LEBANON - Corruption Erodes Competitiveness.

While Lebanon has the entrepreneurial mindset and the high skill manpower required to return the country to its previous status as a business and banking centre in the Middle East, its efforts to integrate into the global economy are often hindered by corruption and cronyism - both of which delay reforms. Thus, although during the year Premier Hariri visited Iran, Japan, Kuwait, Oman, Saudi Arabia and France seeking aid or business opportunities, there has been little to show for it.

One of the reasons is a lack of confidence in the business environment. A report on corruption assessment, commissioned by the UN's Centre for International Crime Prevention, estimated that the Lebanese state squanders over $1.5 billion per year as a result of pervasive corruption at all levels of government. Among other things, the report pointed out that only 2.4% of the $6 billion worth of projects contracted by various government bodies were formally awarded by the administration of tenders. According to the report, the rest of these contracts were awarded not to the most qualified applicant, but to the company willing to pay the highest bribe to the minister in charge of the project. The report finds that over 43% of companies in Lebanon "always or very frequently" pay bribes and another 40 percent "sometimes" do.

Patronage within the system is closely linked to the issue of corruption. Politicians in Lebanon derive popular support by distributing services and jobs to their constituents. While this happens in other countries, especially democratically oriented ones, the system of patronage has become so entrenched that it has become the norm - i.e. not something regarded as being harmful to efficient economic functioning. Patronage can act as a drag on development, as powerful politicians fight over who can control a project in order to distribute patronage accordingly. Thus over $500 million in grants and soft loans that have been received by the government have not yet been spent because politicians have been unable to agree on their allocation.

Minister of State for Administrative Development Fuad Saad referred to all this when he said that the Lebanese people, rather than their government, are to blame for corruption in the country. He said corruption is a "malignant tumour" that infects the entire population of Lebanon, adding: "Even if we replace all government employees, it won't solve the problem because that's how the public is". The UN report, on the other hand, showed that over 96% of Lebanese believe that the "political class" in the country is primarily responsible for corruption in Lebanon.