Israel's War Fears Damage to Lebanon's Struggling Economy

 

Image Source: Al-Jazeera

An 80 percent reduction has been observed in cafes. Tourism is falling sharply and airlines are reducing flights. Lebanon's economy minister fears a return to the 'dark ages' if the war escalates.

Yara Adaa, 28, sits at the window of her bakery and coffee shop in Jemayze, a lively Beirut neighborhood known for its bars and restaurants.

Ada is there. “We are swatting flies,” she says.

Behind him, the counter is piled high with pastries, the coffee machine is silent and the chairs and stools, usually full, are empty. Since the start of the conflict between Hamas and Israel, this has been the scene at Adaa's coffee shop and many other businesses as fears grow that the country could be pushed into war with Israel.

"We've seen more than a 50 percent drop in customers," Adada said. A typical buzzing coffee shop gets between 30 and 35 customers a day. "Now, on a good day, I have 10 to 15. It's already noon today and I only had one."

"Yesterday I only made $4. It's terrible," he said.

Economic 'distress'

According to Lebanon's Syndicate of Restaurants, Nightclubs and Cafes, business in the restaurant sector has dropped by 80 percent since Oct. 7 and the start of the firefight between Hezbollah and Israel in southern Lebanon.

Tourism, responsible for 20 percent of Lebanon's gross domestic product (GDP), has been badly affected. In view of the disturbing situation on the border, Australia, France, Germany, the United Kingdom, the United States and many other countries have not only urged their citizens not to visit Lebanon, but have also advised people in the country to leave when That there are commercial activities going on. Flights are available.

The warning came as airlines such as Lufthansa, Swiss and Saudia canceled their flights. On October 20, Lebanese flag carrier Middle East Airlines announced that it was reducing its flights "due to ongoing conditions in the region and a reduction in insurance coverage for wartime aviation risks".

The decision, which has been criticized by the government, has led to an 80 percent reduction in Lebanese airline flights. At Beirut Airport – the country's only airport – there are now few planes on the tarmac, no queues, and hardly any passengers.

"The restaurant [sector] has been completely destroyed," Nagy Morkos of Lebanon-based consultancy firm Houdima told Al Jazeera. Morcos, who works with restaurants, hotels, resorts and malls, said operators are "concerned."

"The biggest concern is not the war, it's the stagnation that will keep things like this for months. So it's more torture than death," Morcos said. "A war, yes, it's terrible, but a war. There is a time. Here we don't know, it's a wait and see situation.

"We feel trapped and it's very bad for business, very bad for tourism, very bad for the hospitality sector and very bad for investment."

It's Not 2006 Anymore

On October 22, the Lebanese government announced that it was preparing a contingency plan in the event of war. These measures include securing key infrastructure such as Beirut's airport, ports and main roads, all of which were bombed by Israel during the 2006 conflict with Hezbollah.

But Lebanon and the region are in a different, more challenging, situation than in 2006: Lebanon's banking system was relatively normal at the time, allowing the central bank to provide liquidity to banks if necessary during the war. Similarly, there was still confidence in the financial system and millions of Lebanese expatriates were still sending foreign currency into the country.

In 2006, although Beirut's airport was bombed, Middle East Airlines continued to operate from Damascus during the month-long conflict and supplies and people were still able to fly to and from Syria. But the war in Syria and continued Israeli airstrikes on Damascus airport mean that option is gone.

Lebanon also depends almost entirely on imports for food, fuel and medicine, 70 to 80 percent of which comes by sea.

In 2006, the country's ports were unusable due to the threat of Israeli warships, but Lebanon could fall on healthy reserves, such as grain, stored in silos at the port of Beirut, which could be destroyed by a 2020 port explosion. have done

The half-destroyed port can still be seen from the office of Amin Salam, Lebanon's economy minister.

He told Al Jazeera that Lebanon is in worse shape than ever and that food security is one of the main concerns for the government as it prepares its contingency plan for a possible war.

Lebanon at Risk of Food Security 'disaster'

Lebanon's current reserves of food, fuel and medicine are only enough for two to three months, the minister said, adding that reserves should normally be enough to last "about a year."

"[B]ecause of the lack of vision of the previous governments, no one thought of creating many sites for national reserves. Everything was kept in the port of Beirut and when the explosion happened, we had the only national reserve we had. "So if it's not delivered to the port, we don't have wheat, we don't have grain, we don't have bread."

Salam said the government is working with private partners to increase delivery of basic commodities in the coming weeks. However, vendors are asking for advance payments "because they know [Lebanon's] banking system is paralyzed … so it's like creating another layer of barriers", he explained.

Hani Bouhsali, president of the Syndicate of Food Importers in Lebanon (IFBC), was one of the representatives who met with Salam.

He told Al Jazeera that insurance companies for the maritime shipping industry, like aviation, have started charging premiums or dropping their war coverage altogether, resulting in a 3 percent drop in consumer good prices. Inflation is happening.

"If I bring my shipment without war insurance and then the port is affected and my cargo is lost, who will compensate me? No one… People can [reduce] their information to reduce their risks. are],'' he said.

Bouhsali is confident that current shipments to Lebanon will not be affected. But while future orders have not been canceled so far, the situation will have to be reviewed "on a day-to-day basis".

"Let's put it in a very blunt way: Realistically, we don't know. Nobody knows," Bohsali said. "If war breaks out, what can you do if the Syrian border is closed and the seas are blocked? Even if you make 100 contingency plans, it's a waste of time if you don't know what will happen.

"So what we, the private sector, are calling for is asking the government to do everything it can to stop the war, because that's the only option."

'Forget tomorrow, trade today'

Salam acknowledges that Lebanon is at risk of a "catastrophe" if war breaks out. But, he admits, the country's financial woes did not begin on October 7.

When he took office in 2021, Lebanon was already facing one of the worst financial crises of modern times, with losses exceeding $72bn, a 98% devaluation of the national currency, 80% of the population below the poverty line. was living below, and the central bank collapsed when its governor was accused of defrauding the public finances of $330 million.

An agreed $3 billion loan from the International Monetary Fund has been seen as a light at the end of the tunnel, but implementation of these reforms has been slow.

"What's happening now is adding another layer of chaos and a lack of focus on the reforms needed to rebuild the Lebanese economy because ... when something like this escalates, it gives us 10 Takes a step back," Salam told Al Jazeera. “When you're operating in crisis mode, you forget about yesterday, you have to deal with today.

"[O]ur infrastructure is very, very, very bad. And our economy is in a very difficult place," the minister said. "We can't afford even a slight increase."

A High Price to Pay

Ada, the cafe owner, knows well the burden of the "crisis cycle" in Lebanon: the 28-year-old became unemployed after the 2019 financial collapse and remained unemployed during the pandemic and the Beirut port explosion. Gemmayze was one of the first shops to open in the neighborhood opposite the harbor after the explosion.

He said almost everyone he knew warned him against opening a business in Lebanon. But it was his dream to stay and help the economy. "This is home," he said.

She is not giving up yet. Despite the high cost of utilities and rising prices of ingredients, Adada has enough savings to run the shop for at least six months.

"If war breaks out, I may close shop for a while but I worry about my employees and other stores that are not so lucky," she said.

Adaa sympathizes with the Palestinian people and their struggle, but is well aware that Lebanon may have to pay the price.

It is a complex sentiment shared by many in Lebanon. "We can't be selfish but we have to," says Ada, looking out the window.

A few cars pass by outside. Even less pedestrians generally walk around a vibrant neighborhood.

"Lebanon doesn't deserve this, we've been through enough," she says. "Just let us breathe."

(Courtesy: Al-Jazeera)