In the wake of the assassination of former Prime Minister Rafik Hariri, global analysts, think tanks and ratings agencies were not slow to reassess the future of a Lebanon that until then had been bullish in its projections for future growth. One week after the killing, EXECUTIVE spoke to Simon Williams, senior economist for Middle East and North Africa, at the Economist Intelligence Unit (EIU), arguably the world’s leading provider of country analysis and risk assessment, for his thoughts on Lebanon’s prospects.

How did the assassination of former Prime Minister Hariri affect the perception of Lebanon in the eyes of Europe?

Economically, it is fairly self-apparent. Investors, who had looked at Lebanon and at what Lebanon had developed in terms of the last seven years in particular and had been quite excited about the things that Lebanon might be beginning to put forward, will now be very cautious. It brought back a lot of memories of a time when you couldn’t say Beirut without the word war-torn before it. My concern is that in the minds of a number of people, these images will be back. People who know the region well will be sitting back and waiting to see what happens next. Those who don’t know the region I think will put Lebanon on the backburner for some time. I am talking about both direct investors and those interested in making finance available to Lebanon, those working in the banking sector.

Does that indicate repercussions for economic relations between Lebanon and European countries in specific areas, or will the effect be felt mostly in politics?

We have to see what happens in tourism, which appears to be the other area people are talking about. My assumption is that people will be quite nervous, certainly the European and American travelers – those who aren’t Lebanese expatriates. They are, however, not such an important sector for Lebanon. The Gulf region travelers will be far more resilient but certainly in the eyes of your standard European traveler, Lebanon has been set back as a tourism destination.

In the political perception, I think Lebanon has been brought very much into focus. It has pushed the issue of Syria’s dominance of Lebanon way up the agenda. In the past, there had always been the willingness to work with the status quo and not press that issue. That’s gone at least for now not only because of the assassination but also what is happening elsewhere – the Americans with the Syrians and Iraq. However, the assassination has outraged so many people around Europe and in the US and has brought the issue very much into focus in a way that it wasn’t before.

Does the upheaval over the assassination and related increased political awareness stand to have direct economic effects on Lebanon?

I think in the immediate term, probably not. It is not as severe as some people feared. The central bank has tried a very good game of the period since the assassination. I think they have been very successful in creating an air of calm to the degree that this has been possible on the financial market. They talked to the banks and to the main players outside Lebanon as well to reassure them that no crisis is imminent. I think they could do this because of their reputation but also because of the reserves that they currently have access to. I don’t see pressure on the currency emerging particularly at the moment. And it has also been a relatively good time for Lebanon in terms of public finances.

Would you elaborate on this?

The immediate debt issues were eased last year with the refinancing of the bonds that were coming due in 2005 and the selling of that additional debt late last year. I would be far more concerned if there were large numbers of substantial eurobonds set to mature over the next three to six months.

There are two things that worry us immediately: the first would be pressure on the pound resulting from a switch out of pound into dollar assets. I haven’t seen that occurring. What would worry me even much more would be signs of a movement of funds out of Lebanese banks. The liquidity of the banking system is what the economy’s current dynamic rests on. The situation is still very much on its early days but I haven’t yet seen such withdrawals taking place either. The central bank’s management of the situation and its liquidity has bought Lebanon time, which I think is being absolutely vital.

Do you foresee any longer-term increased reluctance on the part of European investors to buy Lebanese eurobonds?

It will be interesting to see. Obviously, the Europeans were never the main purchasers of the Eurobonds. They were purchased overwhelmingly by the local commercial banks. Those Europeans and others who were looking at Lebanese debt instruments represented a fairly small area of the market. Having said that, I think that any prospects for a substantial increase of Western interest in Lebanese debt instruments over the rest of this year have certainly vanished. The political risks surrounding Lebanese debt are now too high for most major European institutions to consider looking at. They weren’t that interested before, partly because of political concerns but also because of the how precarious Lebanon’s debt dynamic is and how fragile government finances are.

From impressions here, the first concern of local business leaders seems political in the short term and to keep a positive outlook in the longer term. Do you see ground for optimism and economic possibility?

I am an economist and economists are never optimistic. We always worry and look for things that could be going the wrong way. In Lebanon’s case, it really depends on what happens next. It’s all really down to the politics. This entails the uncertainties surrounding the election and the formation of a new government and broadly the way in which the dynamic with Syria develops. I really am unsure as to how that process is going to move forward and it necessarily causes me concern. That kind of uncertainty is very damaging for investor sentiment. Investors need to know where they stand and to be reassured of the stability of the political and economic institutions that act as a framework for their investment. While that is not there, confidence is going to be far poorer than it need to be.

How do you see the Syrian situation under these circumstances? Is Syria economically threatened by this whole scenario?

To an extent. Certainly, the interests of some Syrians and some significant Syrian businesses are tied up with their stake in Lebanon. You also got the importance of the remittances of Syrian workers in Lebanon as well as access for Syrians to the Lebanese banking sector. But I think to suggest that the withdrawal of Syrian troops from Lebanon would somehow be a major blow to the Syrian economy is overstating the matter. I still expect the Lebanese to want to work with the Syrians. The Lebanese are business people and the Syrians can provide good business.

How does UN Resolution 1559 come in? Is there any power in this resolution that could be a threat to the Syrian economy by way of sanctions?

This depends on how far the French and the US decide to push the issue in the Security Council and if they commit themselves and formalize the thing they have been saying over the last few days in absolute consistence – that all Syrian troops must be withdrawn if not immediately then in time for the elections. If they formalize that through the UN, it will be very difficult for them to back away and not enforce punitive measures on Syria. I think these measures would have to be quite significant. I don’t know what they’d do and it is difficult to judge, though, especially as there are other international issues that Syria is involved with and that overlap and possibly might have priority over the Lebanon file, the obvious one being the situation in Iraq.

Would an implementation of 1559 not also have economic repercussions on Lebanon?

Indirectly. I wouldn’t expect Lebanon to be directly targeted by sanctions under 1559. There might be some secondary impact from economic restrictions placed upon Syrian activity but I would be very surprised if in the first instance or at all the UN would choose to target Lebanon.

Would you risk naming a figure on the size of the economic impact of sanctions on Syria and Lebanon?    

No, I wouldn’t. That’s almost impossible to quantify, given that we don’t know what restrictions are going to be put in place, how they are going to be implemented and how much support for these measures there is from others in the region and around the world.

You described France and the US as the prime movers in this affair. Do you have any sense how the UK is leaning in regard to action vis-à-vis Syria?

 The UK is not in the lead but my sense is that it is broadly on board. It motioned for 1559 when it was passed and the comments that [foreign secretary] Jack Straw made have highlighted concerns over the Hariri assassination and Syria’s possible involvement. I think the willingness of the foreign secretary to say this is a good indication of how they are likely to react to 1559.

Bashar Assad made overtures to the UK when he visited London and talked about banking. Could the UK mediate?

Possibly, but it takes two sides to mediate. I think there is a lot of confusion in political circles not only in the UK but also elsewhere as to exactly what game Syria is trying to pursue. There were people who looked at Bashar and were eager to offer the support they could, seeing him as new generation man who had the potential to be a reformer and somebody who was saying that he intended doing the right things in terms of economic reform and taking some steps over Iraq and over Lebanon as well. I think that in looking at what happened over the last six months, these people are now wondering whether they misjudged the situation and misjudged Bashar or whether his leadership is weaker than they previously assumed. I think those doubts would need to be addressed before there could be mediation of any kind.

Let’s say one were to envision something like normal bilateral economic relations between Syria and Lebanon – which of course implies that we assume these relations to be not totally normal today. How do you see the Syrian-Lebanese relations today and how could they be?

It is very hard to envision. It has been such a long time since [normal relations] took place. There are obvious things that Lebanon can offer to Syria, particularly in terms of the excellence of much of its services sector and the financial services sector in particular. Syria needs access to a proper functioning banking sector, which is doesn’t have access to and Lebanon clearly can provide. The Lebanese market is small but of some value as a place and means of getting access to the rest of the world – that gateway function. For Lebanon, Syria is a large market with a young and growing population and it is a relatively untapped market in a lot of ways.

But really the most important determinant of the kind of relationship that might emerge between the two countries would be the scope and speed of economic reform in Syria. As things stand at the moment, given the economic structure that is in place in Syria, it is very difficult for Lebanese interests to take advantages of these opportunities. Syria is not a good place for anyone trying to do business, whether they are Syrian, Lebanese, or anyone else.

I would also like to ask you about how the Hariri assassination affected you as an individual dealing with Lebanon. Did you know Mr. Hariri? What was your personal reaction when hearing the news of the assassination?

Like everyone else, I just felt an overwhelming sense of shock. It’s extremely difficult to believe that such a dominant figure for certainly all the years that I have been traveling to Lebanon and working on Lebanon has gone. I find it difficult to believe that it happened. It is that sense of shock.

How do you see the way forward from this point?

I would stress that the next three months are absolutely crucial. There is such a lot of uncertainty and so many unresolved issues in terms of how the political situation is going to develop. I don’t think that anyone in the foreign business community – and probably people in Lebanon either – is able to think very far past the middle of this year. There is a strong sentiment that things are on hold and that people have drawn in a sharp breath and are waiting to see what happens. I think Lebanon has the capacity to weather that period of uncertainty, provided nothing else happens and there are no further incidents of the kind we saw last Monday. If the outcome of this four-month period isn’t a clear one and if by the second half of this year, we don’t have a sense of where Lebanon is going, then my concern is that the situation starts to deteriorate. There is only so much that even a central bank like BDL can actually achieve.

Would the elections then be a pivotal point for the Lebanese economy?

The elections are certainly a big part of it both in terms of the results and the way in which they are contested and by the way in which the results are dealt with. Among those who I talked to in London and elsewhere about Lebanon there is a general hope that what happened on February 14 will have focused a lot of minds in Lebanon and given people a reminder of how high the stakes are in terms of the management of the political pressures over these next few months. The hope is that this will be used to ensure that that period is managed well and smoothly; otherwise the consequences could be significant. 

What effect do you expect Rafik Hariri’s assassination to have on EU-Lebanese relations, and indeed on Lebanon’s ties to Europe? What measure would the EU like to see taken so as to stabilize the present fragile situation?

The full consequences of Mr. Hariri’s death remain to be seen, but it is beyond doubt that the European Union has lost a fundamental mediator between Lebanon and the EU, and a tremendously valuable one at that. Mr. Hariri believed in the importance of these relations. At present, we find ourselves devoid of any mediator.

Mr. Hariri was a pillar of the free market economy and he gave investors confidence. Investors and the international markets in general will now be paying close attention to what type of an economy emerges following his death. The European investors in Lebanon are not many – we are only talking about a few companies – but they are closely following the evolution of the Lebanese market and the exchange rate of the Lebanese lira. They are awaiting to see what the central bank will do so as to ensure the country’s monetary stability. So far, the statements issued by the bank have mostly calmed down any jittery investors.

On the political front, EU Commissioner Benita Ferrero-Waldner issued a statement requesting that free and transparent legislative elections be held in Lebanon, as a tribute to the memory of Mr. Hariri and his legacy. Javier Solana, the EU high representative for common foreign and security policy, has backed the request made by the international community that an international investigation take place on Mr. Hariri’s murder, and has taken the necessary steps to make sure the Lebanese authorities are aware that the EU supports Resolution 1559.

Marwan Iskandar

Economist and Managing Director of MI Associates

How do you expect the recent events to impact the main components of the Lebanese economy and the country’s GDP growth?

The short term impact will be demonstrated in a surge for dollar or euro holdings against Lebanese pounds. This trend will be short lived however, and will eventually peter out.  The signs of it are already there: on February 18, the demand for dollars absorbed over $400 million. By February 21, this figure dropped to $200 million, and by February 22, to $50 million. During the three-day national morning period following Mr. Hariri’s assassination and one day of Ashoura, transfers to Lebanon exceeded $100 million.

The political atmosphere is tending towards a degree of openness on debate and this will contribute to lesser speculation against the Lebanese pound.

In addition to this, central bank reserves are substantial, and it has at its disposal measures for attracting depositors and Treasury bond purchases in Lebanese pounds.

The negative impact will be felt in the balance of payments. Earnings from tourism estimated at $1.5 billion in 2004 could fall to $1.1 to $1.2 billion in 2005. Also, direct foreign (mostly Arab) investment could decline from its billion dollar level in 2004 to half as much. The balance of payments in 2004 achieved a relatively small surplus in spite of high revenues from tourism and direct investment. This was due to a much higher imports bill that came about in consequence of increased consumption, a much higher oil import bill and the appreciation of the euro.

Unless Lebanon receives aid from Arab oil producers and the OPEC Fund to absorb higher costs of energy imports, the balance of payments deficit could be substantial, and thereby create in early 2006 strong moves away from Lebanese pound holdings. Although it’s worth noting that the gas line from Syria might become operational during the course of this year, which could contribute to savings being made on the national fuel bill.

There is no doubt that the rhythm of economic activity will be slower. It is hard to conceive of growth beyond 1-2 percent as opposed to 4-5 percent achieved in 2004.

Much will depend on the progress towards free elections and on the electoral debate. If progress were smooth, results will be better. And if elections result in a more representative parliament and Syria’s influence becomes less oppressive, there could be a strong second half for Lebanon economically.

It should be noted that the Lebanese economy by its nature functions at a higher rhythm in the second half of the year. 

Nasser Saidi

Former First Vice Governor of the Central Bank of Lebanon and Chairman of Lebanon Corporate Governance Task Force (LCGTF)

What now for the future of the lira? Will the central bank continue its policy of intervention to maintain the exchange rate? Is this a sustainable policy in the long run?

The central bank will continue its policy of intervention so as to maintain the current exchange rate parity. However, this will come at a large cost for the bank. The situation is very different now that Mr. Hariri is gone. A deep structural change has occurred, a Lebanese tsunami if you will.

The former premier provided the credibility in terms of the sustainability of the government’s economic policy, as well as to the financial and political commitments made during the Paris II rounds. Now the country is faced with financial uncertainty.

The 3 days of business closure during the national morning period limited the possible fluctuations we otherwise would have seen on the markets, an effect which was compounded by the fact that the first day of re-opening was a Friday, when most other Arab countries don’t work.

Since then, we’ve seen more fluctuations on the markets, be it the stock exchange, the foreign exchange and the financial markets, however the value of this indicator is limited due to the heavy intervention of the central bank. The central bank will continue to maintain the rate of the Lira by digging into its foreign reserves, but the sustainability and value of such a policy is questionable. Any decision to change this policy will have to come from the government though.

Georges Corm

Economist and Former Minister of Finance

How will Rafik Hariri’s death and the ensuing stand-off between the government and the opposition affect the country’s financial situation? Is the economy at risk of crashing?

Mr. Hariri’s death was not only profoundly tragic, it also destabilized the country in its entirety, and took on a geopolitical dimension, with Resolution 1559 and the persisting international intervention into Lebanon’s affairs. That being said, the economy will get through this. Arab investors will continue to come. The flow of investments from the Gulf have remained steady since the 1950s and they will continue to do so, unless the country falls back into a civil war. I do not see this happening – the conditions which triggered the war in 1975 are no longer present.

The country is going through a rough patch, but our public finances are robust enough to wither the shock from it. For the past three years, the VAT, the revenues from the telecom sector and the drop in interest rates have boosted the public coffers and provided the state with finances healthier than they have been for a long time. Both 2003 and 2004 were very good years. In 2004, the state’s revenues amounted to $5 billion, which is exceptional.

Lebanon has a very resilient economy. Our banking sector emerged intact from 15 years of civil war and succeeded in recapitalizing itself. Following Mr. Hariri’s death, the banks reacted wisely and chose not to increase the interest rates.

The Lebanese expatriate community continues to send remittances and invest back into the country, which is reflected in our balance of payments.

The growth in the tourism industry will stagnate as a consequence of the events, but it remains only one factor among several that drives the Lebanese economy. Industry has been experiencing positive growth, and that could in part make up for it.

The present political atmosphere is not very productive. What we need now is for free elections to go ahead, and for the international community to ease the pressure it is exerting on Lebanon – foreign interventions have never brought anything but catastrophes to this country.

Shadi A. Karam

Chairman and General Manager, BLC Bank

His ownership of Banque Mediterranee aside, what was Rafik Hariri’s influence on the banking sector? What consequences could his death have on the sector?

Mr. Hariri’s impact on the banking sector was significant. Obviously, he was a large depositor, both as an individual, as well as through all the institutions that he owned.

He was also a large shareholder in several banking institutions, not simply Banque Méditerranée – he had shares in Bank Audi abroad, in the Swiss subsidiary of the now defunct BFO, and others.

The impact of his death remains to be seen. The man played a key role on the economic scene, he was one of the main engines in shoring up confidence in this country. Whether this confidence will now be lost depends on how the present crisis is handled. So far, it looks like the country will be able to absorb the shock.

Personally, I don’t believe it will have a direct impact on the banking sector. There will no major currency crisis. If there are no major transfers made out of the country, and this hasn’t happened yet, we will be OK. The impact has been mitigated so far by the central bank.

For a period of time, outside investors will ask themselves whether or not they should invest in Lebanon. In the short-term, people will adopt a wait-and-see attitude. Those who already have invested in the country will wait before they add to their investments. Thos who haven’t yet will hold off on it a while longer. But the political actors are showing signs of moderation and adopting a more responsible attitude that what we are used to seeing, and this will help restore trust.

At the end of the day, Arab investors have little other options available to them, should they turn their back on Lebanon. Arab money is under scrutiny both in Europe and in the United States, they would get the same services as they are offered here. They really don’t have many viable alternative options. Lebanon has been through tough times before and gotten through it. Despite what has happened, nothing much has changed with regards to the economic fundamentals of the country.

Rafik Hariri will be missed. He was a major resource to this country, a man capable of intervening in the highest economic, financial and political spheres. I don’t see anyone right now with the same kind of potential. From that perspective, he is not just a major loss to the banking sector, but to the economy as a whole.

Jean Abboud

President of the Association of Travel and Tourist Agents in Lebanon (ATTAL)

What effect do you expect the attack to have on the hitherto booming tourism industry? What will it take for it to recover?

What happened will definitely have a very negative impact on the sector. We are already experiencing it: there has been a tremendous decline in both airline and hotel bookings.

European and other tour operators are calling in, canceling reservation upon reservation. I had organized a three day seminar at the beginning of March on Arab judges, which 300-350 people were expected to attend, and that has now been cancelled. The occupation rate of the hotels has dropped as well. The sector had been benefiting from a major growth since 2002. In 2004, tourism grew by 27% compared to the previous year.

Rafik Hariri was the guarantor of all the sectors of the economy. His death is a huge loss. And the current political instability is making matters worse. The tourism minister, Farid Khazen, resigned within days of the attack, putting all ongoing collaboration between ATTAL and the ministry temporarily on hold.

The fate of our sector will depend on the political situation – we are praying for a rapid improvement. Should the current crisis resolve itself soon, we may still be able to recover to a certain extent from what happened. But we need a stable political environment.

I believe the sector will need at least six months before we will start seeing any sign of recovery. Tourists will wait and see what the outcome of the elections in May will be.

That being said, elections alone will not be sufficient to put Lebanon back on the tourist map. European and American tourists are waiting for the Mideast peace process to happen, which is why we essentially only get Arab tourists coming to Lebanon. Before the war, we received more European than Arab visitors. For now, the situation is not promising, neither from a domestic, nor a regional perspective.

Ghazi Yussuf

Former Head of the Higher Privatization Council

Privatization was the cornerstone of Hariri’s debt repayment plan. What will happen to the stalled process now that he is gone?

The privatization process has been at a standstill for over a year now. It reached a deadlock in January 2004 when the bidding process for the sale of the telecom licenses was hampered by the political process. This subsequently spilled over to the privatization process of Electricite du Liban (EDL). This is why Rafik Hariri decided to put the whole process on hold until the autumn, by which time he expected a new president and a new parliament to be in place. As we all know, this didn’t happen and he resigned.

The new government that came in does not see any of the positive aspects in privatization. I met with the new prime minister to discuss the process, and he made me understand that there would be no privatizations undertaken in any sectors of economy. The furthest he was willing to go, was to look into a management contract for EDL, which is not privatization. This is why I presented by resignation in October 2004.

I do not see the process being re-launched any time soon, and this will have very serious ramifications for the economy.

The government can no longer claim that it is following a path of restructuring the various sectors of the economy and as a result, the public finances will suffer from great losses, most notably due to the unresolved issue of the electricity. With Mr. Hariri’s tragic passing, Lebanon has lost its champion of the privatization process and at present I don’t see any other potential candidate who could pursue his work.

Samih Barbir

Former Chairman of IDAL

Rafik Hariri – both the billionaire businessman and the prime minister – was a central component in Lebanon’s ability to attract Foreign Direct Investment (FDI). Was this not a dangerous strategy? What now for a Lebanon without its money man? How can the government rekindle with his investment spirit?

It wasn’t a strategy, it was a fact. He never planned for it to be this way, but he was what provided investors with confidence based on his experience, his background, the whole aura around him – this is what attracted FDI. That being said, with the exception of the real estate sector, FDI was already decreasing in Lebanon, even prior to his assassination. It started dropping from September 2004 on. The extension of President Emile Lahoud’s term, the lack of transparency, the lack of confidence in Lebanon, the unstable political environment basically, served as a disincentive to foreign investors, except again, for those investing in real estate.

It’s a question of stabilization of the political scene – both domestically and regionally. At present, you have too many problems: Iraq, the Israeli-Palestinian conflict, Resolution 1559, Rafik Hariri’s death and the ensuing political confrontations… There are so many other places and opportunities to invest in all over the world that nobody will be rushing in to take a risk on Lebanon.

But for now, I expect the situation to stabilize itself with regards to FDI. The bulk of FDI goes into real estate, which will not be affected by what is happening. The need for Arab investors to have a pied-a-terre in Lebanon will persist, even with a deteriorating political situation. As long as there are no military problems, they will continue to come.

With regards to the productive sectors, FDI was falling anyways, and that is a trend that will continue, unless there is a major effort from both the government and the main economic associations to focus on specific sectors.

The IT sector – and I have always argued this – would be a prime sector to focus on. It has a huge potential. And this is not a slogan, it’s real, especially considering the quality of the work you get for the price you pay.

What IDAL can do is to work hard at rebuilding the confidence of the investors and make them understand that the present crisis will only be a short-term one – it is not going to affect the economy in the long-term. We’ve lost an amazing person, but he had enough disciples who can carry on the work for him. And we should carry it on. We can’t wait for another Rafik Hariri to come back to Lebanon. We’ve were given this gift once, we won’t get it again.

To reconsider what platform for future development Lebanon stands on today, Executive talked to Fadi Fawaz, who served Rafik Hariri as an advisor on development issues throughout his premiership and who lived the day-to-day evolution of these projects with the late former prime minister.

Fadi Fawaz remembers many things about working with Rafik Hariri, including the bursts of energy that could erupt at any time of day. “Often he would call me early in the morning and suggest we drive across town to the Cite Sportive construction site to give workers a boost or walk the corridors of the new Beirut International Airport,” recalled Fawaz, still in deep shock at the sudden death of the man he called a colleague, a friend, a brother and a father.

“He believed in development and that development is essential for our seeds and opportunities. You can’t bring the private sector to invest in a country if there is no infrastructure. Unfortunately, for every project, he was never given recognition at first,” Fawaz exclaimed, recounting a key rationale in Hariri’s reconstruction concept and how the projects struggled under objections and criticism.

“The political factions did not credit him, but time showed that he was right,” Fawaz insisted, pointing to global recognition of Hariri’s achievements, especially his last award, the Habitat Scroll of Honor Special Citation for 2004. “I remember Rafik Hariri telling us, ‘this is the crowning jewel of my achievement,’ when he heard of the award.”

According to Fawaz – who in 2003 prepared with the Council for Development and Reconstruction, Lebanon Rebuilt, a report outlining the reconstruction achievements to date – the citation was especially meaningful because a commission of international experts scrutinized Lebanon’s reconstruction accomplishments before Lebanon and Hariri were selected as winners among a large number of candidates.

In reflection post-mortem, the record of Hariri’s achievements is impressive: the most visible was the rebuilding of the BCD, while the biggest disappointment would have to be the Elyssar urban development scheme for southern Beirut, which ironically is now being looked at in a more favorable light.

However, he was still frustrated by politics that thwarted his dreams, including the Beirut International Conference and Convention Center on Manara. “When the cabinet of Omar Karami declared in January that it would scrap the plans for this project, he was very hurt,” Fawaz said. “He thought a convention center should be in Beirut. He felt they made this decision for no real reason, except out of spite.”

But what of those projects that were realized. For posterity, here are the developmental achievements of the Hariri years. One can only speculate what would have happened had there been no Rafik Hariri. Would anyone else have come along with similar vision, energy and international clout? It’s hard to imagine. 

(BOXES)

Roads

The Hariri government drafted several plans for establishing controlled access highways on the north-south axis along the coast and from Beirut to Damascus, in addition to a Beirut ringroad and tourism-related road projects. Over 10 years of restoration, important parts of these transportation schemes were realized, such as the southern highway, the northern gateway to Beirut, the highway linking Beirut airport and the downtown, urban feeder roads and parts of the ringroad, and a major bridge on the road to Damascus.

However, the initial scheme had to be revised in major parts and some projects had to be postponed or abandoned. The international highway and Beirut ringroad plans had been designed at one stage as a Build-Operate-Transfer project and contracted out to international construction consortiums, but the deals between the firms and the Lebanese government were dropped when the firms increased their demands after recalculating their costs and revenue projections. Subsequent plans to create a Lebanese Toll Road Company did not overcome the financing hurdles.

The road transport development concept also was battered by land speculation and corruption that pushed the cost per meter of new highway to astronomical heights. Its realization was further impaired by communal and regional rivalries, which created haggling over construction priorities and led to piecemeal implementation. By the turn of the century, the latest $1.2 billion national road rehabilitation program looked impressive mainly on paper and could be carried out only in part. International transportation experts also found the Lebanese transportation master plan, which in essence relies on traffic concepts of the 1960s, to be too motor vehicle-centric and lacking of advanced integrative aspects of public transportation and other alternatives to automobile transport.   

However, the road network in Beirut and the highways connecting the capital with the north and south of the country have been improved markedly over the reconstruction years and driving in Lebanon has become significantly more comfortable. According to Fawaz, the passionate driver Hariri took an active interest in road planning. He emphasized the application of international standards in equipping the road network with traffic signs and went as far as personally scouting terrain where he envisioned a “Summit Highway” road to interlink Lebanese mountain tops for better tourist access. He considered the car the primary means of transportation chosen by the Lebanese and regarded rail-bound mass transportation concepts as luxury.

The challenge of the coming years is to complete rehabilitation of the road network, for which money has been too scarce in several past planning attempts, in order to fully implement this essential infrastructure for commerce and recreation. The dictates of contemporary traffic planning and the Lebanese experience leave no doubt that the improvement of the road network will have to include measures to control vehicular dependency and overcrowding of streets by stronger provision of alternative public transportation and make roads safer through vastly increased driver education.

Area of reconstruction	Value of all awarded Projects ($ millions)	Value of Projects completed by end 2002 ($ millions)	Percentage of Progress on awarded but incomplete projects (2002)
Road network rehabilitation and expansion	1,016.5	554.0	49%

Source: Lebanon Rebuilt, 2003

Airport and Port

Next to the road infrastructure, the transportation gateway of Beirut International Airport (BIA) figured very prominently in Rafik Hariri’s design to attract foreign investors, international business and Arab tourists back to Beirut. Once built as one of the region’s first international travel hubs, Beirut airport was devastated by the war and operated as a relic of the past during the first years of the Hariri-era while the construction of a new terminal and runways went on at the same site, based on project plans devised prior to the Lebanese war and re-adopted by the reconstruction planners after its end.

With ambitious hopes, the BIA rehabilitation and expansion was implemented for an annual capacity of six million passengers, with the potential for even greater numbers. The great investment requirement and high visibility of the project made it a central target for critics of the Hariri reconstruction concept and an often-used tool in political attacks against his policies. Construction of the new BIA was moreover delayed and driven into cost overruns, partly by the need to revise plans in the middle of works but more severely by the 1996 Israeli armed operation “Grapes of Wrath,” which sought to incapacitate the Hizbullah military capabilities in Lebanon but had its greatest effects in the killing of civilians and slowing down reconstruction.

Hariri’s sweeping enthusiasm for the airport project was highly visible when he inaugurated the first phase of the new terminal building in 1998 and traversed the facility with an entourage of aides, officials, international guests and media. His vision extended to making Beirut a primary stopover point for wealthy private travelers by creation of a world-class private terminal and internationally outstanding free zone, including a unique haven for the world’s cigar smokers. Hariri personally drove the development of BIA forward and, according to Fawaz, was often was attacked for it, only to be proven right by the success of the airport in bringing visitors to Lebanon.

According to Fawaz, Beirut Port also was an intricate component in the Hariri concept to revitalize the Lebanese economy. The dredging and enlargement of Beirut Port are now also paying off, Fawaz claimed, as the port last year could massively increase container traffic, again confirming the late former prime minister’s concept to enhance the economy by investing into infrastructure.

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Beirut International Airport	663.7	543.3	52%
Beirut Port and other Ports	7.3	5.4	34%

Source: Lebanon Rebuilt, 2003

Telecommunications and Electricity

The development of the telecommunications network and the refurbishment and expansion of the electricity network counted among the first and most investment-demanding projects of the Lebanese reconstruction.

In telecommunications, the Hariri concept split the responsibilities for the renewal of the landline network and for the creation of mobile telephony into distinct realms. For the new GSM mobile phone networks, the government, in which Hariri temporarily held the post of telecommunications minister in addition to his premiership, awarded the construction and operation of two cellular networks to private sector companies under a Build-Operate-Transfer contract package, which provided the country with mobile services and the Lebanese state with revenue, without requiring public sector investments.

In landline telephony, the government invested directly into replacing the obsolete and run-down pre-war network that in 1992 only comprised 200,000 lines of questionable functionality, with a new network that in 2002 could offer 1.2 million lines. At nearly $800 million of capital expenditure, this landline project was one of the biggest projects in the reconstruction portfolio but this was still surpassed by the price tag for restoring and developing the electricity network.

In 1992, the utility grid was one of the major losses of the war years and the citizens of Lebanon bore the burden of daily outages, rationing and inefficiencies in electricity deliveries in a national grid that had been reduced to a capacity of 600 megawatt. At a cost of almost $1.4 billion in capital expenditure, oil-burning power plants, a small array of hydroelectric plants, and the national distribution grid were brought to levels where they could supply the capital Beirut and outlying regions with electricity on constant basis.

Despite the high investments, however, both telecommunications and electricity kept prominent positions in the list of citizen complaints. The BOT-scheme for the mobile communications sector turned sour and the landline network operator long did not succeed to optimize the usage of the expensive network. The development of the electricity grid suffered a major setback when Israel retaliated for resistance attacks against occupying positions with several air strikes destroying electricity generation capacity in the late 90s. But in the longer run, political disputes over the management of the telecommunications sector and inefficiencies at the Electricite de Liban (EDL) power utility proved even more detrimental to the fortunes of telecommunications and electricity networks.  

Restructuring and eventually privatizing the EDL utility is one of the most pressing tasks for the near future, along with the conversion of electricity generation from oil to the cheaper natural gas. In telecommunications, the long fight over regulation and privatization, which frequently pitted Hariri and President Emile Lahoud as direct opponents, has led the country fall behind in implementation of urgently needed technical developments and competitive telecoms environment. Regulatory and privatization issues are vastly overdue exercises for the nation’s incoming authorities. 

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Electricity generation and distribution	1,387.6	1,015.9	90%
Telephone network	775.3	766.4	78%

Source: Lebanon Rebuilt, 2003

Education and Public Health

In 1992, Lebanon’s public education network retained 1262 schools, which however had suffered massively under the war, and the state-run Lebanese University in a fragmented operation over 47 locations. By 2002, the number of public schools had been increased to 1,280, with a combined increase in capacity of 12,000 to 13,000 seats due to renovation and new construction of public schools. The vocational education system had received a boost through creation of 30 new vocational-technical teaching institutions and for higher education, the new central campus for the Lebanese University after many delays was nearing completion in suburban Hadath, with nine faculties on a 700,000 square meter campus with capacity to serve 25,000 students.

For provision of public health services, the government undertook it to increase the number of beds in public hospitals, which had fallen in the conflict years to merely 350, to a national coverage with 2,500 beds mainly through construction of new hospitals. The network of health centers, rural and urban hospitals in the provinces is being crowned with the Beirut Government University Hospital (BGUH) which has just been completed in the Bir Hasan district of Beirut and is awaiting its opening this spring.

According to Fawaz, Hariri placed great emphasis on providing young people with a proper learning environment, including classroom design, installation of heating and air conditioning, and sports facilities. He personally inspected and influenced the construction and equipment of public schools, Fawaz said, expressing sadness over the fact that Hariri would not himself be able to inaugurate the new Lebanese University campus in Hadath and the BGUH.   

The leading challenges in the areas of education are today for assuring of competitiveness and comparability between education provided at public schools and the Lebanese University and the private sector operators, also in terms of image. In the health care realm, the re-structuring of the social safety net and implementation of retiree health insurance are top needs.                                      

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Lebanese university, libraries and archeological sites	253.6	29.4	58%
Public schools	94.4	78.6	36%
Vocational sector	65.0	41.4	4%
Public Health centers and hospitals	238.1	89.1	58%

Source: Lebanon Rebuilt, 2003

Environment and Sport

The public investments into sports facilities were executed largely in preparation of the ASEAN Games, which were hosted by Lebanon in 2000. The major works were the renewal of the Cite Sportive stadium and sports complex in Beirut (already in time for the 1997 Pan-Arab Games), construction of two new stadiums in Tripoli and Sidon and rehabilitation of several municipal stadiums around Lebanon.

According to Fawaz, the completion of the sports facilities in time for international competition was a high priority for Hariri, who reassured officials from the ASEAN organization on daily basis that the stadiums would be completed in time for the prestigious games with their capability to enhance Lebanon’s image.

In carrying out the games, the main difficulty for the host nation was to fill the spanking new stadiums with enough spectators to create an atmosphere befitting the competition of national football teams from Asian countries. Outside of the setting of these games, the fairly expensive stadiums continue to face their severest challenges in the tasks to maintain them in good working order and find ways to use them for sports and recreational purposes.

The environmental initiatives of the Hariri-era took off with the establishment of the ministry for the environment in 1992. According to Lebanon Rebuilt, the administration achieved their most significant steps towards improving the relationship between the Lebanese and the nature around them by setting up “National Environment Code Nr. 444” that stipulates a standard for environmental quality, classification of industry by environmental impact, and guidelines for environmental impact assessment studies.

The densely populated country faces serious issues in threats of environmental degradation and desertification and has to address the need for sustainable rural development. With a limited scope of environmental projects completed or under implementation and the ministry of environment having operated under persistent shortage of personnel, funding and authority, the challenges in this field remain extensive.

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Sports facilities	126.1	121.5	99%
Environmental and reforestation projects	32.9	14.5	69%

Source: Lebanon Rebuilt, 2003

Water and waste

The sectors of water supply and collection and treatment of solid and liquid wastes had to grapple with the dual burdens of repairing wartime damages and growing demand from a growing and increasingly urbanized population. The water supply for greater Beirut was improved significantly through rehabilitation and expansion of the Dbayeh water treatment plant and water and wastewater networks in several parts of Lebanon were rehabilitated and improved over the past ten years. However, the water supply network in Beirut and most of the country functions inefficiently and large parts of the network are in need of renewal. As household and industrial sewage today largely enters the Mediterranean with minimal or no treatment, plants for wastewater treatment are yet to be completed or constructed throughout the country. In the longer term, the country faces a major challenge in securing the water supply for future generations.

In the collection of solid waste, the Hariri government succeeded to address the country’s waste emergency and the unregulated dumping of refuse on Beirut seashores is a thing of the past (although the memoirs of the practice still loom). Measures implemented by the government for Beirut included the commissioning of effective private sector waste collection, the abandoning of an obsolete incinerator (Amrousiyeh) and a smelly composting plant (Karantina) in connection with establishment of a sanitary landfill in Naameh in 1997. The government decided to turn away from waste incineration and create a system of composting, recycling, and landfills for solid waste but the waste generation of greater Beirut quickly outstripped the capacities of the Naameh facility. Municipal waste mountains in the next larger cities, Tripoli and Sidon, and a massive presence of unsanitary or entirely irregular garbage dumps in smaller towns and throughout most of rural Lebanon plague the country.

In the sectors of wastewater and solid waste treatment, the reconstruction under Rafik Hariri still had many ambitions that could not be fulfilled, said Fawaz. For future administrations, a comprehensive strategy for waste avoidance, recycling, treatment and disposal is a major order to be tackled.  

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Water Supply	477.4	212.7	54%
Wastewater	363.0	168.1	54%
Solid Waste	682.4	206.5	41%

Source: Lebanon Rebuilt, 2003

Government and public buildings

In restoration of existing and construction of new government buildings, the Hariri-era equipped Lebanon with new administrative facilities but perhaps even more with new symbols of government. While the Presidential Palace, the UNESCO Palace facility and cultural center, several ministry buildings in Beirut and administration offices in several municipalities were covered by the $111 million expenditure into this area, the most prominent project in this respect is the restoration and expansion of the seat of office for the Lebanese prime minister, the Grand Serail overlooking downtown Beirut. Incidentally, Hariri supporters like to point out that the late prime minister spent millions of dollar of his private fortune in paying for furnishing of the administrative palace.

Area	Value of Projects	Value of Projects completed by end 2002	Percentage of Progress on awarded but incomplete projects (2002)
Government Buildings	111.0	92.5	63%

Source: Lebanon Rebuilt, 2003