Grand Theft Lebanon

14 April 2020

A previously unavailable dataset sheds new light on the causes and timing of Lebanon’s economic collapse. The crash could easily have been foreseen—and mitigated—had such data been available to the public in years past. But Lebanon has long obscured its own malfunctions by dismantling the structures needed to produce reliable figures, notably in the realm of economic activity. As the prospect of a financial breakdown began to loom, starting in 2017, the country published no plausible numbers for GDP, central bank reserves or unemployment. Instead, it relied primarily on opaque and self-serving “indicators” cobbled together by its banks. 

The dataset released by Shinmimlam, which describes itself as a collective of local software engineers promoting transparency, may be the first instance in Lebanon of a platform offering comprehensive, easily-accessible public information. It documents the creation of businesses of all kinds as recorded in the commercial register, enabling users to rigorously research topics that are otherwise discussed only in terms of rumors and generalities. Lebanese law requires that these files be published transparently, although the commercial register makes them extremely difficult to navigate, by restricting access to one form per query. Shinmimlam simplifies the process, compiling raw data from the commercial register to illustrate the connections between businesses and businesspeople through time and across the country. 

While Synaps could not ascertain the identity of Shinmimlam’s creators, we found no cause to doubt the general integrity of the dataset, which systematically links back to the commercial register itself. What few anomalies do appear on the Shinmimlam tool, such as the lack of accurate data for South Lebanon and Mount Lebanon post-2014, feature in the original source itself. 

Although the dataset holds potent information on specific personalities and companies, digging into individual cases belongs to investigative journalism and the judiciary. Analyzing the macrotrends, however, is equally revealing and in line with Synaps’ focus on socioeconomic dynamics and data visualization. We thus worked on aggregated data that omits personal information while tracking various facets of business creation over the years—such as the numbers of companies created by type or sector, the nationality of shareholders, and so on. These curves provide a remarkably truthful measure of the country’s formal economic activity. The end result is a graphic timeline showing the rhythm and increasingly tragic incongruities of Lebanon’s economic saga.

Crises stimulate business in Lebanon

The most striking aspect of this general overview is the contrast between what Lebanese would consider the country’s golden age—the 50s and 60s—and the decades of crises that ensue. During the so-called golden age, economic activity, as measured by the registration of new companies reflecting either new opportunities or more available capital, grows steadily, at an average rate of 15% year on year. However, compared to the rest of the graph, it shows how much more dynamic Lebanon became during the years of turmoil—that started with the first clashes in Beirut between Christian and Palestinian militias in 1970. 

Although the onset of the civil war, in 1975, caused a sudden dive in economic activity, the rest of the conflict coincided with intense but erratic growth: While an average of 1,200 businesses were registered annually in the 50s and 60s, that number jumps more than five-fold, to 6,700, between 1976 and 1990. 

It then explodes in the war’s immediate aftermath, but that rebound is short-lived. Intriguingly, activity stabilizes but decreases significantly between 1994 and 2008, with only 5,600 companies registered annually on average. This slow-down corresponds to a dramatic shift in the nature of the economy, ushered in by then prime minister Rafic Hariri. Indeed, 1994 marks the start of Lebanon’s rentier economy, with wealth concentrated in the hands of fewer companies that then redistribute through shareholders: The real estate magnate Solidere, founded that year, was and remains the flagship in a fleet of such vehicles. 

The 1997 “peg,” which artificially fixed the Lebanese pound to the dollar, subsequently served to anchor the rentier economy. On one hand, it became more profitable to import than to produce locally. On the other, investing capital in unproductive economic sectors—namely Lebanese financial products and real estate—became increasingly attractive as the risk of devaluation receded. 

The last notable phase in the timeline is the dome-shaped bubble that appears between 2008 and 2014. On the face of it, this boom fits neatly in the interlude between the global financial crisis—which benefited Lebanon through the repatriation of capital—and the oil price bust, which sharply reduced profits, investments, and remittances originating in the Gulf. But there is much more to this bubble, as subsequent graphs will show. 

Beirut and Mount Lebanon dominate the economy

An essential aspect of war-time economic dynamics appears in this graph, which shows the geographic distribution of annual corporate registrations. In short, prior to the outbreak of violence, the country’s formal economy was almost entirely centered on Beirut. The war accelerated the gradual redistribution of formal economic activity to Mount Lebanon and, to a lesser degree, North Lebanon and the Bekaa Valley. It also brought in an entirely new player: South Lebanon, where 13,000 companies were registered during the civil war. The civil war indeed split Lebanon into areas enjoying limited contact with one another.  These peripheries rose economically while Beirut turned into a battle ground.

The other major turning point again occurs in 1994, when this trend toward decentralization is suddenly reversed in favor of economic consolidation in the capital and its surroundings. Such concentration is one of the hallmarks of the Rafic Hariri era, further discussed below. 

From small scale business to sharing the spoils

The transformation of the economy’s structure is also visible in the changing distribution of business types. This graph shows, in the top left, the disappearance of foreign company branches, as Lebanon ceased long before the war to be an attractive base for international firms. It indicates that, until 1994, formally registered economic activity took modest forms: single-person businesses (Tajer and Muassasa); associations whose partners are jointly, unlimitedly, and personally liable, typically reflecting mutual trust around a small-scale venture (Tadhamon); and structures specifically designed to bring together the capital of investors and the experience of managing partners, in medium-sized and often productive endeavors (Tawsia basita). 

After 1994, almost half the companies created involve distributing shares and trading stock, in often larger and more connected corporations. Businesses are also increasingly dematerialized, with the growth of holdings and offshores. In other word, the economy shifts in large part from entrepreneurs to shareholders, mirroring the expansion of the rent economy. 

Lebanon is a refuge more than a magnet

A closer look at the breakdown of Arab nationalities appearing in the dataset, in post-war years, provides interesting insights into Lebanon’s ability to attract foreign direct investment. This graph shows the number of Saudi, Iraqi, and Egyptian shareholders in new Lebanese companies. Specifically, FDI appears closely linked to disruptions caused by instability and conflict elsewhere. The influx of Saudi shareholders, for instance, correlates with Rafic and Saad Hariri’s tenures as prime ministers, but seems to have been boosted primarily by 9/11 and the subsequent repatriation of Saudi funds invested in the United States and Europe to the Arab region, including Lebanon. The rapid uptick of Iraqi shareholders closely follows the levels of violence in Iraq from the US invasion up to the oil crash. Egyptian involvement, for its part, peaked with the Arab spring.

The Syrian war's windfall

One of the most counterintuitive findings in the dataset relates to the effects of the Syrian civil war on Lebanon’s economy, which popular and governmental narratives depict as exclusively negative. The interconnected nature of the Syrian and Lebanese economies appears clearly here, with Syrian nationals representing by far the most active foreign businessmen throughout Lebanon’s modern history. Their role surpasses that of other Arabs at virtually every point in time—notably in the mid-1960s, when a wave a nationalizations in the region spurred the relocation of capital to Beirut, making Lebanon the so-called “Switzerland of the Middle East.” The graph suggests, however, a much larger relocation of economic actors in 2013, when civil strife in Syria reached a tipping point, promising to last for years and become ever more destructive. 

Lebanon's financial spectrogram reveals the leading role of the state

At the heart of the Lebanese economy lies an unusually dense banking sector, which emerged during the golden age and was central to shaping the country’s image as a hub for financial and other services. Between 1944 and 1970, no less than 52 banking institutions were founded—representing half of all such establishments created to this day. The graph above proves a straightforward but critical point: The financial sector’s development is a matter of state policy, with new regulations determining to a large extent its level of activity. What is important here is the counterpoint made evident by the following graph. 

When business comes before governance

Not all sectors are driven by government policy. The oil and gas sector remained unregulated until 2010, long after interest in the matter surfaced. Indeed the sector, globally, is one of the most lucrative and, if well-managed, productive in terms of indirect job-creation. In the 2000s, approximately 200 new companies mentioning oil in their corporate description emerged in the absence of any clear legislation. Here the creation of companies—involving, in some cases, top politicians—largely predates the sector’s formalization, which remains largely incomplete to this day. This delay reflects the expense and difficulty of institutionalizing such a complex industry, which requires a functioning state apparatus. Institutional processes thus lagged behind the prospects of quick gains. 

The rent economy gets out of control

Real estate, by contrast, is a speculative sector that lends itself perfectly to the rentier nature of the Lebanese economy. This graph shows not a rise in real estate companies per se, but the fluctuating interest in buying, selling, and leasing properties on the part of companies of all kinds: Those featuring here incorporated in their description some reference to real estate transactions. This became a standard practice as the rent economy kicked in after the civil war, developing spectacularly despite the 2005 assassination of Hariri and the 2006 war with Israel, and climaxing between 2008 and 2014. Rising, artificially high prices made for a self-sustaining dynamic, diverting potential investments from more productive sectors of the economy. 

The Lebanese Ponzi scheme: follow the money

Lebanon’s economic crisis has been long in the making, as the wartime boom and the rentier economy both hid and fostered the country’s structural weaknesses.Yet this final graph captures the causes and timing of its actual bankruptcy. It highlights the sudden explosion of companies dedicated to speculating on the country’s sovereign debt, by purchasing Treasury bonds with inflated, unsustainable interest rates. These companies are almost exclusively offshore, hardly pay taxes, and thus embody the evermore extractive and unproductive nature of Lebanon’s economy.

This curve mirrors almost precisely the evolution of Lebanon’s international credit ratings. In 2008, the outlook shifts from stable to positive. In 2009, Lebanon is granted a B2 grade, and improves to B1 the following year. By 2013, the outlook is back to negative, and 2014 sees the first downgrading in a series that ultimately leads the country to “junk” status—warning investors that their bonds are not likely to get reimbursed, and thus deterring further investments.

The brief rebound in 2017 reflects the intense financial engineering orchestrated by the central bank and commonly known as “the swaps,” designed to return dollar liquidity to the central bank. From that point on, Lebanon redistributed increasingly high returns on financial products derived from sovereign debt in an attempt to sustain a speculative bubble that was already giving all the signs of bursting. Publishing such trends at the time would have made that clear to all.

The original 2008 takeoff, which is partly related to the global economic crisis, is best understood through the lens of local politics. This is the year when Lebanon’s factions signed onto the Doha Agreement, tamping down a phase of extreme and even violent political polarization. Lebanon’s leading parties thereafter settled into an unprecedented power-sharing formula, involving all the factions that grew out of the civil war. For the first time in decades, the country was neither subjected to foreign dictates nor paralyzed by internal strife. The latter, however debilitating, also imposed certain constraints on otherwise unregulated crony capitalism.

The national unity government formed in 2008 lifted these checks, inaugurating an economic free-for-all. While the government failed to articulate any economic policy to speak of, and stalled on all promised reforms, it condoned a gold rush, with the country’s current and future assets as the prize.


Rosalie Berthier and Peter Harling

Grateful illustration credits: vice.city by Patricio Betteo / copy right 2016-2020 Betteo.

Monetising Syrian refugees


Lebanon's contortionist middle-class


Abracada...broke

Lebanon's banking on magic