No longer a ‘cash cow’, Saudi squeezes Lebanon’s ruined economic system

Beirut, Lebanon – It is shut to 2 weeks since Saudi Arabia declared an all-out ban on imported items from Lebanon after it got here to mild {that a} minor Lebanese minister had criticised the dominion over the civil battle in Yemen.

Though the feedback have been made earlier than the minister took workplace, for Lebanon, the timing couldn’t be extra painful. Cash-strapped and sinking deeper right into a two-year-old financial disaster, the import ban by the richest economic system within the Arab world is kicking Lebanon’s tiny, embattled economic system when it’s already hopelessly down.

“The current ban from Saudi Arabia has now directly hit around $250m worth of exports. That’s huge for Lebanon. That’s a lot for Lebanon,” stated Paul Abi Nasr, CEO of Polytextile and a board member of the Association of Lebanese Industrialists. “Look, to be very clear, on an industrial level this is a huge thing,” he informed Al Jazeera.

Prior to the Saudi ban, Abi Nasr says that exports to Saudi Arabia have been anticipated to double in 2022. “We were starting to take advantage of the Saudi ban on Turkish products – they are very big competitors,” he defined. “Our target for 2022 was to move to $500m in exports to Saudi Arabia.”

On an industrial degree it is a enormous factor

Paul Abi Nasr, CEO, Polytextile

Lebanon continues to spiral ever downwards into an financial abyss it first tumbled into again in 2019.  Over the previous two years, the Lebanese pound has misplaced round 90 p.c of its worth.  Almost three-quarters of the nation’s inhabitants now lives in poverty. The nation’s banks are on the ropes as a consequence of a scarcity of US {dollars} – successfully wiping out the financial savings of tens of millions of individuals –  whereas Lebanon’s as soon as buzzing tourism business struggles from skyrocketing overhead prices and an absence of COVID-wary clientele.

From thaw to frosty

Relations between Lebanon and Saudi Arabia had thawed over the previous half-decade, particularly following the 2016 election of Lebanese President Michel Aoun, who’s allied to Iran-backed Hezbollah.

Riyadh as soon as invested billions of {dollars} into the nation and bolstered its luxurious tourism economic system.  Before Lebanon’s monetary disaster took maintain, former Prime Minister Saad Hariri stated he had been in talks with Saudi Arabia and the United Arab Emirates to fund nearly two dozen growth initiatives in Lebanon.

Now, a brand new diplomatic row – sparked by feedback made by Information Minister George Kordahi in regards to the battle in Yemen throughout an interview a month earlier than his appointment – has additional strained ties.

After the feedback have been reported, the response from the Gulf was swift. Saudi Arabia, the UAE, Kuwait, and Bahrain recalled their envoys from Beirut, and banished Lebanese ambassadors. Bahrain and the UAE have known as on their residents to go away Lebanon. Yemen has additionally since recalled its envoy from Beirut.

On November 5, the pinnacle of the Council of Saudi Chambers, the federation of the dominion’s 26 chambers of commerce and business, took to Twitter to name on all Saudi “companies and businessmen to stop all dealings with Lebanon”.

The latest blanket ban marks an escalation of pressure that took root in April, when Saudi Arabia applied an indefinite, focused ban on Lebanese produce and agricultural merchandise after foiling an try and smuggle 5.three million drugs of the unlawful amphetamine Captagon that had been hidden in a cargo of pomegranates at Jeddah port.

At the time, the Saudi ambassador to Lebanon, Waleed Bukhari, tweeted that the dominion had discovered greater than 57 million illicit narcotic substances smuggled from Lebanon because the starting of 2020.

From commerce hub to marginalised

Some specialists now fear that the UAE, Kuwait, and Bahrain would possibly observe Saudi’s lead and implement comparable blanket import bans on Lebanese merchandise.

“That would account for about half of our total revenues from exports,” Nizar Ghanem, director of analysis and co-founder of Beirut-based researcher centre Triangle informed Al Jazeera. “I think it’s definitely a legitimate concern.”

Meanwhile, in Riyadh, Lebanese businessmen say the strain has made working more difficult. “We don’t feel comfortable to be in the middle of this crisis,” Rabih El-Amine, chairman of the Lebanese Executive Council in Riyadh informed Al Jazeera.  “Yes we’re operating sort of normally, but it’s not easy.”

Lebanese industrialists have tried to avoid the Saudi ban by exporting from different international locations the place they’ve operations, together with Egypt and the UAE. But that workaround eats into revenues that will in any other case be collected by Lebanon’s authorities.

The import ban additionally locations the prospects for Lebanon’s lengthy elusive financial restoration even farther from reach.

We’ve change into the marginalised place

Nizar Ghanem, Triangle

Since the tip of its civil battle in 1990, the majority of Lebanon’s financial exercise has been concentrated in banking, tourism and actual property, whereas extra productive sectors have did not thrive. The authorities desires to diversify the nation’s economic system and improve income from exports. But it now faces obstacles from a few of its most essential export markets.

At the identical time, Ghanem stated Lebanon is dropping main financial alternatives, whereas enterprise is flourishing within the area.

“With everything happening with Gulf, Egypt, and Israel – there is a full trade zone blooming – and Lebanon is completely out of it,” Ghanem informed Al Jazeera. “Historically, Lebanon was the trade hub that connected the Arab world. Now, we’ve become the marginalised place, with militias, collapsing rule of law and a massive financial crisis”

Ghanem and others fear that Saudi Arabia and different Gulf international locations may squeeze Lebanon even additional by freezing or limiting monetary flows.

Lebanon for years has relied on remittances from tens of millions of expatriates living in its diaspora, particularly within the Gulf, to replenish onerous foreign money. Some 43 p.c of remittances come from the Gulf, in line with the World Bank.

Now, that very important lifeline for Lebanon’s ailing economic system might be in jeopardy.  El-Amine describes remittances because the “last artery to Lebanon’s body”.

A political drawback

“We consider that these actions are too broad and they affect everyone instead only those they have an issue with,” stated CEO Abi Nasr. “[But] we understand why they would take such actions, even though for us it’s too much.”

Abi Nasr and El-Amine each imagine that Lebanon has not completed sufficient to handle the safety and political points Saudi Arabia has raised.

The kingdom and different Gulf international locations for instance have expressed issues about illicit medication smuggled to their international locations through Lebanon.  They have additionally expressed issues about Hezbollah’s rising affect within the area. The Iran-backed political social gathering has change into a serious army participant in Syria, Iraq and Yemen, the place it backs Houthi rebels in opposition to a Saudi-led coalition.

“Saudi Arabia told us they have no problem with the private sector, but as a country, they can only deal with the government of Lebanon,” Abi Nasr stated. “The Lebanese government did not take action – they thought time would fix it.”

The Lebanese authorities final spring vowed to deal with drug smuggling extra aggressively. They have since foiled a number of smuggling makes an attempt from the Beirut port to ship tonnes of Captagon and cannabis to Saudi Arabia, Greece and a handful of different international locations.

the Gulf international locations are saying we’re not the money cow anymore

Nizar Ghanem, Triangle

But that has not been sufficient to assuage Riyadh’s political issues.

Lebanon had lengthy managed to stroll a tightrope on Saudi-Iran tensions, successfully side-stepping regional crises to keep up financial stability. But researcher Ghanem stated present financial and political realities make that balancing act not possible.

“In the past, you could have just dealt with a paralysed government for years because we have the [US dollar] peg to the lira, and the inflow of money coming through remittances,” he stated. “Now we’re completely bankrupt, and there needs to be a complete reinvention of Lebanon’s foreign policy and economic model, but the political class doesn’t seem to see that.”

Ghanem says the position of Hezbollah within the area, particularly in Yemen, and its unfavourable discourse in opposition to Gulf international locations has additional exacerbated the scenario.

“This is what the Gulf countries are saying: we’re not the cash cow anymore, you can’t get free money from us anymore” he defined. “You cannot disconnect this from our political stance in the region.”

The Lebanese authorities has not met in almost a month, as a consequence of squabbles over Beirut port blast investigator Judge Tarek Bitar, in addition to disagreement over the Kordahi incident. Hezbollah and a few of its allies have praised Kordahi’s feedback, whereas Prime Minister Najib Mikati and President Aoun have hinted that he ought to resign.

The Lebanese authorities has known as for dialogue with Saudi Arabia, with the Arab League making an attempt to mediate.

“We hope this crisis would end, but unfortunately the Lebanese authorities are living in a different world,” El-Amine says. “We can’t play two-face anymore where we have a country and government, but also six or seven political parties that do their own thing. This won’t work anymore with the GCC or any country in the world.”

Abi Nasr and different industrialists have urged the Lebanese authorities to rapidly restore ties, however he doesn’t sound optimistic.  “The government told us that it’s in the process of being fixed. What does that mean? I have no clue.”