The billions in pledges at CEDRE won’t reform the Lebanese economy

Aside from the risk of plunging the country further into debt, financial investments do not ensure a sustainable solution for the future.

Lebanese Prime Minister Saad Hariri speaks at the CEDRE conference in Paris on April 6, 2018. Eric FEFERBERG / AFP

The Lebanese government collected pledges of over $11 billion in infrastructure investments at the CEDRE conference hosted in France last week, a month away from the upcoming 2018 parliamentary elections.

Lebanon ended 2017 with an estimated 6 percent growth in gross public debt, now at $79.5 billion or 150 percent of the GDP. Critics of the CEDRE conference believe that the promised investments for the Capital Infrastructure Plan (CIP), which amount to $10.2 billion in soft loans and $860 million in grants from several governments, international organizations, and private investors, will sink the country further into debt, rather than provide Lebanon with sustainable solutions for improving the economy.

“Overall, I think it’s the same economic policies with more money, greater debt, no proper reform, and no new vision for the economy on how to improve,” said Mark Daou, a candidate running for a Druze seat in Aley with the electoral list Madaniyya (www.madaniyya2018.com).

Prior to CEDRE, Hada Minna candidates submitted an open letter that highlighted their concerns with the conference to the French Ambassador, Bruno Foucher. The campaign will also be hosting a press conference on April 12 to offer alternatives for the betterment of the Lebanese economy.

Paris I, II, III, and CEDRE: A Series of Repeated, Empty Promises

Lebanese Prime Minister Saad Hariri stated that the 10-year infrastructure plan “is expected to bring the growth rates back to 6 and 7 percent and create tens of thousands of job opportunities for the Lebanese youth,” with investments supporting over 250 projects in sectors that include transport ($8.8 billion required in investments), water and irrigation ($4.9 billion), sewage ($2.6 billion), electricity ($5.6 billion), communications ($700 million), and tourism ($264 million). Many of these projects were previously discussed but never implemented or funded, including the development of periphery roads surrounding Beirut.

Hosted a month before the 2018 parliamentary elections, the CEDRE conference could reinstill faith, among voters, in those currently in power. However, receiving the pledged funds rests on the ability to meet promises of reform that the government has previously failed to meet.

The recent CEDRE conference is the fourth conference hosted since Paris I (2001) meant to bolster Lebanon’s economy, with the government setting strategies and making promises of modernizing the tax system. Paris II (2002) included promises of privatizing industries, paying debts, and cutting expenditures. Paris III (2007), which was hosted at a critical time of mass protests against the Fouad Siniora government and after the July 2006 War, was similarly accompanied by pledges of reform.

Lebanon did not receive the full amount pledged by the international community in both Paris II and III, because the government failed to implement the agreed-upon reforms. The increase in VAT from 10 to 12 percent initially promised in Paris I was never implemented, with a 1 percent increase finally being implemented in January 2018.

“We’re still investing mostly in nonproductive, non-sustainable projects which unfortunately will not give us the dynamic growth and increase in productivity in the economy that we require,” said Daou. “I think what we’re doing is repeating, over and over again, what we’ve done in Paris I, II, and III, but with a different name.”

Transparency and the Influence of International Powers

The government currently projects a $4.8 billion deficit for 2018, but the lack of publicly  accessible data makes it difficult to know exactly how bad Lebanon is faring financially. This lack of transparency projects into the Capital Infrastructure Plan, which provides a general overview of what can theoretically be done to improve different sectors, but never delivers accurate figures that are supported by data. CIP repeats promises made, but not upheld, by the Lebanese government since the 1990s and suffers from a lack of strategic planning.

Lebanon ranks among the top 50 most corrupt countries in the world. Without transparency and specific strategies, there is no guarantee, to international donors and local citizens, that the financial loans and grants are being effectively used for the development of the Lebanese infrastructure. Whose interests are served by the Capital Infrastructure Plan remains in question, especially when we consider that such larger investments also tighten the grip of international powers on Lebanon and risk leaving the country at their mercy.

Main investors at the CEDRE conference include the World Bank, which pledged a $4 billion loan across five years, and Saudi Arabia, which promised to renew a $1 billion line of credit. U.S. President Donald Trump, whose country pledged $115 million in grants, commended the progress made by the Lebanese government to strengthen the local economy and combat corruption. French President Emmanuel Macron, whose country opened the conference by announcing $673 million in loans and grants for Lebanon, highlighted the international community’s support for Lebanon as being crucial for preserving peace in the MENA region.

The Private Sector: A Double-Edged Sword

The Capital Investment Plan highlights the role of the private sector in financing and implementing infrastructure projects, with 40 percent of the projects expected to be financed by the private sector. Involving the profit-driven private sector could bypass slow bureaucratic processes and ensure a timely, cost-efficient implementation of projects that could benefit the government, the private sector itself, and Lebanese citizens.

The involvement also comes with risks. CIP also mentions the need for updated legal and regulatory policies with regards to Private Public Partnership (PPP). Without proper regulation and oversight, the government risks the exploitation of rights for the sake of profits and an unrepresentative standardization in services and projects that excludes the needs of low income families, minority groups, and those in rural areas, for lack of profit.

Additionally, politicians in Lebanon are also often involved in different businesses. Daou mentions the relevance of PPS, granted the right ecosystem.

“If the Private Public Partnerships end up being the same people on both sides, so politicians on one side and their cronies on the other, then there is no point,” said the candidate. “It’s as if we’re still fully-controlling the government through different tools that we have.”

Sustainable Alternatives

Aside from the risk of plunging the country further into debt, financial investments do not ensure a sustainable solution for the future. Implementing structural reforms, on the other hand, that combat corruption and bureaucracy will help slash public expenditures and generate profits in suffering industries like the Electricity sector.

The Madaniyya candidate highlighted the need to increase productivity, invest in research and development, increase e-government and automation to minimize waste and bureaucracy, and develop productive industries to reduce imports.

“I think the key for us to grow our economy is to invest in research institutes and create some productive sectors, especially in IT and communications and other new-age industries which can create quality jobs, as well as attract a lot of investments into the country,” said Daou.

Lebanon has no shortage of specialists across different sectors and fields, nor does the country lack in research institutes that can assess the needs of those sectors and generate strategies to better them. Provided with proper funding and support, these institutes can ensure the development of different economic sectors.