The map above illustrates the inflation rates in the Arab world in 2021, with Lebanon and Sudan registering the highest percentages of inflation. Inflation is an increase in the level of prices of the goods and services that households buy.
High inflation reduces the purchasing power of money, making goods and services more expensive. This erosion of purchasing power is particularly challenging as it diminishes the real value of the currency, leading to a noticeable decline in the standard of living for individuals and restraining their ability to afford essential goods.
Negative GDP Growth Adds Another Layer of Challenge to Lebanon and Sudan:
The bar chart shows the GDP growth and inflation rates across Lebanon, Sudan, and other Arab countries in 2021. GDP growth, or Gross Domestic Product growth, represents the percentage change in the total value of goods and services produced within a country. In the context of the chart, the negative GDP growth in Lebanon and Sudan underscores a formidable challenge. Negative GDP growth occurs when an economy contracts, producing fewer goods and services than in the previous period. This contraction, coupled with soaring inflation rates as evident in the chart, adds another layer of complexity to the economic challenges Lebanon and Sudan are facing. A shrinking economy impacts employment, investment, and overall economic well-being, making it imperative for policymakers to address these dual challenges with targeted and effective strategies.
Emulating China’s Success: A Blueprint for Economic Diversification and GDP Growth
As seen in the line-chart above, The GDP growth in China has significantly increased starting 2020. China’s extraordinary economic growth can be attributed to a strategic blend of market-oriented reforms and targeted initiatives.
Diversifying the economy played a pivotal role, as the country shifted from an agrarian focus to developing various industries, such as reducing state control, encouraging private businesses, and welcoming foreign investments.
China’s success story underscores the effectiveness of a multifaceted approach, combining diversification with reforms that prioritize efficiency, global integration, and sustained economic planning.
Pakistan finds itself among the growing list of nations grappling with an alarming surge in inflation rates, and this phenomenon is a complex interplay of multiple factors. The bar chart compellingly illustrates this rising trend. It underscores a disconcerting truth: from the year 2021 to 2022, Pakistan witnessed a staggering 10% increase in its annual inflation rate. This alarming leap in inflationary pressures carries profound implications for the country’s economic stability and the daily lives of its citizens, necessitating a thorough examination of the root causes.
First, by looking at the first line chart, we can see that Pakistan’s energy usage is annually increasing. The country uses this energy for power generation, industrial processes, transportation, and residential purposes. However, the core issue is that Pakistan heavily relies on imported energy resources, particularly oil and gas, to meet its energy needs which can be proved by the line chart showing the increasing percentage of energy imported from total energy consumed. This dependence has persisted for many years and is expected to continue for the next 10-15 years. This means that Pakistan needs to purchase a significant portion of its energy from the global market, which makes it susceptible to fluctuations in international energy prices. These price fluctuations have been on the rise in recent years, and they can have a direct impact on Pakistan’s overall inflation rate. As energy prices go up, so does the cost of living for the people in Pakistan, leading to an increase in inflation.
The last line chart is extremely important because it serves as an evidence to the fact that Pakistan’s reliance on renewable energy is decreasing over the years. The percentage of renewable energy used is less than 50% of the total energy consumption in Pakistan which means that they rely more on non-renewable energy. This can expose the nation to global energy price fluctuations and be a huge contributor to the increasing inflation rate in Pakistan.
To stabilize the economy and mitigate the impact of volatile global energy markets, the government should focus on two key strategies. First, Pakistan needs to expand its domestic energy production and reserves. Second, it should invest in renewable energy sources. By doing so, Pakistan can reduce its dependence on energy imports and diversify its energy supply. This approach will help the country move away from costly imported energy resources and transition towards more sustainable and cost-efficient energy solutions.
The is most closely related to Sustainable Development Goal (SDG) 7: Affordable and Clean Energy. This SDG aims to ensure access to affordable, reliable, sustainable, and modern energy for all while promoting energy efficiency and sustainability. The issues of energy dependence and rising global energy prices impact not only economic well-being but also environmental sustainability, aligning with the goals of SDG 7.
Ever heard of the Boiling Frog Syndrome? The ‘Boiling Frog’ syndrome is based on an urban legend describing a frog being slowly boiled alive. The premise is simple: if a frog is suddenly put into a pot of boiling water, it will jump out and save itself from impending death… But if you place a frog in a pot of cold water and slowly heat the water, the frog will not perceive the gradual temperature increase. The frog becomes accustomed to the warming water and does not react until it’s too late, eventually resulting in its demise as the water reaches a boiling point. The frog’s inability to sense the incremental change in temperature leads to its unfortunate fate.
Similar to the boiling frog, Lebanon’s population may have adapted to challenges it had been bearing, with some becoming desensitized to the increasing hardships. It is only when the situation reached a critical point, with a sudden and dramatic spike in inflation in 2019, that the gravity of the problem became evident. By this time, many were already deeply affected by poverty, economic instability, and a lack of basic necessities, setting the country on an uncertain path.
With the country already having been in debt before 2019, Lebanon was just falling into its worst state, for inflation rates were at an all time high, reaching record numbers, causing a widespread in poverty, where everyone got affected. Lebanon found itself among the top 10 countries with the highest inflation rates, a stark reminder of the severity of the issue. As if that weren’t enough, the nation’s Net Primary Income plummeted to record lows, exceeding $1.2 billion in negative Net Primary Income in 2019, causing hardships for its people and economy. In reference to Turkey, Turkey has also passed through inflation throughout its years, on a growing bases, however by 2021, Lebanon hit a 154% inflation rate with Turkey (even though it recorded its worst high ever) scored a 19.6% inflation rate.
Faced with this grim reality, Lebanon’s leaders and policymakers embarked on a journey to tackle inflation and work towards SDG 1, ‘No Poverty’, they implemented a multi-faceted approach. This included the introduction of transparent and effective monetary policies to stabilize the currency and control inflation. Additionally, they emphasized fiscal discipline, taking steps to reduce budget deficits, promote responsible spending, and enhance financial stability. Seeking international cooperation and drawing inspiration from successful global cases, Lebanon aimed to create an environment conducive to economic growth, job creation, and poverty reduction, ultimately striving to ensure that basic necessities became more affordable for its citizens.
Contributors:
Lara Baltaji, Hadi Knaiber, Batoul Ramadan, Abdallah Yahfoufi, Nour Azakir, Herbert Pritzki, Shadi Youssef
Background about the Lebanese Crisis:
For nearly three years now, Lebanon has been facing the most devastating financial crisis in the modern era. The crisis started in October 2019 and aggravated by the economic effects of the COVID-19 pandemic and by the massive Port explosion on August 4, 2020. As a result, the black market dollar exchange of the Lebanese Lira increased from 1515 L.L. (before the crisis) to around 40,000 L.L(today) marking an almost 2500% increase.
You can find below a visual that shows the change of the official LBP/Dollar exchange rate over time until this November 2022.
This huge increase came with countless economic impacts on inflation, unemployment and poverty. Lebanon’s severe crisis which was blamed on the government’s corruption and failure has led to massive impacts on the Lebanese currency causing extreme poverty, unemployment, medicine shortage, electricity shortage, fuel shortage, malnutrition and much more. You can find below a visual that shows the change of the Food Inflation and the Food Consumer Price Index with the LBP/Dollar Exchange Rate over time until this March 2022.
The huge inflation was directly reflected on the prices of basic food commodities in Lebanon ever since the start of the economic crisis in 2019. What is meant by basic food commodities is the minimum raw agricultural or animal products sufficient to satisfy the nutrition needs of an average household which comprise of:
Cereals and Tubers (rice, wheat, corn, starch)
Meat, Fish, Eggs and Seafood
Dairy (milk, cheese, labne)
Oil and Fats
Vegetables and Fruits
Sugar and Salt
The slope of increase before 2021, however, was quite subtle due to the fact that food commodities were subsidised by the government back then. As the Central Bank started to run out of resources to keep the subsidies, the government lifted them in March 2021. That is when the increase in prices of basic food commodities started to follow a much steeper slope. The below interactive visual shows the change in average prices of food commodities in Lebanon over the years.
Problem:
According to the World Bank, food price fluctuations between Lebanese markets are caused by the Lebanese government’s “deliberately inadequate policy responses”. Due to the inadequate policy responses by the Lebanese government and due to the fact that Lebanon follows a free market economy, the problem of increased food prices started to worsen as not only are prices increasing, but now they are further inconsistent between markets in the different Lebanese regions . This adds an additional overwhelming problem to the many hardships Lebanese people are facing today.
In order to provide evidence for this issue, we decided to visit two supermarkets in Beirut and observe the differences in food prices. The variation in prices of the same food products was absolutely surprising. The below figure shows the price receipts of the two supermarkets.
Our next step was to explore two datasets issued by World Bank and World Food Programme Price Database. Our data explorations go hand in hand with our observed hypothesis which reveals that “there exist extreme and unexplained variations in food prices around markets in different Lebanese regions”.
The variation in prices of different food commodities has been an existing situation for many years now in Lebanon. This situation has exacerbated ever since the beginning of the economic crisis in 2019 as the price control responses have become inadequate. The following dashboard shows a comparison of prices of the different food categories between the different Lebanese districts over the years until 2021
The following bar graph shows a comparison of prices of specific food products between the different Lebanese districts over the years until 2022
Below we present the percentage difference of some food products between different Lebanese districts in 2022 (until October):
The average price of a one kilogram bag of wheat flour in Mount Lebanon was 28,000 LBP whereas in Baabak-El Hermel 10,000 LBP, recording a 95% difference.
The average price of a 160 gram Akkawi cheese in the South was 60,000 LBP whereas in Akkar 40,000 LBP, recording a 40% difference for cheese.
The average price of a can of powdered milk (2.5 kg) in Mount Lebanon was 325,000 LBP whereas in Akkar 210,000 LBP, recording a 40% difference for milk.
The average price of a 3.6 Litre gallon of olive oil in the South was 500,000 LBP whereas in El Nabatieh 430,000 LBP, recording a 15% difference for oil.
And the list of unexplained price variations between districts just keeps growing and growing.
Finally, in order to further prove our hypothesis, we conducted interviews with random Lebanese residents walking on Beirut’s seaside. When asked whether they were noticing price variations between supermarkets, most interviewees agreed that there exist obvious price variations of basic food commodities between different supermarkets. They added that this variation is not related to the location of the markets, for in many cases they have noticed that even markets lying walking steps away from one another vary in food prices. This means that the price variations cannot be explained by the products’ cost of transportation. It is only explained by the fact that there exists no governmental supervision.
Proposed Solution:
In Lebanon, there are laws that protect consumers from monopoly and from overpricing. However, as with many other laws, the government is unable to strongly implement these laws and monitor the prices of the supermarkets especially in the areas that are far from Beirut. For that, we propose a website, which can later be developed into a mobile application. The website shows the official prices of basic food products in the Lebanese market which are regularly updated by the Ministry of Economy whenever a significant change in the LBP exchange rate occurs. It also displays the prices of these same products in different Lebanese supermarkets. This way, Lebanese consumers will be able to check the prices of products before they go shopping, and thus can tell which supermarkets are following the official prices specified by the ministry and which supermarkets are overpriced.
We are working on involving Lebanese consumers in our website. As we all know, the Ministry of Economy has a limited number of employees. Thus they will not be able to monitor the prices in all the Lebanese shops. A better way for monitoring prices in different supermarkets would be to include consumers in the process by giving them the chance to report prices directly on our website. This means that consumers will act as data collectors, and thus can contribute to the success of this project. Now, the ministry will be able to track the overpriced supermarkets and take the necessary measures.
We also hope to develop the website idea into a mobile application, which is a proposition heavily backed by the Ministry of Economy.
Solution Validation:
The application concept we came up with to tackle the problem needed to be validated in order to be put into action. We needed means to check if our ideology could in fact lead to a change in the real world or it is only a theory on a piece of paper.
Therefore, we decided to take the view points of two parties:
The Lebanese citizens which are the potential future users of our application in order to check if they are actually willing to use it and if it could lead to a change in their lives and to the country in general
The General Director of the Lebanese Ministry of Economy and Trade, Dr. Mohamad Abou Haidar to assess the practicality and the feasibility of the concept by a professional in the field.
In the streets of Beirut, we went down asking random people about the issue and the proposed solution. All in all, people supported the idea and many claimed that they would be using the application without any doubt and believed that it would make a positive change in the pricing system in Lebanon.
On 25 November 2022, our team visited the director general of the Lebanese Ministry of Economy and Trade, Dr. Mohamad Abou Haidar. We interviewed Dr. Abou Haidar about how practical it is to do such an application and how much it could lead to change and the interview was recorded. Dr. Abou Haidar claimed that this application would lead to a significant change in several aspects. First, this application will help fight corruption in terms of pricings because it will be directly synced to the ministry, so any abnormal pricings will be directly reported to the ministry and the issue will be transferred to the responsible authorities that are able to take any legal action. The ministry also is trying to work on implementing online services that protect consumers’ rights along with the UNDP and other organizations. So, this application will be aligned with the goal of the ministry, since it is online-based. In addition to that, it will play a role in controlling the pricings in the market since it substitutes the need for the huge number of employees and the human resources needed that, no matter how many, cannot roam around the entire supermarkets and stores in all the Lebanese regions. He also said that the complaints of the people will reach the ministry in a more efficient and effective way, because they are via the application and therefore, the ministry can know about the concerns and the issues in a much faster way. Finally, Dr. Mohamad summarized the idea by being a “win-win situation” for both the ministry and the consumers. This is because it will fulfil the needs of the consumers by knowing the exact pricings of the items in any supermarket with a press of a button, will ensure that the rights of the consumers are protected, and will lead to the right selection of the place to be visited. It will also help the ministry in terms of protecting consumers’ rights, censorship and supervision.
Conclusion:
The concept website was presented to the General Director of the Lebanese Ministry of Economy and again, the solution was validated and approved by the ministry by providing us the full support in order to create this website as soon as possible in order to help the people followed by the country in general.
Ending with a future perspective, we believe that this problem is crucial to be solved in the very near future because of the damage it is causing in several aspects ranging from economic, financial to social. We, the people and the ministry have bets that our application concept could be a positive game changer in this issue. Solving this problem marks one of the battles against corruption, and is an attempt to make this country perfect, again.
As MSBA students, we are used to working with data daily, we are accustomed to hearing about its importance and how it holds the answers to any question we might have. We didn’t really understand how powerful data was until we were asked a question we didn’t have the answer to, and with the use of data we were able to unearth the answers to our question.
It was Monday February 22, directly after our Data visualization class, we were walking from OSB to Zaituna Bay and we were discussing different potential ideas for our upcoming visualization course when suddenly we were stopped by a SkyNews reporter. He asked us if we were students and then proceeded with asking us the one question that captured our curiosity:
Luckily, they included MSBA’s one and only Rafic Srouji in the news report the next day. His answer was:
This whole interaction got us thinking and sparked our curiosity; we wanted to find out why is the cost of consumer goods drastically increasing and what can we do about it.
As residents of Lebanon, we experienced first-hand the dramatic rise of prices every time the Lira devalues with an average inflation rate of 132.98%, so we joined the monthly inflation rate data in Lebanon with the monthly Lira rate data from 2019 till 2022. After plotting the timeseries data, we found that when the lira rate increases the inflation rate increases substantially. With further research, we found that the price of consumer goods changes substantially with the fluctuation of the lira because most consumer goods are imported, thus being purchased with the USD.
In order to get more insights about the nature of the trade deficit (exports and imports), we analyzed the Lebanese exports and imports data. This enabled us to create charts that compare the import and export values in Lebanon, and to divide them by sector.
As we can see in the dashboard’s charts, Lebanon has a large trade deficit of $12.81 Billion with most consumer goods being imported, this definitely plays a huge role in the increase of prices. If Lebanon was more self-sufficient when it comes to consumer goods and other basic products, the price of said products could potentially decrease and would be less volatile to changes in the lira rate.
Lebanon imports 20% of its total imports from the Agriculture sector, as well as 20% from the Minerals sector, which both constitutes to its highest imports. Our focus as to evaluate whether this amount could be reduced.
A big discovery was found! Lebanon has opportunities all over its area, hidden in its chaos; the country has at least one available factory that can produce goods from any tradeable sector. Lebanon has more than enough factories to reach the dream of putting a dent in the trade deficit. The country has 1,616 factories in the food industry that can dramatically decrease the high prices of food and beverages, if properly exploited.
A comparison between Turkey and Lebanon was found to be a great validation to our proposed solution. Turkey’s Lira has lost more than 70% of its value since 2021, but it was found that the inflation rate didn’t follow as aggressively as that of Lebanon. The weaker correlation between the Turkish Lira rate and the Turkish inflation rate is a direct result of the strong local production in Turkey. Turkey has a negligible trade deficit of $29 million which is negligible in comparison to its population (85 million), in opposite to Lebanon who has a trade deficit of $12.82 billion with a population of 6.83 million.
Local production is a key player in decreasing Turkey’s yearly trade deficit. Improving local production is seen to be effective in decreasing the country’s trade deficit, and decreasing the prices of goods.
From here, our findings demonstrate that there is a crucial need for local production. To do so, the government must allocate resources towards these factories and exploit them, especially in times we need them the most. This would potentially increase tourism, increase local jobs, and decrease prices all together.
