BrazilLebanon calls in consulting firm McKinsey to revamp its economy
Lebanon is hiring management consulting firm McKinsey & Company as the nation bids to restructure its economy. As is the case for the majority of Middle Eastern economies, Lebanon has, until recently, been dependent on one or two areas of strength. In the case of Lebanon, this took shape as a dependency on remittances and banking – something which has left the country in the midst of a debt crisis.
With at least three times as many Lebanese living abroad than in Lebanon, the country’s economy is for a large part sustained by remittances which have continued to flow in, particularly from (high-ranked) Lebanese nationals in Gulf and African countries. Banks have used this money to buy government debt, but this now stands at 150% of economic output according to the Lebanese Government, one of the world’s highest ratios alongside Japan and the beleaguered economy of Greece. Lebanon’s trade deficit meanwhile hit $11.8 billion in Q4 last year, with exports of $2.1 billion lagging behind a heavy reliance on imports at $13.9 billion.
With foreign reserves standing at a record level of $43 billion, the Lebanese currency has been able to survive numerous domestic political storms, including several which have been dealt with without a President or Prime Minister – Lebanon had not set a domestic budget for 12 years until parliament passed one last year. However, the influx of 1.5 million Syrian refugees since 2011 has seen the sustainability of this model strained. The Economy and Trade Minister contended that this could see Lebanon’s debt-to-GDP ratio climb even higher, to 170%, in the next few years. Analysts are suggesting Lebanon should aspire to emulate the economy of Singapore, another small country with many ethnic groups.
Moreover, the country – known as the Paris of the Middle East – grapples with high unemployment (despite its population across the board being relatively highly educated), with youth unemployment over 35% in the last figures available.
In a bid to help Lebanon advance its economy, Economy and Trade Minister Raed Khoury has confirmed that US consulting giant McKinsey & Company has been drafted in to support the development of a strategic economic roadmap, with the aim of bringing the country back to its flourishing times last seen in the mid 2000s. Meanwhile, back in the 50s, Lebanon was in terms of GDP per capita one of the globe's top five nations, among the likes of the Americans and the Swiss.
A “tricky” prospect
The six-month agreement with the Arab world’s most indebted nation will see McKinsey start work with various ministries and economic bodies to formulate a new economic vision. According to Khoury, a former Barclays Wealth banker and founder of Cedrus Invest Bank; “The first thing we want to do is to identify our economic identity and then go to more specific things.”
In order to deliver this, McKinsey will first need to analyse and quantify various areas, including services, financial flows and parallel economies, such as the one controlled by the Iranian-backed Hezbollah group; something which David Butter, an associate fellow at Chatham House, believes is easier said than done. The London-based expert at the Royal Institute for International Affairs said such strategic plans “might not do any harm, but in the case of Lebanon it’s a bit more tricky… [This is because] you have a lot of grey areas which might be difficult to put into the context of some sort of a strategic plan.”
McKinsey are also involved in the high-profile revamping of the Saudi Arabian economy. The Kingdom, which is likewise plagued by youth unemployment over the 30% threshold, had been making drastic efforts to restructure its previously oil-dependent economic model. McKinsey has since been tasked by the Saudi monarchy with assisting in the implementation of this restructuring, with the Deputy Crown Prince Mohammed bin Salman’s Vision 2030 aiming to boost the private sector and reduce unemployment.
