A few months ago, the Lebanese Anti-Bribery Network—an initiative of the Lebanese Transparency Association (LTA) supported by CIPE—organized a roundtable in Beirut to discuss a draft policy paper on good governance in the Lebanese electricity sector, with representatives of the national utilities company Electricité du Liban present. In an eerie strike of irony, an hour into the event, the hotel hosting the roundtable experienced a power shortage that resulted in a brief blackout.
A recent working paper by the International Monetary Fund (IMF) indicated that reducing electricity constraints to business could raise per capita GDP by up to two percent annually. The paper argued that electricity constraints, a labor skill shortage and insufficient access to finance for businesses are costing the Lebanese economy up to 4.3 percent in real per capita GDP growth per year. It noted that 61 percent of firms in the country consider electricity shortages to be a major obstacle to their work, which is similar to the West Bank & Gaza’s figure of 64 percent, and is much higher the in other economies in the region that either have a high population or lack natural resources.
In comparison, 40 percent of firms in the Middle East and North Africa consider electricity problems to be an obstacle to their work, compared to 34 percent of firms around the world and six percent of firms in OECD economies. If electricity constraints in Lebanon are reduced to the world average, then it would lead to an improvement in the country’s real per capita GDP growth of one percent; if such obstacles are reduced to OECD levels, then the countries real per capita growth could gain 1.9 percent annually. The paper also noted that if electricity-related obstacles are reduced in its sample of Arab countries in the region suffering from such problems, then Lebanon would benefit the most in terms of real GDP growth, which reflects the poor state of the electricity sector in the country and the opportunity cost to the economy.
Reducing the electricity-related obstacles requires not only more public investment in the electricity network, but also greater private sector participation in the generation, transmission and distribution of electricity, including through greater use of public-private partnerships. Greater private sector involvement is especially needed in countries facing fiscal pressures like Lebanon.
Published Date: February 23, 2010