Is tourism a miracle cure for Lebanon’s crisis?

While the 2023 summer has confirmed that the recovery that began last year has continued, several factors temper the prevailing optimism in terms of revenue generated.

Is tourism a miracle cure for Lebanon’s crisis?

Tourists frolic at a seaside resort. (Credit: Mohammad Yassine)

Summer is drawing to a close, but in Beirut and some seaside towns, the summer euphoria has not yet subsided. Bars and restaurants are still packed. Partygoers don’t go home before dawn. Hotels and guest houses are virtually full for most of the week.

“It’s been a good tourist season,” said Tony Ramy, the head of the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Patisseries. The figures support his remarks, with 2.55 million passengers registered at Beirut International Airport between June and August 2023, a 15.7 percent increase compared to the same period last year.

In terms of foreign tourists, the increase is even more impressive: according to the latest figures provided by the Tourism Ministry, their number increased by 35.6 percent in one year in June alone, compared with an increase of 22.1 percent for airport passengers that same month.

In a crisis-hit country, these figures from another era are the stuff of dreams, especially in government circles, where some seem to see this source of “fresh” dollars as much more than just a breath of fresh air in dollars for an economy that’s been bled dry.

In early summer, caretaker Tourism Minister Walid Nassar forecast up to $10 billion in tourism revenues between June and August, more than three times the earnings expected if the International Monetary Fund were to release aid to Lebanon.

This optimism is partly justified by the fact that tourism is a traditional driver of Lebanese growth, with a potential that McKinsey, in its famous pre-crisis report on economic diversification, considered to be under-exploited, setting an ambitious target of 4.2 million tourists a year (compared with 1.9 million in 2017).

Five years on, are these growth forecasts, in terms of visits and spending, realistic? If so, would this be enough to consider tourism as an alternative remedy to the crisis?

Overestimated figures?

When asked about the minister’s revenue forecasts, industry professionals all said (on condition of anonymity) that the anticipated figure is “very much exaggerated,” although they are all satisfied with the 2023 season.

Contacted on several occasions to understand the basis of Nassar’s $10 billion figure and the variables taken into account — in particular whether it included residents’ expenses — neither the minister nor his office were responsive.

The fact remains that the anticipated figure for the last three months is well above Banque du Liban’s estimate of $5.3 billion in tourism revenues — the only entity to publish official revenue figures — for 2022 (i.e. 69.6 percent more than in 2021).

To calculate these figures, BDL only takes into account the sums injected into the country by travelers, whether foreigners or Lebanese expats.

Revenues in 2022 will represent a quarter of Lebanese GDP (nearly $21.5 billion), which is relatively close to those recorded in the mid-2000s.

Other factors may temper the prevailing optimism, starting with the fact that the upturn seen since last year, linked mainly to the lifting of the final COVID-19 restrictions, has certainly enabled the country to break the one million annual tourist mark again (1.46 million compared with 414,168 in 2020 and 781,540 in 2021), but this level is still below 2019’s 1.94 million.

If the sharp rise hoped for this year is confirmed, it could bring the country close to this mark. Yet, it is still far from the potential of McKinsey’s projections, especially as the recommended reform measures and investments have still not been implemented.

Moreover, the rebound seen over the last two years confirms a trend that was already present before the crisis: the impact of the Gulf States’ restrictions on their nationals on overall spending. These nationals “alone accounted for almost half of tourist spending in Lebanon,” said Ramy.

“On average, they spent $12,000 per week per person and stayed for around 20 days,” he said, “whereas today’s tourists only spend between $1,500 and $2,000 on average and stay for barely a week.”

According to the Tourism Ministry’s figures, most tourists in the first half of 2023 were Iraqi, American and French. It’s not just in terms of travelers that the sector is struggling to reach its full potential. This is also the matter of employees benefiting from tourism income.

Ramy pointed out that in 2019, the sector employed some 155,000 people, i.e. almost nine percent of the working population at the time, not counting the almost 40,000 seasonal workers that tourism establishments hire on a temporary basis.

He estimated this number at around 130,000 people today — including 50,000 to 60,000 in the catering sector — after having fallen to 80,000 employees at the start of the crisis.

Trickling down?

According to Sami Zoughaib, economist and research manager at The Policy Initiative, “the significant rebound in tourism activity in 2022 and 2023 will only have a very marginal impact on workers, because the oligopolistic nature of the sector allows employers to drive down wages and maximize their profits.”

Ramy categorically denied this argument, saying that “as in all sectors, there are companies that own several chains, but their number is very small compared with the total number of establishments.”

In addition to salaries, the impact of tourism revenues on the economy must also be considered in terms of the indirect spin-offs they generate.

Before the crisis, a good proportion of this money was then reinjected into the country: either through direct investment by those who hold these funds, or through bank investments that these establishments were then redistributing in the form of loans that benefited the population.

“But since these people stopped depositing their profits in banks due to a lack of trust in this system, or investing them in the local market due to poor economic climate, tourism revenues have lost this redistributive effect,” said Zoughaib.

Fouad Zmokhol, dean of the school of business and management at Saint Joseph University and president of the International Confederation of Lebanese Businesspeople (MIDEL) agrees. “Most of the profits made leave the country, either to be invested or deposited abroad,” said. “The current crisis has taught them to diversify their portfolios and not to keep all their money in Lebanon.”

There is one more final potential downside: in terms of the economic cycle, the scale of tourist spending by the Lebanese abroad must also be considered, given that this spending amounted to almost $3.2 billion in 2022 (compared with $1.8 billion in 2021). As a result, Lebanon’s net tourism revenues only reached $2.1 billion in 2022, which is in line with the average for the last 20 years ($2.2 billion).

While tourism remains a sector with a future that has not yet achieved its full potential, the sector alone cannot offer a miracle cure.

“It does not make sense to draw a comparison, as some people do, between the revenue generated by tourism and the [sums that] would be lent by the IMF,” said Zmokhol “Firstly, because the vast majority of tourism revenue is distributed within the private sector, whereas the funds granted by this institution are earmarked for infrastructure investments; secondly, because this in no way settles the question of international credibility, which an agreement with the IMF would ensure.”

This story first ran in French in L’Orient-Le Jour, translated by Joelle Khoury.

Summer is drawing to a close, but in Beirut and some seaside towns, the summer euphoria has not yet subsided. Bars and restaurants are still packed. Partygoers don’t go home before dawn. Hotels and guest houses are virtually full for most of the week.“It’s been a good tourist season,” said Tony Ramy, the head of the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Patisseries....