When French President Emmanuel Macron set out an ambitious road map to save Lebanon from economic collapse and rebuild Beirut after a deadly blast last year, the first step he required from politicians was to form a government capable of enacting reforms.
Such a move would have granted Lebanon access to billions of dollars in debt relief, loans and other projects at a time of severe financial crisis.
More than a year later, Lebanon’s fragmented political parties have finally agreed on a Cabinet headed by three-time Prime Minister Najib Mikati.
But 13 months of stalling as politicians squabbled for ministerial portfolios eroded the international community’s trust in the country’s leadership as the economic crisis worsened.
Economic collapse has devalued the local currency, pushed more than 70 per cent of the population into poverty and created shortages of subsidised goods such as fuel and medicine, which are imported using scarce US dollars.
Experts and diplomats have told The National they are cautiously optimistic about the new government and will be closely monitoring its actions in the coming weeks.
“What's expected from this government is very simple: holding proper elections on time and engaging with the IMF, because it’s the only way out of the crisis,” said Sami Nader, director of the Levant Institute for Strategic Affairs think tank.
The International Monetary Fund said a rescue package would be based upon political reform.
Mr Mikati on Friday pledged to hold the scheduled 2022 parliamentary elections on time. Lebanon’s last elections, held in 2018, had been postponed for five years.
IMF negotiations
A view of Lebanon's capital, Beirut, with the lights on only in some buildings. Lebanese rely on highly polluting diesel generators run by private neighbourhood operators to make up for shortfalls in electricity supply from the state utility. EPA
A fisherman uses a headlamp at the seaside corniche in Beirut, Lebanon. EPA
A vendor sells LED balloons in full darkness at the corniche in Beirut. EPA
The near collapse of the national grid has increased the duration of power cuts across Lebanon. EPA
Residents of Beirut are experiencing power cuts of up to 20 hours a day. EPA
Diplomatic sources and other experts have also told The National that the priority for the government should be restarting negotiations with the IMF.
The previous government had launched talks last year to secure a programme that would lift the country out of crisis after Lebanon defaulted for the first time on its debt.
Deliberations broke down when the government, Parliament and central bank quarrelled over the numbers of the bank’s losses.
“Whatever they do, the most important thing is that the ministers agree on an economic plan,” Mr Nader said, pointing out that when negotiations crashed last year, the government itself was split on the matter.
To secure an IMF programme, Lebanon would need to make sweeping reforms that have been demanded by international lenders and western countries for years.
These include overhauling a bloated public sector — starting with the country’s bankrupt public electricity company. Electricite du Liban's budget takes up roughly a quarter of Lebanon's annual public debt, yet the country has not had 24-hour electricity in 30 years.
Other reforms include tackling corruption and a forensic audit of the central bank.
While the new finance minister signed a new audit contract this week, a previous attempt last year ended in failure.
The central bank refused to provide restructuring consultancy Alvarez & Marsal with the proper paperwork to conduct the audit, citing banking secrecy concerns.
The new government’s economic team has a background close to the IMF and World Bank, which is a positive sign, a Middle Eastern diplomatic source told The National.
“But the political decision-making process is controlled by Hezbollah,” they said.
People wave Hezbollah flags as a convoy of tankers carrying Iranian fuel oil arrive in Baalbeck, Lebanon. Reuters
Dozens of tankers carrying Iranian fuel and transported by the Shiite Hezbollah movement, arrived from Syria in Lebanon, which is in the grip of severe fuel shortages. AFP
Hezbollah supporters cheer and fire guns into the air. Reuters
Hezbollah says the arrival of the fuel will ease Lebanon's crippling energy crisis. Reuters
Fuel importers say the shipment will last only three days. AFP
The delivery breaches US sanctions imposed on Tehran after former president Donald Trump pulled America out of a nuclear deal between Iran and world powers three years ago. AP Photo
Hezbollah supporters with placards in Arabic that read "Thank you Iran," right, and "Thank you Syria." AP Photo
Hezbollah supporters with posters of the Shiite movement's leader Hassan Nasrallah as they gather to welcome tankers carrying Iranian fuel. AFP
The Iran-backed group, which wields significant power in Lebanon, has previously said it will not oppose an IMF package. But Hezbollah generally opposes austerity measures and any plans backed by the US.
“This shall create challenges for the government and the Lebanese people don't have the luxury of time,” the diplomatic source said.
One of the early jobs for the government is to update its financial recovery plan and go to the negotiating table with the IMF armed with unified numbers for the banking sector's losses.
Any real steps taken with the IMF, World Bank and creditors will give positive impressions regionally and internationally, the source said
“Donors have always expressed their readiness to support when such steps are taken.”
The Lebanese pound is officially pegged at 1,507.5 to the dollar and the central bank, Banque du Liban, currently finances wheat and some medicine imports at that exchange rate.
The IMF will probably ask to remove this peg because it is no longer sustainable and does not represent the real value of the Lebanese pound — which has fallen by about 90 per cent.
This essentially means lifting subsidies, which is another requirement from the international community.
“But politically speaking, these are very costly measures, especially before elections,” the diplomatic source said.
Parliamentary and presidential elections are scheduled in eight months, after which the current government will resign.
“Given the government’s short term in office, the best anticipated result is a wise management of the crisis.”
Lifting subsidies
Lebanon has been reeling from shortages of fuel and medicines because the central bank does not have enough foreign currency to continue financing imports of subsidised goods. The country relies on fuel to generate electricity.
Fuel shortages have led to frequent power cuts — sometimes up to 24 hours at a time — jeopardising safety at hospitals and creating long queues at petrol stations.
An IMF programme will likely go hand in hand with lifting subsidies and replacing them with social safety nets for the poor to avoid a humanitarian disaster.
In June, Parliament approved more than half a billion dollars in cash assistance to finance ration cards for 500,000 families — partly expected to be financed by Banque du Liban's dwindling foreign currency reserves.
A western source said that the way that ration card money will be disbursed will be “an important test”.
“There are fears that during an election year, the cards could be used for political purposes,” the source said.
Lebanon’s entrenched political class has been internationally criticised for corruption and for mismanaging the country’s finances, leading to financial ruin.
The country does not have a unified list of needy families. Instead, sectarian political parties often use financial aid to maintain their networks of supporters.
International lenders and donor countries say they want to ensure loans and cash assistance the country received is not squandered.
Mr Macron invested significant political capital to devise a French road map to save Lebanon that is backed by the international community.
As Lebanese politicians failed to enact reforms, France and the EU ramped up the pressure with threats of sanctions against political figures obstructing government formation and engaging in corruption.
After a government was finally formed this month, the French presidency issued a statement stressing the need for political leaders to follow up on their promise of enacting “the reforms necessary to Lebanon's future and to enable the international community to provide it with decisive assistance”.
Economic reforms
Diplomatic sources said they will be watching the government’s ministerial statement especially closely to gauge its resolve to deal with the crisis.
The plan, which has not been made public, outlines the government’s agenda for the country and should be discussed and approved by Parliament next week.
Mr Mikati has said before that IMF negotiations and reform would be on the agenda.
Another test for the new government is how it will allocate over $1.1 billion in Special Drawing Rights — an IMF asset — which was scheduled to be delivered in US dollars on Thursday.
“What they will be used for will be a revealing test for the international community,” the western diplomat said.
He added that passing budgets for 2021 and 2022 is another measure of good government the international community expects from the government.
Lebanon has not yet passed a budget for 2021.
Community Shield info
Where, when and at what time Wembley Stadium in London on Sunday at 5pm (UAE time)
Arsenal line up (3-4-2-1) Petr Cech; Rob Holding, Per Mertesacker, Nacho Monreal; Hector Bellerin, Mohamed Elneny, Granit Xhaka, Alex Oxlade-Chamberlain; Alex Iwobi, Danny Welbeck; Alexandre Lacazette
Arsenal manager Arsene Wenger
Chelsea line up (3-4-2-1) Thibaut Courtois; Cesar Azpilicueta, David Luiz, Gary Cahill; Victor Moses, Cesc Fabregas, N'Golo Kante, Marcos Alonso; Willian, Pedro; Michy Batshuayi
Chelsea manager Antonio Conte
Referee Bobby Madley
You Were Never Really Here
Director: Lynne Ramsay
Starring: Joaquim Phoenix, Ekaterina Samsonov
Four stars
The specs
Engine: 4.0-litre V8 twin-turbocharged and three electric motors
Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
NBA FINALS SO FAR
(Toronto lead 3-2 in best-of-seven series)
Game 1Raptors 118 Warriors 109
Game 2 Raptors 104 Warriors 109
Game 3 Warriors 109 Raptors 123
Game 4 Warriors 92 Raptors 105
Game 5 Raptors 105 Warriors 106
Game 6 Thursday, at Oakland
Game 7 Sunday, at Toronto (if needed)
Take Me Apart
Kelela
(Warp)
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
2018 ICC World Twenty20 Asian Western Regional Qualifier
Saturday results
Qatar beat Kuwait by 26 runs
Bahrain beat Maldives by six wickets
UAE beat Saudi Arabia by seven wickets
Monday fixtures
Maldives v Qatar
Saudi Arabia v Kuwait
Bahrain v UAE
* The top three teams progress to the Asia Qualifier
Co-founders of the company: Vilhelm Hedberg and Ravi Bhusari
Launch year: In 2016 ekar launched and signed an agreement with Etihad Airways in Abu Dhabi. In January 2017 ekar launched in Dubai in a partnership with the RTA.
Number of employees: Over 50
Financing stage: Series B currently being finalised
Investors: Series A - Audacia Capital
Sector of operation: Transport
PROFILE OF HALAN
Started: November 2017
Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga
Based: Cairo, Egypt
Sector: transport and logistics
Size: 150 employees
Investment: approximately $8 million
Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar
The biog
From: Upper Egypt
Age: 78
Family: a daughter in Egypt; a son in Dubai and his wife, Nabila
Favourite Abu Dhabi activity: walking near to Emirates Palace
SMEs in the UAE are defined by the number of employees, annual turnover and sector. For example, a “small company” in the services industry has six to 50 employees with a turnover of more than Dh2 million up to Dh20m, while in the manufacturing industry the requirements are 10 to 100 employees with a turnover of more than Dh3m up to Dh50m, according to Dubai SME, an agency of the Department of Economic Development.
A “medium-sized company” can either have staff of 51 to 200 employees or 101 to 250 employees, and a turnover less than or equal to Dh200m or Dh250m, again depending on whether the business is in the trading, manufacturing or services sectors.
One of Basquiat’s paintings, the vibrant Cabra (1981–82), now hangs in Louvre Abu Dhabi temporarily, on loan from the Guggenheim Abu Dhabi.
The latter museum is not open physically, but has assembled a collection and puts together a series of events called Talking Art, such as this discussion, moderated by writer Chaedria LaBouvier.
It's something of a Basquiat season in Abu Dhabi at the moment. Last week, The Radiant Child, a documentary on Basquiat was shown at Manarat Al Saadiyat, and tonight (April 18) the Guggenheim Abu Dhabi is throwing the re-creation of a party tonight, of the legendary Canal Zone party thrown in 1979, which epitomised the collaborative scene of the time. It was at Canal Zone that Basquiat met prominent members of the art world and moved from unknown graffiti artist into someone in the spotlight.
“We’ve invited local resident arists, we’ll have spray cans at the ready,” says curator Maisa Al Qassemi of the Guggenheim Abu Dhabi.
Guggenheim Abu Dhabi's Canal Zone Remix is at Manarat Al Saadiyat, Thursday April 18, from 8pm. Free entry to all. Basquiat's Cabra is on view at Louvre Abu Dhabi until October
