The sun reflects the facades of designer stores that flaunt Prada, Chanel and Armani. Women in Dior sipping iced lattes and chatting to friends could be absolutely anywhere in the developed world, affluent and totally at ease in their surroundings; Fifth Avenue in Manhattan, Kings Road in London, Champs Elysees in Paris or Gran Via in Madrid.
But this isn’t Europe or North America and for that matter it’s in no other part of the developed world. A little over a year ago Lebanon was at war. The bombardment suffered at the hands of Israel’s military wasn’t the country’s first taste of war in recent memory, but it did knock a burgeoning economy off its feet.
Leading local bank, Audi-Saradar, recently issued a report on the country’s economic conditions, summing up its plight with cold-hearted brevity when it described 2007 as a ‘lost year.’ A sentiment echoed by Prime Minister Seniora, who was just as pessimistic in a speech soon after the conflict where he said “Israel’s military offensive against Hizbullah caused billions of dollars in direct damage to Lebanon’s economy, sending the country from recovery into recession.” On the ground however, there are signs of prosperity, social transformation and a positive attitude.
Any country that’s endured such a history would be forgiven an extended mourning period. But Lebanon shook off the lugubrious shroud left by a 15 year civil war, and a subsequent boom-bust cycle stretching from 1992 to 2005, to quickly get on with the job of rebuilding the country.
Such is the Middle East’s faith in the long term prosperity of Lebanon that investors are never far from its shores. Lebanon is “a small country that has a large Diaspora strongly tied to it and regularly investing back in it, and a rich Arab community unwilling to give up on it,” according to the Bank Audi report.
Whether investors’ faith has more to do with the country’s strong bank secrecy laws is up for debate, but there’s no getting away from the fact that Lebanon’s inward foreign direct investment (FDI) has suddenly skyrocketed. In 2000 the country received close to $5 billion in FDI, up from a meager $53 million 10 years earlier. But that was just the beginning because in 2005 FDI inflows leapt to $15.5 billion. And with the wheels truly in motion, there was no stopping Lebanon’s FDI train as inflows reached $18.3 billion in 2006.
Probably to those living in the country, 2006 will resonate as the year when conflict returned to their shores. But it’s unlikely the people of Lebanon will see 2007 as lost. Even now industries within the country enjoy disproportionate growth and the outlook remains strong. “Once the political situation is cleared the real estate sector can easily witness a boom again,” said the Bank Audi report. It’s not only the real estate industry that shows promise, so too does the banking sector. In fact, they’ve drawn praise from international and supranational institutions, most notably the IMF. The organization was clearly impressed with Lebanon’s handling of the war from an economic point of view as it pointed out in its most recent consultancy paper issued in November. “Financial pressures associated with the conflict were managed effectively owing to the banking system’s strong liquidity position,” said the report. “As with FDI growth, one would expect trade to flounder, however, as we’ve seen FDI has flourished and trade hasn’t been hampered by the political confusion or Israeli attacks.” Also, “aggregate imports and exports increased by 8.6% over the first five months of 2007 relative to the same period in the previous year,” according to Bank Audi.
Down on the street amid the tanks and infantry, businesses remain positive. They are driven by more than just blind hope. Once the politicians stop their dithering and finally decide on a united government then capital and foreign investment will return to Lebanon. Even now, as political tension strains the will of the population, investment is clambering to find a home and there is a bottleneck in development and investment. The coffees in the local Starbuck’s and Costa Cafes keep flowing at prices on par with the West. So it seems neither bombs nor the complexities of choosing a president will discourage investment and growth in Lebanon in the long-run. The unrealized potential is merely observing the hurdles of politics to gain stronger momentum. The cedars of the nation are full of sap.
Zaki Abushal is the editor for the British Chamber of Commerce and Dr. Priyan P. Khakhar is a lecturer at the Suliman S. Olayan School of Business at the American University of Beirut.
