Foreign Suppliers Demand Advance Payment for Deliveries to Lebanon

Published November 28th, 2019 - 07:00 GMT
Foreign Suppliers Demand Advance Payment for Deliveries to Lebanon
The development comes amid an existing crisis at the Port of Beirut. (Shutterstock)
Most foreign suppliers, among them SABIC from Saudi [Arabia], are refusing to ship to Lebanon without prepayment

Major foreign suppliers have halted exports into Lebanon as insurance companies have begun to refuse cover on shipments due to the steepening economic and political crisis, exacerbating stress on local import-dependent businesses that are already on the brink.

“Most foreign suppliers, among them SABIC from Saudi [Arabia], are refusing to ship to Lebanon without prepayment,” said Fadi Abboud, former president of the Association of Lebanese Industrialists and a former tourism minister.

SABIC is the largest public company in the Middle East and supplies a wide array of raw materials, including petrochemicals, metals, and fertilizers.

While suppliers would have previously given clients 90 to 120 days to make payments, many are now demanding that all shipments be paid in full prior to delivery as insurance companies have declined to cover exports to Lebanon.

The development comes amid an existing crisis at the Port of Beirut, where containers of goods have been sitting for weeks. As unofficial exchange rates crossed 2,000 Lebanese pounds to the dollar over the weekend, compared to the official peg of LL1,507.5, importers are struggling to make payments.

Banks, which reopened on Nov. 19 after nearly a weeklong closure, have limited money transfers abroad, imposed tight credit lines and officially capped withdrawals to $1,000 per week - although there are reports that some banks are unofficially restricting withdrawals to even lower amounts.

For business owners, the policy being implemented by the Central Bank has fueled an existing dollar liquidity crisis and has proved an “impossible situation.”

“We haven’t been able to import raw materials because they are asking [for cash prior to delivery]. We were OK before but now most of the raw materials are still lying at the port and we don’t have enough dollars to get them,” Abboud said.

Elie Zakhour, chairman of the International Chamber of Navigation, has argued that the situation has devastated the activity of Beirut Port and that the effect extends to the entire country’s economy.

To add insult to injury, port authorities, constrained by their own regulations and financial situation, are continuing to charge firms for storing their containers at the port.

They were also charged during the days that banks were closed, which meant that even companies that might have been able to pay their Customs duties could not access their accounts.

According to members of the Association of Lebanese Industrialists, it is estimated that over 40 percent of businesses are at risk of collapse if the situation continues.

“I am working with 10 shipping companies for my business and they cannot put containers out. And it’s an incredibly tricky situation as it’ll mean that prices will continue to increase, there is risk of even more civil unrest and people will lose their jobs,” said the owner of a multinational media firm, who spoke on condition of anonymity.

“Companies are not banks; they do not have infinite money. In fact, because of this situation, over 80 percent of the people in my business have their salaries on hold,” the firm owner added.

While many have voiced their frustrations to port authorities, most believe that the main cause of the problem is the inability of the politicians to form a Cabinet to address all the problems of the country and the failure of the Central Bank to handle the crisis.

“The solution is with the Central Bank. It has to find a scheme for those who are importing raw materials, and we should be treated like those importing oil, medicine, and wheat,” Abboud said.

“It’s an impossible situation.”

Lebanon’s balance of payments deficit for the first nine months of 2019 hit $4.4 billion on Tuesday, compared to $1.3 billion over the same period last year, according to figures released by the Central Bank.

Lebanon’s economy is highly import-dependent, with only a very small local industrial and manufacturing sector.

The increase in the deficit was triggered by both a 24.2 percent surge in exports and a $3.3 billion decline in banks’ net foreign assets.

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