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Daniel Garrote Sanchez, senior researcher at LCPS


March 2018
Fighting Corruption to Ensure High-quality Infrastructure Investment

On 6 April 2018, the Government of Lebanon will launch a capital investment program that is likely to be the largest in the history of the country, amounting to more than $20 billion. Targeting needed upgrades in the country’s deficient infrastructure system, the upcoming Paris Cedre conference was conceived of to secure the support of foreign donors. There is a general recognition that Lebanon has particularly poor infrastructure quality, especially when compared to similar countries in terms of population and level of economic development. Less acknowledged is action—or lack thereof—by the Lebanese government regarding high levels of corruption and spending inefficiencies, a factor which correlates strongly with the presence of poor infrastructure. Indeed, for Lebanon to truly benefit from foreign capital investment, it must take serious measures to fight corruption in the public sector. 
 
The challenge of poor infrastructure dates back several decades and has various complex drivers. The 1975-1990 civil war and more recent conflict with Israel in 2006 destroyed significant parts of the country’s infrastructure while consistently low levels of public investment over the last decade have been insufficient to maintain, let alone improve, these public facilities. Based on data from the International Monetary Fund, the government of Lebanon has spent an equivalent of 1.8% of GDP annually on public investment, a modest figure compared to the world average of 5% of GDP. Over the last seven years, Lebanon’s infrastructure has been put under further strain due to the arrival of more than 1 million Syrian refugees. However, the infrastructure gap with comparative countries was similarly large before 2011, suggesting this factor has a secondary role in explaining long-lasting underperforming infrastructure in the country.
 
Lebanon ranks among countries with the poorest quality of public infrastructure in the world. According to the World Economic Forum’s Global Competitiveness Report, Lebanon ranked 130th out of 137th countries in quality of infrastructure in 2017. There is a strong correlation between the level of economic development in a country and its quality of infrastructure: Wealthier countries have more resources to improve their infrastructure and better quality of public infrastructure also helps countries grow and become more economically developed. However, Lebanon’s infrastructure is in significantly poorer condition than infrastructure in other countries with similar levels of economic development (such as Argentina, Iran, Mexico, Thailand, Bulgaria, or Belarus). It is similar to some of the least developed countries and only ranks ahead of Nigeria, Cameroon, Yemen, Haiti, Congo, Chad, and Mauritania. Infrastructure deficiencies include poor quality of roads, frequent electricity cuts, and the inability to properly manage solid waste.
 
Seeking funds to finance investments is a necessary but not sufficient condition to solve the large infrastructural gap in the country. Apart from increasing investments, Lebanon also needs to drastically improve the efficiency of public spending on those investments. Over the last decade, Lebanon has significantly worsened in terms of governance and fiscal transparency, a phenomenon due in no small part to rampant corruption in the public sphere. Different measurements such as the corruption index from Transparency International or the prevalence of irregular payments and bribes index from the World Economic Forum, clearly demonstrate that Lebanon places among the worst 20% countries in the world in corruption, transparency, and accountability. Corruption hinders the efficiency of public spending and leads to the misallocation of funds, meaning that for any dollar invested, improvements in the quality of infrastructure are more limited. As a result of corruption, Lebanon ranks among countries with the lowest levels of public spending efficiency, only behind countries such as Venezuela, Brazil, El Salvador, and Zimbabwe.
  
Taking all this into account, it is now time to demand structural changes to increase accountability in public finances and reduce corruption, in addition to demanding the strengthening of the public investment management framework before undertaking any large investments and attracting international capital for that purpose. In particular, regulatory frameworks are fundamental to fighting corruption, such as the legal protection of whistleblowers, enhancing independent audits, passing regulations that require senior public officials to publicly declare their assets, promoting transparency in public procurement, and providing de facto powers to the planned anti-corruption agency. In this regard, addressing corruption and improving governance and accountability should be a priority in the Paris Cedre agenda in order to increase the effectiveness of any investment efforts targeting infrastructure improvement in Lebanon.
 






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