By Georges Pierre Sassine on December 02, 2013

This article originally appeared on December 02, 2013 on CNN.com Blogs – Global Public Square.

[…] Geopolitical, governance, economic and social issues are interconnected in Lebanon. But at least attempting to separate them can help avoid the complete political and economic paralysis that Lebanon is experiencing today.

Meanwhile, focusing on common economic and social goals will allow a new government to address fundamental quality of life issues, including traffic congestion, education and healthcare, electricity shortages and building Lebanon’s oil and gas industry.

Changing the Lebanese political narrative from a “geopolitics first” to an “economics first” focus requires three key elements:  leadership, compromise, and expert public policy analysis.

[…] Lebanon can ease its people’s daily struggles regardless of geopolitical developments. If politicians are unable to take new approaches to leadership and compromise, then citizens will have to mobilize, take to the streets – do whatever it takes to ensure their day to day lives are not held hostage to the unpredictable fortunes of the region.

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Economic co-operation could be the way out for the Middle East

By Georges Pierre Sassine on August 01, 2013

This article originally appeared on August 01, 2013 in the print edition of the Financial Times. 

Looking back at the past two years and a half, Arab countries have been slow at advancing effective economic reforms.

While countries face different economic challenges one common theme is emerging across the Middle East: local decision makers are constrained by tough choices of reform versus social discontent.

With very few levers at their disposal one way to shake out of economic stagnation is for Middle Eastern countries to go beyond their domestic focus and co-operate economically with each other. Regional economic integration could be a practical solution that Arab leaders should consider seriously.

Multinational organisations including the World Bank and the African Development Bank are advocating economic integration in order to create growth, generate employment and reduce poverty. They highlight that the Mena region is one of the least integrated in the world. From 2008 to 2010 less than 8 per cent of Arab exports were among themselves, compared with 25 per cent in the Association of Southeast Asian Nations (Asean) and 66 per cent in the EU.

If Arab leaders realise that their political survival relies on their ability to drive economic growth and that alone they are constrained to do so, then the situation is ripe for fresh and bold thinking.Georges Pierre Sassine

However, such initiatives are not new to the region. The Arab League was initially founded in 1945 with the goal of intensifying regional trade. Several regional trade agreements were implemented across the Middle East.

While progress is being made, Mena regional economic integration initiatives have been fragmented and slow. They were never fully implemented and have been ineffective so far.

The main challenges have been economics and politics.

From a purely economic standpoint, resource rich countries have no strong incentive for deeper preferential regional integration. They would have to substitute cheaper imports from the rest of the world and give preference to goods produced by less efficient regional firms. Countries such as Morocco, Lebanon and Tunisia have been benefiting from regional trade agreements, while resource rich countries such as Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates have suffered trade diversion.

Another reason could also be the low degree of complementarity between countries. Regional trade blocs have similar resource endowments and production capabilities which make it difficult to increase intra-trade flows.

However, politics has been the main barrier to deeper Mena regional integration. The lack of political will has been driven by concerns about which nations would benefit most from these schemes and the impact it would have on regional leadership. Aligning foreign policy objectives with economic imperatives is a crucial requirement to implement these agreements.

Going forward, success requires a focus on three main goals: restore the credibility of renewed efforts, emphasise complementary strength and weaknesses across countries, and bolster political commitment.

The first step is to build the credibility of new efforts. All current bilateral agreements should be dissolved into a single framework, preferably an existing and functioning one, such as the Gafta international trade association. Institutions should be strengthened and an effective dispute settlement mechanism should be established to oversee that agreements are enforced. The objective is to signal that commitments are meaningful and serious.

The second goal requires a rethinking of the integration model. Traditionally, economic co-operation in the Middle East has focused on liberalising trade in goods. However, renewed efforts should shift to opening up cross-border investments and trade in service sectors, including banking, telecommunications, logistics, land, marine and air transportation. According to the World Bank, these service sectors have significant room for improvement in the Middle East and will be critical to create jobs and reduce unemployment. If not designed and implemented carefully such policies can do more harm than good. This is why the sequence and timing of policies should take into account each country’s circumstances and balance strengths and weaknesses across the region.

This being said, political commitment and leadership remain the critical factor that will make or break economic integration. As it stands today deeper economic integration is very unlikely in the Middle East. But if Arab leaders realise that their political survival relies on their ability to drive economic growth and that alone they are constrained to do so, then the situation is ripe for fresh and bold thinking.

Economic co-operation could be the way out for the Middle East.

Georges Pierre Sassine is a public policy expert and holds a master’s degree in public policy from Harvard University’s John F. Kennedy School of Government.

Article appeared online in the FT at: http://www.ft.com/intl/cms/s/0/82301090-f9e2-11e2-b8ef-00144feabdc0.html?siteedition=intl#axzz2aeoMr75P

By Georges Pierre Sassine on March 04, 2013

A version of this article appeared in the March 2013 print edition of Executive Magazine.

In the past five years, Lebanon has attracted an average of $4.5 billion per year in foreign direct investments (FDI). But as the uncertain political environment causes FDI levels to decline and economic growth to plummet, Lebanon could tap into a new source of financing called “diaspora bonds”, financial instruments sold only to expatriate communities.

In 2012, Lebanese emigrants sent more than $7.6 billion to their families, for the purpose of supporting their parents, putting relatives through school and other personal investments. Their impact on Lebanon’s development can be significantly increased if parts of their funds are mobilized for local investments, such as infrastructure, schools and hospitals.

Between roughly 4 and 15 million Lebanese live abroad, so if one in every 10 members could be persuaded to invest only $1,000, Lebanon could raise on average more than $1 billion a year. Diaspora bonds raise capital by providing emigrants advantageous interest rates, deposit guarantee schemes and other unique incentives. Israel raised $31 billion through diaspora bonds, and India raised more than $11 billion. Yet, there are also cases of failure, such as Ethiopia, which raised only $200,000.

Examining the lessons learned from other countries, the success and failure of diaspora bonds can be linked to three key drivers. The first one is the profile of the country’s diaspora network, its size and wealth, how well organized it is and how easily it can be tapped into. The second is the relationship between the diaspora and its home government. And the third is patriotism — the emotional tie to the homeland and national identity.

Lebanon scores differently across these metrics. It enjoys a large and relatively well-off expat community linked through various political, religious and business organizations. Yet both its relationship with the Lebanese government and its sense of patriotism could vary widely. Many could perceive the government to be corrupt and only have a handful of trustworthy institutions. And some expatriate communities, similar to the local Lebanese population, could be fragmented by a weak national identity.

Lebanon can benefit from the issuance of diaspora bonds only if they are designed to circumvent the country’s weaknesses and obstacles. For example, lack of trust in a corrupt Lebanese government would negatively impact the diaspora’s willingness to invest in diaspora bonds. For this reason, the government should be limited to setting the overall vision and creating incentives for the private sector to lead this initiative.

Another difficulty is the fragmented nature of the Lebanese diaspora, which might prove challenging to engage. The solution lies in ensuring that investments benefit the whole society without preference to specific regions or religious groups. For instance, national infrastructure projects such as a railway connecting north to south, or refineries to build Lebanon’s oil and gas industry, are possible uniting projects.

In order to strengthen the diaspora’s link to Lebanon, the single most effective tool available to the Lebanese government is to grant expats voting rights and encourage civic participation. About 10,000 Lebanese expatriates are registered to vote for the upcoming parliamentary elections. While the low turnout is a disappointment to many, others consider it a significant step toward larger diaspora participation next time around.

Until then, Lebanon should start laying the ground work to issue diaspora bonds. It first needs to gather better statistics on the volume, wealth and location of its citizens abroad. The Lebanese government also needs to establish institutions focused on government-diaspora liaison through and beyond embassies and consulates. It needs to build alliances with diaspora networks including professional organizations like the American-Lebanese Chamber of Commerce, and academic organizations including university alumni chapters. It would also need to start negotiating with foreign countries to grant tax exemptions to Lebanese nationals investing in diaspora bonds, which would require identifying the right local projects to be invested in.

There is no doubt that diaspora bonds will face obstacles in a country like Lebanon. But with the right design and the political will to carry it through, Lebanon can put its diaspora at the forefront of its economic and political development.

Georges Pierre Sassine holds a master’s degree in public policy from Harvard University’s John F. Kennedy School of Government. He writes about Lebanon’s public policy issues at www.georgessassine.com

A version of this article appeared in the March 2013 print edition of Executive Magazine.

(Executive Magazine: a leading business, economics and policy magazine in Lebanon and the Middle East)

By Georges Pierre Sassine, Olga Antoine Jbeili

A version of this article appeared in the print edition of The Daily Star on January 22, 2013, on page 7.

Political instability has become the norm in Lebanon. The country’s economic and political outlook seems to be tightly dependent on regional developments, especially in Syria. In 2012, Lebanon’s economic growth stood at 2 percent, falling significantly from an average 8 percent between 2007 and 2010. Analysts expect future growth of Lebanon’s tourism and financial services sectors to be negligible until a resolution is reached in Syria.

However, there is tangible hope in sight and Lebanon’s economic outlook can be improved regardless of the current uncertainty plaguing the country.

Risk and complexity are here to stay. Therefore, Lebanese businesses and government must learn to adapt. One approach is to identify global trends and find ways for Lebanese to leverage them.

For example, the U.S. National Intelligence Council, representing the 17 intelligence agencies of the United States government, recently published a report fleshing out global trends during the next 15-20 years. The NIC report highlights different scenarios of how the world could unfold, but also identifies megatrends that will likely occur under any scenario. Lebanese decision-makers should think and plan for the long term and find opportunities in these trends that are most likely to occur.

Lebanon’s economic outlook can be improved regardless of the current uncertainty … One approach is to identify global trends and find ways for Lebanese to leverage them.Georges Pierre Sassine, Olga Antoine Jbeili

One of the megatrends identified by the NIC is an increase of the global population by more than 1 billion people by 2030. This will put strains on food and water resources where demand for food will increase by 35 percent, and the global food production outlook will worsen due to climate change patterns.

Higher and volatile international food prices are already negatively affecting Lebanon – which imports more than 80 percent of the food it consumes – and will continue on driving up local food prices in the future. This will provide a unique opportunity for Lebanese farmers and entrepreneurs to expand domestic agriculture production and improve Lebanon’s food security. Specific measures include incentivizing investments in Lebanon’s agricultural sector, a strategic shift to high-yielding grains, crop diversification and developing irrigation infrastructure.

In addition, the growing demand for agricultural resources has also been driving countries such as Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and China to acquire farming lands in foreign countries, mainly in Africa, in order to ensure their food supplies. However, land acquisitions have been leading to disastrous consequences for poor communities – as families are kicked out of the acquired lands – and attracting sharp international and local criticism.

The well-established Lebanese diaspora can then play the role of middleman and help make these land acquisitions more sustainable. They can facilitate cooperation and communication among foreign investors, international organizations, African governments and local communities ensuring more equal benefits to all parties involved. Lebanese can also play several roles across the agriculture value chain: Opportunities are not limited to the farming of acquired lands but also include food processing, agro-industrial and agribusiness services, traders and other businesses at multiple levels from the farm to consumers.

The Lebanese government can play a big role in enabling such opportunities to national businesses. Laying the groundwork for partnership with countries such as China and Gulf countries in Africa and stressing the involvement of African partners will be critical. Such cooperation will be an evolving process with few precedents but an opportunity that should not be missed.

The NIC report also suggests rapid urbanization in the developing world to be another megatrend certain to be witnessed. The volume of urban construction for housing, office space and transport services over the next 40 years could roughly equal the entire volume of such construction to date in world history.

This could have serious consequences for Lebanese construction companies, engineers and architects. While the construction industry, one of the most vibrant sectors of Lebanon’s economy, has traditionally focused on domestic and regional markets significant new opportunities could be reaped elsewhere.

According to the United Nations, 11 countries will contribute to 62 percent of the world’s urban growth by 2030 including China, India, Brazil, Mexico, Nigeria and the United States. Lebanese can and should play a role in helping serve the construction needs of urban formation and expansions in such countries. Demand in the Levant and Gulf countries will continue to come primarily from foreign markets for Lebanese developers, but diversifying to new growth destinations could set them up to unprecedented growth. The competitiveness of Lebanese businesses in these future markets can be improved if they start tapping today into Lebanese emigrant networks, chambers of commerce, Lebanese embassies and Lebanese banks which could facilitate access to credit for their expansion plans.

Fundamental changes to the mindset, capabilities and organization of Lebanese institutions are required.Georges Pierre Sassine, Olga Antoine Jbeili

These are a few illustrations of the myriad opportunities that Lebanese businessmen and policymakers can identify if they incorporate long-term planning in their decision process. Political instability is likely to persist and the only way to secure Lebanon’s future is to adopt a flexible, innovative and adaptive approach to policymaking. It requires fundamental changes to the mindset, capabilities and organization of institutions. Tools like scenario planning, policy gaming and horizon scanning should all be added to the decision toolbox in order to secure sustainable development for future generations.

In summary, growth and opportunity are possible for Lebanon if private and public institutions are redesigned for new times.

Georges Pierre Sassine is a public policy expert and a Harvard University alumnus. Olga Antoine Jbeili is a development economist and a University of Sussex alumnus. They wrote this commentary for THE DAILY STAR.

A version of this article appeared in the print edition of The Daily Star on January 22, 2013, on page 7.

(The Daily Star: Lebanon News: http://www.dailystar.com.lb)

By Georges Pierre Sassine

A french version of this article appeared in the print edition of L’Orient le Jour on December 9, 2011.

In a time of political upheaval in the Middle East, and changing world economic order, Lebanon needs to adapt both its foreign and economic policies. Lebanon should play the role of “middleman”, an equidistant and honest broker that connects different players with each other.

Lebanon’s foreign policy is presently unsustainable. With no articulated doctrine, the central government relies on ad-hoc tactical moves in conducting its foreign policy. Quick fix solutions in the current environment are inadequate and it is becoming more and more difficult to maintain balance between polarizing forces. A more mature and long-term approach would offer more leverage and opportunities

Lebanon needs a cohesive overall strategy. A strategy guided by the basic goals of internal stability, and economic growth. It has to be a proactive foreign policy that prevents rather than reacts to crises.

This is a different approach from Turkey’s “zero problems” policy and Qatar’s conflict mediator role. Rather than interjecting in conflicts in the Middle East and beyond, as both countries have done, I would suggest a more retracted role considering Lebanon’s more modest resources, a role of silent spectator, carefully managing shifting coalitions.

Lebanon needs a cohesive overall strategy. A strategy guided by the basic goals of internal stability, and economic growth.Georges Sassine

Lebanon should lead with a clear message upfront and declare neutrality as a first and fundamental principle. In the short term, focus should be on vital relationships for our future. By way of illustration, Lebanon should refrain from making a bet on outcomes in Syria and Iran and maintain vagueness and silence. Regarding Saudi Arabia’s unclear leadership succession the Lebanese government should actively maintain relationships with different Saudi stakeholders.

I am suggesting a foreign policy that is consistently carried through. A strategy that employs neutrality as its leading instrument until a clearer future emerges. The risks are too high, and Lebanon will be better off with a pragmatic foreign policy instead of no policy at all.

On the economic front, Lebanon performed remarkably well facing the 2008 global financial crisis, but the risks to Lebanon’s economy lie in long-term changes. As the global economy moves towards greater integration and trade, how will Lebanon win in a more globalized world?

The answer is not in competing head to head with leading economies, but in finding unique opportunities to benefit from the rise of emerging markets.

Commerce corridors are shifting to South-South trade … The new opportunity for Lebanon will be in linking Brazil and China, as well as India and Russia.Georges Sassine

Lebanese businessmen benefited from playing the role of middlemen for decades. Their focus has been on the old economic order as intermediaries between the United States, Europe, and the Middle East. As a multipolar world emerges future opportunities will differ. Commerce corridors are shifting away from North-North and North-South trade, to South-South trade. China, India, and Brazil are trading more with each other as demand from advanced economies is slumping. The new opportunity for Lebanon will be in linking Brazil and China, linking India and Russia, and maybe several developing countries at once.

Take for example, Alibaba.com, an online aggregator where buyers and sellers trade wholesale merchandise. Alibaba connects 42 million users across 240 countries and is a success because it is the most efficient way to trade across borders and link so many people and countries. Similarly, Lebanese middlemen should explore new ventures to profit from globalization trends. The Lebanese government needs to adapt its economic strategy to the changing economic landscape and encourage Lebanese businesses to reap the benefits.

A new reinvigorated vision should prioritize five key initiatives: promote private sector participation and entrepreneurial ventures; remove barriers to doing business; refocus the education system on required skillsets; increase infrastructure investments; and incentivize business with foreign countries.

To achieve stability and long-term growth, Lebanon needs to articulate a clear vision and strategy that harnesses the country’s existing capabilities. It’s a matter of vision, courage and absolute determination.

Georges Pierre Sassine is a public policy expert and Harvard University alumnus. He wrote this commentary for L’Orient Le Jour.

A french version of this article appeared in the print edition of L’Orient le Jour on December 9, 2011. Original title: “Une nouvelle politique économique pour faire face à l’incertitude”

(L’Orient Le Jour: http://www.lorientlejour.com/)

By Georges Pierre Sassine

A version of this article appeared in the print edition of The Daily Star on December 12, 2011, on page 7.

Migration is often viewed as a form of brain drain rather than an opportunity. But several countries have recently recognized the potential contribution that their diaspora make to economic development.

Lebanon can improve its efforts to tap the resources of its diaspora and further expand its economy. Already, more than $8 billion were sent by Lebanese emigrants to their families at home in 2010. This constitutes more than 20 percent of Lebanon’s GDP, and is almost double Lebanon’s export revenues. Yet despite these large contributions, Lebanon continues to be crippled by its $58 billion public debt and is in dire need to further grow its economy. The country should adopt a comprehensive plan that significantly increases the diaspora’s impact on Lebanon’s development, increases the country’s wealth, and saves money at the same time.

The three step strategy includes, first, encouraging local investments; second, reducing international money transfer fees; and third, engaging the Lebanese diaspora community.

The first initiative is to mobilize diaspora funds for investments in Lebanon. Estimates of the numbers for the Lebanese diaspora vary between 4 and 15 million members. If one in every 10 members could be persuaded to invest $1,000, Lebanon could raise on average more than $1 billion a year. Lebanese diaspora funds represent a massive untapped potential and there are many ways to raise this capital, including diaspora bonds and other investment vehicles.

Lebanon can further tap the resources of its diaspora to expand its economy … Lebanon could raise on average more than $1 billion a year through Diaspora Bonds.Georges Sassine

A diaspora bond is a special bond that can be introduced by a domestic financial institution. It would provide emigrants with premium interest rates, deposit guarantee schemes, and other unique incentives. Investments would target projects of interest to emigrants, such as schools, housing, hospitals and other projects that benefit their families and community back in Lebanon.

India, for example, successfully raised more than $11 billion through diaspora bonds. It’s been proved an effective tool.

A second priority is to encourage Lebanese migrants to send more money home by reducing transfer fees. Money transfers to Lebanon are expensive, and cost on average more than $28 to send $200, compared to $5 from the United Arab Emirates to Pakistan. There are many policy options to reduce remittance fees by encouraging greater competition and promoting innovative money transfer technologies.

For example, following from the General Principles for International Remittance Services, compiled by the World Bank and the Bank for International Settlements, the Lebanese government should discourage exclusive partnerships between banks and international money transfer agencies which would lead to lower fees.

Another very effective way to decrease prices is to encourage new money-transfer technologies. Instead of sending money through traditional channels, remittances can be sent by cell phone text messages or other Internet-based payment platforms. Costs will go down as these channels reduce the need to build costly distribution networks and increase competition with traditional markets. Many companies have been successful in mobile banking including MTN Mobile Banking and Wizzit in South Africa, M-Pesa in Kenya, and G-cash, ARYTY and SMARTmoney in the Philippines.

Investments should benefit the whole society without preference to specific regions or religious groups.Georges Sassine

The third focus should be on strengthening emigrants’ link to Lebanon. Experts agree that a government can successfully and sustainably extract obligations from its diaspora only if it extends them rights. The single most effective tool available of the Lebanese government is granting Lebanese emigrants voting rights and encouraging their civic participation.

Parliament passed a law in 2008 allowing emigrants to vote in the 2013 legislative elections. A similar proposal was delayed for the 2009 elections for logistical reasons and the limited timeframe involved. However, diaspora voting may be feasible next time around. Logistical barriers are being addressed by the government and electoral reform consultations are being tackled ahead of time. Egypt and Iraq recently succeeded in setting up out-of-country voting systems in relatively short timeframes, and Lebanon can follow suit.

In addition, risks to implementing this three-point plan should be expected in a highly politicized country like Lebanon. However, they can be circumvented. For example, lack of trust in a corrupt Lebanese government might negatively impact the diaspora’s willingness to invest in diaspora bonds. For this reason the Lebanese government should be limited to setting the overall vision and creating incentives for the private sector to lead this initiative.

Another difficulty is the fragmented and divided nature of the Lebanese diaspora, which might prove challenging to engage. The solution lies in ensuring that investments benefit the whole society without preference to specific regions or religious groups. For instance, national infrastructure projects such as a railway connecting north to south, or refineries to build Lebanon’s oil and gas industry, are possible uniting projects.

Overall, the economic benefits of this plan outweigh the obstacles and should allow for the harnessing of political will required to carry it through. Lebanon can put its diaspora at the forefront of its economic and political development. The potential is enormous, the risks manageable, and the opportunity within our reach.

Georges Pierre Sassine is a public policy expert and Harvard University alumnus. He wrote this commentary for THE DAILY STAR.

A version of this article appeared in the print edition of The Daily Star on December 12, 2011, on page 7.

(The Daily Star: Lebanon News: http://www.dailystar.com.lb)