Improving quality of life should be cornerstone of government policy

By Georges Pierre Sassine on January 03, 2013

A version of this article appeared in the January 2013 print edition of Executive Magazine, on page 56.

The government’s proposed wage scale hike has hit a dead-end as the debate rages over how the salary increases will be funded, whether by raising taxes or other channels. However, this is not the right question to ask. The fundamental question is: How do we improve the quality of life for Lebanese citizens?

By Georges Pierre Sassine

A version of this article appeared in the print edition of Annahar Newspaper on October 20, 2012.

Lebanese politicians, economists, and businessmen are debating the recent government proposal to raise public sector salaries. However, the debate is ignoring the fundamental question of whether salary increases are enough to improve the quality of life of Lebanese citizens.

This article argues that salary increases alone are not enough to improve the purchasing power of Lebanese citizens; and suggests a series of reforms to reduce the high costs of living, including housing, food, and gas prices.

By Georges Pierre Sassine

Food prices in Lebanon have risen by more than 66 percent since 2006. Increasing food prices are severely impacting Lebanese consumers as families spend on average around 34 percent of their expenditures on food, and can reach more than 60 percent for the poorest households.

One of the main causes of increasing food prices in Lebanon is the country’s high exposure to international food price fluctuations, given that Lebanon imports more than 80 percent of the food it needs. This has affected Lebanon severely during the 2008 global food crisis where food prices increased dramatically across the board. For example, Lebanon’s cereal import bill increased by more than 65 percent from 2005 to 2008, vegetable oils and sugar by 45 percent, meat products  by 40 percent, and dairy products  by 20 percent – according to the Lebanese Ministry of Agriculture.

In order to reduce food inflation and the impact from international food shocks it is important to address the underlying causes of high food prices. There are many factors contributing to high food prices, thus requiring a combination of policy responses.

Lebanon needs to make a strategic shift from low profit traditional agricultural practices to more economic and less water-intensive products.Georges Sassine

To start, high and unregulated profits are leading to overpriced food. Influential trading cartels dictate high profit margins in Lebanon at the expense of consumers. While they are supposed to be regulated by the government according to a 2005 law, it remains improperly enforced. Also the dominance of middlemen between producers and consumers raises final food prices. In this case the solution is to reduce the number of intermediaries and establishing agricultural cooperatives.

On the other hand, the most effective response for a net food importer like Lebanon is to expand domestic agricultural production and reduce its vulnerability to international food shocks.

Currently, the Lebanese agriculture is constrained by underinvestment in the sector. While the government recently increased its budget, it remains insufficient and falls short from the required investment levels. Less than 1 percent of both the government budget and bank lending are allocated to agriculture in Lebanon.

Agriculture production is also constrained by weather conditions, the use of inefficient technologies, and inadequate infrastructure which is limiting water access to 75 percent of farmed land. This is why Lebanon needs to make a strategic shift from low profit traditional agricultural practices to more economic and less water-intensive products.

Finally, trade policies of neighboring countries are further exacerbating the competitiveness of Lebanon’s agricultural sector. Regional cooperation will then be essential to improve trade integration, including bilateral and regional trade agreements. 

By Georges Pierre Sassine

Gasoline prices in Lebanon almost doubled in the past six years and are proving to be a source of economic burden and political tension. Analyzing what goes into the cost of gasoline is key to understanding what the government could do to lower gasoline prices.

According to the Lebanese Ministry of Energy & Water, 67 percent of the current retail price of gasoline in Lebanon reflects the price of purchasing fuels on international markets; 22 percent are government fees – including customs and VAT; 9 percent for distribution and marketing private profits; and 2 percent for shipping and transportation costs. 

 
While prices could be theoretically reduced by 22 percent by lifting government taxes, it is not viable to the economy. Fuel taxes constitute a major source of government revenue, and since 2009 the Lebanese government decreased its share of revenues from fuel taxes from 42 percent in 2009 to 22 percent in Q1 of 2012.  According to Prime Minister, Najib Mikati, gasoline taxes would be lifted if alternative revenue sources to the treasury are ensured.

It is then obvious that gasoline pricing in Lebanon is mainly driven by international oil prices and policy efforts should be targeted at reducing the fuel import bill. While Lebanese policymakers cannot affect world oil prices, they do have other options to reduce gasoline costs.

First the use of more fuel-efficient cars and trucks should be encouraged. Fuel standards or tax incentives on more fuel-efficient cars will reduce oil consumption in Lebanon and save Lebanese significant amounts of money in fuel bills. Second, an efficient and improved transport system would also reduce oil consumption. The third initiative should address the availability of gasoline in cases of emergencies and supply disruptions. One viable option is for Lebanon to benefit from its relations with regional oil producing countries and enter into “emergency oil sharing agreements” – where Arab countries would be obligated to make oil available for sale to Lebanon in the event of an emergency.

A short video by Lebanese artist Maya Zankoul explaining the definition of Inflation, CPI, and how it should be measured in Lebanon.