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The Center of International Private Enterprise (CIPE) recently convened the CEO of LIMS, Dr. Patrick Mardini, for a roundtable discussion and a podcast on Lebanon's economic landscape, for the second consecutive year. Dr. Mardini started by reflecting on the previous year's meeting, where the focus centered on the alarming currency instability in Lebanon, witnessing the Lebanese pound's decline by over 95%. During that juncture, LIMS championed the establishment of a currency board as a stabilizing mechanism. A year on, there is a notable turnaround—the Lebanese pound has achieved a sustained period of stability, albeit without the implementation of a formal currency board. The central bank's operations, however, have emulated the principles of such a board. Concurrently, Lebanon went through an L-shaped recession, with the economy poised to stabilize at a contracted output level, contingent on the containment of spillover effects from the Gaza conflict. Yet, the looming threat of a larger conflict remains, casting a shadow over prospects of further economic decline.
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The dialogue then pivoted to the critical issue of the government's faltering provision of basic services, particularly in electricity and waste management—an issue reverberating through the local economy. The exorbitant cost of electricity is impacting vital sectors such as industry, agriculture, schools, and tourism, all reliant on a dependable power supply. Simultaneously, a burgeoning waste crisis, evidenced by nearing capacity landfills and visible garbage on the streets, poses a significant challenge for the commercial sector and tourism dependent on foot traffic. In response, LIMS initiated the PRISM project (Private Initiatives to Service Municipalities), gathering municipal leaders and the business community to craft innovative solutions for service delivery.
LIMS proposed the adoption of the user-payer model that envisions the private sector establishing solar farms and waste treatment facilities. Replicating the success of the Toula experience, solar farms enable the sale of electricity to end-users at a 50% reduced cost and ensure a continuous 24-hour power supply when coupled with private generators. Similarly, sustainable waste management could be achieved if the private sector spearheaded garbage collection and recycling, with end-users covering the associated service costs.
To advocate for these reforms, LIMS orchestrated three town hall meetings in collaboration with chambers of commerce in different regions of Lebanon. These gatherings served as a nexus for municipal leaders, businesses, citizens, and parliamentarians. LIMS policy analyst illuminated the potential for private sector and municipal collaboration, citing existing legal frameworks such as the Electricity Law of 2002 and the Law of 2018 on Public-Private Partnerships. However, bureaucratic hurdles in obtaining authorization necessitate a streamlined legal framework.
Municipal leaders and businesses exhibited enthusiasm for collaboration, with parliamentarians pledging to facilitate legislative changes that would expedite private sector involvement in local renewable electricity and waste management. Simultaneously, LIMS launched a media campaign amplifying the significance of private sector engagement in municipal service delivery. Together, these concerted efforts aim to forge a path towards a more resilient, sustainable, and efficient future for Lebanon's municipal services.
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Empowering Lebanon's Electricity: PRISM Advocates for Distributed Energy Solutions
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Over the past decade, Lebanon's electricity sector has floundered despite successive government initiatives pledging transformative reforms. The National Electricity Company (Electricité du Liban - EDL) finds itself constrained, incapable of delivering more than a mere four hours of electricity per day. The Ministry of Energy and Water consistently attributes this shortfall to a lack of funds, perpetuating a narrative that justifies channeling additional public resources into the sector. In its latest policy maneuver, the government increased utility bills under the pretext of acquiring more fuel, yet this strategy failed to translate into an ameliorated power supply. Instead, power outages have intensified, exerting a profound impact on the daily lives and operations of citizens, institutions, and businesses across diverse sectors, significantly escalating overall operational costs.
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LIMS clarified that EDL is incapable of augmenting production, enhancing distribution, or efficaciously collecting outstanding bills, thereby incurring substantial financial losses that burden the public treasury. Consequently, LIMS’ current PRISM project (Private Initiatives to Service Municipalities) advocates for a departure from government interference in the electricity sector, proposing a pivot toward private-sector-led solutions. In response to the prevailing economic crisis, citizens have begun adopting solar panels as a means of reducing dependence on the state. The success of individual solar power adoption serves as a potential harbinger for more efficient entrepreneurial solutions, such as the establishment of solar farms at the municipal level, capitalizing on economies of scale.
LIMS emphasizes that involving the private sector in renewable energy projects at the local level could not only redound to the benefit of the local economy but also alleviate the financial strain on businesses grappling with exorbitant electricity bills in exchange for an unreliable supply. In light of this, financially strapped municipalities are urged to transition to a user payment model, wherein private companies offering energy services charge end users directly. This trend towards decentralized electricity production and distribution should exert sufficient pressure on the parliament to streamline the law and enact legislative proposals conducive to a more sustainable and distributed energy landscape.
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War in Gaza Raising Concerns on the Lebanese Economy
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The evolving security situation of the ongoing conflict in Gaza have reverberated across the Lebanese-Israeli borders, precipitating the displacement of approximately 30,000 residents in southern Lebanon and 80,000 in northern Israel. This development unfolds against the backdrop of Lebanon grappling with an unprecedented and protracted economic crisis spanning the last four years.
LIMS has sounded a cautionary note on the immediate economic fallout from the conflict, with a specific focus on its impact on the pivotal tourism sector, especially during the holiday season. Since the onset of hostilities, inbound flights to Lebanon have witnessed a sharp 33% decline, juxtaposed against a 28% upswing in outbound flights. Hotel occupancy rates languish below 10%. Projections suggest a potential 10% to 30% contraction in Lebanon's tourism sector, translating to a 10% dip in the GDP. These figures depict a stark hypothetical economic downturn. As if compounding these challenges, investors, who had shown renewed interest in Lebanon as the crisis appeared to abate, are now reevaluating their plans in light of the resurging security instability.
Beyond the impact on businesses and investments, the wider conflict scenario propels individuals towards hoarding foreign currencies, shedding the Lebanese pound in favor of more stable reserves like the US dollar. This surge in demand for foreign currencies exerts additional pressure on the exchange rate of the Lebanese pound and foreign exchange reserves.
LIMS underscores that the current stability in the currency is attributable to the central bank's (Banque du Liban - BdL) decision to refrain from financing the government deficit, thereby curbing the expansion of the money supply. However, BdL confronts a challenge in sustaining this stability as capital flight spurred by regional conflict necessitates a contraction in money supply.
Compounding these challenges is the staggering fiscal deficit faced by the state. Revenue shrinkage resulting from the recession and administrative closures leave borrowing from BdL as the solitary recourse to bridge this fiscal chasm. Amid this precarious landscape, there exists considerable uncertainty regarding whether the central bank will alter its stance on monetizing the deficit. These factors intensify pressure on the Lebanese pound, casting uncertainty on the duration of the current stability.
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Revamping Mechanical Inspections in Lebanon: Catalyzing Competition to Improve Efficiency
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The mandatory vehicle inspection process in Lebanon, requires drivers to visit one of the four designated inspection centers annually. After a history of flawed tenders in contracting the management of the inspection centers, the Ministry of Interior commendably initiated a new tender on August 31, 2023 in accordance with public procurement regulations.
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LIMS, operating within the framework of the APPLE C program (Apply Public Procurement Law to End Corruption), underscores the significance of this tender as the first genuinely competitive bidding process for the management of vehicle inspection centers. Notably, it encourages the involvement of small and medium enterprises by imposing reasonable criteria such as relevant experience and a minimum financial guarantee.
However, LIMS highlights the inherent limitations of this approach, particularly its confinement of the mechanical inspection process to the existing four centers. Whether monopolized by a single entity or divided among multiple operators, this setup fails to adequately serve the population, resulting in long queues, extended waiting times, and increased costs for drivers residing in remote areas.
LIMS advocates for a departure from the exclusive awarding of rights to the four centers through tenders. Instead, the institute suggests issuing licenses for vehicle inspection purposes to the myriad repair shops scattered across every corner of Lebanon. This innovative approach would empower drivers to choose from a diverse array of mechanical inspection providers, fostering genuine competition in the market. The potential proliferation of inspection centers, potentially numbering in the hundreds, would break free from monopolistic constraints, streamline processes for citizens, and simultaneously enhance governmental income.
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References
LIMS Media Interviews
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LIMS Addresses Lebanon's Economy and Municipal Solutions at CIPE Event
- The Current Economic Situation in Lebanon: Catching Up with Dr. Patrick Mardini, One Year Later, December 7, 2023: CIPE, Interview EN
Empowering Lebanon's Electricity: PRISM Advocates for Distributed Energy Solutions
- Electricity Under The Guardianship Of Municipalities: Ending The Ministry Of Energy And Its Projects? November 14, 2023: Al Modon, Article AR
War in Gaza Raising Concerns on the Lebanese Economy
- With The Escalation Of The Conflict … Can Lebanon's Economy Bear An Official Entry Into The War? November 2, 2023: Al Arbiya, Article AR
- Are There Repercussions Of Gaza-Israel War On Lebanon's Economy? November 2, 2023: Al Jadeed, TV Interview AR
- Growing Concerns About The Reserves After The Loss Of Tourism Dollars! November 7, 2023: Leb Economy, Article AR
- The Country Today Faces Very Difficult Choices, November 27, 2023: El Marada, Article AR
- Why Does The Closure Of Government Departments Pose An Obstacle To Revitalizing Economic Activity? November 27, 2023: Leb Economy, Article AR
- What Role Does The Central Bank Play In Financial Stability And Balance? November 27, 2023: VDL, Radio Interview AR
- Dr. Mardini To 'Al Hadath Online': This Is The Way To Unify Exchange Rates, November 30, 2023: Hadath Online, Article AR
- This Could Be A Severe Blow To Lebanon! November 30, 2023: Lebanon Debate, Article AR
Revamping Mechanical Inspections in Lebanon: Catalyzing Competition to Improve Efficiency
- Failure To Set A Date For The Mechanical Tender Raises Suspicion... Will It Be Detailed According To Standard? Al-Aliyah To An-Nahar: I Will Review The Amendments To The Terms And Conditions Book, And My Confidence In Minister Mawlawi Is Great, November 4, 2023: Annahar, Article AR
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