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Lebanon’s recovery set back by government resignation and port explosion

DuckerFrontier, October 12, 2020

Lebanon entered a new phase of economic spiraling as a perfect storm of COVID-19 fallout, currency collapse, and political uncertainty structurally harmed private consumption—the most critical component of the country’s GDP. Businesses will face new and worsening operational challenges, with imports becoming too expensive for the market and the Beirut Port explosion distorting supply chains. Local partners are facing bankruptcies and increased margin pressures as access to FX and credit is limited, driving businesses to thoroughly vet their local partners to avoid market paralysis and exposure to poor financial standings. We do not expect a consumer spending recovery before 2022 as confidence drops, with political instability hampering all reform and bailout progress and the tourism outlook grows dim.

Lebanon’s economic turmoil will worsen, leading to a severe contraction in private consumption, currency volatility, and operational challenges.

Falling FX inflows are shrinking reserves and driving lira volatility. Businesses face new pressures in Lebanon as currency volatility will increase the likelihood of repayment delays, inability to repatriate profits, and margin pressures. Inability to access credit and FX, combined with worsening margin pressures, will drive up bankruptcies, disrupting local partner dynamics and go-to-market strategies.

High unemployment, weak purchasing power, and low confidence will markedly delay demand recovery. Consumer spending will decline further as unemployment soars in both the public and private sectors, and tourism demand disappears for the foreseeable future. Businesses will need to plan for heightened price sensitivity and a shrinking middle class, resulting in mass trading down.

Public investment will concentrate on infrastructure repairs, but private investment will continue contracting in 2021 as investor confidence declines. However, our analyst teams revised up investments in 2021 driven by the anticipated reconstruction projects following the Beirut port explosion. Public projects will be sporadic and subject to extreme price reduction pressures.

Actions for Businesses Planning for 2021

  • Review partners’ financial standings to limit exposure to toxic financial management but extend credit lines where appropriate.
  • Introduce intermediate-priced goods for transitioning consumers, who will trade down, and increase bundling and promotions.
  • Monitor customer behavior and build scenarios throughout Q4 2020 to prepare your business for 2021.

Strategic planning season is ramping up and you need information about your markets, industry, and company in real-time to power your business decisions. FrontierView offers a solution that puts the right information at the right time, at your fingertips. Contact us to receive complimentary access to FrontierView for your 2021 strategic planning season.

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