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Businesses struggle to build back from the Beirut blast

Beirut, Lebanon (ILO News) A year on from the blast that ripped through the port and large parts of Beirut, many small businesses continue to face an array of challenges, some of which go beyond the immediate effects of the explosion, according to research by the International Labour Organization (ILO) and the Fafo Institute for Labour and Social Research (Fafo).

For many businesses the explosion added to an already challenging business environment created by the economic and political crises in the country, as well as by the COVID-19 pandemic. Since the blast many businesses have faced a gradual reduction in demand for goods and services, an increase in raw material costs, hyperinflation and power cuts. This has cast doubt on their future.

Owners of grocery and food retail stores, for example, say that customers are buying fewer perishable goods, as many cannot store food in refrigerators for long because of power cuts. Other business owners say that the high cost of obtaining raw materials is leading to increased prices of goods, dampening customer demand.

Another reported consequence is a rise in business debt, mainly owed to suppliers and other related creditors. Businesses have also accumulated costs related to the damage to their business structures caused by the explosion.

“Enterprises feel that they are trapped in a vicious cycle, within the multiple and interlinked crises affecting the country,” said Maha Kattaa, ILO's Regional Resilience and Crisis Response Specialist in the Arab States. “This study has given us a clear picture of the impact of the Beirut blast and other pressing challenges on small businesses, workers and working conditions. We hope that these findings will help us design responses which take into account all these challenges in the short term but also in the longer term, through a national plan that supports enterprises in a comprehensive and coordinated manner.”

The findings are based on focus group discussions held with business owners in August 2021, to examine the current state of their businesses. The focus group participants were part of a wider survey group of 1,664 micro, small and medium enterprises (MSMEs). The survey was conducted by the ILO and Fafo after the August 2020 blast, to assess the impact on enterprises and their workers, as well as the effects of the COVID-19 pandemic on these businesses.

The wider assessment found that 14 per cent of surveyed enterprises had shut down, temporarily or permanently. Only 3 per cent were operating in profit after the explosion, compared to 32 per cent before the blast. 85 per cent were operating at a loss, compared to 28 per cent before the explosion.

In addition to the damage caused by the explosion, reduced operations were closely associated with the COVID-19 pandemic. To cope with their economic difficulties, surveyed enterprises had reduced the wages of their employees by an average of one-third. This has contributed to reductions in the purchasing power of consumers, who the enterprises ultimately depend on.

The assessment includes recommendations that would directly support affected MSMEs and work to address weaknesses in the wider system and so make it more resilient to future shocks. In the short term, this includes providing technical support and coaching to affected enterprises in the form of business continuity training and tutoring to help them adjust their business models and develop contingency plans. This should be accompanied by cash grants and wage subsidies targeting those enterprises that have not yet received support to renovate and rebuild their enterprises following the port blast.

In the longer-term, a national MSMEs development plan is needed to provide more coordinated support. Tailored responses to enterprises in the informal economy are also required to help informal businesses cope better with crises and pave the way for their transition to the formal economy, including inclusion in social protection systems.

Businesses struggle to build back from the Beirut blast