BEIRUT // Lebanon’s economy has long depended on the Arab Gulf states.
Hundreds of thousands of Lebanese work there, sending their savings home to relatives. It is the main destination for exports — both human capital and produced goods — as well as the leading supplier of investment.
There is often a feeling that without the Gulf’s role, Lebanon’s beleaguered economy could not survive. But this relationship could be in trouble.
With global oil prices falling since 2014, the economic diversification plans touted by Gulf states are finally being put to the test. For the many Lebanese working in the Gulf, their livelihoods and billions of dollars in annual remittances, depend on the continued strength of these economies.
More immediate is the growing divide between GCC countries and the Lebanese government over the role of Hizbollah, with Saudi Arabia leading the charge against the group and economists fearing major economic ramifications on Lebanon.
Lifeblood of Lebanon
With low oil prices, the remittances received by Lebanon from workers in the Gulf are the biggest worry for many Lebanese.
“Remittances have basically been very important in sustaining the economy in the sense that we’ve always had a current account deficit … we import much more than we export. So those remittances have been able to sustain the economy,” said Simon Neaime, an economics professor at the American University of Beirut.
Since 2011, remittances received by Lebanon have averaged more than $7 billion (Dh25.7bn) annually, representing more than 15 per cent of the country’s total GDP. Most of the money was sent from the Gulf, where experts say between 300,000 to more than 500,000 Lebanese are currently working.
“Since we have nothing important to export … it’s easy to export our children since we are not able to create sufficient jobs,” said Kamal Hamdan, an economist who heads Beirut’s Consultation and Research Institute. “There are many pushing factors in Lebanon that do not ensure good work conditions, not only in wage levels, but especially in terms of social benefits.”
Sending workers abroad has become a valuable source of income in recent years as Gulf states drew down their investments in Lebanon and Gulf tourists stopped visiting Beirut due to Syria’s war. But with low oil prices and Gulf countries facing their own potential economic problems, Lebanese working in the Gulf could now feel the pinch.
Weathering the storm
With remittances still growing last year, economists say that for now, falling oil prices have not had a real impact on Lebanon’s economy.
Ali Termos, an economics professor at the American University of Beirut who has conducted studies on the relationship between oil prices and remittances from the GCC, said that while there is a positive correlation between the two, it is not a strong one.
“We expect that when oil prices go down, there will be a drop in remittances, but this drop is not very significant,” he said. “Remittances are affected, they are slowing down.”
But low oil prices could hurt remittances further down the line partly due to the multiyear contracts signed by Gulf states currently building mega projects, Mr Termos warned. Such contracts will hold despite the oil-price drop and workers will continue to get paid until their contracts expire.
Already some Saudi companies that rely on foreign labour are struggling.
Major Saudi construction firms Saudi Binladin Group and Saudi Oger — the latter owned by the family of former Lebanese prime minister Saad Hariri — have had cash flow problems this year, and had to withhold salaries and lay off many workers.
Another reason the oil crunch has yet to be felt is that Lebanese work in almost every sector in the Gulf, including those outside the oil or construction industries. While oil remains the major moneymaker in the Gulf, its economies are developing beyond the oil industry
