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Political deadlock in Lebanon blocks reforms

5 June 2023

 

Lebanon’s political deadlock is likely to continue to weigh on the country’s economy and undermine security over the medium term, according to experts.

The country currently has an interim government and has been without a president since former President Michel Aoun’s term ended at the end of October last year.

Progress towards forming a new government is likely to be slow, with the legislature divided over who should replace Aoun as president.

In March, the Iran-backed Hezbollah group and House Speaker Nabih Berri’s Amal Movement party – which together constitute Lebanon’s Shia base – announced their support for the Christian politician Sleiman Frangieh.

Hezbollah and its allies have since tried to gather support for Frangieh as president, but strong opposition from the majority of the country’s Christian, Sunni and Druze political blocs has left him short of the 65 votes required to be elected in the 128-member legislature.

Over recent weeks, members of Lebanon’s parliament that oppose Frangieh have started to rally around the former finance minister Jihad Azour.

Azour currently serves as the director of the Middle East and Central Asia Department at the International Monetary Fund (IMF).

As the parliament is divided, whether either candidate can obtain a majority vote remains uncertain. According to experts, even if a president is named, it will be extremely difficult for them to form a government.

Nicholas Blanford, a non-resident senior fellow with the Atlantic Council’s Middle East programmes, says it will likely be some time before a government is formed.

“Getting a president elected is only the first step,” he said. “Once the new president is in place, there is the tricky task of forming a new government.

“As we’ve seen over the past 20 years, forming a new government can take months as people bicker and jostle for various lucrative and influential portfolios.”

Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon

Outside pressure

Only when a government has been formed will Lebanon be able to start initiating the series of reforms that the international community has demanded to unlock aid, grants and loans to try to put the country on the path to economic recovery.

As Lebanon’s economic crisis has worsened and the security situation has declined, increasing pressure has been applied from other countries that want to try to restore stability in the region.

Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon.

Separately, two members of the US House Foreign Affairs Committee called on the administration to impose sanctions on individuals involved in corruption to “make clear to Lebanon’s political class that the status quo is not acceptable”.

In a letter to Secretary of State Antony Blinken on 30 May, they said: “We also call on the administration to continue pressing for full accountability for the August 2020 Beirut port blast and support independent, international investigatory efforts into egregious fraud and malfeasance by the governor of Lebanon’s central bank.

They added: “We must not allow Lebanon to be held hostage by those looking to advance their own selfish interests.”

French crackdown

French officials have also taken action to try to crack down on perceived corruption by members of Lebanon’s political elite.

In May, French prosecutors issued an arrest warrant for Lebanon’s central bank governor, Riad Salameh.

The warrant followed Salameh’s failure to appear before French prosecutors to be questioned on corruption charges.

In response, Salameh issued a statement saying that the arrest warrant violated the law.

Salameh has been the target of a series of judicial investigations at home and abroad on allegations that include fraud, money laundering and illicit enrichment.

European investigators looking into the fortune he has amassed during three decades in the job had scheduled a hearing in Paris for 16 May.

A key problem is you still have the same cabal of oligarchs in power and it is likely they will still be represented in the next government
Nicholas Blanford, Atlantic Council’s Middle East programmes

Breaking the deadlock

Analysts believe cracking down on corruption among Lebanon’s political elite is key to breaking the country’s political deadlock.

“A key problem is that you still have the same cabal of oligarchs in power and it is likely that they will still be represented in the next government,” said Blanford. “These oligarchs do not want reform because if they implement a meaningful reform process, they run the risk of losing their positions of power.”

While the country’s opposing political blocs continue to vie for power and the formation of a new government seemingly remains only possible after at least several months of negotiations, the outlook for Lebanon in the short term looks bleak.

Meaningful government assistance for Lebanese citizens struggling with declining security and heightened economic pressures remains a distant prospect. High levels of emigration are also likely to continue as the country’s population seeks relief from the hardships at home.

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Wil Crisp

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    MEED revealed that Samsung was working on the feed contract for the petrochemical project earlier this month.

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    It has already executed 32 projects in Saudi Arabia, five of which were propylene projects.

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  • Riyadh reshapes its global role

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    Riyadh is on a mission to cultivate its global status and diplomatic and geopolitical soft power like never before, seeking out forums and platforms of interest at all levels of international engagement and interaction. 

    In 2023 alone, Saudi Arabia has joined the Shanghai Cooperation Organisation, launched the Global Water Organisation and been formally invited to join the Brics bloc of emerging markets.

    Global sports has also become a major new arena of activity for Saudi Arabia. The kingdom has secured the rights to host football’s 2027 Asian Cup and the 2029 Asian Winter Games. In 2022, it oversaw the Public Investment Fund’s launch of the LIV Golf League. 

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    As 2023 heads towards its final quarter, Saudi Arabia has elected to continue to pursue further voluntary Opec+ oil production cuts, supporting oil prices at the expense of its own immediate GDP growth.

    On 5 September, Riyadh confirmed its intention to roll over its additional 1 million barrels a day (b/d) of production cuts until the end of the fourth quarter. Analysts had largely expected Saudi Arabia to extend the cuts with a view to further tightening oil markets, and the price of Brent crude broke the $90-a-barrel mark and reached its highest point in 10 months shortly after the cut extension was announced.

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    In July, the Washington-based IMF lowered its projection for Saudi Arabia’s economic growth to 1.9 per cent, down from an earlier forecast of 3.1 per cent in April – and compared to an 8.7 per cent growth figure for 2022, which saw oil reach highs of up to $124 a barrel and the kingdom’s first fiscal surplus in nearly a decade.

    The country also entered a technical recession in the second quarter after its economy contracted for its second successive quarter in a row – shrinking by 0.1 per cent after a contraction of 1.4 per cent in the first quarter, according to estimates from the General Authority for Statistics (Gastat). This resulted in a slowing of year-on-year growth to 3.8 per cent in the first quarter and 1.1 per cent in the second.

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    On the flipside, input cost inflation accelerated to its fastest rate in over a year due to a sharper uptick in purchase prices, though selling prices partially compensated for this by also rising. Business confidence nevertheless slid to the lowest level since June 2020 over concerns of rising market competition.

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    The kingdom’s non-oil sector should continue to be well supported by Saudi Arabia’s infrastructure and project spending plans. These schemes remain affordable thanks to the kingdom’s broad financial reserves and buffers.

    As of mid-September, Saudi Arabia’s project spending for 2023 had already all but matched that of 2022, with contract awards in the kingdom approaching the $57bn mark – last year’s figure – but with three and a half months still left to run. 

    This is the third straight year with project awards of around $55bn or more. This is a 75 per cent increase in spending compared to the period from 2016 to 2020, which witnessed an average of only slightly more than $30bn in awards each year.

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    This heightened level of projects activity is as much due to above-average spending on oil and gas infrastructure, amid a spree of investment by Saudi Aramco in the optimisation of its core assets, as it is to the kingdom’s gigaproject programme. 

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    Awards in the sector to date have hit $24.6bn, whereas awards in 2022 reached $34.7bn – so there is a $10.1bn gap to bridge to beat last year’s performance. This is not unrealistic given the $14.2bn-worth of projects in the sector under bid evaluation, and especially given the backing of the Public Investment Fund for the kingdom’s gigaprojects and other Vision 2030 schemes.

    Overall, the ongoing upsurge in projects activity should continue to prove supportive of the non-oil economy, regardless of either the vicissitudes of the oil price or Saudi Arabia’s moderation of its own oil production.

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    A landmark moment came for Saudi Arabia’s construction sector in mid-September when Jeddah Economic Company (JEC) invited firms to bid for a contract to complete the world’s tallest tower project, the 1,000-metre-plus Jeddah Tower.

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    When completed, Jeddah Tower will be the first structure in history to exceed 1 kilometre in height. It will also be taller than the current world’s tallest building, Dubai’s Burj Khalifa, by more than 172 metres. 

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    When completed, Jeddah Tower will be the first structure in history to exceed 1 kilometre in height

    Restarting construction

    One important question for the potential bidders is the condition of the tower’s existing structure. JEC commissioned an independent assessment of the structure before the tender was issued. Sources close to the project have told MEED that the report concluded that building work can restart.

    The construction work for the superstructure of the tower, which began in the early 2010s with the local Saudi Binladin Group (SBG) as the contractor, is one-third complete.

    SBG stopped working on the project in February 2018. In September this year, JEC called in the performance guarantees or bonds provided by SBG. A source close to the project said that the value of the bonds totals SR653m ($174m).

    Almaiman confirmed that the developer has exercised its rights under the contract after having given SBG five years to re-engage.

    While SBG is no longer working as the contractor on the project, the consultancy team remains the same. The architect is US-based Adrian Smith & Gordon Gill, and the engineering consultant is Lebanon’s Dar al-Handasah (Shair & Partners).

    Project stakeholders 

    The shareholders in JEC are Kingdom Holding Company with a 40 per cent stake, Bakhsh Group with a 40 per cent stake, and Sharbatly Group with a 20 per cent share.

    In 2015, JEC and Saudi Arabia’s Alinma Investment established a $2.24bn fund to finance the first phase of the Jeddah Economic City project and Jeddah Tower. The Alinma Jeddah Economic City Fund is a sharia-compliant fund that will operate under the Saudi Arabian Capital Market Authority. 

    Alinma Bank agreed to finance the fund, which is managed by Alinma Investment. Prince Alwaleed bin Talal bin Abdulaziz al-Saud, chairman of Kingdom Holding Company, was appointed as chair of the fund’s board. 


    The 170-storey Jeddah Tower will have a variety of revenue streams and will
    feature the world’s highest observation deck. Credit: Jeddah Economic Company

    Development plans

    Jeddah Tower is the centrepiece of the Jeddah Economic City development in the Obhur district, north of Jeddah. The project’s first phase, which includes Jeddah Tower, covers an area of 1.5 square kilometres.

    The mixed-use tower will have 170 storeys, seven of which will be allocated to a five-star, 200-room Four Seasons Hotel. There will also be 11 storeys housing 121 serviced apartments, and seven storeys of offices. 

    A further 61 storeys of the tower will comprise 318 residential units, a gym, spa, cafes and restaurants. Plans also include several sky lobbies and the world’s highest observation deck, located on the top floors of the tower, 660 metres above the ground. 

    Development work on the project began in 2006. Building the world’s tallest tower requires state-of-the-art technologies and construction methods. 

    The piling and foundations work for the tower was completed in 2014. Germany’s Bauer was the piling contractor, and 270 piles were cast, reaching 105 metres below ground. The raft sitting on top of the piles is one of the world’s largest reinforced steel foundations, with a thickness of between 4.5 and 5 metres. 

    Cranage is a major challenge when constructing megatall towers. In early 2015, JEC took delivery of custom-made cranes, supplied by Germany’s Liebherr & WolffKran.

    For elevators, Finland’s Kone was appointed to supply the fastest and highest double- decker elevator system in the world. The planned system will travel at a speed of more than 10 metres a second, rising to 660 metres. 

    MEED's October 2023 special report on Saudi Arabia includes: 

    > POLITICS: Saudi Arabia looks both east and west
    > SPORT: Saudi Arabia’s football vision goes global
    > ECONOMY: Riyadh prioritises stability over headline growth
    > BANKS: Saudi banks track more modest growth path
    > UPSTREAM: Aramco focuses on upstream capacity building
    > DOWNSTREAM: Saudi chemical and downstream projects in motion
    > POWER: Riyadh rides power projects surge
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    > GIGAPROJECTS: Gigaproject activity enters full swing
    > TRANSPORT: Infrastructure projects support Riyadh’s logistics ambitions
    > JEDDAH TOWER: Jeddah developer restarts world’s tallest tower

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    Colin Foreman
  • Saudi Arabia’s football vision goes global

    27 September 2023

    MEED's October 2023 special report on Saudi Arabia also includes: 

    > POLITICS: Saudi Arabia looks both east and west
    > GIGAPROJECTS: Gigaproject activity enters full swing
    > TRANSPORT: Infrastructure projects support Riyadh’s logistics ambitions
    > UPSTREAM: Aramco focuses on upstream capacity building
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    > POWER: Riyadh rides power projects surge
    > WATER: Saudi water projects momentum holds steady
    > BANKS: Saudi banks track more modest growth path
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    Saudi Arabia has invested more than $6.3bn in sport since early 2021, but that figure will be a fraction of what is coming if plans for its 18-club Saudi Pro League bear fruit.

    The kingdom’s entry into world football started in October 2021, when the Public Investment Fund (PIF) bought Newcastle United. Benefitting from a new manager and fresh on-field talent, the team came fourth in the premiership in the 2022-23 season and qualified for this year’s European Champions League.

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    The exertions are not dissimilar to the way in which the Brics economic grouping, which the kingdom was invited to join in August, hopes to remake the world’s monetary dogma by breaking the dollar’s grip on the global economy. The Saudi Pro League may be the kingdom’s way of ending Europe’s dominance in football.

    Establishing the Saudi Pro League as one of the best will enhance the kingdom’s desire for a say at the highest levels of global club football

    Mixed returns

    Abu Dhabi has demonstrated that owning a football club can deliver benefits that go beyond income and capital appreciation. It has boosted the emirate’s image, promoted its airline Etihad and given Abu Dhabi a seat at the table of the English Premier League. It has also faced challenges.

    Manchester City has been accused of breaching Premier League and Uefa rules about licensing and financial sustainability. In 2020, it was fined and banned from European competitions for two years for alleged breaches of Uefa’s fair play rules, though that was overruled. The club is now subject to a long-term investigation into 115 alleged breaches of Europe’s fair play rules.

    Now Newcastle United, which the premiership never wanted to be bought by Saudi Arabia, is being closely scrutinised for evidence that the kingdom is unfairly boosting the club’s spending.

    There are also signs that the British football boom, which began after the English premiership was created in 1992, is coming to an end. Top clubs enjoyed a windfall from satellite television rights and then the influx of investment from wealthy individuals, starting with Russia’s Roman Abramovitch 10 years later. This has now been overshadowed by the financial might of Abu Dhabi and Saudi Arabia in England and by Qatar, owner of Paris Saint Germain since 2011, in France.

    But the appetite among even the wealthiest investors for football assets may be fading. Earlier this year, Manchester United’s owners rejected an offer for the club from Qatar as inadequate.

    Sports Saudisation

    Saudi Arabia’s new approach is different. Instead of sending money overseas, it is looking to invest heavily in football within the kingdom. In the 2023 summer transfer season, Saudi Pro League clubs spent a net $907m on players, more than all of the Big Five leagues but the Premier League, which spent $1.39bn.

    The economic benefits are easily comprehended. PIF finance would go into building domestic stadiums and training facilities. Money paid to players and support staff would be retained in the kingdom. In addition to a domestic audience of football fans, Saudi Arabia has international airports and an aviation network to bring in fans from across the globe.

    Establishing the Saudi Pro League as one of the best will enhance the kingdom’s desire for a say at the highest levels of global club football. 

    European football’s perilous financial position is why plans for a European Super League comprising 12 teams, announced in the spring of 2021, initially attracted support from the clubs involved. It was scrapped at the last minute, but dreams of a super league – and the problems that inspired it – remain. It is conceivable that the kingdom could argue a case for membership should it be revived, though that is a consideration for the future.

    In the meantime, Saudi Arabia’s impact on football is already being felt. Last December, Portugal’s Cristiano Ronaldo signed for Riyadh’s Al-Nassr. Other top players that have since signed to play in the kingdom include Brazil’s Neymar, Ballon d’Or holder Karim Benzema, African Footballer of the Year Sadio Mane, World Cup winner N’Golo Kante and former Liverpool captain Jordan Henderson.

    In July, Kylian Mbappe turned down an offer from Riyadh’s Al-Hilal worth almost €300m ($321.5m) and a salary of €200m for a one-season stay. But – in what would be a coup for the Saudi league if it is accepted – a world-record signing fee is reported to have been offered by Al-Ittihad in September for Egypt’s Mohamed Saleh.

    Newcastle United could fit into the kingdom’s broader football plan as a source of talent that can be sold to the Saudi league to bring money into the English club while avoiding the fair play charges encumbering Manchester City. The first example of the process may have been Allan Saint Maximim, who was transferred to Al-Ahli for a reported transfer fee of almost $30m in July.

    Last summer, Riyadh also launched what is now the Liv Golf League. There has also been talk of it buying a US National Football League club. The kingdom is investing in other sports as well, but it is football that it is bringing home this autumn.

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    Edmund O’Sullivan