Refugees Could Help Solve Lebanon’s Economic Crisis

Lebanon is teetering on the edge of total economic collapse. Its currency has lost over 80 percent of its value over the past nine months, power cuts have forced hospitals to turn off air conditioning, and experts are warning of a potential famine. Protests erupted across the country last October, railing against years of corrupt confessional politics and economic malfeasance, and they continue today. Protestors seem to be motivated by a broadly shared, nonsectarian consensus that political, economic, and sectarian elites (often the same people) are not only benefiting from their positions of power but destroying the economy in the process.

Some Lebanese politicians blame Syrian refugees for Lebanon’s struggles, claiming that Syrians undercut Lebanese workers and take their jobs. These politicians are wrong. Refugees are not responsible for Lebanon’s crisis, in fact, they are a promising way out of it. It is long past time for Lebanese policymakers to see the forcibly displaced not just as burdens on society, but as opportunities for broad-based and inclusive economic growth. International policymakers should push the Lebanese government to allow refugees to work, harnessing their potential, enabling them to provide for themselves, and stimulating a much-needed injection of new funds into the country.

The Lebanese government is hoping a bailout from the International Monetary Fund will save it. But even after receiving a bailout, Lebanon will need to rethink the foundations of its economy and how it treats its citizens and displaced communities. Funding gaps for the Syrian refugee response in Lebanon widen each year, and there are no signs that refugees will return to Syria any time soon. As support from international donors begins to decline, private sector actors could emerge as useful partners. If Lebanese policymakers create an enabling environment, support the resilience of small- and medium-sized enterprises, and allow refugees to work, international enterprises could engage more in Lebanon once it emerges from crisis and uncover opportunities that benefit vulnerable Lebanese and refugees alike.

The private sector can contribute to solutions to these crises in several ways. First, investing in displaced and vulnerable Lebanese communities would stimulate job growth, create opportunities for refugee and host communities alike, and inject new capital into the Lebanese economy. Second, as the collapse of the Lebanese pound renders many imported foods unaffordable, refugees could bolster Lebanon’s domestic food production sector, helping combat food insecurity. Third, the weakening exchange rate will encourage Lebanese exports, and Syrians are well placed to boost the manufacturing sector.

Attract Foreign Investment

When the Covid-19 pandemic spread to Lebanon, the government tried to protect Lebanese workers by placing even more severe restrictions on Syrian refugees’ ability to work. But allowing refugees to work is an important step for Lebanon to attract foreign investment and boost its economy.

After the pandemic-induced global economic downturn, emerging markets will become more attractive to private investors, and the availability of cheap labor could serve as a boon. A more enabling environment for private sector growth would enable investors to capitalize on the availability of skilled and unskilled labor among displaced populations in Lebanon to boost sectors that are not competitive with the Lebanese workforce. Enabling private sector investment would also boost the employment of Lebanese workers who are suffering. Dr. Nasser Yassin from the American University of Beirut estimates the economic meltdown will force 80 percent of Lebanese to live on $3.60 or less a day. Host and displaced communities must both benefit from investment to stimulate employment and income generation to avoid communal tension.

Research consistently shows that refugees are net contributors to economic growth in the long term if they are permitted to work. They often have skills and experiences that make them particularly entrepreneurial . Business owners state that forced migrants are typically more reliable and stay longer at the company, and they have fewer complaints in general. Because investment in displaced communities has social impact, it could bring enterprises reputational benefits and boost their brand loyalty.

Allowing private enterprises to hire Syrian refugees and invest more in Lebanon would bring a much-needed injection of capital. Lebanese policymakers should encourage private investment in sectors with comparative advantage for growth and export potential to contribute to longer-term solutions to Lebanon’s problems. Such sectors include food production and manufacturing.

Enhance Food Security

The economic crisis and the Covid-19 pandemic combined to dramatically increase food insecurity in Lebanon. Many imported foods—which Lebanon relies on for up to 80 percent of the country’s food needs—have become prohibitively expensive as the pound collapsed and Lebanon’s foreign currency reserves dwindled. The price of a food basket rose 56 percent from September 2019 to April 2020. The prospect of widespread shortages in supermarkets is growing.

The Lebanese government should facilitate private investment in the food production sector. This sector has significant potential—Lebanon’s microclimates are well suited to cultivating an array of staple and cash crops. The agricultural sector is also capable of absorbing more refugees. Syrians have a long history of working in agriculture back home and in Lebanon, and the sector is highly reliant on cheap labor. Because agriculture is not a competitive sector for many Lebanese workers, it is one of few sectors in which the Lebanese government has permitted Syrians to work and is less likely to increase intercommunal tensions.

International donors and nongovernmental organizations have invested heavily in Lebanon’s agriculture sector, in particular creating programs that support refugee and host community livelihoods. But as aid becomes more stretched, the private sector will need to take on a greater role. Allowing refugees to harvest food will not only help protect against the rising threat of food insecurity, but could also produce jobs for Lebanese and profitable goods for export.

Boost Exports

The collapse of the pound provides an opportunity for Lebanon to increase its exports. Lebanon could gain market share as its exports (which primarily consist of precious stones and metals, machinery, and prepared foodstuffs) will be comparatively less expensive than goods priced in stronger currencies. Increased sales could boost economic growth and jobs while also increasing profits for private enterprises.

Lebanon’s manufacturing industry has stagnated for years, in part because the government pegged the pound to the U.S. dollar. Lebanon’s exports became less competitive abroad, and the manufacturing industry suffered as a result. The Syrian crisis has decimated Lebanon’s primary market for exports, and the new Caesar Act sanctions on Syria risk further deterring trade.

Once Covid-19 restrictions are lifted, factories reopen, and economic activity resumes, export-oriented companies will gain a boost. Syrian refugees are well placed to play a pivotal role in expanding Lebanon’s agricultural exports but should also be permitted to contribute to other industries—like manufacturing—to increase exports.

Policymakers’ Role

Lebanese citizens will pressure their government to prioritize their needs during this unprecedented crisis. They are right to do so. Their needs are legitimate, and policymakers should do what they can to address them with immediate assistance. Displaced communities will also continue to need unconditional cash transfers and food assistance.

But a reconfiguration of the Lebanese economy is an opportunity to facilitate private sector engagement with refugees and their host communities. International policymakers should encourage the Lebanese government to adopt new approaches to refugees that would benefit host communities and displaced communities in tandem. Over the coming few years, international aid must shift from short-term emergency assistance to longer-term investments that complement private sector interventions.

Given the right set of governance and innovation, there may be a window of opportunity to encourage greater private sector investment that could spur economic growth and job creation during and after Lebanon’s dual displacement and economic crises. Refugees are well placed to both fuel this growth and benefit from it.

Will Todman is an associate fellow in the Middle East Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Erol Yayboke is deputy director and senior fellow with the CSIS Project on Prosperity and Development.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Erol Yayboke
Director, Project on Fragility and Mobility and Senior Fellow, International Security Program