The Blessing or Curse of Oil Wealth?
Pundits have long debated the complexities of Lebanon’s politics and its geostrategic position as a state actively pursuing conflict against Israel. This has been a simplified equation that has glossed over the fact that the country has deprived itself economically, especially in terms of its own fragmented natural gas and oil-producing infrastructure. More importantly, analysis has overlooked the fact that Lebanon has failed to make institutional reforms necessary to properly deal with the economic gains that would be made in natural gas and oil production.
If Lebanon does not seize immediate action by fostering an institutional framework to funnel the recent revenues of an estimated 220 trillion cubic feet of natural gas and 308 million barrels of oil, its economy may quickly degenerate into a locus for corruption, money laundering, and political deal-cutting after striking oil.
The initiation of a Sovereign Wealth Fund (SWF) with a balanced governance structure and proper checks and balances, a clear strategy that prioritizes the development of a robust infrastructural, industrial, and regionally competitive agricultural base, in addition to a reformed investment and taxation system which can both accommodate for the influx of foreign capital and shield against its risks, should be prioritized on the incoming government’s agenda.
Establishing a transparent SWF could enlarge the state’s capacities and thus translate the new found oil wealth into tangible gains. Lebanon’s SWF should commit to implementing the Santiago Principles, a set of guiding principles on SWF governance, thereby participating in an industry-wide accepted benchmark in theory and practice with regards to the legal framework, objectives, and coordination with macroeconomic policies; the institutional framework and governance structure, and the investment and risk management framework of SWFs.
Lebanon’s SWF should not simply be a government-run investment vehicle that invests across several asset classes in order to diversify the government’s private sector portfolio. The fund’s strategy should seek to fortify the internal political-economic scene by consummating the state-building process and national reconciliation, advancing Lebanon’s infrastructure, and dealing with the mounting debt crisis; all of which ought to be concomitant with strict timetables. The Taef Accords, which managed to partially restore the state, stipulated the return of the internally displaced peoples and outlined a set of promising reforms such as administrative decentralization. Lebanon’s new wherewithal can breathe life into our rusty institutions and finance a more representative, transparent, accountable, and efficacious political system all together -- one that contributes to augmenting human capital by extending affordable health care, old-age benefits, and mandatory schooling for all income groups.
Sinking back into reality, revenue from oil drilling may culminate in a sound institutional base but not without some tidal waves attempting to keep the ship at shore. Amongst some of the challenges is designing the governance structure of the fund while simultaneously endeavoring to preserve Lebanon’s sensitive sectarian balance. A reasonable equation should factor in a veto right for the Maronite president, place the fund under the umbrella of the cabinet headed by the Sunni prime minister, and engage the Shiite speaker of the house by staffing members of Parliament onboard the executive branch of the SWF.
Since Lebanon’s oil and natural gas are marine reserves, challenges await the incoming government. The upcoming government should delineate Lebanon’s marine borders forthwith. Border delineation may prove to be a contentious issue because Lebanon shares borders with both Israel and Cyprus. While Lebanon does not sit on the table with the former, even if it does with the latter, conflict is expected to irrupt over various border points along the delineated water-line. The UN should step in and resolve the matter by assisting in the delineation process. Although prospects for economic, political, and social improvement seem gloomy at best, it remains incumbent upon every Lebanese citizen to call for the establishment of a transparent investment system that acts to maximize public benefit. Only time could tell whether Lebanon’s SWF will truly embody the Santiago principles or the sectarian-carved regime would permit its political patrons to divide public wealth amongst them.
Photo Credit: Wikimedia Commons