Beirut explosion: How the port blast will hit Lebanon’s economy
The huge explosion at Beirut’s port is a crippling blow to a country that had been reeling from a political and financial crisis, a depreciating currency and the Covid-19 pandemic. Economic damage from the blast is being estimated in the billions of dollars.
“It’s hard to imagine the financial cost of this disaster, it is in the billions. The port is completely destroyed, and much of the city is damaged. Who will pay for the reconstruction of Beirut?” said Laury Haytayan, a Beirut-based expert at the National Resource Institute.
Beirut port, which was the epicentre of the explosion, is the country’s main logistics hub and its deepest sea port.
‘The disaster will have a dramatic impact on food security. Bread prices were already up, spiking food prices will go up further, and 50 percent of Lebanese are under the poverty line’
– Martin Keulertz, AUB
“It was the beating heart of the country as it provided around 80 percent of imported goods, which kept the economy moving,” said Sami Halabi, director of knowledge and co-founder of Triangle Consulting in Beirut.
The closure of the port threatens food security in the country, which is import reliant for an estimated 65-85 percent of food needs, according to a Triangle report. Some 15,000 tonnes of wheat had been stored at the port’s silos.
“The disaster will have a dramatic impact on food security. Bread prices were already up, spiking food prices will go up further, and 50 percent of Lebanese are under the poverty line. This is the perfect storm over the next several months,” said Martin Keulertz, assistant professor in the food security programme at the American University of Beirut.
The country’s second port, in Tripoli 80km north of the capital, is significantly smaller than Beirut’s and will struggle to handle additional cargo volumes.
“Tripoli is not really fitted out to deal with the amount of food imports needed. There is an absolute urgency to import, and the government doesn’t have the foreign currency to do that,” said Halabi.
A third shock
The disaster is the third shock to hit the country since protests erupted in October 2019, and the economic impact of the coronavirus pandemic.
Despite banks imposing informal capital controls to limit cash withdrawals, over $25bn has flowed out of the country over the past year, while the Lebanese lira has depreciated by around 80 percent to the US dollar. Public debt has also skyrocketed to $92bn, equivalent to over 170 percent of GDP.
With foreign currency having dried up, importers had been struggling to pay for goods, reflected in imports dropping by 50 percent this year, according to Lebanese Customs authority data.
The impact of the explosion on the economy could cause further falls in the lira, which has dropped from LL1,507 to the dollar to over LL8,000, which would make imports even more expensive.
“Once the markets open the lira will take a hit, but the extent of that is as yet unknown. Whatever local demand there was for lira, it is going to be dampened by people having even less economic prospects than before,” said Halabi.
Lebanese in Beirut Souks shopping mall inspect the damage in the aftermath of yesterday’s blast (AFP)
The ongoing ramifications of the financial crisis will impede the economy’s ability to rebound from the explosion.
“How will businesses start up again when there are capital controls that don’t let people take money out of banks? And with a fluctuating black market rate for currency? It’s a complete disaster,” said Haytayan.
Across the board, the Lebanese economy has been on the decline, with construction permits down 60 percent, car sales down 70 percent and tourism down by half this year on 2019.
“Everything is at a standstill, and putting it all back together again will be difficult as many people had not taken out insurance to cover for this type of disaster, and the insurance companies are tied to the banking sector, which was in the doldrums due to the financial crisis,” said Halabi.
“Many businesses will not recover.” Source