Lebanon political crisis threatens investment environment

Lebanon political crisis threatens investment environment

Lebanon is facing a deep political crisis. The inability of lawmakers to agree on a president to lead the country threatens Lebanon’s already fragile security environment and hinders its ability to boost a straggling economy.

Lebanon is in the midst of a daunting political crisis. In a recent Arab Index poll, 99% of Lebanese believe the current political situation is “very bad.” Since April 2014, parliament has met and failed fifteen times to elect a president, a post that has been left vacant since Michel Suleiman ended his term in May. A sixteenth round of discussions is scheduled for December 10, though differing visions of the nation’s future between political parties deem it unlikely that lawmakers will reach a consensus anytime soon.

Parliament’s failure to elect a head of state has larger repercussions on Lebanon’s security and economic environment. Without strong government leadership to make tough decisions, the country makes itself vulnerable to the Islamist violence that rages along its borders. It also reduces the government’s capacity to enact necessary political reforms needed to boost an already stagnant economy.

If Lebanon is to solve these intractable problems, the government needs to restore a sense of trust to its people by coming together and electing the nation’s next leader.

Lebanon’s politics paralysed – Reuters

Source – Reuters

Political deadlock

Lebanon’s constitution requires that parliament elect a new president before the outgoing head of state leaves. The president must be a Christian, and the only way for a candidate to win the majority required for office is if Lebanon’s two ruling coalition parties, the March 8 Alliance and March 14 Alliance, reach a consensus.

The problem is that both sides are currently deadlocked largely because of differing positions regarding the war in Syria. The March 8 Alliance (backed by Iran) largely supports Syrian President Bashar al-Assad, while the March 14 Alliance (backed by Saudi Arabia and other Western powers) supports the opposition fighting against Assad. So far neither party seems ready to endorse the same candidate.

As Hussein Kalout explains, such political impasse is “undermining the legitimacy of the constitution,” and without a sense of when the next legislative elections are to take place, there are few incentives for anyone, lawmakers and the general public, to take the government seriously.

Islamist violence   

The absence of strong leadership raises questions as to whether the government will be able to defend itself against spillover violence along its border with Syria.  Without a head of state to command and control the armed forces, organize funds for aid, and quickly respond to insider threats, Lebanon makes itself vulnerable to the same kind of violence that is destroying its neighbor Syria.

So far Lebanon’s armed forces have been successful in driving out Islamists militants in Arsal and Tripoli, but there is fear as to whether forces will be able to withstand additional bouts of violence. Army Chief General Jean Kahwaji voiced concern in an unusually direct and political speech published last week, saying that “Islamist militants who attacked parts of Lebanon this year could have drawn it into civil war…The election of a president would help institutions function and allow national life to return to its normal course.”

Moreover, by further postponing elections to 2017, the government runs the risk of fueling anti-government hatred by robbing citizens of their constitutional right vote. Lebanon’s political system is built on a delicate balance between the nation’s Sunnis, Christians, and Shiias, and failure to uphold the system could encourage religious cleavages to harden and intensify. Despair could give away to thoughts of alternatives, like turning to violence to create political conditions conducive to a group’s longer-term goals.

A dragging economy

In addition to security concerns, Lebanon’s political paralysis is hindering domestic economic progress. Economy and Trade Minister Alain Hakim tells Reuter’s Middle East Investment Summit that “… in the absence of a president and the absence of parliamentary elections and the absence of political continuity, we cannot predict more than 2 or 2.5% economic growth in 2015.”

Today, Lebanon is ranked 104 out of 186 states in the International Bank’s latest 2015 forecast of attractive environments for doing business. Politics is largely to blame for such shortcomings: without strong, organized government leadership to implement necessary political reforms to create conditions for economic growth, the higher the threshold for investors to overcome to do business in the country. The obsolescence of commercial laws, in other words, is preventing investors from easily accessing Lebanon’s markets.

Earlier this week, for example, the government halted all 2-D seismic onshore surveys for gas and oil in Lebanon because it did not approve the licensing rounds needed for companies to begin exploration. As one insider noted: “Why should they [companies] keep on spending money from their pockets if there is no real determination to launch the offshore gas licensing?” International firms believe Lebanon is sitting on a huge amount of gas and oil, but say they will not wait forever while authorities decide to extract the hidden wealth.

At the same time, Lebanon’s banking sector, the cornerstone of the country’s economy, has been undisturbed by political crisis and violence in Syria. A recent report by Bankdata Financial Services shows profits of Lebanon’s 14 largest banks have risen in 2014, 4.4 percent overall and 2.7 percent domestically. The country’s banking secrecy laws has always been attractive to foreign investors, allowing some to refer to Lebanon as the “Switzerland of the Middle East.” Historically banks have flourished even in times where conflict has swept the tiny nation. It is likely that Lebanon’s banking sector will continue to profit despite current political troubles.

Larger Regional Impact

Lebanon’s current political problems serve as a microcosm to larger regional tensions, underscoring the impact external patrons have on deciding who should be Lebanon’s next president. Iran, Saudi Arabia, and other Western powers all provide financial and military support to differing groups within the country, and many believe a political solution in Lebanon is not possible until regional rapprochement is reached.

In the meantime, protecting Lebanon’s borders from Islamist violence along with tough economic reform will need to be prioritized to prevent further internal turmoil. The road ahead will be tough for Lebanon, electing a president to lead the people is an important first step to avoiding impending security and economic woes.

About Author

Madeleine Moreau

Madeleine Moreau is the GRI Senior Commissioning Editor and a Senior Analyst currently based in Beirut, Lebanon. She specializes in investment risk and opportunity in the Middle East and has previously lived in Jordan and Morocco. Her work and insight have appeared in several leading publications, including Business Insider, TechCrunch, Oilprice.com, The Atlantic Council, Yahoo News and OZY. She holds a Bachelor’s degree in Political Science and Arabic from Middlebury College.