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Debate rages over alarming trade deficit

28 July 2012

BEIRUT: Economists and experts gave conflicting views on the reasons behind Lebanon’s alarming trade deficit, which reached $8.71 billion in the first half of 2012, with some claiming that the illicit smuggling of fuel oil to Syria may be one of the reasons for the surge in imports.

According to official figures issued last week, Lebanon’s trade deficit in the first half of 2012 climbed 22.5 percent, or more than $1 billion, to reach $8.71 billion compared to $7.11 billion in the same period of 2011.

“This does not reflect at all an increase in domestic consumption. The increase in imports is aimed at covering shortages in the Syrian market,” said one source that declined to be identified.

While imports are legally registered on arrival of shipments to Lebanon, most of the exports to Syria are slipping under the table through various smuggling routes, the source suggested, “hence the large and sudden increase in the deficit.”

Lebanon and Syria have a 330 kilometer-long border that has been long deemed insecure. Smuggling of various goods has been a long established practice across the border.

Since the Syrian uprising began in March 2011, border control has deteriorated substantially particularly after the Syrian regime reportedly lost control of various posts on the country’s boundaries

Media reports claim smuggling fuel has become highly lucrative, particularly after sanctions made it difficult for Syria to import commodities including diesel and fuel oil.

Syria, which traditionally floods the Lebanese markets with its cheap goods, has been compelled for the first time to buy most of what it needs from its small neighbor.

In June, Reuters said Lebanon’s private sector imports of diesel had tripled in April and May, suggesting a significant smuggling of diesel to Syria.

Syria’s supplies of diesel have diminished after the European Union and the United States placed tight sanctions on the nation in March, bringing exports from Russia to a halt.

According to the Lebanese Customs Department, imports up to June this year surged 18 percent to reach $10.88 billion, compared to $9.23 billion in the same period of 2011.

Exports rose 3 percent in the first six months to reach $2.17 billion compared to $2.12 billion in the same period of last year.

A simple analysis of the figures reveals oil and mineral fuel imports increased 94 percent in the first five months of 2012, totaling $2.9 billion. In contrast, nonhydrocarbon imports grew by just 2.1 percent to $6.3 billion in the same period.

While oil prices were higher in 2012, when it averaged at $93.02 per barrel compared to $87 per barrel in 2011, the increase in oil prices does not alone reflect the soaring value of fuel imports.

In fact, during the first five months of 2011, the volume of oil and mineral fuel imports were 3,199 million tons, 61.9 percent higher than a year ago. Nonhydrocarbon imports rose only marginally, gaining 0.8 percent to 3,651 million tons, a mid-July report by Byblos Bank showed.

However, economist Louis Hobeika dismissed the possibility of an increase in smuggling to Syria. He suggested the increase in the deficit instead reflects increasing domestic consumption. “This is a normal cyclical economic process,” he said, pointing out that the trade deficit has seen similar sudden hikes in previous years.

The same view was echoed by Maroun Chammas, head of the Oil Importers Association. “Most of the increase in oil imports is due to soaring purchases for electricity production and reflects increases in global oil prices.”

“Lebanon imports most of its consumption items and such increases are normal because of yearly inflation coupled with stagnating exports,” Chammas added, dismissing the notion that any significant smuggling has been happening.

© Copyright The Daily Star 2012.

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