Why is the Saudi boycott of Lebanon causing major economic consequences?

Beirut – The Saudi boycott has placed a great deal of weight on the Lebanese economy, and experts are likely to push Lebanon towards a dangerous bottom, if its pace continues to escalate, and to impede the paths to find a way out in a country suffering a collapse that is among the 3 worst crises the world has witnessed, according to international estimates.

The crisis of Lebanese Minister of Information George Kordahi’s statements about the Yemeni war shed light on the extent of the economic losses that Lebanon may incur, especially since Riyadh was not satisfied with severing diplomatic relations, as Kuwait, Bahrain and the UAE followed, but also announced the cessation of all Lebanese exports to the Kingdom.

History of Economic Relations

This development prompts the question about the nature of the economic relationship that linked Lebanon with the Gulf Cooperation Council countries, and many see it as the backbone that restored balance to the Lebanese economy, specifically after the end of the civil war and the signing of the Taif Agreement in 1989 in Saudi Arabia.

And Muhammad Shams El-Din, a researcher at the International Information Corporation, indicates – in his speech to Al-Jazeera Net – that Lebanon is linked with the Gulf economically in 4 facilities: exports, investments, tourism, and labor.

During the past five years, the value of Lebanese exports to the Gulf amounted to about 930 million dollars, including 237 million dollars to Saudi Arabia alone. As for imports from the Gulf to Lebanon, which includes oil oils, chemicals and manufactured plastic goods, it amounts to 1.5 billion dollars, according to Shams El-Din. .

In previous years, the average Gulf investment was estimated at about one and a half billion dollars annually; Before the Corona crisis, Gulf tourism made up approximately 30% of all tourists in Lebanon, and it decreased a lot after the Syrian war in 2011, and stopped almost completely after the spread of the Corona pandemic.

The number of Lebanese working in the Gulf is about 250 thousand Lebanese – more than half of them are in Saudi Arabia – and their remittances are estimated at about one and a half billion dollars annually, according to the researcher; These remittances have previously enhanced the well-being of the Lebanese, and after the financial and banking crisis since 2019, they became one of the few sources of the dollar, which was scarce from the markets.

Here, Abbas Ramadan – the economic advisor at the General Corporation for Investment Promotion in Lebanon “IDAL” – expands on the numbers, noting that Lebanon’s exports to the Gulf constitute about 25% of its total exports, and the numbers change according to the financial and logistical markets data.

investment turmoil

Ramadan explained – to Al Jazeera Net – that Lebanon’s main partner in exports is 5 parties: South Africa, then Saudi Arabia, the UAE, Syria and Iraq.

But in 2020, Saudi Arabia slipped from second to seventh, and the matter was remarkable, as he put it, and some linked it to the procedures for closing the borders, or “because Saudi Arabia began to find alternatives for Lebanon.”

The economic advisor considers that the turmoil of the Lebanese-Saudi economic relationship began in the last ten years, and first hit the investment facility.

He added that Saudi Arabia was a key partner for investment in Lebanon, followed by the UAE, in the tourism and real estate development sectors, and implemented huge projects in Beirut and some of its surroundings, “but this investment gradually declined from 2011, and then completely withered after 2016.”

About 60% of Lebanese agricultural exports go to the Gulf countries (Al-Jazeera)

first victim

Experts fear that other Gulf countries, such as Saudi Arabia, will economically boycott Lebanon.

Although Lebanon exports to the Gulf various manufactured foodstuffs, some electrical and industrial products, electronic software, jewelry and precious stones, in addition to consulting and engineering services; It seems that the agricultural sector is the first victim in terms of its losses in terms of fresh crops that need to be stored.

Ramadan mentions that about 60% of Lebanese agricultural exports go to the Gulf countries, about 15% go to Egypt and Iraq, about 20% of exports go to Syria (legally) and only 5% to Europe.

He said that agricultural exports previously provided Lebanon with about $500 million annually, and the Gulf alone at $250 million, and that Saudi Arabia and Kuwait are competing for the lead.

Saudi Transit

What deepens Lebanon’s economic crisis is that Saudi Arabia constitutes a central station for Lebanon’s agricultural exports to the Gulf, which is a transit line, because most of the consignments pass overland from Lebanon to Syria, Jordan and Saudi Arabia, to stay inside or cross to their destination towards other Gulf countries; Small quantities are sent by sea or air, according to researcher and economic expert Ali Noureddine.

Therefore, Noureddine fears that the Saudi decision will include preventing missionaries from crossing its lands by land to other Gulf countries, because crossing needs its permission, “especially since its decisions rose to the level of political and economic sanctions.”

The economist also stresses that the agricultural sector is the most affected, “because most of its exports cross by land, and are linked to prior contracts, in order to avoid recession and to ensure the disposal of production.” Consequently, a large part of agricultural exports destined for Saudi Arabia may be destined to be spoiled.

Nour El-Din said that the farms’ margin of maneuvering is limited, unlike other exporters, and “because historically Lebanese farmers used to have the Gulf as their export market, and it is difficult to find an alternative to it.” The losses of Lebanese farmers will now extend to the next season, according to the economist; Due to the interruption of an important source of liquidity for investment, in light of the suspension of loans from the banking sector due to its crisis.

Diversions and collateral damage

Lebanon is suffering from an economic collapse that the country has not experienced previously, as the Lebanese pound has lost more than 90% of its value against the dollar, salaries have eroded, banks have withheld depositors’ money, basic materials have become scarce, and the energy crisis has deepened and Lebanon has plunged into darkness, while multidimensional poverty has affected more 75% of the population, according to UN reports.

Parallel to that, the head of the Lebanese Economic and Social Council, Charles Arbid, considers that Saudi Arabia’s boycott of Lebanon incurs a great moral loss before the material one, and that the repercussions of the boycott lead first to a decline in Arab and international confidence in Lebanon.

Arbid stressed – to Al Jazeera Net – that what Lebanon needs most in its crisis is the consolidation of its relations with the Gulf countries, as a lever for it before the international community.

He reminded the authorities that the Lebanese industries and the productive society in Lebanon are the first and last victims of the political and diplomatic engagement with Riyadh.

And what the Lebanese are most awaiting at the moment – in the opinion of Ali Noureddine – is the fate of remittances from the Gulf to Lebanon, where there are great hopes that Saudi Arabia will not include them later in the basket of sanctions and boycotts.

The economist explained that 37% of remittances in dollars come from the Gulf, out of about 7 billion dollars that reach Lebanon annually.

On the other hand, Noureddine highlights the indirect repercussions of the Saudi boycott, which may pose a major threat to Najib Mikati’s government in developing a recovery plan, including:

  • One of the factors that the various parties are anticipating is the Lebanese state’s negotiations with creditors and the International Monetary Fund, because the state’s ability to restore its financial recovery in the future will be reviewed when the most prominent financial pole in the Middle East boycotts it, and the negotiating field between the state and creditors becomes fragile.

Noureddine concludes, recalling that Lebanon is in a fragile position, and its chances of peer negotiation are weak, and calls on the authorities to deal pragmatically with the Saudi crisis, otherwise the country will be subject to all kinds of pressure from abroad.

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