When the bombs stop, can confidence return?

Published in The Times

THE extent of the physical damage caused to Lebanon over the past month will not be known until there is a cessation in hostilities and systematic survey of the country’s infrastructure, but it can be said with absolute certainty that the cost in loss of business confidence will be felt acutely for years to come.

The disproportionate and bloody barrage that Israel continues to deal out will inflict further damage but, according to Albert Nasr, director of the Centre for Economic Research in Beirut, the extent of the destruction has already reached shocking levels. Damage to infrastructure, both economic and social, is expected to exceed $4 billion (£2.1 billion) with many roads, bridges, telecommunications, water treatment plants and even some hospitals in need of repair. This work is likely to be funded by the public sector, although where the Lebanese Government is going to find such a sum remains a major worry.

Damage to residential property has also been massive; 10,000 housing units will need rebuilding or repair, at a cost of nearly $2 billion. The reconstruction of housing must be the first priority, since a return to political and social stability will depend on displaced people being rehoused. The Government should look at providing support on an assistance basis as well as a loans basis, since many Lebanese, especially in the poorer South, will not have the means to pay back loans.

The loss to the enterprise sector has been substantial. Tourism, which accounts for 15 per cent of GDP, has been badly hit as the inflow of Gulf Arab and even European visitors of recent years has been halted. The Phoenicia Hotel, one of Beirut’s landmark addresses, is rumoured to be on the verge of making 75 per cent of its staff redundant and summer occupancy rates of nearly 90 per cent have slid to between 5 and 10 per cent. Small hotels and summer apartments in the safe hillside areas of Broumana and Feraya are alone in making a profit, having benefited from the migration of civilians from the South and southern suburbs of Beirut.

Industry has suffered, with glass factories, dairies and steel works in the Bekaa and several factories fabricating clothes and tissue in the South all being hit. Most importantly for British exports — which are dominated by machinery, cars, pharmaceuticals and consumer goods — transport and logistics have been brought to a standstill. Lebanese agricultural produce, a major source of income for the South and an important national export, is either left unharvested or rotting in storage. Mr Nasr estimates losses to Lebanese enterprise at about $2.5 billion.

It is worth noting that there is an environmental dimension to the attacks on Lebanon. The oil spillage caused by Israeli bombing of the Jyeh power plant storage tanks has regional implications and will cost at least $400 million to clean up. Mediterranean currents mean the spillage has already reached Syria and it will not be long before Turkey faces a threat to its shorelines and tourist destinations. The effects on marine life and birds should not be discounted; the Lebanese fishing industry, though modest, faces a difficult future.

Real estate has enjoyed a healthy boom over the past five years, and the Solidere residential and commercial development in downtown Beirut brought in a little over $1.5 billion during 2005-06. A further $3 billion to $4 billion was hoped for in the final, seaside, phase of Solidere. Whether this will happen now is anyone’s guess, and most Lebanese are gravely concerned by foreign fears over investing in their country. The extent of the loss of future investment is open to speculation, but it will no doubt be significant and damaging.

Some sectors have managed to weather the crisis so far. Beirut has been the centre for banking in the Middle East since the 1970s and this sector has benefited from the shrewd policies of the Lebanese central bank. The system is heavily dollarised, and with 74 per cent of deposits held in foreign currencies there has been no great rush to get rid of Lebanese lira. The transfer of funds out of the country, according to the central bank, has not exceeded $1 billion. How long this position can be held, no one knows. The balance of payments reached a record level in June, but much of the good work achieved over the past year is in jeopardy.

The questions being asked around the world are: how will Lebanon be reconstructed and where will the money come from? Many observers expect assistance from the United States and the European Union. Oil-rich Arab states have already begun discussing a fund for this purpose. Saudi Arabia has led by example, giving a $500 million grant and depositing $1 billion to ensure that the banking sector remains robust. A total figure in excess of $7 billion is the present estimate for reconstruction costs, Mr Nasr says, and this may well rise further. If a long-term, viable political solution is found, the Lebanese have shown in the past the resilience needed to rebuild their country.

There are two further questions in my mind: how can confidence be rekindled and what price will Lebanon pay to return to where it was only 30 days ago? Coming to terms with the human losses and trauma of a generation that has grown up unscarred by civil war cannot be given in dollars or percentages, and it will be many years before anything like normality returns to this beautiful land.

George Asseily is Chairman of the Centre for Lebanese Studies and director of the Arab-British Chamber of Commerce  and Patrick Forbes is head of external relations at the Arab-British Chamber of Commerce in London