Monetising Syrian refugees

Syrian refugees are, perhaps now more than ever, a vital component of Lebanon’s fragile economy. Critics should thus be careful what they wish for: a large-scale departure of Syrian refugees might well do even more harm than good. It goes without saying that Lebanon, a small country with limited means, deserves both praise and material support for absorbing neighbouring Syrians in their moment of need, at high costs to its own society. This influx created additional stress on Lebanon’s resources in a whole range of areas, from security functions to administrative capacities, schooling and transport, all the way through to water consumption.

Nevertheless, in recent years Lebanese politicians have been quick to go the extra mile, scapegoating Syrians for all of Lebanon’s social and economic ills, notably a stagnant economy and decaying public infrastructure. For anyone who cares to look, however, this narrative suffers from two glaring defects. On one hand, the influx of more than 1 million refugees since 2011 has not so much created new problems as exacerbated old ones, which are in turn rooted in decades of defective governance and bad economic policy. On the other, politicians tend to exaggerate the negative impact of the Syrian influx while papering over its more positive side-effects.

The absence of precise data about refugees in Lebanon invites speculation and fear-mongering. Surprisingly, given the all-importance accorded to the issue, it is impossible to accurately determine the number of Syrians residing in Lebanon. Indeed, Lebanese authorities suspended, as of 6 May 2015, UNHCR’s registration process for new arrivals, rescinding their previous open-door policy; the formal count therefore stopped just over 1.2 million. The Syrian influx added to an existing, indeterminate number of Palestinian refugees, estimated anywhere between 150,000 and 500,000 (although an unprecedented census is expected to soon lift this ambiguity). Lebanese politicians routinely decry “refugees” in general, sometimes implicitly bundling Syrian newcomers with Palestinians who have lived in the country for up to 70 years, and whose long-standing presence has little discernible relationship to the country’s recent economic slump.

The chronology below illustrates how such speculation has underpinned populist rhetoric, heating up in the context of general elections scheduled in 2018.

As elections approach, politicians have taken to calling for Syrians to leave the country in an attempt to rally their constituencies. In such a combustible climate, it has become both increasingly difficult and increasingly vital to pursue a level-headed view on what has become the “economy of refugees.”

In fairness, Syria’s civil war has indeed dealt a considerable blow to Lebanon’s economy: at the end of 2015, the World Bank estimated that the Syrian crisis had cost Lebanon some $18 billion. Much of this damage, however, has nothing to do with refugees, and everything to do with the war’s broader economic implications.

Most obviously, the conflict dramatically undermined Lebanese exports, which dropped by half—from about $5 billion to 2.4 billion—between 2010 and 2015. A large chunk of this decrease followed the 2014 closure of Syria’s southern border with Jordan, which in turn shut off the land route through which Lebanon had long shipped goods to the Arabian Peninsula.

Somewhat more subtly, the conflict disrupted various value chains that linked Syrian and Lebanese markets. For example, the import of cheap Syrian industrial supplies declined drastically after 2011, forcing Lebanese manufacturers to rely on alternative sources of raw material. Lebanese processing of Syrian agricultural output similarly plummeted. The war also eroded tourism, with travelers either fearing violence, or put off by the fact that they could no longer combine Lebanon with Syria—a two-in-one formula that represented a big chunk of the market prior to 2011. Importantly, none of these shortfalls will be redressed by the repatriation of Syrian refugees; progress will mostly be contingent on a credible resolution to the conflict itself, and ensuing revival of the Syrian economy.

Aside from the general tendency to associate economic malaise with refugees, a more specific set of complaints holds that Syrians are driving down wages and robbing Lebanese jobseekers of much needed opportunities. On one hand, these grievances surely hold some measure of truth: an upsurge in primarily low-skilled, low-priced Syrian labor has doubtless introduced new labor market competition in certain sectors and geographic regions, with inevitable knock-on effects for Lebanese. Although data scarcity and high levels of informality preclude realistic calculations, the International Labor Organization (ILO) suggested in 2013 that competition from Syrian refugees had—in the most severely affected regions of Lebanon—driven down wages for unskilled Lebanese workers by up to 50%.

On the other hand, however, both existing data and anecdotal evidence cast serious doubt on the notion that Syrian refugees have fundamentally transformed the labor market. The World Bank, for example, reports only a marginal increase in both overall and youth unemployment in Lebanon between 2011 and 2017, with the overall rate rising from 6.2 to 7.0% and the youth rate from 20.7 to 21.8%—increases which themselves cannot be plausibly attributed to refugees per se, rather than broader economic woes. While these figures deserve as much skepticism as any in Lebanon, they nonetheless suggest a far more limited impact than most Lebanese would assume.

Just as important is the fact that Lebanon’s labor market was underperforming long before the Syrian crisis. The World Bank has estimated that even before 2011 Lebanon created each year, on average, a sixth of the jobs necessary to absorb new Lebanese entrants. At the time, national growth—which relied heavily on services, construction and trade—translated into minimal job creation, and what jobs did emerge were mostly low-skill. Meanwhile, Lebanon’s economy largely deterred foreign direct investments, enjoyed little meaningful public spending and suffered from overly cautious private capital, all of which hampered productive activities. Accomplished graduates were therefore encouraged to emigrate, in an economy dependent on them sending back remittances in foreign currency.

A second problem with the narrative of economic competition relates to the fact that Syrians usually fill positions that even unskilled Lebanese do not want. In reality, in fields like agriculture, construction, manufacturing or low-paid services, Syrians overwhelmingly vie for jobs with other migrant laborers, such as Bangladeshis, Ethiopians or Filipinos. A Lebanese farm manager in the Beqaa valley thus explained that Syrians were the natural candidates for work on under his direction: “Lebanese don’t work on someone else’s land. A Lebanese, at best, will supervise others farming a third-party’s land.” A Lebanese craftsman who currently employs Syrian staff in his workshop echoed this point: “if Syrians were to leave, I would have to get replacements from Bangladesh or India. It is impossible to find Lebanese who are adequately trained—and willing to take that kind of job even if they are.”

A related point is chronological: many Syrians already worked in Lebanon pre-2011, in sectors they continue to staff—primarily construction, agriculture, cleaning and janitorial work. Again, high levels of informality preclude reliable statistics, but some reports—for example by Amnesty International—placed the figure around half a million Syrian laborers in the mid-2000s. In other words, many of today’s refugees occupy positions they have long held. What has changed, in many cases, is that they have brought their wives and children with them.

While the negative impact of the Syrian influx tends to be overstated, the refugees’ positive effects are often overlooked entirely. One such silver lining is a boost to Lebanese consumption: as Syrian families settled in Lebanon in large numbers, they stimulated the economy in ways that Syrian seasonal laborers did not pre-2011. In just one striking example, Lebanon’s telecom sector benefitted from a threefold increase in broadband subscriptions between 2011 and 2015—a particularly important point given that income taxes on ICT companies form a pillar of municipal budgets.

A recurring argument faults this increased consumption for widening the trade deficit; as 80% of what Lebanese consume is imported, additional consumption means additional imports, increasing the pressure on the country’s balance of payment. However, available figures show only a slight increase in the volume of imports between 2010 and 2015—at an average yearly rate of around +0.9%, consistent with the trend that prevailed between 2004 and 2010. So, the weight of Syrians on the trade deficit is clearly overstated, when the problem mostly derives from the collapse of exports.

In addition, a large share of whatever Syrians consume is funded by external money, providing Lebanon with foreign currency it desperately needs to purchase imports and service its massive, largely USD-denominated public debt. Indeed, cash or in-kind donations by international organizations make up approximately 40% of refugees’ budget, complemented by personal savings (20% of the total, per ILO’s 2013 estimate) and remittances from the Syrian diaspora. Since 2013, through credit cards distributed by the World Food Program, refugees spent $900 million at Lebanese shops involved in this UN-funded scheme. Critically, then, Syrians have an untold positive impact on foreign currency inflows necessary to stabilize the Lebanese economy.

This is not to say that increased Syrian consumption exerts a strictly positive impact at all levels of Lebanese society, but rather that economic strain coexists with various unheralded benefits. This ambiguity is on full display in Lebanon’s real estate sector. On one hand, Lebanese frequently lament that Syrian families’ need for accommodation has increased rents, adversely impacting middle- and lower-class nationals. At the same time, however, Syrian demand has sustained an overvalued real estate market, which happens to be another essential pillar of Lebanon’s economic stability—and which has been showing growing signs of fragility for reasons entirely unrelated to refugees. Thus, an important distinction must be made between individual grievances related to the presence of Syrians, and various collective benefits that have helped Lebanon stave off a macroeconomic crisis.

As noted above, humanitarian and development funding has provided a major injection of foreign currency into Lebanon’s economy. In 2016, UN agencies spent an equivalent of 3% of Lebanon’s GDP, according to a senior UN official. While not all of this funding is exclusively related to refugees, the UN’s overall envelop has skyrocketed as a direct result of the crisis. As one senior official with the UN Development Program put it: “Without refugees, our programming would be much smaller. To give you an idea, we spent $26 million in 2012, and in 2016 had reached almost three times that.” Meanwhile, various bilateral donors—such as the US, EU and individual European states—have likewise ramped up their budgets for Lebanon as part of their response to the Syrian crisis. For instance, the United Kingdom spent about £2.5 million in aid in Lebanon in 2010 against £99 million in 2015.

Beyond providing a major cash injection, the international response has often directly benefited the Lebanese host population. Most large-scale humanitarian and development initiatives are careful to incorporate Lebanese beneficiaries, either through direct assistance or by developing public goods such as infrastructure. The EU, for instance, pledged €35 million in 2014-2015 to develop solid waste management programs targeting almost 3 million beneficiaries, the majority of whom would ultimately be Lebanese.

Such investments are particularly striking given the Lebanese government’s own failure to repair decaying infrastructure: the country’s water and sanitation system was in crisis long before 2011, and the government continues to spend only one percent of GDP on productive investments. Herein lies another element of ambiguity: while refugees have indeed strained Lebanese infrastructure, they have also triggered investment in areas long neglected by the Lebanese state.

A further set of indirect benefits relates to the employment generated by the aid economy. On one hand, the period since 2011 has seen growing numbers of Lebanese nationals employed by aid programs that would not have existed were it not for the refugee influx. On the other, foreigners working for international organizations have high spending potential in services and real estate. Here again, effects are ambiguous and multilayered: while the influx of expatriate labor indeed drives up prices in trendy neighborhoods like Beirut’s Mar Mikhael, it also has broader, salubrious benefits for a stagnant macro-economy in dire need of foreign currency.

Modest Lebanese have experienced first-hand a massive transformation of their daily lives with the large inflow of refugees. The latter indeed weigh on them in very tangible ways: some Lebanese have seen their electricity bills rise steeply as Syrians surreptitiously divert power to light their own apartments, because they cannot legally connect to the grid. Others have seen their children’s classes overcrowded with young pupils unequipped for bi-lingual national education.

Real though these grievances are, they nonetheless form only part of the picture. With Syrians today thoroughly embedded in Lebanon’s delicate economic equilibrium, politicians exploit the refugee presence at their own risk. Chasing Syrians out en masse would, in the final estimation, deprive Lebanon of much-needed support at a time when the country faces a precarious situation of its own making. Donor money, and related services, will go wherever Syrians are, and a rapid outflow would threaten the country’s flimsy budgetary balance. Their departure would likewise deal a major shock to the real estate market, raising the specter of a meltdown whose knock-on effects would in turn rock the financial sector. Against that backdrop, Lebanon would do well to suppress the growing, collective temptation to push Syrians out, at the risk of provoking a far more serious economic crisis than the one they are said to have caused.

Special thanks to Aya Chamseddine and Georges Haddad for contributing outstanding fieldwork.