Plummet or Prosper: The Risks and Potential of Lebanon’s Productive Economy

With most workers not having social protection, the situation entrenches cycles of poverty. In agriculture, more than 75 percent of farmers and farm workers do not benefit from social security, which usually covers retirement, as well as life and disability insurance protection.[6] [7] This means that most farmers are left to fend for themselves when they reach old age or get sick, injured, or pregnant. Similarly non-existent social protections afflict some industrial sectors, including the largely informal recycling industry. Before the crisis, estimates indicated that the recycling industry provided jobs for thousands of formal employees, who mostly relied on their employers for private insurance. The official labour force in recycling is supplemented by thousands of informal scavengers, with pre-crisis studies finding that 1,000 and 4,000 informal scavengers operated in Beirut and Mount Lebanon governorates alone.^[8] The number of unprotected garbage collectors has increased under the economic crisis, as more and more vulnerable people resort to scouring trash for recyclable materials.

At present, captains of productive industries face precious little resistance to maintaining poor working conditions for most employees. The Ministry of Labour has weak enforcement mechanisms for the country’s inadequate employment standards, allowing many enterprises to force staff members to accept unacceptable job circumstances. Workers lack access to effective labour organisation mechanisms – the agricultural cooperatives and trade unions that exist are weak and politicised, leaving vulnerable employees without health care or guaranteed income security.^[9] Without reforms to labour laws, workers will continue struggling to stay above the poverty line, especially with the soaring cost of living. This pitfall could deepen in the next two to three years, especially if Lebanon’s macroeconomic situation degrades and workers are forced to accept worse and worse conditions to put food on the table. Without fundamental reforms, these structural weaknesses will also continue to create high barriers to social mobility for Lebanon’s workers.

Pitfall 2: Exploitation of Vulnerable Communities

Mishandling the productive economy shift will expose vulnerable groups such as refugees, women, and children to increased exploitation. Already, the agriculture sector in Lebanon relies overwhelmingly on cheap Syrian labour, with 24 percent of Syrian refugees in Lebanon working as farmhands. Lebanese employers find that Syrian workers are more willing to work for low wages; for their part, needy Syrians flock to agricultural jobs as one of their few permitted options, along with construction and cleaning work.

Although Lebanon relies on these refugee workers, they are excluded from the benefits of the Lebanese labour law because they mostly work in agriculture and domestic work –sectors excluded from the law.[10] Exploitation undergirds this dynamic. Refugee agricultural workers in Lebanon are often trapped in jobs with minimal wages, no social security coverage, and long working hours and are daily exposed to hazardous working conditions.^[11] Switching to a productive economy, low-income Lebanese may be forced to join Syrians, Palestinians, and other migrant worker communities in unacceptable conditions.

Without proper regulation, productive economic sectors can continue to exploit child labour as a cost-effective – if immoral – source of workers. Sectors like agriculture often use children in unskilled, physically demanding roles. A report by the Bureau of International Labor Affairs found some Syrian refugee children and their families in the Bekaa Valley were “kept in bonded labour in agriculture to pay for makeshift dwellings provided by landowners”.^[12] The report estimated 75 percent of Syrian refugee children working in the Bekaa Valley were laborers in the agriculture sector, mostly in potatoes and tobacco.^[13] Child labour also reduces the long-term prospects of children to find meaningful work, as they miss out on education and essential stages of personal development, and often face trauma.

Without addressing gender inequality in the Lebanese labour force, female participation will largely remain unrecognised and undervalued. Lebanon currently ranks a dismal 145th out of 153 countries in the 2020 World Economic Forum Gender Gap Report.^[14] In the agriculture sector, female workers make up nearly half of the labour force (43%) and mainly help with tasks such as food processing, harvesting, and weeding. Despite their notable contribution to agriculture, women receive only two-thirds of the wages paid to men for the same amount of work.[15] Female agricultural workers also face additional challenges including unpaid labour and a lack of social protection.[16] They also have severely limited access to productive agriculture resources and services, land ownership, technical training, and technology compared with men. Similar challenges apply to Lebanon’s industrial sector, despite some specific sub-sectors – for example, the cosmetics field – tending to elevate a higher proportion of women to management positions.

Level 2: The Businesses

In various ways, a shift to a productive economy potentially offers a new era of opportunities for Lebanese companies and new market entrants. Since before the civil war, Lebanon’s rentier service-based economy has served the interests of a small class of politically connected elites, who have presided over sweeping monopolies and oligopolies. Due to a lack of proper market competition, powerful groups have been able to make huge profits for themselves, while excluding new companies from entering certain sectors.^[17] State-sanctioned cartels dominate the fuel import and real estate sectors, which produce little and provide woeful levels of employment. And, of course, a well-heeled elite dominates Lebanon’s failed financial sector – 18 out of 20 major Lebanese banks have key shareholders with connections to politically exposed persons, according to a 2016 report.[18]

Managed correctly, expanding Lebanon’s productive sectors could provide a platform on which new market entrants can thrive. Entrepreneurs can begin making products locally that were previously imported, meaning that cartels do not control the market for local production. Greater levels of market competition would also benefit Lebanese consumers, given that different businesses would vie to provide lower costs services to attract and retain customers.

 Pitfall 1: Cartel Control Of Markets

Despite being neglected in economic and development policies, Lebanon’s productive sectors are not immune to elite co-optation. While many Lebanese elites have focused their attention on rent-seeking fields like banking and real estate, some still dominate areas of agricultural and industrial production. In the agriculture sector, this phenomenon is evident in Akkar’s potato market.^[19] To exert control, oligopolies use uncompetitive market tactics such as controlling supply and demand through the cynical storage of crops. Powerful traders dominate the value chain at the expense of smallholder farmers and farm hands.

Political affiliations and conflicts of interests are also propitious for corruption and the misappropriation of funds. In some industrial sectors, such as recycling, there are also established players – often well connected politically – which make the market hard to crack. Some municipalities manage their own recycling programs through favoured companies, making it hard for up-and-coming entrepreneurs to enter the market, even if they have promising new ideas. Similarly, three companies have long dominated the Lebanese cement market. The cement cartel charges extortionate rates, in part because arcane permit requirements prevent market competition arising from new Lebanese producers.[20]

If Lebanon shifts towards a more productive economy, political and business elites will almost certainly attempt to profit from expanding sectors – especially if they are successful. This much is evident in the Lebanese government’s recent efforts to legalise cannabis, a highly profitable cash crop for Lebanese primary producers. In what should have been a positive development for Lebanon’s agriculture sector, the legalisation decision quickly found itself prisoner to conflicting politics.[21] To avoid similar scenarios in the agricultural and industrial sectors, reforms are needed to ensure that entrepreneurs and new entrants to business markets get a fair go.

The problem, both in the agriculture and industrial sectors, comes back to the lack of market competition laws and regulations. Since it was first considered in 2007, the Parliament has failed to pass a comprehensive legislative framework to ensure that businesses can compete more fairly. The draft competition law prohibits anti-competitive practices such as manipulating supply and demand, price-fixing, and dividing client bases arbitrarily between companies – all behaviors in which Lebanese cartels routinely engage. In 2019, Lebanese politicians again declined to enact the draft competition law – most likely because it would potentially undermine exclusive agency agreements, which allow privileged businesses to be the sole importers of specified products, shielding them from any market competition.[22]

While the draft competition law represents an important start, Lebanese legislation still lacks other key provisions to stamp out unfair business practices. The draft law does not provide for a well-equipped statutory authority capable of enforcing competition regulations and stamping out cartel practices. Moreover, the current legal framework facilitates opaque procurement processes, meaning that the government can (and does) hand out state-backed contracts to favoured companies. The process is weakly controlled, making it impossible to implement rules and procedures; complaints are not handled by an independent regulatory body and independent mechanism; and related data or information is missing from the public domain.^[23] These issues make Lebanon’s business climate unattractive to investors and, instead, offers a well-trodden path for political patronage.

Pitfall 2: Unfavourable Conditions for Exporting

To date, local farmers and industrialists have failed to capitalise on the increased affordability of Lebanese-made products in foreign markets. In theory, the Lebanese Lira’s collapse should have facilitated a transition to an export-led economy, with more Lebanese-produced goods being sold overseas. However, statistics from the Ministry of Industry show that the opposite has occurred.^[24]

Some of the challenges facing local production include lack of access to funding or government-backed financial incentives. High overhead costs also deter new market entrants and cause problems for established players. Industry experts estimate that manufacturers in Lebanon are now paying about five times more for power than before the crisis due to the collapse of the national currency.^[25] On top of soaring energy costs, manufacturers and farmers need to import large amounts of raw materials unavailable locally.

Lebanon needs short-term solutions to address high electricity costs and access to water so that industries can stay afloat. However, a full shift towards a productive economy requires even longer-term thinking. Even before the economic crisis, the country ranked 130th out of 137 countries in quality of infrastructure in the World Economic Forum’s Global Competitiveness Report in 2017.^[26],[27] Lebanon’s poor infrastructure results in higher overhead costs, and therefore higher export costs. For example, in 2018, much higher than for regional neighbours where the average cost was $1886 USD.^[28] Some industrialists have pushed for more industrial zones to allow businesses to overcome the high electricity costs and Lebanon’s poor infrastructure.[29]

The agriculture sector also needs to improve quality control standards to tap into its export potential, which could boost current export levels by around US$600 million annually. Much of this potential is limited by a lack of capital investment in technological and value-chain efficiency gains in items such as solar-powered cold storage, water management technology, and sustainable non-oil-based fertilisers, and other locally sourced replacements for imported inputs.^[30] The prevalent use of dangerous pesticides and chemicals is also preventing Lebanese farmers from reaching lucrative foreign markets with high health and safety standards.

Lebanese agricultural producers are generally smaller than their regional counterparts and are not compliant with international standards on chemical usage, making them less competitive exporters. Between 2015 and 2017, the Lebanese government tested basic food items in an unprecedented food campaign to address public health concerns. The analysis of the data found that more than one in four samples were contaminated.[31] These alarming results do not only raise public health concerns for the Lebanese people; they directly harm the country’s exporting potential. In the latest example, in October 2021, Qatar banned certain Lebanese herbs and vegetables, citing chemical contamination concerns.[32]

Crucially, Lebanon’s small landmass, need for major environmental sustainability improvements, and regional agricultural export linkages – over 70% is exported to Arab countries – means it is a key area where highly sophisticated research and innovation should be fostered. The Gulf countries face huge challenges in meeting their food security needs sustainably and are investing heavily into research and development of water-efficient, low land-intensity agriculture. Their needs are increasingly being met by the far more developed Israeli agricultural sector.^[33] This is an opportunity for Lebanon to meet this demand by creating the highly skilled jobs and profit opportunities required to counter the now-accelerated brain drain.^[34] Plans for large-scale job creation in land care also already exist but have never been implemented. The National Reforestation Plan promised to create 15,000 jobs by protecting 20 per cent of Lebanon’s soils.^[35]

Level 3: The Environment

If Lebanon is to retain food security any meaningful level, as well as improve economic outcomes, it needs a radical turnaround in environmental policy. Climate change is already biting into Lebanon’s once-famed agricultural potential. Since 2007, Lebanon’s primary agricultural regions in the Beqaa Valley have seen year-on-year declines in rainfall, shorter more intense rainfall that washes away topsoil, and increases in pest and disease outbreaks with weaker natural ecosystem resilience to combat them – among a host of other fundamental pollution challenges.^[36],[37]

Yet, the transition to a productive economy presents a great opportunity for the agriculture and industry sectors to become green leaders. In a positive move, Lebanon’s resource and capital scarce economic context is already pushing industry toward sustainability measures such as renewable energy and locally recycled products. Lebanese industry is the largest investor in renewable energy, given renewables’ superiority for business productivity and reliability compared to Électricité Du Liban (EDL). Currently, 20% of all rooftop photo-voltaic systems are installed within the commercial sector.^[38] By adopting new sustainable technologies and following environmental regulations, they can help reverse the “eco-cide” occurring from the current unchecked industrial, residential, and agricultural pollution.

An example of green potential is the recycling sector which, at present, has a net detrimental impact on Lebanon’s environment. Reforming the sector and increasing its productivity would positively contribute to Lebanon’s environmental outlook, matching economic growth potential with the nation’s green transition. Finding solutions to reuse plastic waste has already seen the rise of Lebanon’s ‘Eco-Boards’ – panels made from recycled plastic which can replace wooden and steel panels in construction.^[39] These boards reflect how businesses who use sustainable economic models can help drag the country to a positive economic switch.

Pitfall 1: Destruction of Essential Natural Resources

The ecosystems which the agricultural sector relies upon suffer from heavy water pollution and soil contamination, stemming from years of government mismanagement.^[40] Left unchecked, pollution may continue damaging Lebanon’s environment to a disastrous point of no return. Water pollution is one of the major concerns for Lebanon, affecting both human health and environmental health, as well as the agriculture sector. Water use, treatment and disposal is nearly completely unregulated and despite research repeatedly showing the situation deteriorating, nothing has been done to address the health of life’s most essential resource. Nearly 80 percent of bottled water is chemically or biologically contaminated and most of the country’s main irrigation aquifers and water sources are heavily contaminated with chemical and biological pollutants.^[41], [42] From both a resource security and quality perspective, Lebanon cannot afford to keep neglecting its water resources at the current rates.

The pollution of the Litani river is exemplary of Lebanon’s overall disastrous water management. The largest river in Lebanon faces devastating environmental problems due to decades of neglect and mismanagement, as well as industrial pollution, untreated sewage, chemical runoffs from farms and municipal waste.^[43] While farmers rely on the Litani river to irrigate their crops, they also heavily pollute it with chemicals. At the frontline of this environmental battle, agricultural workers are not equipped for it. Most farmers started working after they inherited the land from predecessors, without having any prior agriculture skills.^[44] Many therefore lack training on how to institute more sustainable agricultural practices. Already facing economic hardship due to the Lebanese Lira’s devaluation, primary producers also lack access to finance with which to adopt eco-friendly innovations.^[45] However, without addressing industrial and agricultural pollution, the sectors are doomed to remaining stuck in a vicious cycle of relying on resources which they pollute themselves.

Pitfall 2: Waste Management

As a small country with limited land space and atrocious waste consumption and management practices, Lebanon needs whole life-cycle solutions to consumption and waste in the agriculture and manufacturing sectors. Emissions from waste and wastewater contribute to 10.7 percent of Lebanon’s total greenhouse gas emissions – largely derived from the decomposition of the organic component of waste in dumped at the 504 municipal waste dumpsites spread around the country, as well as uncontrolled burning nationwide, and the discharge of wastewater without prior treatment in the Mediterranean Sea, riverbeds and septic tanks.^[46] Only 10-20 percent of Lebanon’s waste cannot be composted or recycled, this means that 80-90 percent percent of waste should be dealt with, without relying on landfills.^[47]

Waste management solutions in Lebanon’s context require interventions at the generation, recovery, and processing stages – with parallel efforts to change cultural attitudes across the board. Discouragingly, Lebanon’s Third National Communication to the United Nations Framework on Climate Change did not lay out any major solutions for the business-as-usual scenario other than the largely discredited^[48] use of ‘waste-to-energy’ technologies – which would at best deal with 74 percent of waste by 2040. ^[49]

Recommendations

A country like Lebanon cannot simply wish a more productive economy into existence. Ideally, the government would lead investment in the agriculture and industry sectors, ensuring that companies have sufficient access to capital to expand their business operations. The call for funding recognises that boosting production levels – not to mention switching to renewable energy and energy-efficient technology – requires significant capital outlay. Of course, agricultural and industrial businesses have virtually no hope of securing funding from the heavily indebted state or the country’s insolvent financial sector. Accordingly, a shift towards a productive economy forms an essential component of Lebanon’s financial recovery, but it cannot precede that recovery.

Rather, a deliberate shift away from rentier, low-productivity sectors should encompass a range of macroeconomic, trade, and fiscal policies – all of which encourage Lebanese businesses to produce more domestically and employ more locals.[50] Without public funds to invest, the government should introduce tax incentives for businesses that shift to energy-efficient technology, create green jobs, and expand current labour-intensive projects.

Parliament should enact legislation that finally provides transparent rules and proper enforcement mechanisms for ensuring fair market competition, while also bringing all workers in Lebanon – irrespective of their nationality – under domestic labour laws. Upon completing necessary planning processes, the state should also authorise and support responsible industrial parks, where businesses can pool resources and reduce their utilities and transport costs.

Independent of Lebanon’s sclerotic government, interested non-state parties can begin driving forward the economy’s productive shift. Technical assistance stands out as an especially useful entry point for a range of actors, including development agencies, private sector incubators, and universities. To promote workers’ rights, qualified stakeholders can offer advice and capacity-building sessions for unions and cooperatives, which can help agricultural and industrial employees to mobilise more effectively.

Economic productivity will benefit from offering training and education courses that emphasise vocational skills, requiring a slight shift from the Lebanese education system’s current focus on white collar, professional careers. And, of course, capacity building will need to help Lebanese enterprises to adapt to the country’s green transition, not least through mastering sustainable techniques for agricultural and industrial production.

Importantly, non-state actors can help to stave off the worst potential pitfalls of switching to a productive economy. Civil society organisations and development agencies should scrutinise the enforcement of current labour regulations in productive sectors, especially as they relate to vulnerable groups like women and children. These stakeholders can also hold Lebanon’s public and private sectors accountable for environmental degradation stemming from agricultural or industrial waste and / or business practices.

Editor’s note:

Triangle would like to express its gratitude to all anonymous informants who contributed to this paper, with special thanks to Alex Ray for his invaluable research support.

This paper was compiled with the support of the Friedrich-Ebert-Stiftung (FES) in Lebanon.