Lebanon’s deepening crisis holds slender promise of a decentralized state

On March 25, the IMF said a new Lebanese government must carry out far-reaching economic reforms in order to pull the country out of its financial crisis. (AFP)
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Updated 12 September 2023
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Lebanon’s deepening crisis holds slender promise of a decentralized state

  • Some experts see a silver lining in end to dependence on Turkish electricity-generating ship
  • Electricity crisis may force government to phase out power subsidies and implement reforms

DUBAI: Since Lebanon’s currency collapsed in October 2019 — thrusting the nation into its deepest economic crisis in recent memory — a growing number of its citizens have been forced to rely on private generators to power their homes. The alternative is to go without electricity for several hours every day.

Earlier this month, Karpowership, a Turkish energy company responsible for around a quarter of Lebanon’s electricity supply, turned off its generators, claiming that the debt-burdened Lebanese government owed it millions of dollars in unpaid dues.

Faisal Al-Sayegh, a Lebanese MP, had warned in March that “two Turkish steamboats that were hired by the Ministry of Energy to generate electricity are to withdraw from Lebanon because they did not receive their dues, which are about $160 million.”

Now, in a development that could leave millions more in the dark, cash-strapped Lebanese authorities are looking to suspend state subsidies from the end of May for fuel and electricity.

Successive governments of Lebanon, the World Bank and the International Monetary Fund (IMF) have deemed electricity reform a vital issue for reducing the country’s public debt, which has soared to more than 150 percent of the GDP.

Net transfers to the state-owned Electricite du Liban per year are between $1 billion and $1.5 billion, most of which is spent on the purchase of fuel.

On Wednesday, S&P Global said the cost for Lebanese banks to restructure debts could range from 30 percent to 134 percent of the GDP for 2021. “The main stumbling block to restructuring appears to be that Lebanon is currently functioning with a caretaker government without authority to agree terms with creditors,” an S&P Global report said.

Lebanon’s financial meltdown, its worst since the 1975-1990 civil war, has triggered months of social upheaval. According to the World Bank, real gross domestic product (GDP) growth contracted by some 20.3 percent in 2020 and inflation reached triple digits.

The value of Lebanon’s currency keeps on plumbing new depths while extreme poverty continues to rise sharply owing to the economic shock of the coronavirus pandemic and the Beirut port blast of August 2020.

To escape misery and hardship, young Lebanese are following in the footsteps of a previous generation, leaving their country in search of work and better opportunities, while hoping to be able to send home a part of their wages to keep their families afloat.

Nevertheless, for some observers the dark clouds of economic doom carry a potential silver lining — invigorating a trend towards decentralization, allowing the private sector to fill the void left by an ineffective state.

Roy Badaro, an independent Lebanese economist and a member of the team responsible for drafting a proposal on how to gradually remove subsidies from government spending, believes the shutdown of Turkey’s Karpowership will lead to “more decentralized electricity in the form of private generators and/or private companies running the generators.

“This in turn could lead to a more decentralized economy as well as a more decentralized political administration,” he said. “Not removing subsidies today will make us even poorer in 12 to 18 months.”

However, according to Badaro, the process of scrapping subsidies will be gradual, and will not extend to other critical commodities like medicines and wheat.

For months now, the Lebanese government has been dipping into the public’s private bank deposits to fund its subsidies — by no means a limitless resource.




Decentralized solutions to spiraling food prices and unreliable electricity could break the political gridlock in Lebanon, experts say. (AFP)

“This policy of taking out depositor’s money to fund other government means and subsidies is clearly disastrous and has been going on for months and months. But the end game is approaching, and we will run out of reserves at some stage,” Adel Afiouni, a former investment banker and expert in international capital markets and emerging economies, told Arab News.

“The currency will keep dropping and we will need to get foreign currency at a very expensive price. We’ll end up with even more currency collapse, hyperinflation and even more poverty. Accessing hard currency will become difficult for 90 percent of the population except for those that can finance themselves through aid or a job abroad. Now there is no road back to salvage this situation.”

To ration its dwindling foreign currency reserves, the central bank has called on the caretaker government to gradually lift its system of subsidies. Badaro’s team has recommended a minimum salary subsidy of $125 per month that is “adjustable every month due to the high volatility of the exchange rate.”

However, the plan will have to be approved by parliament before it can be implemented.

Experts say an emergency injection of liquidity into the Lebanese banking sector from an external source would be a sorely needed shot in the arm.

“The emergency injection would need to be from the IMF, but that is not happening and has been aborted for the last year and a half,” said Afioni.

Lebanon’s current predicament could have been largely avoided had an agreement with the IMF been reached. But talks have long been stalled.

On March 25, the IMF said a new Lebanese government must carry out far-reaching economic reforms in order to pull the country out of its financial crisis.

“It is critical that a new government be formed promptly with a strong mandate to implement the necessary reforms,” Gerry Rice, an IMF spokesman, said at the time. “The challenges facing Lebanon and the Lebanese people are exceptionally large, and that reform program is badly needed.”

In the absence of foreign intervention and political consensus on a workable solution, Lebanon continues to plunge deeper into the abyss. Experts believe the situation could get far worse before it gets any better.

“Things can keep collapsing — there is no bottom and if you look at the history of some of the countries that went through crises, such as Venezuela and Argentina, every day that passed by without decision-makers taking proper decisions, things became worse and worse,” one Lebanese political analyst told Arab News on condition of anonymity.

“With no agreed masterplan to fix the situation, no fresh dollars coming into the country and subsidies gradually being phased out, there will be more social unrest and we will move from the Argentinian model to the Venezuelan and then to the Somalian.

“Today, no one is accountable in Lebanon. The only way to fight corruption is to clean up the public space. If politics remain centralized, Lebanon will remain corrupt.”

 




Successive governments of Lebanon, the World Bank and the International Monetary Fund (IMF) have deemed electricity reform a vital issue for reducing the debt, which has soared to more than 150 percent of the GDP.

Quite what form the collapse will take is a point of conjecture among experts, but many believe the system, which increasingly follows a model of clientelism, must implode before it can rise anew.

“I am not sure we are at the end of our race to the bottom just yet,” said Badaro. “A big event will come soon. We need a game-changing event that will shake up the situation in Lebanon, and we expect that to come before the end of year. Then there will be a rebirth. We’ll need to find a new system.”

Amid the despair and uncertainty, one thing is certain though: Crisis-wracked Lebanon faces many more months of darkness, both figurative and literal, before it can expect a turnaround.

“Yes, we could have more darkness,” said Badaro. “But darkness in Lebanon is not due to the shutdown of the Turkish company but to the darkness of our minds.

“When you start building a state, you need some moral values and that is what is now lacking in our leadership. We need to enlighten the minds of the people to start doing things differently at the political and social levels.”

His opinion is seconded by Afiouni, who believes the roadblock is political in nature, with official inaction condemning Lebanon and its economic trajectory to a state of paralysis.

“The sad reality is that as long as there is no government in place that has the competence and expertise to address the crisis, we will sink lower and lower,” Afiouni told Arab News.

“Without a competent government, Lebanon’s collapse is unstoppable.”

Twitter: @rebeccaaproctor

 


Saudi crude output up 1.21% to hit 8.92m bpd: JODI 

Updated 22 January 2025
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Saudi crude output up 1.21% to hit 8.92m bpd: JODI 

RIYADH: Saudi Arabia’s crude oil production rose to 8.92 million barrels per day in November, a 1.21 percent annual increase according to the latest release from the Joint Organizations Data Initiative. 

The report showed a 2.05 percent drop in crude exports, which fell to 6.21 million bpd, although this figure marks the highest level in eight months. 

Refinery crude exports surged 36 percent year on year to 1.14 million bpd in November but declined by 18.65 percent compared to October. 

Key refined products included diesel, motor gasoline, aviation gasoline, and fuel oil.

Diesel exports accounted for 38 percent of refined product shipments, while motor and aviation gasoline made up 24 percent, and fuel oil comprised 11 percent. 

Notably, motor and aviation shipments rose 63 percent annually to 272,000 bpd in November. Diesel exports also increased by 27 percent reaching 439,000 bpd. 

Saudi Arabia’s refinery output reached 2.35 million bpd, a 13 percent year-on-year increase, with diesel representing 40 percent of total refined products, followed by motor and aviation gasoline at 25 percent and fuel oil at 19 percent. 

Domestic demand for refinery products increased by 210,000 bpd year on year, reaching 2.56 million bpd. 

OPEC+ has decided to delay the start of oil output increases by three months until April, and extend the full unwinding of cuts by a year, now set to finish by the end of 2026. 

This decision was made in response to weak global demand and rising production from countries outside the group. OPEC+, which controls around half of the world’s oil production, had initially planned to begin unwinding cuts in October 2024, but delays were caused by global demand slowdowns and growing non-OPEC+ output. 

Direct crude usage 

Saudi Arabia’s direct crude oil burn fell by 119,000 bpd in November to 382,000 bpd, a 24 percent year-on-year decline and a 5.5 percent increase from October. 

The annual reduction can be attributed to the global shift toward cleaner energy sources, such as natural gas, renewables, and electricity, which are gradually replacing crude oil in sectors like power generation and shipping. 

Additionally, improved energy efficiency and stricter environmental regulations have led to further reductions in crude oil use. 

By 2030, the Saudi government plans to phase out the use of crude oil, fuel oil, and diesel in power generation, replacing them with natural gas and renewable energy sources. 

This transition is a key component of the Kingdom’s Vision 2030 initiative, aimed at diversifying its energy mix and reducing dependence on oil, both domestically and in global markets. 

As Saudi Arabia moves toward this objective, natural gas demand is anticipated to rise sharply, driving increased investments in the natural gas supply chain, including exploration and infrastructure development. 


Ogero resumes telecom expansion in Lebanon, boosting connectivity and major upgrades

Updated 13 min 51 sec ago
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Ogero resumes telecom expansion in Lebanon, boosting connectivity and major upgrades

  • Ogero connected 221,000 households to fiber-optic Internet in 2024 and plans to add 406,000 new subscribers this year
  • It is is also upgrading from Wi-Fi 5, currently used at Beirut Rafic Hariri International Airport, to Wi-Fi 7

RIYADH: Lebanon’s state-owned telecom company Ogero is working to restore and expand the country’s connectivity after experiencing damages due to the Israeli conflict.

The clashes have significantly disrupted Lebanon’s telecom infrastructure, impeding connectivity and slowing the nation’s digital advancement.

Ogero’s Chairman and Director General Imad Kreidieh announced in a live broadcast that the company’s expansion plans will resume, supported by funding from multiple donors.

According to Kreidieh, Ogero connected 221,000 households to fiber-optic Internet in 2024 and plans to add 406,000 new subscribers to the network this year.

The company is also upgrading from Wi-Fi 5, currently used at Beirut Rafic Hariri International Airport, to Wi-Fi 7. The upgrade will provide speeds of up to 3,500 megabits per second with ultra-low latency of 2—4 milliseconds. 

The network’s backhaul capacity is being upgraded from 20 gigabits per second to 40 Gbps to support enhanced connectivity, according to Kreidieh.

Ogero is also expanding its LTE infrastructure, increasing the number of stations from 97 to 219 by the end of 2025 and 390 by 2026, which translates to better and wider coverage nationwide. 

The LTE-Advanced capacity will be quadrupled from 10 Gbps to 40 Gbps to enhance performance and service quality.

The top official also said that Ogero will build 215 new stations in the southern and Baalbek regions, which were heavily damaged by Israeli strikes, over the next 24 months, allowing users to regain connectivity.

In a move toward sustainability, Ogero is also implementing solar energy solutions for 358 sites, with a 4-megawatt production capacity and 463 kiloampere-hours storage capacity. The $9.6 million project is expected to generate $8.5 million in annual savings, according to Kreidieh.

Ogero serves as the core of the Ministry of Telecommunications, providing essential infrastructure for all telecom networks, including mobile operators, data service providers, and Internet service providers.


Up to 40 Canadian firms eyeing investment in Saudi Arabia’s healthcare sector

Updated 22 January 2025
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Up to 40 Canadian firms eyeing investment in Saudi Arabia’s healthcare sector

RIYADH: Up to 40 Canadian firms are eying investment in Saudi Arabia’s healthcare sector amid efforts to strengthen economic ties between the countries.

The interest was highlighted at a healthcare event organized by the Federation of Saudi Chambers at its headquarters in Riyadh, which showcased various investment opportunities within the sector, the Saudi Press Agency reported.

This aligns with Saudi Arabia’s objective to boost private sector participation in healthcare to 25 percent by 2030, reflecting the rapid growth and expansion of the industry, along with attractive investment incentives. It also underscores the Kingdom’s broader efforts to strengthen ties with Canada, highlighted by the restoration of diplomatic relations in May 2023 after a five-year hiatus.

During the gathering, Chairman of the Saudi-Canadian Business Council Mohammed bin Nasser Al-Duleim highlighted the body’s pivotal role in boosting trade relations and fostering investment between the Kingdom and the North American country.

Al-Duleim also provided an overview of Vision 2030 initiatives and talked up the incentives and support offered by Saudi Arabia to foreign investors.

The Ambassador of Canada to the Kingdom Jean-Philippe Linteau commended the efforts to strengthen economic ties between countries. 

He emphasized the joint business council’s contributions and highlighted the strong interest of Canadian firms in Saudi Arabia’s healthcare sector.

In December, economic cooperation was the focus of a high-level meeting between a senior Saudi official and the Canadian ambassador, reflecting the ongoing progress in relations between the two nations.

The Kingdom’s Minister of Economy and Planning Faisal Al-Ibrahim held talks with Linteau at his department’s headquarters in Riyadh, SPA said at the time. 

Since normalizing relations, Canada is keen to build a “great relationship” with the Kingdom, Linteau said during an interview with Arab News in February. 

His commets came a month after Saudi Arabia and Canada agreed to re-exchange trade delegations, aiming to improve economic relations and increase trade and investment volumes. 

Hassan Al-Huwaizi, president of the Saudi Chambers of Commerce, emphasized at the time that establishing a joint business council would provide a platform for business leaders to promote activities and engage in partnerships, facilitating continuous interaction and information exchange about market opportunities.

In 2022, Saudi exports to Canada stood at $2.5 billion, with imports valued at $959 million, according to online data visualization and distribution platform Observatory of Economic Complexity.


Saudi Arabia, Palestine to boost trade with formation of new business council

Updated 22 January 2025
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Saudi Arabia, Palestine to boost trade with formation of new business council

  • Formation of the Saudi-Palestinian Business Council represents a significant step in strengthening economic ties
  • It comes two after a ceasefire deal came into effect between Israel and Hamas

RIYADH: Saudi Arabia and Palestine have agreed to form a business council to boost bilateral trade and promote investments between both nations. 

The agreement to form the first Saudi-Palestinian Business Council was made during a meeting between Hassan Al-Huwaizi, chairman of the Federation of Saudi Chambers, and Mazen Ghanem, Palestinian ambassador to the Kingdom, in Riyadh, the Saudi Press Agency reported. 

The formation of the Saudi-Palestinian Business Council represents a significant step in strengthening economic ties, particularly as trade between the two countries continues to grow. 

In the third quarter of 2024, the Kingdom’s overall exports to Palestine stood at SR118.3 million ($31.53 million), representing a 35 percent rise compared to the previous three months, according to data from the General Authority for Statistics. 

Saudi Arabia also imported Palestinian goods worth SR4 million in the third quarter of 2024.

During the meeting, Al-Huwaizi stressed the need to empower Palestinian business owners to invest in Saudi Arabia and market products from the West Asian nation in the Kingdom’s market. 

He also reaffirmed the federation’s support for holding exhibitions and conferences to introduce and market Palestinian products in the Kingdom. 

The new agreement comes just two after a ceasefire deal came into effect between Israel and Hamas, allowing some displaced residents to return to their homes. 

To stabilize the economy, the Palestine Monetary Authority issued new instructions to banks to ease the burden of accumulated installments on borrowers in Gaza and the West Bank during the war period. 

The authority also instructed banks to stop collecting installments in Gaza until the end of June, with the possibility of scheduling and postponing it further. 

Other instructions from the monetary authority include reducing interest rates on new loans and stopping the collection of commissions and late fees. 

Earlier this month, Palestinian President Mahmoud Abbas met with Nayef bin Bandar Al-Sudairi, the Saudi ambassador to Palestine, and honored him with the Star of Al-Quds medal, a top-rated decoration provided by the state. 

During the meeting, Abbas extended his greetings to King Salman and Crown Prince Mohammed bin Salman and thanked Saudi Arabia for the support offered to the Palestinian people and their cause. 

Abbas also praised Al-Sudairi’s efforts to strengthen the friendly relations between Palestine and the Kingdom.


Saudi Arabia, Gulf region ‘well positioned’ to take lead on global energy transition, says S&P executive

Updated 22 January 2025
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Saudi Arabia, Gulf region ‘well positioned’ to take lead on global energy transition, says S&P executive

  • Under President Donald Trump’s renewed leadership, energy policy in the US is expected to shift toward an emphasis on increasing crude and gas production

DAVOS: The Middle East, particularly Saudi Arabia, is poised to play a pivotal role in the global energy transition, according to Mark Eramo, co-president of S&P Global Commodity Insights. 

Speaking to Arab News at the annual meeting of the World Economic Forum in Davos, Eramo highlighted the region’s growing renewable energy capabilities and its potential to balance traditional energy demands with advancing sustainability goals.

“The renewable energy capabilities in the Middle East are primed to be part of the energy transition and will also continue to support what we would now call traditional energy as it’s needed,” Eramo said.

He emphasized the ongoing importance of energy affordability and security, noting their priority for governments worldwide. 

Eramo said Saudi Arabia, with its growing investments in the renewable energy sector, as well as ammonia production for hydrogen, is poised to emerge as a worldwide leader, adding: “The Kingdom is really positioned well to be an energy transition provider and take a global leadership role in that.”

With this in mind, Eramo highlighted S&P’s significant footprint in the Middle East and said the organization was in the process of expanding its presence in the region, something he said he was “excited about.”

He continued: “I manage S&P Global Commodity Insights and watch closely what is happening in Saudi Arabia and the region is near and dear to the work that we do. It’s a fundamental part of what we’re doing, whether it be downstream chemicals or just fundamental oil and gas and renewable energy. So, our plan is to increase our footprint in the region and be there.” 

Eramo also reflected on the global energy outlook, touching on the implications of potential US policy shifts. 

Under President Donald Trump’s renewed leadership, energy policy in the US is expected to shift toward an emphasis on increasing crude and gas production and expanding export terminal capacity, something which was paused under the administration of Joe Biden.

Citing that Trump this week declared an “energy emergency” in the US, Eramo said that the new administration’s focus on lower energy prices would aim to curb inflation and prioritize security.

Globally, he also noted the varied and pragmatic approach to the pace of energy transition, shaped by differing regional priorities. 

“There are challenges in Europe, Asia Pacific, and South Asia. Each country, whether it’s China or India, will respond differently,” he said. 

“It’s not about whether energy transition is over but understanding that it’s been going on for decades, driven by carbon emission reductions and fuel efficiency advancements,” he added.

Eramo acknowledged the historical resilience of energy players in navigating geopolitical uncertainties, especially in the Middle East in the past two years. 

“I think there’s a long history of geopolitical turmoil in different parts of the world, and I think the major players in energy supply, including in the Middle East, have always found a way to work with their partners — whether in Europe, APAC (Asia-Pacific) or in the Americas — to navigate those waters and respond accordingly,” he said.