Lebanon's economy takes a knock as fuel prices hit the roof

Lebanon's economy takes a knock as fuel prices hit the roof
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Published August 30th, 2012 - 15:20 GMT via SyndiGate.info

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Prices of gasoline and petroleum products reached the highest levels in four months Wednesday
Prices of gasoline and petroleum products reached the highest levels in four months Wednesday
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Elie Yachoui
,
Louis Hobeika
,
Ghazi Wazni
,
Dania Naka
,
Notre Dame University
,
Farmers Association

Soaring fuel prices have exacerbated Lebanon’s already battered economy as rising production costs put more pressure on industrialists and farmers, economists said Wednesday. Prices of gasoline and petroleum products reached the highest levels in four months Wednesday.

“Given the already receding markets and security turmoil, this is particularly bad for the whole economy,” Economist Ghazi Wazni told The Daily Star.

Wazni said that businesses, which Tuesday reported a 50-percent decline in sales over the last two months, were likely to suffer from even slower sales if gasoline prices continued to soar.

But it is not only transportation costs that will be impacted. Commercial and industrial businesses, in addition to households, pay significant amounts to private generator owners for electricity during power cuts across the country.

But while households and businesses face higher private generator bills, industries, many of which run their own generators, are particularly vulnerable to higher fuel prices.

Industries, especially energy-intensive ones, will bear the brunt of the higher fuel prices, leaving them with one of two alternatives: to either hike commodity prices or concede a lower margin of profits, economist Louis Hobeika said.

Compared to countries that offer reliable and cheaper electricity, or those providing fuel subsidies, the competitiveness of Lebanese products could suffer a blow because of the fuel price increases, Hobeika said.

According to the head of the Farmers Association Antoine Howayek, the increases in fuel prices pose a higher risk to the agricultural sector, particularly in the Bekaa region where farmers depend on pumps powered by fuel oil for most of their irrigation.

“Irrigation is responsible for no less than 20 percent of costs,” he said, complaining that plummeting exports and lower demand for produce over the past year have rendered farmers unable to increase prices to match increases in production costs.

Elie Yachoui, a professor at the Notre Dame University, told The Daily Star that the standard inflationary impact of fuel price increases amounts to 2-3 percent for every 10-percent increase.

“But it is common practice in Lebanon for businesses to increase prices by a ratio [equal] to the actual increase in the fuel component,” Yachoui added.

All economists interviewed by The Daily Star said that the impact of higher fuel prices was significant for the Treasury, which is already excessively burdened by fuel purchases for the cash-strapped Electricite du Liban.

Gasoline prices rose sharply Wednesday, gaining LL1,100 and LL1,000 for its 95-octane and 98-octane varieties respectively, reaching LL36,400 and LL37,000 per 20 liters – their highest level since May. Both diesel and fuel oil increased by LL600.

In a recent interview with The Daily Star Monday, Dania Naka, the general manager of fuel importer Wardieh, said that gasoline prices would continue to increase over the next three weeks.

She added that gasoline could increase by an additional LL600 next week, followed by LL400 and LL200 in the two following weeks, before possibly stabilizing if international oil prices level off.

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