This tiny geographical country that's been talked about for months has withstood more than one would expect a nation of this size and population to. Within the past couple of months, Lebanon's currency has drastically lost its value and is at a fluctuating rate of 60-80 percent of what it once was. In 1997, the currency was stabilized at a rate of 1,500 LBP to $1 USD. It all changed end of 2019, when the Oct. 17 revolution began.
The intense inflation has led to food prices skyrocketing, blackouts due to increase in fuel prices, a staggering rise in unemployment, and the shutdown of retail stores and businesses all while people continue to lose their purchasing power.
On top of this, the Aug. 4 Beirut Port explosion crushed whatever hope remained.
According to economics graduate and Financial Accounting Consultant at Ernst & Young Zakaria Jouni, "Traders/Businesses don't have a basis to set the prices of their products and services against in order to set their plans and calculate their gain, whereas the fluctuating speed has lost control, having the exchange rate be at a 5,000LBP/$1 one day, and at 7,000LBP/$1 the next."
With the rate fluctuating at abnormal speed, it is imperative for it to be stabilized by the government in order to minimize the losses. Other solutions will have a much lower impact, as Jouni said.
Because sales have radically decreased, businesses haven't been left with a lot of leeway to adjust or adapt other than being forced to release employees, cut operating and spending costs including raw products, and readjust their operating models according to their current sales.
A Hamra coffee shop owner told StepFeed they're unable to make profit after their costs increased due to COVID-19 and the instability in the country. They had to decrease the number of employees per shift, close an hour before their usual closing time, and monitor electricity consumption including how long ACs are kept on.
Other businesses have been suffering just as much. The owner of a recycling and repurposing company for exhausted metals mentioned not only having to reduce labor and rental costs, but also having to buy material that was locally produced as it may be cheaper than imported material for the end users to buy. They also had to put a lower profit margin on materials they brought from abroad so that people can still afford to pay for it.
Consumers, on the other hand, have been living in confusion and incomprehension of the random pricing that's taking over the market. People are unable to stick to specific products, as no one good remains the cheapest for longer than a few weeks. Long-term planning has become extremely difficult as the state of the country, including its economy, has become unpredictable.
Could there be hope?
"A part of this crisis is a form of rectification of market problems that have piled up for decades. Businesses in Lebanon have been very traditional management wise and relied mainly on bank loans/facilities and credit from other companies to open and expand, which normally would not have been a grave issue.
However, when the bubble created by the 1,500 L.L peg, which inflated the size of the Lebanese economy and peoples' purchasing power, went on to burst, it showed us how unhealthy and inaccurate market practices were," Jouni explained.
He believes the businesses able to survive are the ones that have had effective plans and healthy financial activities from the start.
"In the coming years, Lebanon's economy is going to improve, despite its downfall now, which is a rectification act. As hard as it is, adjustment is no stranger in a free economy, with the correct steps markets rectify themselves," he further emphasized.