A new trade finance fund has been rolled out to help the Lebanese manufacturing sector as the country’s economy falters in the wake of the Covid-19 pandemic, as well as a fatal explosion in the country’s capital last month.
The Cedar Oxygen impact fund will provide manufacturers in the country with access to short-term trade and supply chain finance products, such as import, export and receivables finance, which will be available to both exporters and importers. The deals will be originated by a select number of domestic partner banks, together with the Association of Lebanese Industrialists.
A spokesperson for Cedar Oxygen tells GTR that a “close and meticulous” credit risk assessment will be carried out for each transaction, throughout its life-cycle.
They add: “Investment decisions are taken unanimously by the investment and credit committee, composed of internal and external independent experts. The size of support and financing provided will be determined on a case-by-case basis.”
The fund has been set up in Luxembourg with the central bank of Lebanon providing US$175mn as an anchor investor.
The fund is aiming to reach a fund size of US$750mn and is looking for further investment from development finance institutions (DFIs), as well as backing from private sources, such as Lebanon’s expat community.
Initially, the fund will focus on supporting around a dozen sectors, including food processing, metal and electrical manufacturing, well as health and safety products.
Cedar Oxygen’s founding partner Jean Salomé tells GTR that the purpose of the fund is to boost imports into Lebanon and “restart the real economy” by helping firms get access to US dollar financing.
Foreign currency woes
Even before the economic impact of the coronavirus crisis was fully felt in Lebanon, businesses in the country had been struggling to access US dollars, with Reuters reporting that some local banks stopped dispensing dollars as early as March.
Speaking to GTR about the situation in the country in May, Rudolf Putz, head of the EBRD’s Trade Facilitation Programme, said: “It’s very difficult currently for importers in Lebanon to get access to US dollars, because they do not have sufficient exports to generate dollars. And they have problems in getting international banks to lend US dollars, which makes it difficult to import any merchandise.”
In recent months the economic outlook has become even more strained, with the coronavirus pandemic sending inflation rates soaring and causing the currency to further weaken.
According to Salomé, Lebanese firms are sometimes being forced to turn to illicit means of financing trade because of the shortage in US dollar liquidity.
“Today, to be able to procure raw materials from outside of Lebanon, manufacturers have to go to the black market, because of the capital controls and because they cannot access foreign currency,” he says.
A devastating blast at the country’s main port in the capital city of Beirut in early August has only compounded the country’s economic problems.
A World Bank report has found that damage to physical stock as a result of the explosion could cost as much as US$4.6bn, while analysis by the Institute of International Finance (IIF) says that the event could deepen the recession from -15%to -24% this year.
The country’s government resigned en masse in the wake of the crisis, with Prime Minister Hassan Diab blaming the tragedy on endemic corruption.
Rumours had been growing that Lebanon’s central bank governor would stand aside as well, but Riad Salameh, who has led the Banque du Liban since 1993, told CNBC this week that the country’s crisis was not caused by monetary policy decisions.