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Lebanon’s Hollow but Resilient Economy

Despite a paralyzed government, the collapse of the banking system and war in the south, Lebanon’s private sector finds a way to carry on

By: /
11 April, 2024
Angry bank depositors set fires outside the Lebanese Central Bank in Beirut. Photo: Fin De Pencier.
Fin DePencier
By: Fin DePencier
Journalist, photographer and filmmaker

After three extended trips to Lebanon as a journalist, I’ve learned there’s a certain kind of friend you need to have here. They are the ones who can navigate you safely around a roadblock, or who instinctively know the right guy to bribe. They get things done, when doing so might seem impossible. 

The Lebanese have a word for this kind of everyday corruption and street-smarts: Harbookh. 

“Shou fal Harbou2!” (This person is such a Harbookh).

If you’re here for long enough, you’ll also need to develop this skillset, especially if you’re doing business. These are the survival instincts necessary to thrive in a failed state. 

In 2019, the Lebanese banking system collapsed under the weight of unsustainable levels of public debt and endemic corruption. In response, authorities restricted depositor’s access to their savings, sparking months of riots in what was dubbed the October revolution. Tens of billions in deposits have been frozen since and may never be recovered. 

A few weeks ago, dozens of angry depositors launched fireworks and set fires outside the Lebanese Central Bank in Beirut. Thousands used to attend these demonstrations, but most have given up on recovering their savings. 

Giving up isn’t an option for Saeed Zwayhed, who was out chanting that day. He had been saving for decades and was getting ready to retire but lost $700,000 USD in the banks. 

“Many people say the money has already evaporated. But we know that money cannot evaporate, it was transferred between accounts,” he said. 

“The politicians managed to take their money out of Lebanon: To Europe, Canada, the United States. Some of them took physical cash, so nobody knows the true story of their deposits.”

After the banks collapsed, the Lebanese lira spiralled into hyperinflation. Before the crisis, the Lira was pegged at a rate of 1,500 to one US dollar. It now trades on the black market at 89,000. With a defunct financial sector, the Lebanese economy is now almost totally cash-based.  One major exception is in areas controlled by Hezbollah, the Shia Islamist political party and Canadian-designated terrorist organization. Hezbollah has its own banking sector — and governance system — that is still solid, unlike the central government.

The government has been bankrupt ever since the crisis, but its rules and regulations still exist. I arrived in Lebanon in late February to report on the ongoing conflict between Hezbollah and Israel. To receive press accreditation, my colleagues and I first had to visit the Ministry of Information in Beirut. The first two floors had no electricity, desks had been flipped over and detritus was scattered around the rooms. It looked more like a haunted house than an official government building. 

After finding the office and getting our letters, we were forwarded to a new bureaucrat who made us wire $50 to the army if we wanted to report in the south. Next, we were directed to military intelligence in Saida. This amounted to having a guy in sandals print us out a permission slip that looked like a coupon. My colleagues were given one permission slip between the two of them. 

Naturally, none of this was really necessary, as we ended up meeting a Harbookh with friends in Hezbollah who proved just as or more valuable than any official permission.  He acted as our liaison with the alternative governing structure in southern Lebanon run by Hezbollah, something that no one in the official government would do for us. 

Now imagine trying to obtain a much more complicated set of permissions, like for the construction of a factory. A functioning government might take several months reviewing your paperwork. In Lebanon, forget about it. 

Hagop Panossian’s family has been waiting for the government to approve their construction project for almost two years now. No luck. Panossian is a professor of management at the American University of Beirut (AUB), one of the most prestigious universities in the Middle East. I sat down with him on the glistening campus in downtown Beirut. 

According to Panossian, Lebanon’s private sector could survive any crisis, despite the sclerosis and dysfunction of government.

“Lebanon’s private sector has gotten used to not relying on the government for services, and the government has gotten used to not receiving many tax dollars from the private sector,” he said.

That mutual neglect precedes the crisis in 2019. 

“Most Lebanese companies have always had two sets of books: one for themselves and one for the government.” 

With no money going through the banking system, and little cooperation between the government and private sector, it’s difficult to know exactly what’s going on in the Lebanese economy. But on the consumer side, “when you see how people are spending, clearly there is a lot of cash around,” Panossian said. 

But a high circulation of cash doesn’t necessarily mean a high degree of domestic production. Lebanon has a diaspora at least as large as its native population of four million people, according to the Khayrallah Center for Lebanese Diaspora Studies. Some estimates peg the diaspora as large as 14 million. 

In Canada alone, there are somewhere between 200,000 to 400,000 Lebanese expatriates, according to the federal government

This diaspora has been essential for injecting cash into the economy. According to the World Economic Forum, Lebanon received $6.8 billion USD in remittances in 2022, accounting for 38% of Lebanon’s GDP. 

“Almost every single family in Lebanon has 1-2 members working outside the country, primarily in the Gulf”, Panossian says. 

The brightest young minds in Lebanon — AUB graduates — don’t find jobs in Lebanon, unless their family already has an established business. Instead, they find work in the Gulf, and then send remittances back home to their parents who paid for the degree.

Sana Awar graduated from AUB in 2021 with a BA in computer and communications engineering. Almost all her friends left Lebanon, but Sana was determined to build a life in her precious home. She works for MultiLane, a Lebanese firm that manufactures hardware for the data centre industry. 

“Most of our business is in the U.S., with some in Europe and South-east Asia. But we have no business in Lebanon,” she said. 

Firms in Lebanon who have access to a reliable export market are still safe, according to Panossian.

“But if you’re exporting, the money doesn’t come back to Lebanon. Businesses have their bank accounts outside the country. In other words, you spend money in Lebanon to cover your costs, but the revenues stay in other countries,” he said. 

Sana’s father works in Saudi Arabia. Her uncle is based in Lebanon, but does his business in Nigeria and Iraq. 

“All my friends have a father in Qatar or Saudi, at least they go and come back. It’s very rare for a Lebanese family to be content with income from just inside Lebanon.”

The Lebanese are naturals in business, but they have two very distinct ways of doing it, Sana says: Legally outside Lebanon, illegally inside. 

At one point in the crisis, Lebanon had the most expensive gasoline of any country on earth. That was partly due to a fuel smuggling racket, whereby Hezbollah would purchase fuel at a Lebanese central bank subsided rate, and then sell it to the regime in Syria at a premium. 

There’s also an electricity crisis, which peaked in 2021 but is still ongoing. Indeed, almost everyone in Lebanon still relies on two separate electricity sources: one from the state power grid, and one from a private generator company. 

“You’d have two main generators in a neighbourhood, and the owners would collude to fix their prices, making it ridiculously expensive,” Sana said. 

When the government tried to fix the state grid and return to providing 24-hour electricity, a lobby of private generator companies successfully fought to prevent it from being fixed, according to Dr. Sarkis Khoury.

In this zero-sum game of Lebanese politics and economics, the only way to win is with a Harbookh mindset. You must skim off the top, call in a favour, or bend the truth wherever you can. And as the average citizen in Lebanon knows full well, change is not on the horizon.

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