Drawn into conflict: the war in Syria and the consequences for the Lebanese economy

As the Syrian conflict spills over the border, the Lebanese tourist and trade sectors have taken a hit. It is imperative that Lebanon breaks its political deadlock and avoids sectarian conflict at all costs.

Barry Jongkees
8 August 2013

As the Syrian conflict rages on, it has drawn in neighbouring Lebanon, a country where sectarian tensions have long been a cause of internal conflict. The war in Syria has polarised the country, as Shiite supporters of President Assad are pitched against Sunni supporters of the opposition. The Bekaa valley has become a flashpoint, as Shiite towns are regularly hit by rocket barrages fired from within Syria. Similarly, the Sunni town of Arsal has come under repeated attack from fighter jets and helicopter gunships of the Syrian army acting in retaliation for the town’s support of the Syrian opposition. Growing tensions, insecurity and political deadlock are imposing negative effects on the economy - notably tourism, investment and trade.

Tourism plays a critical role in the economic wellbeing of Lebanon. It accounts for 20% of GDP, which translates to 8 billion US dollars. As the violence of the Syrian conflict spills over into Lebanon, it has lost its attractiveness as a safe tourist destination. Tourists from the Gulf Cooperation Council (GCC) countries represent the largest group, composing 40% of tourists and 60% of revenue. However, in June the GCC issued a warning to its citizens not to travel to Lebanon due to increased insecurity. Accordingly, Lebanon has witnessed a steep drop in the quantity of tourists, registering a decline of 24% in 2011, 17.5% in 2012 and a further 12.5% in the first quarter of 2013 alone.

Trade has also suffered the ill effects of the Syrian war. Lebanese exports strongly rely on a stable Syria, as 40% of all exports transit through it for destinations such as Jordan, Turkey and Iraq. Lebanese trucks are now routinely blocked from passage through Syria and the road between Damascus and Amman has become inaccessible. This prompted the opening of a ferry route through Suez to Aqaba, but this route is considerably more expensive for exporters. Between 2009 and 2012, the share of exports transiting through Syria as a percentage of GDP declined by 0.7%, which amounts to a loss of roughly 28 million US dollars.

Investor confidence in the short-term stability of the country has also dropped. FDI decreased from a peak of $12 billion USD in 2009 to only $2.4 billion USD in 2012, and the country is forecast to attract $1.6 billion USD in investments this year, thus amounting to only 13.3% of FDI attracted in 2009. Most investment directed into Lebanon originates from the GCC as well. However, large investors such as the Emirati Al Habtoor Group have decided to withhold further investment until violence and political instability have been resolved.

Lebanon’s sectarian tensions are reinforced by the confessional political system in which government positions are allocated based on sectarian origins. Polarisation within society is mirrored in politics, as parties have been unable to form a new government. Business leaders have argued that this deadlock undermines investor confidence in political and regulatory stability. As investment, trade and tourism suffer, the Lebanese economy has gone into recession, as GDP declined by 7% in 2012 and 1.5% thus far this year. 

In numerous ways therefore, the above data suggests that stability, security and economic performance in Lebanon is determined by events in neighbouring Syria. Lebanon should take all measures to avoid sectarian conflict. It is imperative that political factions take responsibility to seek an end to the deadlock in forming a new government, and to stay out of the conflict in Syria to prevent sectarian tensions from escalating.

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