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.

By Georges Pierre Sassine

There is hope for Lebanon. Most of our problems can be resolved. Sectarianism, foreign interventions, crippling debt, corruption, deteriorating public institutions, and many other issues can be tackled if Lebanese vote for competent and honest leaders.

As 2013 elections get closer, Lebanese should actively promote people that have two major qualities. They should be effective at improving our quality of life, and have strong moral values to serve the public interest.

If we want a better future in Lebanon then there is only one way forward: we should promote effective leaders, reward courage and integrity, and punish corruption and dishonesty.Georges Sassine

The ultimate goal of elections is to have a government that is able to solve today’s most urgent problems. Unfortunately, the past several administrations have been paralyzed and Lebanese citizens are deeply frustrated with its political class. The blame is on the electoral law, money in politics, the constitution, and geopolitical developments. But the answer is not only in improving Lebanon’s social contract. We need to hire better leaders on Election Day. Our choice of people matters. Because the right people can make a poor organizational structure work well; and people with poor leadership will make the best possible organizational structure work miserably.

Therefore Lebanese need to elect leaders with the abilities to get the job done. They should have the right economic and public policy skills but should also be capable to navigate the reality of the Lebanese system.

To be effective, politicians should surround themselves with the right team. For Ministers this involves the appointment of government servants. But many Lebanese ministers find that they cannot choose or change ministry employees. The reality is that the appointment process is often paralyzed in Lebanon over tensions between candidates’ competency, religion, and loyalty.

These constraints can be circumvented. For example, a Lebanese official recently faced fierce resistance from employees affiliated to opposing political parties. Not being able to replace them, he promoted them. He gave them a disguised promotion where they were given more prestigious titles but lost their previous powers. And there are many other tactics that a pragmatist can use to navigate the reality of the Lebanese political process.

Our leaders should also have the ability to compromise and build consensus. Today, Lebanon is at a standstill and the Lebanese government ineffective. The underlying issues of disagreement will surely not be resolved overnight but the only way forward is to focus on goals we all completely share. The effective leader will not compromise on principles but should be willing to cooperate with opponents to improve daily socioeconomic issues. Lebanon is a “consensus democracy” and can only be governed by leaders who are consensus-builders.

This is why we should draw lessons from the successes and failures of Lebanese politicians. An open meeting should be called with current and past public officials to share their experiences. These lessons on how to effectively govern in Lebanon should be passed on from one generation to the next.

The second quality Lebanese should look for in their leaders is strong moral values. Lebanon needs more honesty, integrity, and courage in its leaders.

Some people might think that politics and ethics cannot coexist, especially in a country like Lebanon. But I believe that there is no inconsistency between ideals and realistic possibilities.Georges Sassine

However, some people might think that politics and ethics cannot coexist, especially in a country like Lebanon. But I believe that deep convictions are not incompatible with the most practical of things. There is no inconsistency between ideals and realistic possibilities. It is actually not realistic to solve problems unguided by moral values. And it happens that in the context of Lebanese politics moral principles have prevailed.

Each of us can think of Lebanese citizens, soldiers, and statesmen that showed character at decisive moments in Lebanon’s history. To start with Prince Fakhr-al-Dine who fought for the sovereignty of modern Lebanon. Bechara el Khouri, Riyad el Solh and several others who gained Lebanon’s independence from the French mandate, and other modern examples to draw upon.

Examining their successes and failures has led me to believe that Lebanon’s best interest will be fulfilled by those who are absolutely determined to act upon their conscience. Lebanon will be best served by people whose self-respect is more important than their popularity with others; and those with morals and values stronger than their desire to maintain office.

Some people might be cynical about their vote making a difference. But they should remember that despite the many fallacies of Lebanon’s electoral system they have the free choice of vote through the secret ballot. Lebanese citizens possess what many are longing for in other Arab countries: the freedom of choosing their own representatives and vote upon their personal conviction. Down the line it will make a difference.

If we want a better future in Lebanon then there is only one way forward: we should promote effective leaders, reward courage and integrity, and punish corruption and dishonesty.

Georges Pierre Sassine is a public policy expert and Harvard University alumnus.

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

Download (PDF, 1.07MB)

Download (PDF, 59KB)

By Georges Sassine

The majority of Lebanese residents are younger than 29 years old. The new generation of Lebanese has the responsibility to take a more active role in shaping its own future and the future of Lebanon.

Young Lebanese men and women should lead and be significantly more active in civil society, public service, and politics. We can only count on ourselves to voice our ambitions and our vision for Lebanon.

By Georges Sassine

Why do we need a new vision for Lebanon? How will this website contribute to developing a new vision for Lebanon? And what can you do about it?

For every moment that passes, Lebanon wastes another opportunity to fulfill its potential.

Some call it the Paris of the Middle East, the Switzerland of the Middle East, the great Phoenician civilization … all past glories that couldn’t be more removed from today’s reality.

The current state of division and stagnation is not sustainable. We all agree that we cannot continue on this path. We cannot remain living in doubt, in fear, in anger and frustration.

We need a new vision for Lebanon. We desperately need new ideas, new energy, new leaders, and a new way of thinking.

How will this website contribute to developing a new vision for Lebanon?

This is why I created this website as a platform for us to develop our common vision for Lebanon. There are many things that are outside our control, and there are different points of views on many issues. But we can focus and start with the goals we all completely share.

We can think together and act together on the best ways to create opportunity and jobs in Lebanon; how to create a stable environment to raise a family; and how to adapt to a changing Middle East and a changing world economic order.

This website will combine articles, short blog posts, videos, and infographics that suggest solutions to the various issues facing Lebanon.

What can you do about it?

This effort will be successful only if you are engaged and contribute your thoughts and ideas. I invite you to comment on these blog entries, subscribe and share this website with others, and contact me with ideas you would like to publish here.

Let us together attempt to develop a new vision for this country we all so love, and let us agree on effective ways to implement it on the ground.

Because remember that every generation helps shape its own future. And this is the essential challenge of this generation of Lebanese. Let us take on the challenge and seek a better Lebanon.

By Georges Pierre Sassine

An Arabic version of this article appeared in the print edition of Annahar Newspaper on December 12, 2011.

Territorial disputes will prevent Lebanon from developing part of its oil and gas resources. While Lebanon is yet to demarcate its maritime borders with Cyprus and Syria, the main area of tension today is with Israel over the discovery of potential offshore petroleum resources. What are the options for Lebanon to resolve its maritime border dispute with Israel? The examination of similar cases sheds light on resolution strategies available to Lebanon.

Maritime boundary disputes are extremely common and are not unique to Lebanon and its neighbors. In each of the world’s major seas such disputes can be found. A prime example is the South China Sea where seven states – China, Indonesia, Malaysia, the Philippines, Taiwan, Vietnam, and Brunei – have laid claim to subsea energy supplies. Other examples include the United States and Canada dispute over the hydrocarbon rich Beaufort Sea; or the Thailand-Cambodia disagreement which is freezing oil and gas exploration in the Gulf of Thailand.

There are about 200 potential maritime boundaries that remain unsettled in the world, but another 200 cases have already been resolved. Five different resolution strategies were adopted by several countries – all within the legal structure of the United Nations Convention on the Law of the Sea (UNCLOS): direct negotiations, third party mediation, joint development agreements, and formal legal proceedings through a judicial tribunal or panel of arbitrators.

Maritime boundary disputes are extremely common and are not unique to Lebanon and its neighbors. In each of the world’s major seas such disputes can be found.Georges Sassine

Direct negotiations and joint development agreements are not options for the Lebanese-Israeli dispute. Both countries are at war and will not negotiate face to face. Joint development of hydrocarbons would let both countries access resources of the disputed area instead of dividing the territory. While such cooperation schemes are encouraged by the international community, they are not applicable to this case.

In addition, Israel has not signed or ratified the UN Law of the Sea, contrary to Lebanon, which means that Lebanon cannot force Israel to court. This leaves Lebanon with one course of action: third party mediation through the United Nations, for example, and if that were to fail pursue an international campaign to get Israel to sign the UN Convention of the Law of the Sea. This would ultimately enable Lebanon to bring Israel before a binding judicial tribunal or panel of arbitrators including the International Court of Justice, the International Tribunal for the Law of the Sea or the Permanent Court of Arbitration.

Israel has not signed the UN Law of the Sea, which means that Lebanon cannot force Israel to resolve maritime disputes through an international tribunal.Georges Sassine

Lebanon’s success will thus depend on its ability to master the rules and procedures of the international law of the sea, and its ability to wage a successful international media and diplomatic campaign.

In the meantime, Israel is in a rush to develop offshore resources, and Lebanon is running behind. Israel is speeding up gas developments in response to increased disruptions to its natural gas supplies, which resulted from nine attacks on Egyptian pipelines to Israel in the past 10 months as well as Egypt’s intention to potentially raise the price of its natural gas supplies. Israel has already licensed fields to oil companies and has started exploration and construction. Lebanon, on the other hand, is progressing at a slow pace and is expected to open exploration license bids in early 2012.

As a result, as Lebanon pursues the lengthy and complex settlement process, it should work in parallel to exploit petroleum resources in areas that are not under dispute. It is in the absolute interest of all Lebanese factions to rise above internal divisions and accelerate the exploitation of undisputed areas.

Georges Pierre Sassine is an energy policy expert, and Harvard University alumnus. The opinions expressed herein are his own. He wrote this commentary for ANNAHAR NEWSPAPER.

An Arabic version of this article appeared in the print edition of Annahar Newspaper on December 12, 2011.

(Annahar Newspaper: http://www.annahar.com/)

 By Georges Pierre Sassine

Background

Prior to the 2006 war, Lebanon’s electricity sector was in a state of disrepair. The damage to the infrastructure induced by the conflict, which amounted to $114 million, exacerbated its condition. But while the Lebanese Government implemented a series of quick-fix solutions, the sector’s true rehabilitation requires long-term reform.

The electricity supply system is dominated by the state-owned Electricite du Liban (EDL), which is a vertically integrated utility. Its installed generation capacity only meets 85% of the electricity needs, electric interconnections and imports from Syria cover about 10% of the demand and the remaining is being generated by the individual enterprises and commercial facilities.

EDL suffers from poor financial conditions, and is heavily dependent on government budget subsidies for operations and investment. As EDL adopted an electric tariff freeze policy, the government steps in to partially relieve its burdens with the rise in fuel cost; and thus, the power sector is contributing up to an astounding 20% of the national debt burden.

The generation capability itself is characterized by inefficiencies in the power plants and by a lack of available capacity due to aging and unreliable assets. The transmission systems suffer high technical losses (˜ 15%) and the distribution systems from high non-technical losses (˜ 23%), high levels of unbilled electricity consumption and a low collection of electricity bills (˜ 80%).

On top of its ineffective organizational structure, EDL is facing a serious human resources issue with a decrease in its manpower while the number of customers is increasing. The average age of EDL’s personnel is above 51 years and they lack proper qualifications.

The Government of Lebanon was granted multi-million dollar loans in the last sixteen years to reform, restructure as well as to expand electricity transmission. However, the objectives were not completely met and the overall performance of the government was rated highly unsatisfactory. Recent legislations were issued by the Lebanese Parliament (Privatization Law no 228/2000, the law no 462/2002 Organizing the Electricity Sector) and indicated a tendency to promote private sector participation, in line with the international trend. However, no action has been taken so far in that regard.

Since 2000 the Lebanese Parliament issued legislations to promote private sector participation in the electricity sector … No action has been taken so far in that regard.Georges Sassine

Recommendations

The electricity sector reform should adopt the private sector participation which has proven to improve access to public infrastructure services, price and quality.

The private sector participation can take one of many forms but before choosing the most suitable structure there’s a need: First, to develop and establish an efficient regulatory framework that should be governed by an independent and effective regulator. Second, to corporatize the electricity sector which is a prerequisite to any chosen privatization option.

The best privatization option appears to be the unbundling of the Generation from Distribution and to leave Transmission within the government control. The sector needs to be restructured toward a “middle ground” deregulated environment where the regulator controls multiple generators and distributors with one single buyer. This “middle ground” deregulated environment will be an interim step towards an “all level competition” privatization form if seen appropriate later on.

There are no technical barriers to resolve Lebanon’s electricity crisis … reforms can only be meaningful if and only if politicians adopt a serious and determined strategy towards their implementation.Georges Sassine

The Transmission is a natural monopoly and will not be divested in order to remain a neutral ground with open access to all players, which will ensure better competitiveness. The Generation and Distribution on the other hand if split could allow for commercialization of the sector and thus allowing for more competition, an ability to generate profits and thus increase performance, service access, price and quality. The public-private partnership should be properly designed to target poorer population segments and to improve services delivered to them.

A demand-side management strategy should be adopted and the tariff regulation should be amended in a way that would prevent social disturbance and electric bankruptcy. A significant effort should be put in energy efficiency by developing standards, certification and labels, and focusing on public awareness. Renewable and sustainable energies should be encouraged and developed. Solar energy in particular is virtually unexploited and has considerable potential for growth.

This being said, the environmental issue is also important to consider. The Lebanese Government is in the process of adopting the Kyoto Protocol rules and is planning to abide by them.

Conclusion

As outlined earlier, EDL and the Lebanese electricity sector are in significant trouble. In a country where sectarian interests seem to dominate all political and economic decisions, the electricity sector is a highly politicized one. This makes its regulation very hard to reform due to the diversity of stakeholders involved. There are no structural barriers to achieve more efficient public policies, but they can only be meaningful if and only if politicians adopt a serious and determined strategy towards their implementation.

By Georges Pierre Sassine

A version of this article appeared in the print edition of The Daily Star on March 06, 2012, on page 7.

Lebanese are thrilled about the prospect of tapping their recently discovered offshore oil and gas reserves. However, examples from other countries show this could easily turn into a curse and invite corruption.

Economists have a name for this negative phenomenon, namely the “resource curse.” Countries with abundant natural resources such as oil and gas, frequently experience lower economic growth, higher levels of corruption, and in extreme cases civil wars. This has been especially visible in Africa, where the Democratic Republic of the Congo, Sudan and Angola have all been torn by civil unrest.

Nigeria is a prime example where oil has increased the corruption of the political class. Oil exports constitute one-third of Nigeria’s economy. However, contrary to what one would expect, the economy could be worse off if oil prices increase in the long run. Paul Collier of Oxford University recently projected that if oil prices doubled in the next 25 years, Nigeria’s economic output would decrease by two-thirds when compared with what it might otherwise have been.

Fortunately, the resource curse can be avoided and there are many success stories to draw upon. Norway, for instance, used its oil to achieve the world’s highest living standards. Similarly, Malaysia has used its reserves to successfully power a transition out of mass poverty and toward the development of a middle-income economy.

The resource curse can be avoided … Lebanese policymakers should examine lessons from the successes and failures of other countries.Georges Sassine

Lebanese policymakers should examine the lessons from the successes and failures of other resource-rich countries, and understand the key causes of the resource curse in order to avert them. Threats include corruption, poor implementation of regulations, inequitable distribution of oil revenues, volatility of oil prices, non-diversification of the economy and environmental risks.

Success or failure will rely on the ability of the government to manage and regulate these risks. Experts have recognized the main remedies to be transparency and accountability, and a strong system of checks and balances in the governance process. Lebanese should better understand the three major questions shaping the success of the energy industry: How much oil and gas will be produced; how much money it will generate; and how the revenues will be spent.

Corruption should be avoided at both the extraction phase and once revenues start flowing. For starters, it is essential to make extraction contracts public and disclose how much oil will be produced. In Iraq and Nigeria, 40-50 percent of the total oil produced is illegally smuggled and traded in the black market. Failure to monitor and disclose extraction figures facilitates corruption, losing revenues that could potentially benefit Lebanon’s citizens.

Internationally, initiatives are making headway to ensure financial transparency, especially in the oil and gas sector. Lebanon should ratify and implement international standards such as those established by the Extractive Industries Transparency Initiative (EITI), and the United Nations Convention against Corruption (UNCAC). Under EITI standards the government would be required to publish revenues incurred from oil and gas sales. Once these become public knowledge, it would be much more difficult for officials to siphon off money.

However, ratifying international treaties is only the first step toward preventing corruption. For example, Lebanon ratified UNCAC in October 2008, but still lacks the appropriate legal mechanisms to implement it. Parliament must complement these treaties with national legislation and institutions to enforce their regulations.

Given the loopholes in the Lebanese legal system, another means of fighting corruption, in addition to enhancing Lebanese institutions, is through implementation of the regulations in the home countries of oil companies operating in Lebanon. Businesses in the United States and in the Organization for Economic Cooperation and Development countries have recently come under the authority of anti-bribery codes as their own governments have punished them in bribery cases involving foreign government officials.

A third key choice then facing Lebanon is how to manage and spend its oil and gas money. Should the revenues be spent on immediate needs, for instance to reduce the public debt? Or should they be saved for future generations?

Lebanon can significantly grow its economy if the right mechanisms surrounding its oil and gas sector are put in place. This will only happen if Lebanese citizens are active participants in the process, remain informed, and insist on claiming their rights.Georges Sassine

After the bidding process, which is expected to be completed in the next few months, international oil companies will pay the Lebanese government millions of dollars for rights to extract oil and gas. Ideally, this money would be best spent developing Lebanon’s infrastructure. However, realistically, once additional revenues start flowing in, most ministries (and ministers) would want their share of the proceeds: The Labor Ministry might argue for minimum wage increases; the Defense Ministry for increasing military spending; and so on. This would initiate messy political infighting.

Such can be avoided by focusing from the start on infrastructure development. The Lebanese government could auction the extraction rights for infrastructure instead of money. In this case, consortiums of both oil and construction companies would make offers in terms of the number of infrastructure projects prioritized by the Lebanese government, instead of financial compensation.

Nevertheless, the bulk of oil and gas wealth will flow to the Lebanese Treasury. Prime Minister Najib Mikati has announced that funds will go toward reducing the public debt to 60 percent of GDP – from the current 130 percent – before fulfilling other expenditures. However, there has been no mention of earmarking funds for future needs. The state is responsible for saving part of the oil revenues for future generations. A stabilization fund would need to be set up to cushion the economy and avoid deep cuts in government oil revenues in case of sharp declines in international oil and gas prices.

All of these initiatives can be bolstered by a clear system of checks and balances – not only between the executive and legislative branches, but also between the government and society. The core principle here is that natural resources belong to all Lebanese citizens, and the government’s sole responsibility is to manage these resources on our behalf. Lebanese media and civil society should play an important role in preserving our rights, no less than non-governmental organizations and watchdog organizations.

Lebanon can significantly grow its economy if the right mechanisms surrounding its oil and gas sector are put in place. This will only happen, however, if Lebanese citizens are active participants in the process, remain informed, and insist on claiming their rights.

Georges Pierre Sassine is an energy policy expert, and a Harvard University alumnus. The opinions expressed here are his own. He wrote this commentary for THE DAILY STAR.

A version of this article appeared in the print edition of The Daily Star on March 06, 2012, on page 7.

(The Daily Star: Lebanon News: http://www.dailystar.com.lb)