compete against local competitors, especially in Arab markets.
Add to this, the Lebanese government has not been following up the trade demands of local manufacturers, especially when it comes to applying trade and economic agreements. For example, while the Lebanese market is open to Syrian bottled waters, Lebanese products are denied access in Syria, and on more than one occasions, shipments had to be returned to the exporter. This is despite the existence of an international trade agreement between the two countries.
The success stories of Lebanese bottled water at home is mainly due to three reasons. First of all, this industry has been well established for years, especially with the leading Sohat brand being dominant for years and thus establishing trust in the local industry. The second reason is that local products are not only of high quality, but also of low prices, an aspect that dominates local bottled water industries worldwide. The third reason is that tariffs on imported bottled water products are very high worldwide, and in Lebanon they stand at 35%, thus providing significant protection to the local industry.
The most recent statistics available on the apparel industry dates back to 1998. In that year, Lebanon imported more than $210 million worth of clothes. Europe, especially Italy, France and to a lesser extent the UK and the US were the major partners, followed by the Far East countries (especially Thailand, Philippines, Taiwan and South Korea).
On the other hand, and during the same period, Lebanon exported $61 million worth of clothes, about 40% of which went to the Gulf countries, especially Saudi Arabia, Qatar, United Arab Emirates, and Kuwait. Other markets included Eastern Europe, African countries, and the US.
With respect to men’s wear, Lebanese firms manufactured basically everything, including underwear, ties, socks, shirts, sweaters, trousers and even suits. Some firms are even specialized in manufacturing uniforms (eg, for the army, security forces, municipality employees, etc).
As of 1999, the industry had about 2,500 active firms, the majority of which were small producers employing between 10 and 50 people only. Only six firms are large enough employing more than 1,000 people. The overall workforce employed in the apparel industry is about 50,000 distributed among all kinds of jobs in the industry. Many firms are only specialized in women’s and children’s apparel, and very few are specialized in men’s wear. The majority are diversity targeting the three markets at the same time.
Most small firms sell their products in the local market. However, medium and large firms export more than 50% of their products. Until 1993, 80% of all exports in the industry were marketed in the Gulf countries. Today, the figure has declined to almost 40%, mostly due to fierce competition from far eastern producers.
One major factor that has negatively affected the industry is the increase in costs. Increases in costs were mostly the result of the increase in tariffs on threads and textiles, the increase in electricity price and the economic slowdown in the Gulf region. As a matter of fact, many large firms generate their own electricity in order to save on costs.
Since 1996, medium and large sized firms have been searching for alternative markets, especially in the US and Eastern Europe as the market share in the Gulf countries declined.
Finally, one important characteristic of the Lebanese apparel market is taste. Several prominent Lebanese fashion designers are very popular in Rome, London and France, and similarly, most firms in Lebanon follow suit with respect to fashion, which is one major reason for the popularity of Lebanese products in the Gulf and Arab countries, as well as in Eastern European countries. The quality of Lebanese apparel is considered the highest in the entire Middle East.
The publishing industry in Lebanon is perhaps the only industry in which importers and exporters do not compete. This is mostly due to the innovative nature of the industry where imported books are completely different products from the ones produced locally and exported to other countries. Moreover, the Lebanese publishing industry is considered one of the most advanced in the region, mostly due to the high development of markets and the advancement of technology used.
Yet, this sector has been suffering a lot of problems recently, especially with regards to international trade. One major cause of trouble is the change in culture. In Lebanon, people are not reading as they used to, and the new generations cannot be classified as interested readers. Another cultural and legal factor is censorship, both in Lebanon and the Arab countries that constitute most of the foreign markets for Lebanese publishers. Recession in most Arab countries has also pulled the purchasing power of Arab readers down and eventually led to the decline in sales.
Piracy is also a serious problem whose consequences are suffered both by importers and local producers. Although the government has enacted as number of anti-piracy and copyright laws, these have not been properly implemented if at all, and the situation remains loose in the market. Piracy does not only lead to loss of revenue for these houses, but it also discourages production and distribution. Lebanon, furthermore, lacks an International Standard Book Number, a factor that is resulting in less organization and protection of rights in the market. Some publishing houses have obtained ISBNs from other countries in Europe, but to do this, they have had to establish offices in these countries, a factor that in turn has driven their costs higher.
Importers of books in Lebanon suffer a 6% tariff on their products, in addition to other duties and customs that raise their costs at least by 10%. But exporters are not any better off, especially that duties on paper are 12%. Exporters even suffer a double jeopardy because whenever they fail to sell their products abroad and have to return them to Lebanon, they have to pay tariffs on these returned products as if they were importing foreign books. This threat alone has discouraged numerous publishing houses from participating in regional and international book fairs, and sometimes, from effectively involving in international trade altogether.
The Printing Industry
Relating to the publishing industry is the printing industry, one of the most prestigious in Lebanon. Since the 17th century, Lebanon has been developing as a center for publishing in the Middle East. Today, and in spite of the destructive war years, Lebanon still enjoys this position in the Middle East and Arab world.
Mre than 50% of all publications made in the Arab world are printed in Lebanon. The industry is 700 companies strong and employing more than 10,000 people. Only 70 companies are classified as large, constituting more than 10% of the market whereas 254 companies are classified as medium-sized.
In 1994, more than 70% of print products in Lebanon were exported to foreign markets, amounting to $87 million, hence, constituting 15% of all exports during that year. By 1996, exports had jumped to $331 million, constituting 32.5% of all exports.
Technology in the industry is quite controversial. On the one hand, there many publishing houses that still use technology dating back to the 1980s. These houses are not able to compete in local and foreign markets, especially that their costs are higher than houses using advanced technology. Meanwhile, those houses using advanced technology are also not able to gain much from their investments since they cannot operate at economies of scale due to declining demand. The local economy is small but foreign markets are also declining due to the factors already mentioned.
Finding qualified staff to work in this industry is becoming increasingly hard, especially with the existing wage and salary scales that encourage professionals to seek employment abroad. This leaves semi-skilled employees to work in Lebanon which eventually leads the costs of labor up as more employees are required to produce lower quality and higher cost products.
The industry demands a lot of investment, especially in technology and human resources if it is to remain competitive in the long run. Joint ventures and other forms of international investment are believed to be the best solution to improve productivity and quality, reduce costs and retain the position of Lebanon as a leading industry in the Middle East. Currently, most competition in this industry comes from Morocco and then Egypt. However, due to the long history, expertise and powerful presence in the markets, Lebanese producers believe that they are paces ahead of their closest competitors in the market.
Despite the recession that has hit Lebanon since 1997, this industry has fared quite well, partly because much of its products are exported to other countries rather than being sold in the local market. In 1997, imports stood at $552 million in comparison to exports worth $66 million. Local consumption is mostly of imported products, the majority of which come from Italy, especially with respect to gold-based jewelry. On the other hand, most locally produced products are exported to other countries, especially the Arab world and the Gulf region.
Lebanese jewelry enjoys a very strong reputation in the Arab world because local producers have been able to blend local craftsmanship with European taste. Very little competition exists between imported products and those imported from Europe.
Due to the lack of raw materials, Lebanese manufacturers import almost all of their supplies from foreign suppliers, mostly from Europe, Africa, Far East and Australia. In specific, raw gold is imported from Switzerland, silver from Spain, diamond from Belgium and Africa, pearls from Japan and China, and larger pearls from Australia.
A strong trade relationship exists between local manufacturers and Italian counterparts. This is because most manufacturers in Lebanon are also importers. Thus, they import most finished gold products from Italy, while at the same time, they send most products that require advanced finishing to Italy and then import them back, either for consumption in the local market or for exportation to the Arab countries.
The local industry is very rich in human resources, especially that numerous Armenians are specialized in this field. However, the industry fares poorly with respect to technology. Funds for investment are mostly available, but the problem is in the mentality, especially that most large players in the industry are family businesses that are not open yet to investment and expansion concepts. Marketing strategies are also lacking, especially regarding international trade.
Analysts have over and again suggested the application of the Italian experience in this field. Italy’s jewelry industry is also dominated by family businesses, but during the 1980s and 1990s, this industry witnessed huge investment in technology and marketing which eventually gave it a leadership position in Europe. A similar application is not hard in Lebanon, but only when the decision and funds become available. Joint ventures with leading Italian and Belgian firms have also been suggested for the gold and diamond sectors respectively.
Electrical Appliances Industry
The electrical appliances industry is believed to be a very recent one that started in the early 1970s. In the 1990s, however, extensive investment in technology and resources was made by several companies, especially the two leaders, Lematic and Opaco, both which are responsible for most of Lebanon’s exports to foreign markets.
In 1998, the industry recorded imports worth $87.5 million, mostly refrigerators, 19.5% of which came from the US. On the other hand, only $1.86 were recorded as exports, most of which were refrigerators, constituting 21.0% of all exports. Most of these exports were to Syria and Africa. Freezers constituted 20.3% of exports in this industry, with Saudi Arabia alone receiving 20.3% of these exports. Various African countries were also among the main importers of these Lebanese-made products.
The main foreign markets for the industry are Iraq, Egypt, Libya and other African countries. Prices of these products in Lebanon are 30 to 40% less, and the similar difference exists in the countries where Lebanese producers have a presence. Most of the success witnessed by this industry has come from the increased investment in research and product development by the major players during the early 1990s.
Despite these success stories, the industry faces a number of serious limitations. To start with, local manufacturers suffer from high costs of electricity and more importantly, the high tariffs. In effect, Lebanon does not manufacture these products, but rather, represents an assembly hub for electrical appliances. Hence, the parts are imported from abroad, assembled in Lebanon and then exported to other countries. The complaint of Lebanese producers is that they are paying more than 30% in tariffs on the parts that they import for assembly, and hence, are facing difficulty competing in local and foreign markets.
According to the major players in the industry, what they lack is the reduction of import tariffs on the parts that they need to assemble their products, and more importantly, increased investment as well as support to meet international quality standards.
While these demands make sense, the Investment Development Authorities of Lebanon have strongly suggested moving away from the sector in the long run because as the agency expressed, there is little space for Lebanon to compete in this domain. Yet, potentials for this industry to become more competitive and to thrive lie in the availability of foreign investment in the forms of joint ventures, transfer of technology and the facilitation of export to newly created markets.
Electrical Equipment Industry
While the future prospects for the electrical appliances industry do not seem to be that good and strong, the electrical equipment industry in Lebanon is considered one of the most advanced in the region, especially with the heavy investment in this field that took place in the mid-1990s to meet the increasing demand for the reconstruction of Beirut. The industry has several large players, some of which worth $10 million in capital investment, and many employing between 200 and 1,500 employees.
This industry, however, is suffering heavily today, especially due local decline in demand, accompanying the fall in demand and the recession in the construction industry. The depressed demand in the economy has created very little competition for local producers who in turn export between 15 and 25% of their production every year.
The most active foreign markets for this industry are Syria, Iraq, countries of west Africa, Iran, the United Arab Emirates and Yemen. Furthermore, this industry witnessed a big shift regarding the opportunities of export when several large players acquired ISO and other quality related certification, thus giving access for these countries to European and other markets that were for long untouchable.
However, fast growth in the export sector is still facing a lot of obstacles, especially the high cost of production. The most significant cost comes from the trade policy of Lebanon. Companies in this sector import almost all their raw materials and needs and thus have to pay tariffs between 6 and 15% which is exactly the same tariff paid on imported finished goods. This does not only give imported finished goods an advantage over local production, but it also hinders the ability of local producers to successfully compete in foreign markets.
Construction Materials Industry
If any industry is witnessing life-or-death rivalry in the most dramatic way imagined, then it must be the construction materials industry, mostly between importers and local producers. In 1996, Lebanon imported more than $2.3 billion worth of materials while at the same time exporting only $145 million worth. In 1997, exports were doubled, but then, remained paces behind imports.
The most popular and powerful Lebanese players are Lecico and Uniceramic, in addition to numerous others, many of which are not even officially registered. Most of the sectors sell the majority of their products locally, but some of them are more powerful in the export sector. For example, tile manufacturers boast that more than 80% of their production is exported to other countries, especially Syria, Jordan, Saudi Arabia, other Arab countries, Italy and France. Italy is also responsible for most Lebanese imports, standing at 26%.
One major cause for the rivalry in the market is that the local demand is very limited, and yet, traders keep importing into the market. The local market has a very limited capacity that goes hardly beyond 20% of local production. Nonetheless, one major factor that gives importers the lead in the local market is that local products are far more expensive than imports. This is despite the fact that imports pay duties ranging between 2% and 20%. Local manufacturers have demanded a halt on importing for several years until they can reorganize their industry and become more competitive. However, with the various trade agreements Lebanon has signed with other countries, such a demand remains impossible to satisfy.
One problem with the industry is that it is not a real manufacturing industry in as much as it is a transformation industry. Hence, most raw materials or semi-manufactured goods are imported and then finished in Lebanon, but at higher costs than in many other producing countries.
Analysts in the industry have recommended several structural remedies if this industry is to survive in the coming years, especially amidst the serious depression hitting the construction industry for years. To start with, there is a serious need for organization of the industry, and perhaps a division of the local market between importers and exporters, or at least some degree of cooperation between the two parties. Secondly, strict quality and trade standards need to be applied in order to stop the dumping practices that the Lebanese market is facing today. Thirdly, exporters have to establish quality standards and commit themselves to these standards if they are expect gaining access to international markets. Finally, the war of duties and tariffs in the industry should be ended, not only in Lebanon but also in other countries which exchange construction material trade with Lebanon.
The Cement Industry
Due to its large size and its controversial nature, the cement industry has been treated as an individual industrial sector. The sector is made up of three major local producers, namely, Societe de Ciments Libanais (SCL), Cimentrie Nationale (CN) and Ciment de Sibline. This is in addition to a leading importer that is partly involved in local production, namely Seament.
In 1993, the industry stood at 2.7 million tons, but by the end of 1999, production had exceeded five million tons, especially due to the heavy investment made in the sector as a result of the vast growth witnessed in the construction industry in the mid-1990s. Yet, this growth is now over, and while construction is in recession, cement production is at a peak. This is attributed to three main reasons.
The first reason is that competitors are not willing to reduce their production since they are quarreling over market share. Each fears that if the other reduces production, the others continue to produce at the same rates in order to acquire market share, even if this happens at a loss. The second reason is claimed to be cost- and technology-related. Producers claim that their choices of production are either full-scale production or no production at all, mainly due to the nature of the production process and the equipment used. Stopping and restarting production takes times and is very costly, which is why the producers are not willing to indulge in such a step. Yet, the third reason which could be the real reason for the problems in the industry is the heavy cost of borrowing. All the players in the industry have borrowed heavily in the past few years in order to expand and handle the increase in demand. The investment size ranged between $120 and $190 million, all at high rates. Manufacturers are trying to maintain maximum production in order to cover the costs of these investments and to pay back their debts.
According to the manufacturers in the industry, they are facing unfair competition, especially that they claim they have been victims of dumping practices, particularly through the major importer Seament. In fact, manufacturers had gone as far as officially demanding that all cement imports to Lebanon be stopped for at least a year or two, a request that was rejected by the government.
But regardless the recession in the construction industry, cement manufacturers are not competitive at all. For example, a ton of Portland cement is priced at $84 in Lebanon whereas in Egypt, the price is hardly $54, and in Turkey, it is even as low as $44. This is in spite of the fact that Lebanon is tremendously rich in limestone. While Lebanon is a victim of dumping practices, it is also part of the game and more often than not, Lebanese cement producers dump their own products in other markets. This is not to mention the fact that relationships among the competitors are very strained. For example, on more than one occasion, Seament tried to purchase from the local producers but its order was denied. This is in spite of the fact that Seament offered the price of $40 per ton and while the exporters were selling at the price of $22 in foreign markets.
Currently, imported cement suffers heavy duties, a fixed 15,000 Lebanese pounds per pound on entry into the market, and 13,000 Lebanese pound as a consumption tax. Despite this, the prices of Lebanese cement are still higher and hence, importers are still gaining advantage of the market. In its attempt to calm the manufacturers down, the Lebanese government attempted to win concession from Arab trade partners, demanding the right to stop cement imports for hour years. This request was immediately denied, especially that Lebanon is joining the Arab Free Trade Zone. Nonetheless, some concessions were gained and Lebanon was allowed to keep its current barriers to cement imports for the specified period. Currently, Lebanon allows the importation of only 9.3% of the cement needs of the market. The rest is supplied by the local manufacturing.
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