Despite living in a turbulent political and economic environment, Lebanese people are surprisingly upbeat. Published in MEED, 30 March 2012
With the increasingly bloody crisis in Syria casting its shadow across the border, these are uneasy times in Lebanon. Tourism and investment levels suffered in 2011 and overall economic growth slowed sharply to just 1-2 per cent. Meanwhile, domestic political differences highlight the fragile nature of the country’s system of governance.
Not surprisingly, all this has taken its toll on local public opinion. According to the Consumer Confidence Index developed by the local Byblos Bank and the Olayan School of Business at the American University of Beirut (AUB), consumer confidence levels have now been running at consistently low levels for more than a year. When the latest figures covering the final quarter of 2011 are released in the coming days they are expected to show further declines.
The index is the first comprehensive survey of consumer confidence in Lebanon. Given the influence household spending has on the country’s gross domestic product (GDP), the index is an important indicator for the entire economy. According to Byblos, household spending accounted for 79.1 per cent of Lebanon’s GDP in 2009 and an average 83.2 per cent of GDP from 1997 to 2009.
There are other regional indices covering Lebanon, such as the Bayt.com Middle East Consumer Confidence Index and the Nielsen Global Consumer Confidence Report. However, none are conducted as regularly and with such a large group of consumers in Lebanon.
The Byblos-AUB index is based on monthly, face-to-face interviews with 1,200 adults around the country. Each is asked 22 questions, five of which are used to compile the index, covering views of the current economic climate and expectations for the six months ahead.
Reliable economic indicators are a problem for Lebanon and many countries around the region, and this index helps to fill the gap. Although some statistics are released by the central bank Banque du Liban, the Central Administration of Statistics and government ministries, they are often piecemeal and untimely.
The Byblos-AUB index starts in July 2007 but uses January 2009 as its benchmark month, a relatively stable time for the country in political and economic terms. The fact that, for most of the time, the index has been below the January 2009 level of 100 highlights just how tumultuous life often is in Lebanon.
Several notable themes emerge from the data. One is that the Lebanese are a consistently, and perhaps surprisingly, optimistic people. Almost regardless of what is happening at the time, they predict things will be better in the future. Another is that political events appear to have a far greater bearing on consumer confidence than economic events.
That much is certainly clear for the opening months of the indices. From July 2007 to April 2008, it averaged just 60.1 points at a time of high political and security risk. This period included violent confrontations between the army and Fatah al-Islam militants in the north of the country from May to September. There were also the assassinations of MP Antoine Ghanem in September and General Francois al-Hajj in December, as well as a parliamentary standoff over the selection of a new president to replace Emile Lahoud, whose term ended in November 2007. In early May 2008, there were also clashes between rival armed groups in Beirut, which revived memories of past violence.
A more stable political period followed, starting with the signing of the Doha Accord on 21 May 2008, which resolved the issue of the presidency and resulted in the appointment of Michel Suleiman to the role four days later. A unity cabinet led by Prime Minister Fouad Siniora then took office until parliamentary elections were held in June 2009. While the formation of a new government proved difficult, a cabinet was finally appointed in November of that year under Prime Minister Saad Hariri. Overall, this period of political stability continued until June 2010, and during this time, the index averaged 94 points.
From July 2010 to September 2011, however, political risk and uncertainty rose again and the index fell to an average of 57 points. The key factors appear to have been the domestic disputes over whether Beirut should cooperate with the Special Tribunal for Lebanon – the UN body appointed to investigate the February 2005 assassination of former Prime Minister Rafiq Hariri. In August 2010, tensions also rose along the Israeli border and there were clashes between armed factions in Beirut.
The Saad Hariri government collapsed in January 2011 and his successor Najib Mikati proved unable to piece together a viable coalition until June. During this time, the crisis in neighbouring Syria began to accelerate, with the start of protests against President Bashar al-Assad in March.
On the other hand, economic events appear to have relatively little bearing on consumer confidence. Byblos and AUB carried out a correlation analysis on numerous economic figures, such as inflation, private-sector lending levels, changes in the central bank’s coincident indicator (which measures the health of the economy), tourism numbers and the flow of remittances. In all cases, only a weak correlation was found.
The only time economic factors appeared to have had a significant impact was in late 2008. The country’s minimum wage was raised in September that year and took effect in October. At the same time, fears of the impact the global financial crisis might have on Lebanon began to recede as the country’s economy and its banks proved more resilient than many had feared. These two factors contributed to a rise in the index in October to 111.5 points from 79.7 points the month before. It did not drop below 100 points until February 2009.
Alongside the main confidence index are two sub-indices. The Present Situation Index covers the current economic conditions facing consumers, while the Expectations Index covers their outlook for the coming six months.
Optimistic consumer confidence trend
Mostly, these two sub-indices move in line with the main index. It is here the country’s optimism comes into focus. In all but three of the 49 months covered by the survey data, respondents’ expectations for the future were higher than their feelings about their current situation, sometimes significantly so. The only times expectations were lower than the Present Situation Index was in April 2008, July 2010 and September 2010, when political tensions were particularly high.
Several factors could explain why the Lebanese appear able to maintain a degree of optimism about the future, despite the difficulties they face. One is the ability of the country and individuals to tap into the booming economies of GCC states. This offers good job prospects for those willing to travel and high levels of remittances back to the country for those who remain.
The fact that the country has survived so many political crises in the past may also contribute to their stoicism. In addition, the cautious approach adopted by the central bank has helped to ensure relative economic stability, even during times of domestic political turmoil and international financial crises.
Not all groups within Lebanon are as sanguine as the overall figures suggest and clear patterns emerge once the data is further broken down. Men and women have roughly the same level of confidence – the average level of confidence of men was 77.3 points over the 51-month period, compared with 77 points for women – but there are clear distinctions elsewhere.
People aged 21-29 are more confident than their elders, with an average of 86.8 points over the period, compared with 77.9 points for 30-39 year olds, 72.2 points for 40-49 year olds, 68.9 points for 50-59 year olds and 70.5 points for those aged 60 or older.
Consumers with household income above $2,000 a month are, by some distance, the most confident group in terms of income, with an average of 104.6 points between July 2007 and September 2011. Confidence levels tend to diminish in line with income, so that those earning $1,001-2,000 a month have an average score of 85.6 points, those earning $501-1,000 have 72.1 points and those with an income of $500 a month or less score just 69.7 points.
In terms of occupation, university students and private-sector workers are the most confident groups, with average scores of 90.4 and 81.1 points respectively. Self-employed people have an average score of 76.2, public-sector workers score 74 and housewives slightly less at 71.2 points. The unemployed, not surprisingly, come last with an average score over the period of 64.6 points.
Geographically, confidence levels are similar across the country, with the exception of the Bekaa region. In the north, the average score was 83.8 points from July 2007 to September 2011, followed by the Mount Lebanon region with 79.5 points, the south with 78.8 points and Beirut with 77.5. In the Bekaa district, covering the northeast of the country, confidence levels averaged just 56.1 points during the period.
In terms of the country’s main religious groups, Christians and Sunnis are most confident, with average scores of 80.1 and 79.3 respectively, while Shia are the least confident with an average score of 67.3 points. The Druze lie in between, with a score of 76.3 points.
The nature of any resolution of the Syrian uprising may well cause some of these groups to take greater comfort for their future, while undermining the confidence of others. For the country as a whole, however, the crisis in Syria continues to be among the most significant factors when looking to the future.
Predictions for economic growth this year by local banks and others such as the Washington-headquartered IMF and the Banque du Liban are generally about 3-4 per cent, although the IMF cautions that this depends on the external environment improving. Given how events have played out in Syria in the opening months of 2012, that is a big assumption to make, and it seems likely the Lebanese public will have to draw heavily on their reserves of optimism in the coming months.