The Economist Intelligence Unit (EIU) warned that, as a consequence of the recent conflict, Lebanon’s 2006 Gross Domestic Product (GDP) could shrink by some 10%, taking the national debt of almost $40 billion to twice the size of the country’s national income. The Lebanese Council for Development and Reconstruction (CDR) has stated that Lebanon sustained some $3.6 billion in material losses, but has failed to estimate the cost to businesses. The United Nations Development Fund (UNDP), which is working in close cooperation with Seniora’s office, announced in August that direct and indirect losses total at least $15 billion. “The damage is such that the last 15 years of work on reconstruction and rehabilitation, following the previous problems that Lebanon experienced, have been now annihilated," said UNDP spokesman Jean Fabre.
Economist Mazen Soueid, in a commentary for The Daily Star, estimated that loss in exports amounted to some $200 million, loss in tax revenue to some $700 million, while losses in the tourism sector could add up to some $3 billion. He went on to guess that the total cost of the war amounted to some $9.5 billion or 40% of Lebanon’s GDP. Finally, he predicted that the anticipated economic growth of 6% for 2006 would be, at best, zero.
Take the auto market, where car sales are on their knees. According to Samir Homsi, chairman of the Lebanese Car Importers Association, sales from July 12 till the end of August ground to a halt. “We are probably harder hit than other sectors. A car is a major outlay and therefore first to be deferred,” he said. “What’s more, the situation may not improve as many people’s salaries have been reduced. Already some car owners are no longer able to meet their payment obligations.”
Homsi has been in talks with government officials and banks to find a way to reduce the damage. Many other entrepreneurs and private sector representatives are doing the same, calling for a hold on paying VAT and leniency from banks. However, the most important thing for a rapid recovery, according to Homsi, is to lift the sea and air blockade. “If not, we will become the next Gaza,” he said.
According to port authorities in Latakia, by the end of August some 2,000 containers destined for Beirut had been unloaded at the Syrian port, from where, according to one businessman, transport to Beirut now costs about $2,000. Hundreds of others were unloaded in Egypt and Cyprus.
Advertising counting on a quick recovery
Another sector on its knees is advertising. “July started very well and we thought 2006 might be a year of recovery,” said Dani Richa, president of the International Advertising Association – Beirut Chapter. “But then the sector went back to zero. We had dozens of cancellations.”
In 2005, the sector also took a knock after the Hariri assassination. But even with the the spate of bombs and political killings that rocked Lebanon for the rest of the year, the second half of 2005 saw a recovery as the sector sailed on a wind of confidence after the Syrian withdrawal. According to Richa, it is extremely important that Lebanon experiences a similar wave of post-bellum optimism.
“This summer, we suffered an 80% to 90% loss in business,” he said. “Apart from the banks, simply no one advertised. Look at TV. There was not a single ad on TV during the war. I would like to emphasize by the way, that is not just us who suffer. Through us, it is printers, media, production companies and thousands of families that are also affected.”
Still, Richa is positive about the future. If the ceasefire holds, there are first the summer sales and Back to School campaigns, followed by Ramadan and Christmas. Hence, he expects the sector will be able to reduce losses to some 65% by September and get back to normal by the end of the year.
“What we need now, however, is a lifting of the blockade,” he stresses. “Why should A-brands advertise if they can’t even get the merchandise into the country? The big brands also lost during the war, as a lot of wholesalers and shops were destroyed, and cannot pay their outstanding debts. Some clients are looking at brand building, as they know that people tend to switch brands in times of crisis. Yet, due to the situation, others are looking at cutting costs.”
Lebanon’s tourism sector has been arguably the hardest hit. What was to be Lebanon’s top year in terms of foreign arrivals became instead a bitter disappointment, best illustrated by the sheer emptiness of downtown Beirut and the sales banners trumpeting discounts of up to 80%.
There were few exceptions to the malaise. Some mountain hotels catered to the more affluent refugees from the south. Three hotels in Beirut were largely occupied with foreign news crews and the Rest House hotel in Tyre had a bumper summer. Following the departure of the army of foreign journalists, it has been fully occupied by a legion of foreign aid workers.
Likewise, most of the country’s approximately 6,000 restaurants suffered, especially the ones in tourist hot spots, such as the BCD and all stops from Aley to Broumana. The retail sector, especially in the BCD, is reporting losses of up to 90%, but according to a spokesperson of a well-known Lebanese fashion chain, the current discounts and sales are not just war-related. “Every year we have summer sales,” she said. “But some shops are offering larger discounts over longer periods. The biggest problem facing us is the sea and air blockade. We’re not sure when we will be able to bring in new stock.”
Yet it is not all bad news. Since a healthy economy is all about confidence, it is an all-important sign that the Lebanese pound was able to hold its ground, as did the Beirut Stock Exchange (BSE). According to its chairman, Fadi Khallaf, the BSE stopped trading for two weeks, at first because of the security situation, but mainly to protect smaller investors. Trading was then resumed on August 1, be it under some restrictions regarding threshold effect and transaction size. On August 21, the bourse went back to business as usual.
“In the beginning of the war, we lost some 15% to 20% on market share values,” he said, “But by August 21 that was reduced by 5% to 10%, and today we’re trading only slightly lower than before the war. Take Solidere: the share stood at $21.5 before the war. Today, it stands at $20. Byblos was $2.05, now $2. Cement factories are up from $1.70 to $2.85. I’ve been told that even cement factories in Egypt are trading higher than before with an eye on Lebanon’s reconstruction.”
According to Khallaf, there was demand to open the BSE even during the first weeks of war, as big investors and professional traders saw a chance of buying up bear stock. Another indicator was that, even though every listed company was allowed to suspend trading, none did. “The volume of trading has also returned to the pre-war daily trading levels of $4 million to $6 million a day,” Khallaf said.
The top-end real estate sector also heavily relies on confidence, and seems to have held its nerve. “In my opinion, the market has remained stable,” said Raja Makarem of Ramco Real Estate Advisers. “There is no rush to sell or buy. Everyone seems to be waiting, waiting for the political outcome of the conflict.”
According to Makarem, there were several positive signs that have calmed the nerves of jittery foreign investors. There were no reports of squatters; the areas most coveted by Gulf investors, from Jnah to Broumana, were not been hit and the country’s tourist infrastructure, while dormant or damaged, is still there. “If the airport is fully operational tomorrow, it will be as if nothing happened,” said Makarem.
Property holds its nerve
Makarem also pointed out the absence of “For Sale” signs on the many summers homes owned by Gulf nationals and Lebanese expatriates. “Maybe we need a kick-start, a kind of sweetener, like a dip of 10% to 15% in the market to tempt buyers. Then everything could get back to normal by the end of the year.”
For Lebanon’s winemakers, the ceasefire came just in time for the harvest. They had feared losing the entire harvest, and not only due to the fighting. An absence of pickers and an inability to ship in raw materials for the vinification process also threatened the 2006 vintage. “We can assume a normal harvest,” said Serge Hochar, owner of Chateau Musar and president of the Union de Vinicole de Liban. According to Hochar, in terms of quantity the crop will be the same or a little less than normal, but he expects quality to be better. “It’s not a top year,” he said, “but it is better than last year and definitely above average.”