Beirut On The Rebound

Mar 1, 2004
2004 / March 2004

The Cedars of Lebanon are famous-great powerful trees that have stood in the hills above Beirut for millennia. The oldest of these are thought to date back beyond the birth of Islam and Christianity. They are massive trees, with trunks as wide as 8 feet in diameter and pungent, knot-free wood known for its resilience and resistance to parasites and disease. These qualities made the lumber highly desirable construction material for the ancient Egyptians and Palestinians. Many sarcophagi unearthed in Egypt were made of this wood.

The cedar is also the apt symbol of Lebanon. The cedar trade eventually depleted the forests of the most ancient trees, leaving only a handful that the government now staunchly protects. Reforestation projects are restoring many of the cedar forests, but the hardy conifer is a slow grower, adding less than a foot of new growth per year, and it will be some time before the cedar forests mature.

The same can be said about the once-glamorous capital city of Beirut. More than a decade after the country’s painful 15-year civil war and Israeli occupation, the city is clearly on the rebound. Though many signs of war remain, especially along the infamous Green Line that separated East and West Beirut during the war, Solidere, the private corporation formed to lead the 20-year program to restore Beirut’s devastated downtown, has made significant progress restoring, and in some cases completely rebuilding, the structures in this once thriving business district. But Solidere is not the only source of restoration. Take a walk through the back streets of Hamra and you’ll find the peace is often interrupted by the pounding of hammers, whirring of power saws and the whine of drills.

“Lebanon is back,” said Nassib Ghobril, head of research for Saradar Investment House, a leading provider of financial and investment banking services in Lebanon. “It has infrastructure-transportation infrastructure, telecom infrastructure. We don’t have the ideal infrastructure. But you can see a clear improvement.”

Electricity remains a problem: There is still more demand than supply, leading to interruptions that can last for hours in some areas. All modern office buildings and luxury hotels have their own emergency generators that kick in whenever the power fails.

Over the last 13 years, the government has been focusing its attention on rebuilding Beirut’s communications systems, transportation infrastructure, water supply and power grid with the clear goal of attracting foreign investment. Though progress has been made, foreign investment has been disappointingly limited. One reason investors remain wary is the ongoing tension in the Middle East. Another is the daunting amount of red tape involved in doing business in this expensive city.

“The thing that drives people crazy here, whether you are a local or foreign businessperson,” Ghobril said, “is that you need to do paperwork and go to so many government agencies and departments to get signatures, stamps and so on.”

To address that frustration, the government formed the Investment Development Authority, one department for the whole process.

“It’s a one-stop shop where you can go and apply for everything you need, or if you are an investor looking for certain kinds of projects, they can help with that as well,” said Ghobril.

The postwar Lebanese economy continues to struggle under an enormous deficit. From January to November 2003, the fiscal deficit came in at 37.2 percent, or approximately $2.37 billion.

“Our fiscal situation is not enviable,” Ghobril said, noting that the public debt is rated “below investment grade” by analysts.

While Eurobonds Lebanon is considered a risky investment, Ghobril pointed out that the currency has been stable for more than 12 years. “We have almost no inflation. We have huge foreign currency reserves equivalent to 67 percent of gross domestic product… The government never defaulted on its deb t.”

The Heritage Foundation/Wall Street Journal Index of Economic Freedom, a broad indicator of economic freedom in 155 countries, ranked Lebanon at 83 globally, emphasizing the high cost of its government, large amount of regulations and protectionist trade policies as detractors. Ghobril disagrees with that assessment.

“It’s not protectionism,” he said, explaining that Lebanon has signed an association agreement with the European Union to open up the E.U. markets to Lebanese products. Lebanon is also in advanced negotiations to join the World Trade Organization. The country is, indeed, integrating into the global economy.

Foreign investment may still be sparse, but that’s not to say it’s nonexistent. There are more than 160 offices representing American firms in Lebanon. Corporations such as Microsoft, Intel, Cisco Systems, Procter & Gamble, Eli Lilly, Pfizer and General Electric have branches or regional offices in Lebanon. Franchising is now one of the fastest-growing sectors of the economy, with new Starbucks and McDonalds popping up in shopping malls and residential areas across the country.

While many of the newly restored office buildings in downtown Beirut remain unoccupied, tourist traffic has begun to return to Lebanon, and luxury hotels are opening along its spectacular coast. Despite the drop in tourism precipitated by the buildup to the war in Iraq, the summer and holiday months in Lebanon saw a huge increase in tourism-enough of a boost to peg the final figure for tourist visits in 2003 at more than 1 million, a benchmark not surpassed since 1974. The majority of those tourists, 43.1 percent, came from Arab countries. Europe supplied 26.3 percent of the year’s visitors, while Asians made up a little more than 13 percent.

Earlier this year, plans were announced to build the Middle East’s largest tourism project, Sannine Zenith Lebanon, a $1.4 billion complex of villages spread out over 23,720 acres-roughly 1 percent of Lebanon’s total area. Villages will have themes, among them The International Sports Village, The Eco Farm Village and the Lake View Village, complete with man-made lake. Villages will feature 3-, 4- and 5-star hotels, condominiums, private lots, commercial areas and recreational facilities. Other project features include golf courses, sports facilities, ski slopes with lifts that can accommodate 64,700 skiers per hour, an organic food plantation and a heliport connecting visitors to Beirut International Airport. Planners expect the project to take six years to complete.

Beirut remains one of the most expensive places in which to live and do business. According to the 2003 survey of the world’s most expensive office locations conducted by property consultants Cushman & Wakefield Healy & Baker, Beirut is ranked as the 23rd most-expensive city worldwide and fifth most expensive in the Middle East and Africa region.

The same survey named Verdun Street, Beirut’s exclusive shopping district, the 34th most expensive shopping destination in the world. Ghobril sees this as a badge of honor.

“You see,” he said. “We are not ‘off the beaten path,’ as you call it. When you are in the same listing as Fifth Avenue in New York or the Champs Elysées in Paris, you are mainstream.”

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