SMEs Can Drive Recovery From the Crisis in Lebanon
As Lebanon is dealing with one of the most severe socio-economic crises in the world, the Lebanese economy has almost entirely collapsed, depriving many of access to basic services. The UN estimates that 78 per cent of the Lebanese now live below the poverty line.
The banking sector in Lebanon has ceased lending money and does not accept deposits anymore, inflation has reached more than 200 per cent and the Lebanese lira loses value each day.
People living in Lebanon have almost completely stopped using banks, ATMs, or credit cards and they exchange money at a parallel market.
In recent months banks would allow withdrawals from dollar accounts at a fixed rate of 3,900 Lebanese pounds to the US dollar. In December, a new rate of 8,000 Lebanese pounds to the US dollar was introduced. Still, the Lebanese currency keeps rapidly getting weaker so the new rate ‘represents a haircut of around 70%’ compared to the black market rate of more than 28,000 Lebanese pounds to the US dollar, Reuters reported.
A road to recovery from the crisis will not be an easy one but as 90 per cent of all businesses in Lebanon are SMEs, they can play a critical role in it.
SMEs step in where the government fails by offering people basic income that is desperately needed now and granting them allowances for essential goods such as food or fuel. Moreover, many employers started paying their employees in cash to help the workers avoid losing money when withdrawing their funds. By doing so they help people increase their purchasing power.
One of the biggest challenges that SMEs in Lebanon face in terms of their capability to lead the recovery is the liquidity crisis. Lebanese businesses suffer from gaps in funding so the creation of an entrepreneurship fund intended for SMEs is essential.
Amid ongoing talks on a new aid program, the International Monetary Fund (IMF) has been assessing the losses of Lebanon’s financial sector. Based on the findings, the IMF will decide what action to undertake next to help the country mitigate the impacts of the crisis. Should Lebanon receive another loan from the IMF, a big proportion of it should be allocated to SMEs. The IMF itself has been underlining the importance of SMEs in achieving economic growth in Lebanon.
If SMEs have more possibilities to grow, more employment opportunities will be created. In turn, those who have lost their jobs because of the crisis and have been pushed into poverty would stop being dependent on the state for financial assistance. Additionally, as the activities of SMEs are diverse, they can boost economic development in numerous sectors.
Finally, as Lebanon is facing not only an economic but also a political crisis, SMEs have been playing an active role in supporting activists advocating for the rights of the most vulnerable such as refugees or homeless. SMEs have also been uniting to protest against austerity and show solidarity with those the most affected by the crisis.
The roadmap to recovery from the crisis in Lebanon should start with creating an enabling environment for SMEs. Without that, it is unlikely that the Lebanese economy will be rebuilt anytime soon.
