Lebanon needs to change its targets, starting with investment

The following article, written by Expectation State CEO Raymond Asfour for The Daily Star Lebanon, was published on 22 March 2020. Reproduced below, it can also be found here (paywall).

Last Saturday, Prime Minister Diab addressed the heart of Lebanon’s “failing economic model laid down by previous policies”. As Lebanon’s economic crisis continues to unfold – now exacerbated by COVID 19 – our recovery should take into account the need to reform not only our economic policies but also what citizens want and need from a country’s prosperity: improved well-being.

What we measure plays a large role in dictating what we do. By measuring social and economic well-being more judiciously we can better create policies that enhance well-being; economic growth improving lives as a goal rather than as a hoped-for by-product.

The “Beyond GDP” agenda is gathering pace globally. Led by economists such as Stiglitz, Fitoussi, and Sen, it advocates developing concise and manageable metrics for population well-being and using those metrics to steer governance and decision making. This approach complements rather than replaces economic indicators. It’s a global debate that Lebanon should join.

The temptation is to feel that we don’t have the luxury of focusing on long-term planning on hard-to-define terms such as ‘well-being’. Today’s focus on imports and the recapitalisation of the economy is crucial, but it needs to be undertaken at the same time as fundamental changes in policy, as the Prime Minister indicated. From an investment standpoint, we have an opportunity to place Lebanon at the forefront of how emerging states pursue foreign direct investment (FDI) – for the ultimate benefit of their citizens.

Placing Lebanon at the policy forefront of foreign direct investment pursuit

Expectation State works with governments to improve not just the quantity of investment they are able to attract, but also its quality. We believe investment can improve lives beyond simply growing an economy and hoping the benefit trickles down to the country’s poorest.

Conventional approaches to inclusive economic growth in Lebanon have not worked. Lebanon ranks 129 out of 141 countries in terms of income inequality and, as of a few years ago, the top 2% of the population had an income almost equivalent to the bottom 60%.

In 2008, when Lebanon was attracting almost $5 billion of investment annually, our investment as a percentage of GDP was 14%; the global average was 3%.  We were massively outperforming in attracting investment relative to the size of our economy. Even as FDI inflows have steadily decreased, we have continued to statistically outperform on attracting investment. Yet, ask yourself, has it felt as if we have been outperforming?

Investment shouldn’t just be viewed as fuel for economic growth 

Beyond the direct economic effect of jobs and dollars, investment can also directly contribute to social and environmental impact – both positively and negatively. We need to maximise investments that contribute most towards society’s problems – and value those investors on the basis of their potential impact, not just their tax bills.

Governments typically view the value of a given investment through the number of jobs it creates and dollars it brings into the country. Those with an eye for the detail will also want to know whether an investment will contribute to the knowledge economy, provide for technology transfer, or fill a gap in a supply chain. This is good, but not enough.

We work with governments to build a framework through which the social impact of investment can be maximised. That doesn’t mean that an investor needs to be socially-minded; it means that a state equips itself to pursue and shape investments to have an outsized social impact.

Given the events of late 2019 and early 2020, we have the opportunity and the imperative to change how we frame investment into Lebanon. How do we do that? We begin by establishing what constitutes a quality investment; what most delivers what Lebanon needs. Then we re-orientate the state’s investment apparatus, and related support from bilateral and multilateral donors, to target and shape investments based on how they deliver for the people of Lebanon – including economically. This isn’t about turning away investment, far from it; it’s about extracting the most value from commercial investments by recognising that we need a broader definition of what we mean by ‘value’.

Now more than ever conversations about the state’s inability to meet the expectations of its citizens are happening up and down the country – often to the hum of diesel generators. We need fundamentally to change what we want from and how we target the fuel that grows our economy while not losing sight of what citizens want from a strong economy: improved well-being. Admittedly, that’s hard to see with the lights flickering.

Raymond Asfour is CEO of Expectation State, an organisation that works alongside senior government officials to improve investment related governance and decision making in emerging states, while maintaining investment-focused relationships with industry investors and global private equity.