Energy Sector Short-Circuiting Economic Growth in Lebanon

Panel on energy reform. (Photo: Wilson Center)

Yesterday, CIPE, in partnership with the Safadi Foundation, Stanford’s Center on Democracy, Development, and the Rule of Law, and the Woodrow Wilson International Center for Scholars, held a conference entitled “In the Middle of the Storm: Development and Governance in the Arab World.” As part of the conference, CIPE Executive Director John D. Sullivan moderated a panel on energy reform and economic development in the Arab world.

During the panel, Safadi Scholar of the Year Katarina Uherova Hasbani presented a paper on electricity sector reform in Lebanon. Hasbani described electricity provision in Lebanon as woefully inefficient. According to Hasbani, due to an inefficient state electricity monopoly, Lebanese households and businesses deal with blackouts that average six hours a day. With a quarter of their needs unmet by the state, those who can afford them employ generators to fill the gap.

This arrangement causes significant social and economic harm to the country. Businesses and households must pay more for poorer service. Aside from the harmful environmental impact of generators, their high cost widens socioeconomic inequality by making consistent electricity a privilege of the wealthy and “well connected.” Finally, subsidies to the state-owned Electricite du Liban, which absorb 20% of the annual state budget, drive up interest rates on loans that could otherwise finance job-creating enterprises.

This status quo is unsustainable. According to Hasbani, Lebanon needs to form a broad-based coalition that includes members of government, the private sector, and civil society to develop a more efficient national energy strategy and implement it.

Lebanon is not alone in its energy sector shortcomings. Panel member Inger Andersen, vice president of the Middle East and North Africa division of the World Bank, painted a dire picture of the dampening effect of shoddy service provision on the ability of people throughout the region to open businesses and grow them to create jobs.

According to Andersen, the average business in the Arab world must wait nearly two months to be connected to the power grid and spend an exorbitant amount of money for electricity that is frequently and often unpredictably interrupted. The cost to the average business in the Arab world of this shoddy service is about 4.3 percent a year.

Poor energy sector governance is symptomatic of larger governance shortcomings in the region. During the panel, Under Secretary of State for Economic, Energy and Agricultural Affairs Robert D. Hormats pointed to a heavy state role in the economy as a major factor hindering entrepreneurship throughout the region. According to Hormats, longstanding economic problems coupled with the dislocation of transition have produced stagnation that could threaten transitions to democracy.

Throughout the Arab world this year, people have called for a change far deeper than a reshuffling of leaders. Rather, in calling for freedom, dignity, and opportunity, people in Arab countries have demanded a new social contract. While energy sector reform may not grab the headlines that national elections and the formation of new political parties can, it is nonetheless a key piece of rewriting the social contract in the Arab world.

Under the old contract, Arab governments controlled the allocation of services and jobs in order to co-opt support. This social contract produced shoddy services and economies incapable of delivering widespread dignity.

Under a new social contract, citizens will most likely hold governments more accountable for their ability to protect their political rights. They will also demand that those governments allow them the opportunity to prosper, too. Better governance is essential for creating that environment and honoring that contract.