A Codependent Economy: The Lebanese Diaspora Story

Lebanon has always relied on its diaspora to maintain their economy through remittances;. However, since the beginning of the crisis last year, the money is gone.

There is almost no area of the world that the Lebanese have left untouched. Native conflicts, persecution, fear, corruption, and lacking economic prospects have driven Lebanese people to create their lives elsewhere, in every continent of the world except Antarctica. There is no official estimate for the number of Lebanese emigrants, however, a recent study from the private Lebanese firm for studies, research, and statistics International Information published a census on the number of people holding Lebanese nationality, revealing that, as of the end of 2018, 24% of Lebanese citizens reside abroad, i.e. 1.3 million Lebanese out of 5.5 million.

Lebanese emigrants are culturally prone to assist their fellow family members and kin. This cultural value has helped create transnational family networks. This territory, despite its small area of 10,452 km2, is one of the states receiving the most incoming transfers from its diaspora, where remittances have exceeded one-fifth of its nominal GDP, thus, these flows constitute a significant financial resource for the government.

For example, these funds allow households to finance private services that are often a substitute for lacking public services, i.e. transport. Diaspora money is therefore used to improve access to education and aid disadvantaged classes. Hence, these activities meet a demand on the part of the population which is neglected by the government and its public policies. Access to these funds can facilitate government corruption and studies have shown that this corruption is likely to increase.

In an abundance of literature, theories have demonstrated that such incoming transfers can create a governmental dependence on this cash flow. This dependence can lead to instability and create economic and social inequality in these countries. As a result, nations seek to ensure the repatriation of these funds, because they consider their diaspora as a tool to satisfy their own interests through their financial support. The government has the possibility to reduce this dependence, however, the actions that would be required, such as improving the education system and public infrastructure, are expensive and the implementation of these measures can take time. In addition, the need for a strong political initiative by the government to reform its operating system.

Samer Ghamroun noticed that, despite its classical republican institutional format, the Lebanese state does not endorse most of the prerogative by which political sociology usually characterizes state power. It is therefore regularly included in the list of weak and even failed states. His explanation is that this large quantity of financial flows from the diaspora can, on the one hand, generate a high level of expenditure by the population, but on the other hand, the maintenance of these flows does not encourage a radical change in the system. The same government perceives in these transfers a solution to avoid an economic crash, without the implementation of financial reforms.

The state takes advantage of the monetary framework implemented by the Central Bank to attract and facilitate the transfers of these flows through the banking system. It relies on liquidity within the Central Bank, coming mainly from the diaspora, to fill the balance of payments deficit and maintain the stability of the Lebanese Pound. As a result, the Lebanese state can afford to be less sensitive to the needs of society. Indeed, even if incoming transfers are strategically employed by developing countries, they are rarely intended to serve as “capital for economic development, but as compensation” in the case of poor economic situations. These transfers often correlate with negative GDP growth, and these flows are then used to offset this negative growth.

As a result, the government embodies an intermediary role through which financial resources flow, which allows it to retain a capacity to guide development dynamics without direct intervention. Despite this, the Lebanese economy collapsed last year; the direct result of decades of economic mismanagement, corruption, and overspending. The government’s policy was based on a dollarized system that kept the value of the Lebanese Pound pegged to the U.S. dollar, allowing the Lebanese to interact seamlessly with the global economy. But that system has unraveled in recent months, leading to an economic collapse that has been exacerbated by a government-imposed lockdown aimed at stopping the spread of the Covid-19.

With the currency collapsing, businesses shutting, prices for basic goods skyrocketing and the threat of hunger looming for its poorest people, Lebanon is living through one of his darkest periods since the Civil War of 1975. The Lebanese used to enjoy a high national interest rate, around 8 percent, some even lived purely from their bank’s interest payouts. Alas, it was a dangerous game the Lebanese state was playing and has paid the price. This dangerous system could not last forever and had to collapse one day or another. As a consequence of this instability, diaspora transfers have dramatically decreased since last year. Many expat families want to send money to their families in Lebanon, but can no longer do so in U.S. dollars, as dollars are being confiscated by banks and money exchanges. Thus, Lebanon's diaspora, who for years sent their cash home, are no longer willing to do it. This phenomenon can also be explained by the loss of faith in the government and their current mistrust of the banking system at large.

For years, millions of Lebanese abroad helped to keep their native country’s economy afloat by sending remittances that once amounted to 12.5% of Lebanon’s GDP. Hence, Lebanese politicians began to plead with them to come to the rescue again. Newly resigned Prime Minister Hassan Diab asked them to "come with dollars." The leader of the Christian party Lebanese Forces Samir Geagea suggested that each expatriate family abroad "adopt" a family in Lebanon for $200 a month to stave off hunger. One lawmaker sparked outrage by saying Lebanon is now "cheap" to attract expatriates and tourists after the currency collapse.

However, this crisis may represent a new opportunity to break the chains of a dependent system to the outside world, the Middle Eastern states, and the diaspora. Lebanon has great potential: the water resources, the fertility of the soils, lands, and moderate climate. It could be a chance to start new sustainable agriculture, a new legal stable framework, and an industrial platform in order to become self-sufficient for the years to come.