Can the Economic Upswing out-survive Another Political Crisis?

September was one of the most turbulent months in recent years. Not only was the ministry of finance managing the swap of the 2005 Eurobonds, the country also entered into a period of political tension that resulted in an amendment of the constitution and a three year extension of the presidential term. Joey Ghaleb looks at what is at stake for the country. In late August, a mission from the International Monetary Fund (IMF) visited Lebanon as part of its annual Article 4 Consultations and produced probably the most positive report since the early 1990s. The IMF not only estimated 5% real GDP growth (or an 8% nominal growth) but also stated “a significant reduction in the debt-to-GDP ratio – the first time since the civil war – is within reach in 2004.” The IMF’s positive outlook, which is based upon an upward economic trend that began around mid 2003, did not overlook the fact that “vulnerabilities remain … and the country continues to be vulnerable to adverse domestic and external shocks.” It is quite clear from reading the July and more recent IMF reports, that a lot of emphasis was being placed on what will happen in 2005, after totally discounting 2004 – a year that witnessed political deadlock and a highly questionable fiscal budget. Neither the IMF, which constantly refers to measures or reforms expected in 2005, nor the Economic Intelligence Unit (EIU) were party to the political debate in the country but they both considered that 2004 would not be a year in which the seeds of economic reform were sowed. Instead, they looked to the presidential and parliamentary elections as a turning point, which would lead to a more suitable environment to encourage economic growth. The economic indicators were positive throughout the first half of 2004 and the outlook is even more promising. Tourism boomed with a 45% increase in tourists, exports increased by 30%, the fiscal deficit stood at only 25% of total expenditures, and interest rates were continuing their welcoming decline. Three main factors are behind the 5% real GDP growth expected for 2004 and they are: exports, in principal to Iraq (via Syria); tourism; and real estate. These three factors stand to be weakened if international political pressure mounts on Lebanon, hence threatening the growth pattern, which is now still in its infancy. Stepping back and examining the immediate impact of the constitutional amendment on the economy, it is hard to ignore the fact that the politicking, which rocked the financial operation midway through the last week of August, overshadowed the bond swap. The ministry of finance was able to exchange only 55% of maturing Eurobonds ($1.186 billion) into two new instruments with 7.125 and 7.75 yields, saving about 200 basis points. A question that analysts might raise is what would have happened if the swap operation were conducted a week earlier or a week after? The straightforward answer to the first part is probably a more successful ratio of exchange (more than 55%) and thus additional fiscal savings might have been achieved. Now, if the swap were to be conducted post UN resolution 1559, the savings in percentage points would be lower than 200 basis points and some might argue that the swap would not have been recommended by the international investment banks managing the swap at the Bourse of Luxembourg. The next major fiscal milestone will be the much-anticipated 2005 fiscal budget, expected in a matter of weeks. If the environment in 2004 was not, according to finance minister, Fouad Siniora, suitable for a reformist budget, will a 2005 budget proposed by an outgoing minister during a period of political uncertainty include the necessary measures expected to put the country back on the Paris II tracks? Painful measures such as a VAT hike to 12% or 16% require a consensus, popular support and understanding. Will the government succeed in restructuring its administration by laying off redundant employees or increasing the working hours – two measures that previous governments failed to defend in past budget proposals during a period of more political cohesion than today? The constitutional amendment and the ensuing political tension has made it harder to introduce and execute the reform expected in the 2005 budget, improvements which are also eagerly awaited by the IMF, international rating agencies, Paris II member states, and all parties with a stake in the Lebanese economy. The savings in the debt service gained following the Paris II will be partially or fully wiped out and the debt dynamic reversal, referred to in the IMF July 2004 report, will not be sustained if Lebanon is downgraded and the economic momentum is lost. And then there is privatization. This pillar of Paris II has been delayed in 2004 but is promised in 2005, according to the IMF, the only institution that can make or break any Paris III gathering. Past experience now coupled with a bruised political climate does not bode well. The Telecom mishap and the ongoing lack of a consensus among Lebanon’s politicians cannot be overlooked. A successful and wide reaching privatization process requires transparency, a competitive economy, a suitable climate, a lucrative deal, but more importantly a stable and consistent environment, one that will not scare off investors, who are, by nature, twitchy to political rumblings. They need to be sure that their investments are protected and their contracts honored, and their rights preserved by an efficient and credible judicial system. Lebanon has failed to provide this in the past (e.g., telecom, electricity management contracts, Sukleen, etc.) and a last minute constitutional amendment will have done little to shore up confidence. Lebanon has continuously, and quite rightfully, highlighted the strategic importance of its European Union (EU) partnership agreement, signed in 2002. Key to this are the tenets of the 1995 Barcelona Process, which aim to create economic prosperity and political stability based upon shared values and mutual interests. EU Ambassador Patrick Renauld raised these values, when he recently met Prime Minister Hariri and hinted that the presidential extension might threaten the essential spirit of the partnership.

Could Lebanon jeopardize its strategic relationship with the EU, its natural and primary trading and economic partner? Fortunately for us, unless international political developments make a sharp turn to the worse, we cannot expect the EU to freeze the partnership with Lebanon, but we can expect a more lukewarm and cautious relationship, one that might delay or a number of EU-funded projects. The 2002-2004 National Indicative Program alone allocated €80 million, while EU had been planning to increase Lebanon’s budget. Can we afford to lose much needed technical assistance aimed at modernizing our economy? Moreover, and in addition to the Association Agreement, the EU is embarking on a new, wider European "Neighborhood Policy” to complement and build upon the existing Euro-med partnership. The EU, following its enlargement, now has borders from Russia to Lebanon, and all the way to Morocco. The new initiative aims to deepen economic and political integration between the EU and its neighbors by developing bilateral action plans whereby specific activities would be implemented to meet target objectives. Such an ambitious initiative requires a more generous budget and the EU is ready to increase financial and technical assistance to ensure stability and prosperity along its borders. Jordan, Tunisia, and Morocco have already negotiated bilateral action plans and large amounts have been allocated to properly implement them. Lebanon has already welcomed this initiative (an official letter was sent by Prime Minister Rafik Hariri to EU Commission President Romano Prodi in this regard) and is expecting to launch the process of developing the Lebanese-EU action plan once the new EU commission is in office next month. It would be disappointing if the constitutional amendment were to jeopardize not just the existing Association Agreement but also the more promising Neighborhood Policy and deprive Lebanon – like Libya for a decade – from the fruits of a Wider Europe. If Lebanon escapes censuring by the EU, it still has to get past the US barrier at the door of the World Trade Organization (WTO). In the last round of the WTO negotiations in July 2004, Lebanon scored many points towards acceding to the world’s most important trade (and probably soon multilateral investment) institution. Prior to accession, candidate countries negotiate on a bilateral and a multilateral level. The US, which has provided technical assistance to help Lebanon accede to the WTO, can, like any other member, also block, delay, or veto Lebanon’s accession. It can start by halting its technical assistance to Lebanon if relations between the two countries worsen; and even if Lebanon meets the minimum accession requirements – such as introducing new laws or adopting WTO principles (National treatment, most favored nation, etc.) – the US can shower Lebanon with requests and demands that would delay the process of accession for years. Lebanon must pray that this process does not encounter any political obstacles now that its “sister” organization, the UN has passed a new resolution.

Regionally, despite the escalation of violence in Iraq, the Iraqi market has been a major factor behind the recent upsurge in economic activity in Lebanon. Lebanese investment in Iraq covers a wide array of sectors and the Iraqi market has quickly become the primary destination of Lebanese exports with about a 17% share for the first seven months of 2004. The average monthly level of exports to Iraq in 2004 is 250% higher than 2002 while transit trade has also boomed creating backward and forward linkages benefiting a variety of sectors, such as the transport sector, the port of Tripoli, the cement industry, generator production, professional services and the export of expertise. That said, an American blacklisting of Lebanese firms (usually in the form of “indirect” blacklisting by not short-listing Lebanese tenders for contracts) and entrepreneurs could be detrimental to the economy especially that Lebanon fought hard to break into the Iraqi market and win contracts. Obviously any form of economic sanctions against Lebanon or Syria can lead to reversal in the economic trend but a blacklisting approach can also carry further negative implications at this early stage of the economic recovery process. The “loss” of the Iraqi market would fall under what the IMF called the vulnerability of Lebanon to external shocks (a small and open economy by definition cannot grow and develop within a small circle, especially one that is in debt to its eyeballs and which has a lack of natural resources). Any sanctions or blacklisting is not expected in the near horizon but, given the experiences of Libya, Iraq, Iran, Afghanistan, and to a smaller extent Syria, it cannot be disregarded.

Another engine of economic growth, which is also greatly affected by external shocks, is tourism. This sector had probably single-handedly lifted the Lebanese economy, creating activity in numerous service sectors and attracting the bulk of foreign direct investment into Lebanon. By September, the number of tourists exceeded 1 million, the same amount reached for all of 2003. Meanwhile, the yearlong campaign on CNN funded by the Lebanese government is now bearing fruit, while there are increasingly positive reviews in the European and American press.

However, one negative news bite on CNN can easily counterweight the hard work put into improving Lebanon’s image a safe and peaceful country. Figures from 2003 indeed show that tourist arrivals to Lebanon declined by 32% and 23% in March and April respectively due to the war in Iraq. Faint-hearted investors can disappear in a heartbeat. A couple weeks after the extension of the presidential term Lebanon seems to have its back against the wall but the picture is not as bleak as some may portray it, especially given that the Lebanese market has learned to foresee and thus discount “political crisis” as long as these crises remain contained and temporary. At any rate, it is a too early to determine where Lebanon is heading on the geopolitical map and hence it is premature to properly assess the full economic implications of what has happened on the Lebanese political scene. At this early stage though, the general observation is that the constitutional amendment and the debate that ensued has shaken the climate and will not improve the economic situation, at least in the short term. Lebanon must not let the positive upward momentum it has enjoyed in the past 12 months evaporate.

Dr. Joey Ghaleb is chief economist at the ministry of economy and trade and head of the Economic Research Center. The views expressed by the author do not necessarily represent those of the ministry.

It’s been ten months since President George W. Bush signed the Syria Accountability and Lebanese Sovereignty Restoration Act (SALSA) of 2003 into law, hoping to pressure Syria into adopting a more aggressive stance on terrorism, and withdraw its troops from Lebanon. However, the measures adopted by Washington vis-à-vis Damascus, which combine punitive economic sanctions with diplomatic pressure, have failed to influence the government of Bashar Assad. Instead, the Syria Accountability Act has given the Syrian leader new incentives to adopt a harder line towards Washington. The hardening of positions between the two capitals plays into what some neo-cons in Washington are hoping for; a confrontation with Syria that would lead to Washington imposing a regime change in Damascus, much as in neighboring Iraq. Can you say more chaos in the Middle East?

It is still too early to tell if SALSA has been effective. The Bush administration waited for almost all of the act’s six month grace period to choose the minimum two of six penalties outlined in the act. So while the “sticks” are now in hand, Washington has offered Damascus few proverbial “carrots” to change its policies. In off the record conversations with six seasoned diplomats from the State Department, including high-ranking officials who have served many years in Syria and other Arab countries but asked not to be identified by name, all said they believe that the anti-Syrian legislation will be counterproductive and will not profit US interests. Those diplomats say that enforcing the act will instead marginalize Syria, making future negotiations harder.

While the Accountability Act threatened to disrupt trade between the two countries, of which there is very little to begin with, it is the US that stands to lose more, from both a business as well as a political perspective. Not least is the sharing of intelligence and cooperation in the fight against terrorism that, according to Syrian sources, have been forthcoming. Bouthaina Shaaban, Syria’s minister of expatriates, has said that since the 9/11 attacks, Syrian intelligence has worked with the US in combating terrorism, particularly against al-Qaeda.

“Damascus has hitherto been providing the US with critical data on al-Qaeda,” wrote Tony Judt, director of the Remarque Institute at New York University. “Like Iran, another longstanding target of Israeli wrath whom we are actively alienating, Syria is of more use to the United States as a friend than an enemy,” said Judt.

Analysts who monitor Syrian-US relations say that trade between the two nations is at a pitiful low, diplomatic relations are already strained and Syrian aircrafts do not operate in the US. On May 11, Bush chose to implement a cocktail of penalties. In terms of SALSA, the measure with the most teeth is a ban on US exports to Syria except for food, medicine, civil aviation equipment and technology to promote the “free flow of information” (read: internet). Coming in a very distant second, Bush also chose to prohibit already non-existent Syrian flights to the United States.

But that was not all. To address Syria’s “threat” to US security, Bush invoked two additional pieces of legislation to penalize Damascus for perceived transgressions. Under section 311 of the US Patriot Act, the president instructed the secretary of the treasury to issue a “notice of proposed rulemaking” concerning a measure to require US financial institutions “to sever correspondent accounts with the Commercial Bank of Syria (CBS) based on money laundering concerns.”

CBS is by far Syria’s largest bank and one of the biggest in the Arab World in terms of assets. It is responsible for most if not all Syrian government transactions abroad –including payments to foreign oil companies of production sharing revenues.

Bush also invoked penalties against Syria under the International Emergency Economic Powers Act (IEEPA), which allows the “Secretary of the Treasury, in consultation with the Secretary of State, to freeze, within the jurisdiction of the United States, assets that belong to certain Syrian individuals and government entities.” Nothing earth shattering as far as Syria is concerned, but a number of uncertainties remain. So far, Washington has held back from enforcing the penalties on the CBS. In late September, a delegation from the US Treasury Department visited Damascus for reportedly heated but fruitful discussions with Syria’s Ministry of Finance and Central Bank. Use of IEEPA is not even discussed by the US Embassy in Damascus. The export ban has caused considerable concern in Damascus, however.

According to figures from the US census bureau, exports to Syria from the US in 2002 amounted to only $274.2 million, and US imports from Syria for the same year were only $169.9 million. By comparison, trade with Jordan for the same period totaled $404.4 million for exports and $412.4 million for imports.

US exports to Syria for 2003 amounted to $214 million, of which approximately $75 million consisted of food and live animals, items that will not be affected under the sanctions. This means that roughly $139 million in export trade is at stake. According to the National US-Arab Chamber of Commerce, the sanctions will affect only a few American companies that are interested in working in Syria, particularly in oil exploration and agriculture. Beyond that, few, if any, US businesses are likely to suffer.

Nonetheless, one danger emanating from the Syria Accountability Act is that American businesses may find themselves left out of potential future trade deals. Brazil’s initiative to drum up more trade with Syria, as highlighted by President Luiz Inacio Lula da Silva’s visit in December 2003, and the December 10, 2003, announcement by the European Commission of a new pact to develop political and trade ties with Syria will not benefit American firms.

Furthermore, sanctions aimed at keeping American or Western technology out of Syria would be impossible to enforce. “If the Syrians need a computer they would simply drive to Beirut and get one,” said a veteran US diplomat, familiar with the area.

Syria’s thousands of miles of rugged borders with Turkey, Lebanon, Iraq, and Jordan are extremely porous, and the smuggling of contraband-particularly across the Turkish and Lebanese borders-is as ancient as the Bible. Passing banned items into Syria from Lebanon – especially if it was sanctioned by the Syrian government – would be further facilitated by the fact that Syrian troops still control parts of Lebanon. One Washington insider with a deep knowledge of US-Arab relations summarized the whole exercise: “It will be a slap on the arm.”

Bush has other arrows in the SALSA quiver, including a possible ban on US investment in Syria, restrictions on Syrian diplomats in the United States, downgrading US diplomatic representation in Damascus, and banning transactions with institutions in which the Syrian government has interest. Are more penalties on the way in the near future? So far, Washington has little to show for its new pressures on Syria. As with the Palestinians, the Bush administration believes the stick is a far more effective approach than the carrot in achieving American security objectives in the Middle East. That belief demonstrates a remarkable ignorance of Levantine culture where saving face is of paramount importance. That, in part helps explain why overt pressure rarely works.

Raising the stakes and holding the Syria Accountability Act as a sword of Damocles over Damascus did little to encourage cooperation with Damascus or bring the Syrians to the negotiating table. It may indeed have had the reverse effect – that of backing Syria into a corner. Instead of cooperating, the natural instinct of a cornered enemy is to fight back with renewed vigor. Instead of inviting a negative response, the US should promote dialogue and foster engagement.

“To encourage progress,” wrote Daniel Byman, an assistant professor in the Security Studies Program at Georgetown University, “the United States should couple its sticks with carrots and [offer Syria] some positive incentives to cooperate.”

What the advocates of a confrontational approach to Syria seem to ignore, is that there is a difference between pressuring and bullying nations. Right or wrong, much of Washington’s hard-line policy in the Middle East is seen as favoring Israel. And that belief is building resentment in a region where Washington is trying to win hearts and minds.

The Bush administration has called on the Assad regime to halt its support for what it calls “terrorist organizations” and to expel “terrorist groups” from Syria. Hamas, Hizbullah, Islamic Jihad, the Popular Front for the Liberation of Palestine, and the Popular Front for the Liberation of Palestine-General Command all maintain offices in Damascus. Israel and the US consider them terror groups.

Syria sees its influence on these groups and its presence in Lebanon as the only cards it has to play in any future negotiations with Israel. Forcibly shutting down the offices of those organizations, State Department diplomats argue, would render the task of keeping tabs on them that harder and would not really solve the problem at hand. It would be a largely superficial move – the groups could relocate elsewhere in the Arab world, including to places where it would be much harder to track and monitor their activities. As it stands, the act does not translate into much in any practical sense.

“Bashar is someone who is genuinely interested in taking Syria in a new direction,” said Flynt Leverett, a former senior director of Middle East affairs at the National Security Council, who focused on Arab-Israeli issues (and a former senior analyst of Middle East and South Asian affairs at the CIA). Maintaining relations with the government in Damascus, as opposed to distancing it from Washington, is important to the US war on terrorism. The US Department of State has listed Syria as a state sponsor of terrorism since 1979, when the list was first created, but Syria has not been directly linked to any acts of terrorism since 1986, and the government officially bars groups based in Syria from launching terrorist attacks. More important, the government of Syria has no ties to al-Qaeda and has brutally repressed other Muslim fundamentalist groups – most notably the Muslim Brotherhood – that the government sees as a threat.

The Syria Accountability Act will give the Bush administration a little more pull, but as Leverett points out, “It will not bring change.” For that to happen, he said, “We’ve got to get a smarter policy.” A smarter Middle East policy would engage the moderate forces in Syria – and for that matter in the rest of the Arab world –

in positive dialogue and to promote business. Rather than impose economic sanctions on Syria, Leverett urges that the Bush administration lift restrictions, which as was learned from the case in Iraq, only hurt the people and not the regime.

Brink Lindsey and Daniel Griswold of the Cato Institute in Washington, DC, have similarly documented how greater economic engagement and free trade combat terrorism by encouraging the spread of democracy and political freedom. In this vein, more trade, not less, is likely to lead to favorable outcomes for US security.

Claude Salhani is international editor and a political analyst with United Press International in Washington.

Market in Brief

Lebanon’s architecture and interior design sector is in today’s market, worth an estimated $40 to $45 million. It is an industry driven by fierce competition, where projects are scarce and registered architects – some 6,000 – in abundance. In fact, the value of construction in Lebanon is accounted for by only a handful of, often eye-catching, projects in and around Beirut. The narrow and high-end construction market is served by some twenty architectural firms, which employ a total of some 200 to 400 architects to design and execute most of the projects.

There are three firms that employ about 50 architects and boast a turnover of $5 million or more, followed by a dozen companies employing between 10 and 20 architects with an estimated turnover of $1 to $2 million. Hopes that there would be a boom in the construction and architecture market were resuscitated by the establishment of Solidere in 1995, but by the turn of the century, the market slowed down. Since the infamous events of 9/11, however, both sectors are picking up, as more and more Gulf Arabs have returned to Lebanon, both as tourists and investors, buying land and developing property. Most large hotels and residential projects are in fact developed partly or fully by Arab investors.

The law

To work as an architect in Lebanon, one needs to register with the Lebanese Order of Architects and Engineers and a number of qualifications must be met. Most importantly, one has to be a graduate from an accredited Lebanese or foreign university and must be a holder of the Lebanese nationality for at least 10 years. Interestingly, one also needs to have a clean criminal record. Once registered, one pays an annual fee of some $400 for medical insurance and pension rights. After being registered in the order, an architect needs to obtain a license from the ministry of public works to perform to work in the profession.

A special committee, consisting of members of the Lebanese Order of Architects and Engineers, the university and the ministry of public works and higher education, examines and decides upon the request. There are currently over 5,000 architects who are members of the Lebanese order, as well as some 15,000 civil engineers, 5,000 electric engineers and 5,000 mechanical engineers. But because Tripoli has its own order and not all architects are registered, it is estimated that the number of architects is probably double that number.

Education

There are currently eight accredited Lebanese universities that offer architecture as a major and each year, some 350 to 400 graduates enter the market. Most of them will stay in Lebanon, while others opt for a career in the Gulf and Saudi Arabia. Several of Lebanon’s topnotch universities, most notably ALBA and AUB, offer an education that is also valued abroad. Considering the figures listed above, it is no wonder that many students leave to work in the Gulf, Saudi Arabia or the United States, as soon as they have the chance.

Salaries & Fees

A fresh architect graduate will earn an average salary of some $500 the first year of employment, which will then increase by some 10% a year. Naturally, a top student being drafted by a top bureau will be able to ask for more. The standard fee for an architectural and engineering office is 7% of the project’s construction cost, excluding indirect costs such as permits. The 7% is broken down as follows: 2% for site supervision, 2% is for the work of civil, electrical and mechanical engineers, which leaves 3% for the architect’s fee.

Surprisingly, the bigger the project, the smaller the architect’s fee, relatively. In case of a $200 million project, for example, no developer will accept a percentage based fee and so a lump sum will be agreed upon, which on average amounts to half of the 7%. For a small project, however, the architect will refuse to work for a percentage, as the design of $300,000 villa can be as much work as that of a $30 million office block or hotel.

Residential

The lion share of Lebanon’s residential market is represented by the handful of high rise buildings that are set to appear in the BCD. Facing the marina, the Marine, Platinum and Beirut Towers are being built, while at Riad el Solh Square, the multi-use Landmark Building is set for construction. The combined overall value, including the price of land, is some $700 million.

The towers combine state of the art design, overwhelming luxury and a magnificent view of the sea and mountains and carry a price tag starting at $4,000m2. Still, most of the apartments have been sold mostly to Gulf Arabs. Together with a dozen of other, smaller apartment blocks and luxury hotels, up to $1.5 billion is being poured into the heart of Beirut, making it Lebanon’s hottest property by far.

Most of the buildings in downtown Beirut have been designed by foreign architects, with Spanish architect Ricardo Bofil signed on for the Platinum Tower and French architect Jean Nouvel responsible for the Landmark Building. With an eye on distinctive designs and future value, Solidere prefers so-called signature buildings by famous foreign architects. As a foreign architect is not allowed to work independently in Lebanon, after the initial design is submitted, all executable drawings and details will be taken care of by a local partner. It is for this reason that Bofil is working with Nabil Gholam on the Platinum Tower project, and ERGA group is executing the original French designs of Saifi Village.

Seeing the value of the projects in downtown, most architectural and engineering firms will receive a fixed amount of money, roughly amounting to 3% of construction costs. Other than in downtown Beirut, several high-end residential projects are being built in Verdun, Ramlet al Baida, Ashrafieh and Ras Beirut.

Generally, the further you move out of Beirut’s inner circle and its direct surroundings, the smaller and less valuable the projects being executed. The lower-end of the market for affordable middle class apartments with a price of $250 to $500m2 is virtually stagnant, which is partly due to the fact that the price of sand, cement and steel has doubled over the last few years, while government subsidies for social housing projects are non existent.

The result is a dozen of very expensive residential apartment projects that represent the main value of the overall market and that are generally being executed by a dozen or two high profile companies. The near future of lucrative residential buildings lies in the mountains, said one architect, where more and more new villas of Arab investors will appear. The real money however, he added, is to be made in Dubai and Qatar, not in Lebanon.

Hotels

The market for design and construction of hotels in Lebanon is similar to that of the residential sector. The $140 million Mövenpick hotel and $100 million Four Seasons Hotel are both Saudi investments, the new $70 million Summerland Hotel and the proposed $125 million effort to rebuild the Hilton Hotel are combined Saudi-Lebanese investments, while the Metropolitan Hotel was built by the Dubai-based Habtoor Group. Most of the newly built hotels in the Aley-Bhamdoun area are also partly or fully foreign investments.

Responsible for hotel designs and execution of those designs are both local and foreign architects. For example, the “white waves” design of the Mövenpick Hotel, which was built over an already existing concrete structure, was largely designed by the ERGA group. The project’s overall price was $140 million, including the price of land. Construction costs roughly amounted to some $70 million, including the pools and a marina. The hotel itself, excluding interior design, cost some $20 million, for which the combined fee for architects, engineers and site supervision amounted to an estimated $600,000.

Offices

The market for the construction of office buildings is largely non-existent. With up to 60% of the offices in downtown Beirut remaining empty, there is just too little demand. The AN NAHAR building was one of the last major office blocks to appear in Beirut. It cost only $12 million to construct, as the design was kept extremely simple and functional, using only the most basic materials and leaving the interior design for the client to handle, which is why, on the third floor, pipes and cables are seen sticking out of the walls.

The building was designed by Pierre Khoury – who also signed on the ESCWA building and BLOM headquarters facing Commodore Square – for a lump fee of an estimated $100,000. Concerning the state of the market, it is significant to note that Khoury’s firm, which employs 15 architects, is also responsible for the design of Park View in the BCD. Originally, Park View was to become an office building, but it now will serve as a residential tower, with high-end luxury apartments, most of which have been already sold. Individual office buildings are being built, especially for banks, but as far as the overall market is concerned, most architects agree that it is absolutely essential for the downtown SOUQS projects to be completed, as it is hoped that the area will serve as a major catalyst to developing the surrounding office space.

Architecture and economics

Unfortunately, Lebanon generally does not have a lot of good architecture, which presents not just a problem from an aesthetic, but economics point of view as well. Bad architecture costs money, certainly in the long run. Take, for example, the overwhelming majority of apartment blocks that are just concrete boxes put on top of each other. They pop up everywhere in the country, spoiling the view and natural beauty, which – increasingly scarce – represent an increasing economic value. What’s more, many of the buildings are badly constructed, not able to withstand the withering effects of time let alone an earthquake, as contractors aim to save money by using less steel.

Then there are the office buildings that have been erected to emulate the predominantly glass structures in Dubai. Most architects agree that this is very suitable building style for colder countries, as the glass helps heat up buildings and thus saves money. In the Middle East however, the opposite is true. With the sun blasting over 10 hours a day, the building becomes a glass house, causing electricity bills to skyrocket because of the constantly running ACs.

Another major problem is the absolute lack of urban planning in the country. Basically, anyone can build anything anywhere: today, you have a view over the Mediterranean Sea, tomorrow it’s blocked by another building, while parks are virtually non existent. The only town in Lebanon that does have a policy of urban planning is Deir al Qamar, where Fadi Chiniara has formulated for free a set of basic rules that every new building needs to meet to get a construction permit – including requirements for height, roof and façade – to keep the town’s traditional character intact. With an eye on tourism, it will be no doubt a policy that pays off, certainly in the long run, which is part of the reason why Walid Jumblatt has approached Chiniara to do something similar for the Chouf.

INTERIOR DESIGN

It is impossible to indicate the value of the interior design market, as there is no regulatory body and basically anyone can work as an interior designer. As a general rule, the client indicates how much they want to spend on the interior of their home, hotel, shop or restaurant. Depending on the choice of material and luxury, the average price to execute a design varies between $500 and $1,200m2, which includes all accessories, such as furniture, tiles and carpets.

The initial design will cost some 10% of the interior’s overall cost, while the designer or architect responsible for the execution of the design will charge another 8% to 12%. Rumor has it that the future 3,000m2 interior of a Saudi official will cost no less than $500,000. The market leader of interior design in Lebanon is Cercle Hitti.

Its interior design department, led by Dory Hitti, employs some 15 interior architects and designers. It signs for both design and execution, yet not necessarily in the same package. The lion share of Cercle Hitti’s designs concern residential buildings, but the company does the interior of offices, showrooms, restaurants and hotels as well. Some of its notable clients are the Sheraton Coral Beach and Heliopolis Hotel.

The big advantage of Cercle Hitti is that the company also sells furniture, beds and lamps, which allows it to offer the client a package deal. Some of the other well-known designers operating in the market are Jean Luc Mengi and Dada, who do more classical interiors for mainly wealthy Lebanese and Arab clients, while Rony Fatte and Galal Mahmoud specialize in more modern designs.

Unlike the Lebanese Order of Architects and Engineers, there is no official regulating and protective body for interior designers. Working with an unreliable designer, qualified or not, can be costly; there are known cases of designers selling clients fake art works and antiques, or selling them for highly inflated prices.