Small businesses in Lebanon struggle to stay afloat amid lira’s endless fall

Before the crisis began in 2019, Pierre enjoyed a comfortable salary of 3 million Lebanese lira (equivalent to $2,000) per month, along with a range of social benefits. However, as the Lebanese lira dramatically collapsed from 1,500 lira to one US dollar (USD) in 2019 to more than 120,000 lira to one USD in 2023, his salary lost 98.5 percent of its value, leaving him in financial straits.

The state’s security agency reduced the working hours of its officers in response to the crisis, requiring Pierre to work only three days a week. Although the state recently tripled his salary to nine million lira, his monthly earnings now barely reach $100 — a mere five percent of his pre-crisis salary.

To make ends meet, Pierre took a second job at Houssam’s trendy café, which pays him in “fresh dollars” (i.e., strong currency, usually USD), ensuring he can sustain his wellbeing amid the country’s deteriorating economic situation and soaring inflation.

Meanwhile, Houssam El Eid, a small and medium-sized enterprise (SME) owner in Gemmayze, a trendy neighbourhood in Beirut, has faced his own set of challenges. His café is a popular spot for young Lebanese and students who flock to Gemmayze for its lively atmosphere, variety of dining options, and the fast internet service provided by Houssam’s café. 

The fast internet is especially valuable for those who need it for study or work, as it is not always available in everyone’s home. Gemmayze is known for its picturesque, narrow streets lined with historic buildings, fashionable boutiques, and vibrant nightlife, making it a must-visit destination for tourists and locals alike.

The currency fluctuations forced Houssam to price his products and services in dollars, protecting his business from the volatile exchange rate. He has also had to navigate the challenges of increased expenses, such as dollarized electricity costs, and staffing difficulties, as skilled workers leave the country for better opportunities. Despite these hurdles, Houssam’s café continues to operate, serving as a lifeline for employees like Pierre who rely on the fresh dollar wages it provides.

“During the crisis, many workers moved from the city to rural areas. At some stage, businesses could not maintain their staff. However, pricing in dollars has allowed us to pay staff in dollars, even though we cannot pay the same salaries as before.”

Speaking on the impact of currency exchange and pricing on SMEs, El Eid says, “Before pricing in dollars, our business was affected negatively on an hourly basis due to the fluctuating exchange rate. The change in the exchange rate made us lose money.” 

“If I sold an item for one dollar,” El Eid explains, “I had to change the price of the exchange from 100,000 to 118,000 lira; if not, I would incur an 8,000 lira loss. However, updating the exchange rate during the day helped mitigate some of these losses.” Before this adjustment, businesses used to price every other week and wait for competitors, resulting in a poorly functioning market.

When asked about the survival of SMEs in Lebanon, El Eid says, “The survival of SMEs depends on various factors. For instance, small markets, grocery stores, and even supermarkets survive because people will always need to buy essentials, even though their spending habits may have changed. The situation differs in coastal areas compared to villages and varies across different sectors and the target audience.”

He notes that high-end and elite brands in the Food & Beverage sector retained their customer base, while smaller shops and commercial chains catering to the masses have been slightly affected. Still, those who were hit the most were businesses catering to the middle class and the youth, as thousands left the country and emigrated.

El Eid also addresses the electricity crisis and its impact on SMEs: “The electricity crisis in Lebanon has been a massive burden, with businesses now paying thousands of fresh dollars, which is not reflected in the prices they can sell at. Previously, electricity and utilities in the Food & Beverage sector should have constituted a maximum of five percent of total sales, but now these costs have risen to above 10 percent.”

He adds that SMEs suffer, and staying in the market is more challenging as a service, that used to cost $10 now costs $7 or less because people can no longer afford it, despite businesses having higher running costs.

El Eid emphasizes the need to define Lebanon’s role in the economy and its prime offerings for the region and the world, questioning what Lebanon should focus on and whether tourism and the crisis-hit banking sector should continue to play a central role or perhaps other sectors should be further developed.

He concludes, “Everything is based on the economy, and Lebanon will continue to struggle without a clear economic direction. Defining Lebanon’s economic identity and creating a strong plan, roadmap, and reforms, and a new political class will be essential for the country’s future progress.”

Pierre shares a similar vision to Houssam’s, and their stories are not unique, as many Lebanese citizens have been forced to find additional sources of income and adapt their businesses due to the economic downturn

“Although my financial situation is dire, I feel it’s my duty to continue serving my country in one of its security agencies,” Pierre said. 

“I remain hopeful that the situation will eventually improve, but deep down, I know that the ruling political elite is corrupt and that real change is desperately needed. I wish the October 17, 2019 protests had been able to bring about real change, but for now, I have no plans to leave the country and leave the rest of my family here.”

This situation is particularly challenging for those who used to rely on a single, stable income from the government. The crisis has also led to a sharp increase in unemployment rates and the closure of numerous small and medium-sized enterprises (SMEs), exacerbating the financial hardships faced by the country’s population.

As Lebanon struggles to find a solution to its economic woes, individuals like Pierre and Houssam continue to adapt to the new reality, taking on extra work, seeking alternative sources of income, and finding innovative ways to keep their businesses afloat. The resilience of the Lebanese people is evident as they navigate through these challenging times. Still, a long-term solution to the country’s economic problems remains crucial to ensure a better future for all.