Diving into the history of Lebanese manufacturing affirms a dire need to focus on the development of productive sectors that create value-added jobs and sustainable growth.
According to a UNIDO industrial sector statistical study, the manufacturing added value of Lebanon has grown by around 7 percent per annum (except in 2008).
Various studies underline that manufacturing is a key potential activity for the Lebanese economy as it only contributes 10% to our GDP, a long way from when it last peaked at 18% in 1974.
Before the Second World War, industrial production constituted 8% of the Lebanese GDP represented by a budding textile industry, a small food factory, and a small cement factory. With the start of World War II, imports were banned, and products were scarce, which encouraged the Lebanese to set up their own businesses despite the difficulties in obtaining raw materials.
Lebanon saw until the 70s a more modern and diversified industry developing characterized by a second phase of growth. This potential arose in light of problems facing the services sector and despite the absence of any public industrial strategy.
The labor force constituted 130,000 people. The total nominal capital of industrial establishments stood at around US$1.1 billion by 1975. The textile industry alone employed some 50,000 people. A further 20,000 were employed in the furniture and wood production industry and some 15,000 in the leather products industry.
The war put an end to the boom; Industrial Sector Spiraled Downwards …
Industrial production fell by 25% with the onset of the Civil War (1975-1985). Huge direct losses of over US$255 million were recorded. Indirect losses were two to three times higher. The Israeli invasion in 1982 wreaked even more havoc. The cost of reconstruction reached over US$ 900 million.
In less than a decade, Lebanese industry had lost most of what it achieved since 1950, a crisis exacerbated by the emigration of its skilled labor.
The period between 1985 and 1990 represents two antagonistic phases in Lebanese industry.
The first period was marked by a political lull which resulted in a growth of the sector which reached 20% of the GDP achieving a peak in industrial exports.
The second period was characterized by violence accompanying the political debacles of 1984. This generated a collapse of business optimism, closing the window for sustained recovery. The Central Bank’s tight fiscal attitude limited the money available for investment, which reflected pessimism over the future of Lebanese industry.
At the end of the war, there was no target or objective to re-establish the industrial sector nor restart its production capacity. At the whim of Late Prime Minister Rafik Hariri, the country had only one obsession: construction.
Trade liberalization had taken a toll on small and medium-sized industries which were technologically outdated and had management and quality problems.
Manufacturers were even dealt a severe blow in 2000 with the significant reduction in customs fees on many imported products.
Decision makers finally granted manufacturers subsidized credits, a reduction in taxes in a few specific cases, exemption from customs duties on raw materials and intermediates and total protection on a few sectors such as cement and electric cables.
The sector at the time was measured at nearly US$5.2 billion in value produced at the time. But considering the materials consumed, its net added value was around US$ 2.3 billion (44%) or only 10% of Lebanese GDP.
By the mid-2000s, the contribution of the manufacturing sector to GDP had already fallen to around 11.6%. With growth faltering, the Lebanese, especially the highly qualified, continued to emigrate en masse, draining the country, and the industrial sector, of its most valuable resources. This massive exodus and the remittances it created infected Lebanon with the so-called “Dutch curse,” characterized by a loss of global competitiveness.
In 2009, the sector had some 25,000 companies (of which 7,000 had at least 5 employees) employing around 150,000 people and represented nearly 90% of all exported products.
But unfortunately, after years of neglect, corruption, financial mismanagement, and the Syrian war spilling over, the Lebanese economy went into a full-blown crisis in October 2019, sparking mass protests that demanded sweeping reforms.
The year 2020 brought a global economic crisis due to the COVID-19 pandemic, rising public debt, a US$ 1.2 billion Eurobond sovereign default, a currency collapse and a massive explosion at Port of Beirut.
Looking back at these challenges, the Lebanese industrial sector sees the need to address the current state of the Lebanese economy on the national level. Lebanon has unmatched financial potential in the global economy, and distinctive human capital who uphold Lebanon’s image locally and internationally.
Strengthening the industrial sector became the most urgent issue today and this requires a paradigm shift by replacing some imports with local production as well as strengthening industrial exports.
According to UNIDO, in the current cash crisis, each US$1 million worth of locally produced industrial goods will preserve 70 percent of scarce cash in Lebanon (the remaining 30 percent spent on importing raw material) and boost the economy. On the other hand, importing US$1 million worth of wafer (the food-stuff), for example, leads to 80 percent drainage of scarce cash to the country of origin, while only 20 percent of this money stays in Lebanon. In addition, each job created in the industrial sector creates 2.5 jobs in other sectors. This shows the importance of Lebanese industry in revitalizing the economy.
Approaching the current crisis, Cedar Oxygen envisions a path for creating new jobs that can be summarized as follows: