Lebanese economy chugs along despite instability

Beirut's hot real estate market is just part of a crazy quilt of actions that allow Lebanon to keep chugging along in spite of itself.

angry in lebanon 88 (photo credit: AP)
angry in lebanon 88
(photo credit: AP)
"Poor Lebanon" is a much-loved preface to a litany of the country's troubles. Parliament has been deadlocked for a year. A quarter of cabinet ministers are boycotting meetings. There's been no president since November because quarreling lawmakers keep postponing a session to elect a replacement. In Beirut so far this year, 17 people have been killed and dozens wounded in car bombs, army gunfire on protesters and clashes between pro- and antigovernment groups. In south Lebanon, many fear new battles could erupt with Israel. It sounds like a disaster about to happen in a nation where a renewal of the devastating 1970s-'80s civil war is a chronic worry. But Amer Hazime doesn't see it that way. While not exactly optimistic about the future, the young businessman - a Lebanese-Jordanian dual national - is shopping for an apartment in Beirut where he can live with his wife and daughter. "The security situation is deteriorating, the political situation is bad but I am looking to buy a flat. My wife is Lebanese and I want to live here," Hazime said as he ate pizza one night at a crowded Italian restaurant in Beirut. There are many like Hazime. Beirut's hot real estate market is just part of a crazy quilt of actions and attitudes that allow Lebanon to keep chugging along in spite of itself, a Middle Eastern magnet even if it can't return to the storied days of the early '70s when Beirutis boasted their city was the "Paris of the Middle East." Among the negatives: the national debt of $42 billion is 175 percent of the country's Gross Domestic Product, making it one of the highest in the world. Economic growth was projected to be 7% last year but, amid the nagging uncertainty, it was only about a third of that. The cost of living has shot up 37% since November. And the positives: tourists keep coming - a million in 2007, albeit 4% less than the previous year - and the restaurants and nightclubs are packed. Private bank deposits are up 10.5%, the currency has remained steady for 15 years, taxes are collected, the courts keep functioning. So how does this small nation of 4 million people get by? To begin with, Lebanese are entrepreneurs. They've never banked on their weak, fractious governments over the decades. The country's free market its strongest asset and its banking secrecy an attraction to depositors. Hundreds of thousands of educated, professional Lebanese have regularly gone abroad during the country's troubles and - in a boost to the economy - sent money home. During the civil war, about one quarter of Lebanon's population left. Many have returned, but others remain abroad. The Second Lebanon War in summer 2006 also increased the brain drain as much of the reconstruction from civil war damage was wiped out by IAF bombing. A World Bank report said that in 2006, the last year for which figures are available, Lebanese living abroad sent home $5.6 billion, or about 25% of the country's GDP. Almost half of that figure came from about 400,000 Lebanese working in oil-rich Persian Gulf countries. "The high inflow of remittances are keeping the day-to-day economy functioning," said Nassib Ghobril, head of economic research and analysis at Byblos Bank Group. Today, many Lebanese still contemplate leaving. For every Amer Hazime - the young businessman looking for a Beirut apartment - there is probably a Muhammad Kheir, who runs an airport supply business in the city but fears what will happen to his three children should wholesale violence return. "I am thinking about immigrating for good. I don't want my children to live what I passed through during the war," said the 39-year-old man, referring to the 1975-90 civil war in which 150,000 were killed. "Our country is very good and I have no problem living here. But the most important thing for me is that my children live a normal life." Still, as Kheir travels to other countries on business, he can see what keeps luring Lebanese and others back to his country. Rich Arabs visit or buy villas in the Lebanese mountains, whose cool weather contrasts with the desert heat in much of the surrounding Middle East. Another draw is the country's rich culture - a mix of Middle Eastern traditions and Western influence - and its looser social restrictions. Lebanese make prize-winning wines, and the country's cuisine and fervent nightlife are famed throughout the region. Like the brain drain that turns out to provide an economic asset, Lebanon's troubles wind up pumping money into the country. Since the Second Lebanon War, international donors have pledged more than $7b. in soft loans and grants, and some $320 million has been paid. In addition, funds flow to Lebanon's competing political factions, including the Iranian-backed Hizbullah, from their patrons abroad. In contrast, Saudi Arabia promised in February to place a $1b. deposit in Lebanon's Central Bank to shore up the government of Prime Minister Fuad Saniora - a Sunni Muslim like the Saudi royal family - against the Shi'ite opposition. Overall, Lebanon's banking system is doing very well. Assets of private banks have reached $71b., nearly three times the GDP. Foreign currency reserves in the Central Bank have risen steadily to $13b. in 2007, and the 9.2 million ounces of gold the central bank has now is valued at more than $8b. "This confirms the separation between the monetary situation and the security and political situation," Central Bank Governor Riad Salameh told bankers in January. Others, however, fear that if the security situation blows up, it could erode all the economic pluses. "Anything that happens now will change expectations, especially in security," said Louis Hobeika, an economist. And Ghobril, the Byblos Bank analyst, warns: "The longer it takes for a [political] solution, the reforms will be delayed, the trends trying to reduce public debts will be delayed. This is where it hurts." Still, the appetite for taking big risks that makes Lebanon's politics a lethal game also is at the heart of the country's entrepreneurial spirit. Real estate agent Victor Abu Kheir played to that spirit as he readied thick Turkish coffee for a potential client and explained that investing now in a Beirut apartment could mean a 100% profit before long. "Oil prices are going up, the dollar is going down, gold is going up and consumer prices are going up. Real estate prices have to go up," he reasoned.