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Recovery scenarios : the good, the bad and the ugly

Numerous scenarios are circulating nowadays to predict what shape the Lebanese economy will take after the July-August war. Also, many estimates are given of the direct and indirect losses resulting from the war.

The Lebanese are lost between those scenarios and those estimates. After incurring enormous damages and frustrations in livelihood and property, they are now worried about their future.

Will they recuperate (or keep) their jobs, will their children find work, will they dare invest again in businesses, will their security be assured ... to name only a few concerns? In one word, "what" Lebanon is emerging from the rubble, in view of the political (and administrative) bickering that is currently going on? Each side defends its own "blueprint" of tomorrow's Lebanon, and meanwhile the economy is sinking to new lows.

Time is not on our side. If we really care about the welfare of our children, then we have to act without delay.

This introduction is meant to put the figures that follow into perspective.

A convenient measure of the economic health of a country is GDP (gross domestic product) and how it evolves from one year to the next. GDP is also a gauge of the standard of living in as much as it is the sum of all the revenues in the economy: salaries of the employed, profits of businesses, taxes levied by the state. When these are affected, consumer expenditure (on food, shelter, health, education and so on) is affected, and so is government spending as well as business investment spending (the expenditure side of the GDP equation).

Why such an abstract notion as GDP is used to depict an economy's heath is that practically every country in the world provides this information in a relatively consistent manner, so that comparison between countries are made possible as well as comparison between different years within the same country.

So, when scenarios for future GDP growth are drawn, one can now grasp the dramatic impact that their predictions, if realized, may have on the welfare of the people.

The three scenarios that are briefly described below have been prepared to give an idea of what could lie ahead for us. I call them the good, the bad and the ugly. All three scenarios have the same starting point: a 2005 GDP of $18.2 billion and an annual growth trend of 5 percent up to 2010 had the last war not taken place (a hypothetical no-war scenario).

The good scenario assumes catching up with war losses within six months and experiencing accelerated growth thereafter (6 percent instead of 5 percent).This would allow GDP to recuperate all opportunity losses by end-2010. Of course the rationale underlying this good scenario is that, on the physical side, reconstruction would be swift with no financial, administrative, political and security bottlenecks, and that, on the human side, the return and reintegration of the active labor force would be as swift.

The bad scenario assumes a two-year delay in GDP growth (resulting from a 5 percent contraction in GDP for 2006 instead of the expected 5 percent expansion) and resuming normal (5 percent) growth thereafter. This would result in about $10 billion cumulative opportunity losses in GDP by end-2010. Actually this is not a really bad scenario as it still assumes physical and human rehabilitation to take place without major delays. Even so, the opportunity loss is horrendous ($10 billion of lost jobs, lost business opportunities, lost social welfare, etc.).

The ugly scenario assumes a three-year delay in GDP growth, which implies resuming normal (5 percent) growth in 2008 instead of 2007. This would result in increasing GDP opportunity losses for 2006-2010 from $10-$14 billion dollars. And the years after 2010 will continue to witness a widening of the gap.

Based on what has lately been taking place on the political and even the administrative scene, the specter of an even "uglier" scenario than the ugly scenario presented above cannot be ruled out. The cumulative opportunity loss figures indicated above are indicative of course, but their order of magnitude is very real, and will directly affects the livelihood of all the Lebanese, their work prospects and their confidence in the future of the country, let alone the attractiveness of Lebanon to foreign investors.

With each side insisting on its own "blueprint" of tomorrow's Lebanon, we might end up with no Lebanon at all...


Nohad Baroudi is the former Secretary General of CDR

Beirut,10 02 2006
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