Some green shoots lurk beneath the region’s raging civil wars, economic woes and political unrest.

Author: Justin Keay

“Hey you, don’t tell me there’s no hope at all. Together we stand, divided we fall,” sang Roger Waters in The Wall, a movie released globally September 29 to honor the victims of Syria’s brutal civil war.

Waters’s lyrics weren’t about the Levant—Pink Floyd’s recording “The Wall” was first performed 36 years ago—but as Syrian refugees flood Europe and walls go up to keep them out, the words couldn’t be more appropriate.

The state of most of the region appears to be going from bad to worse in 2015. Civil wars rage in Syria and Iraq, and tensions have risen to unprecedented levels in neighboring Jordan and Lebanon, which are struggling to host refugees equivalent to at least one-fourth of their respective populations. Looking westward, Cyprus is trying to emerge from the worst financial crisis in its history with unemployment at 17%, bank nonperforming loans at around 46% of the total, and public debt close to 100% of GDP.

In Egypt the government of president Abdel Fattah el-Sisi is still grappling with the legacy of the deposed Islamist government, with efforts to rebuild hampered by political divisions and terrorist attacks that have undermined efforts to revive the all-important tourism industry.

Confidence is fragile everywhere, which means much-needed foreign investment is staying away.

Sanfey, EBRD: Cyprus’s fundamentals are improving as the government makes tough decisions.

“As long as the conflicts in Syria and Iraq continue, there is little chance that their economies will return to pre-conflict levels. Conflicts have made intra-Levant trade more complicated, with the closure of border points between Syria, on one hand, and Iraq and Jordan on the other. The drop in oil prices is not helping Iraq, while the war in Syria has transformed it into a war economy. Meanwhile, Jordan and Lebanon have suffered from spillovers of the conflict and from a decline in investor confidence,” says Nassib Ghobril, chief economist at Byblos Bank.  

“There has been no tangible progress towards improving stability, much-needed reforms have not been initiated, and growth has been sluggish to nonexistent,” agrees Ayham Kamel, senior analyst for the Levant for the Eurasia Group.


Kamel warns that support from the oil- and gas-rich Gulf states—which has been key in helping many of the Levant states stay afloat during such difficult times—is likely to become more scarce as low energy prices persist. And the offshore energy bonanza from the Levantine Basin that Lebanon, Cyprus and Egypt have been keenly expecting, which will help reducebudget and current-account deficits, has been held back by political infighting, geopolitical disagreements and technical complications.

Yet, if one scratches the surface, the picture below looks a bit more promising.

Being net importers of energy, all Levantine countries except Iraq have benefited from low oil prices. Overall, the financial sector has remained surprisingly robust, experts say, and the number of nonperforming loans has been kept in check. Each nation has reason for hope.

Lebanon has been struggling to keep out of the Syrian war, and its fragile political consensus has neared breaking point, owing to Hezbollah’s military support of Syria’s president Assad and the absence of a president for more than a year.

Harmgart, EBRD: Jordan’s banks are liquid and well-regulated. The priority is to encourage them to boost long-term lending to SMEs.

September’s demonstrations in Beirut over uncollected garbage evolved into protests for more-effective government. Among the administration’s unfinished business is legislation enabling it to exploit its off-shore energy reserves and reform of the heavily indebted, grossly inefficient national electricity company, EDL. Lebanon’s crisis has affected banks’ local operations. Private-sector lending has declined from $2.2 billion in the first half of 2014 to $924 billion in the first half of 2015.

“This is the result of low consumer confidence and reduced investor sentiment and the lack of FDI projects because of persisting uncertainties and high operating costs. In parallel, the banks are facing the prospects of higher borrowing needs from the public sector due to the lack of political will to reduce expenditures and fight tax evasion,” says Ghobril. He thinks banks should use their financial leverage to force the government to tackle corruption and waste. Bankers, however, seem to have found a way around the problems.  


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