So That Lebanon's Anticipated Oil and Gas Revenues Do Not Become a Curse
Following the demarcation of the southern maritime border of Lebanon's Exclusive Economic Zone at the end of 2022, it is worth pointing out that the promised oil and gas wealth faces formidable obstacles, and that its repercussions on the national economy once extracted are not limited to positive effects, but rather include negative ones as well. These obstacles range from technical difficulties to geopolitical impediments, which usually precede the start of production, whereas both the positive and negative repercussions of the revenues on the economy crystallize after production begins.
Technical difficulties relate to the nature of the geological strata targeted for drilling and the availability of suitable technologies, whereas exploiting oil and gas depends on making commercial discoveries that offset the cost of extraction and yield a rewarding rate of profit. As important as it is to grasp the technical difficulties that may hinder drilling, development and extraction operations, shedding light on the geopolitical impediments and the repercussions of oil and gas revenues on the national economy may be of greater interest to observers.
Geopolitical impediments are exemplified, for instance, by TotalEnergies' unjustified halt to drilling in Block 4 before reaching a conclusive finding on whether gas is present or not, as well as by its refraining from commencing exploratory drilling in Block 9, located in the south of the Exclusive Economic Zone, pending an agreement on demarcating the borders of the economic zone with Israel.
Notably, the signing of the demarcation agreement does not necessarily mean an end to geopolitical pressures on Lebanon, as Israel and its sponsors remain keen, both directly and indirectly, on delaying Lebanon's move to exploit its oil wealth, aided in this by the persistent disputes among political factions and their prioritization of personal and sectarian interests over the national interest.
The negative repercussions of oil and gas revenues on producing countries are known as the resource curse, and the Netherlands was among the first countries to suffer from it, to the point that this curse came to be called Dutch disease. Economies exposed to the resource curse face five challenges accompanying production, which lie in an appreciation of the national currency's exchange rate and its inflationary effects, the neglect of the productive industrial and agricultural sectors, the emergence of unsustainable patterns of saving and investment, insufficient saving, and delayed adjustment to the contraction that follows a revenue boom.
The risks of the resource curse grow more acute in countries suffering from weak institutions, the absence of good governance in investing their revenues, and rampant corruption and mismanagement, with Nigeria, which continues to flounder in poverty despite the abundance of its oil resources, serving as a prime example of this curse. While oil and gas revenues in developed countries entail inflationary complications and a slowdown in productive sectors, corruption and mismanagement in developing countries squander these revenues and prevent their use in developing and advancing their economies and societies, which grow increasingly backward and impoverished.
While there is no reason to fear the complications of Dutch disease for Lebanon, given the Lebanese economy's neglect of productive activities and the confinement of its exports to a tiny fraction compared with its imports, corruption, the erosion of the Lebanese state and the disintegration of its institutions constitute the primary danger threatening the loss of the promised oil and gas revenues. Reinforcing these fears is the abyss to which Lebanon has sunk despite financial inflows amounting to nearly $800 billion since the early 1990s, inflows that neither prevented the growth of the public debt nor contributed to encouraging the productive sectors.
Conversely, hopes are pinned on the cash flows generated by oil and gas revenues to achieve economic growth and sustainable economic and social development that meet the needs of present generations while preserving the right of future generations to their national wealth. This requires saving and investing a portion of the revenues so as to guarantee future generations a dignified life. That, in turn, necessitates the establishment of a state capable of enforcing the law and achieving justice and development, a state free from political and administrative corruption and working to build a productive and diversified national economy.
Preventing the fallout of the resource curse requires establishing a state of law and institutions in which all branches of government, whether legislative, executive or judicial, are subject to the law, where the final word belongs to the law, above which nothing stands, and where accountability and oversight prevail and transparency and the right of access to information are guaranteed. Growth and development likewise require an independent and credible judiciary working to uphold rights and administer justice among citizens.
Only a state governed by the rule of law is capable of combating political and administrative corruption and stopping those preying on public funds from securing gains at the expense of the nation and its citizens. This calls for establishing special courts to hear corruption cases, endowed with broad powers to prosecute perpetrators, and expected to adjudicate the cases brought before their judges swiftly so that their rulings serve as a deterrent to anyone tempted to encroach upon public funds.
Combating political and administrative corruption requires activating the role of the Court of Audit and supplying it with the appropriate competencies and specializations to carry out the mission entrusted to it of monitoring public expenditure and ensuring that officials authorized to commit expenditures, along with everyone involved in procurement, receipt, storage and bookkeeping, adhere to legal and accounting rules. Activating the Court of Audit also encompasses modernizing and accelerating oversight tools by adopting advanced electronic software and cashless payment systems that enhance transparency and facilitate monitoring and auditing operations.
Overcoming the resource curse calls for building a productive economy that restores balanced growth, which necessitates working to develop various productive sectors and leveraging those that enjoy comparative advantages to support and develop the remaining sectors. Above all, appropriate economic plans should be drawn up for the optimal use of anticipated oil revenues, one of the most prominent sources of economic rent, provided that these plans take into account the building of a diversified economy in which different sectors play complementary roles.
A sovereign wealth fund constitutes the financial portfolio and investment arm of a state of law and institutions, aimed at investing a portion of oil and gas revenues and accumulating them as tangible assets, particularly in foreign currencies. This makes it possible to preserve this wealth in the form of productive financial reserves that cover part of current expenditure, employing more than one investment strategy to achieve targeted financial returns aligned with its objectives while preserving the principal so that its benefits extend to future generations.
By contrast, the performance of the political class and its successive governments gives observers little reason for optimism that solutions to the financial and economic crisis in which Lebanon is floundering will soon be found, and discourages betting on this class's ability to devise appropriate programs for the future of anticipated oil and gas revenues and to ward off the resource curse. This makes radical and comprehensive change the sole path for Lebanon to rise from its downfall, ushering in a state of law in place of lawlessness, and a state of institutions in place of patronage. In its wake would prevail a state in which the constitution is the point of reference and the law is the standard, where responsibility is assumed by people of competence rather than relatives and cronies, and whose performance is defined by transparency, oversight and accountability.
Translated from Arabic with AI. Read it in Arabic