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Groundwork costs money.

Israel's harassment of Lebanon is badly timed if it has any long-lasting desire to see a stable country on its northern frontier. Just as the Israeli bombardment of south signals a more brutal policy towards Lebanon, it is struggling to rebuild its infrastructure.

The platform for Lebanon's post-war reconstruction is an ambitious plan, recently trumpetted by the prime minister, Rafiq Hariri, and the Council for Development and Reconstruction (CDR), which is set to take Lebanon into the 21st century. The CDR plan, titled Horizon 2000, is a 10-year project aimed at a global rehabilitation of Lebanon's infrastructure with an estimated cost of some $12.9bn.

The first phase focusses on basic reparation and rebuilding of the country's economic, social and educational infrastructure (including electricity, water, communications, roads, housing, schools and industry). An estimated investment of $2.7bn will be required, of which 66% is to come from foreign loans, 21% is to be financed through foreign grants, and 13% is to be contracted locally.

The second phase will develop this infrastructure. An investment of $10.2bn will be required, of which 52% will be financed by the forecasted budget surplus, 42% will come from foreign loans and 7% from foreign grants.

One of the primary tasks is to rehabilitate Electricite du Liban (EDL), the semi-independent government agency that is responsible for electricity production throughout Lebanon. Damage to cables, switching stations and sophisticated material of EDL during the war is estimated at a minimum of $230m. EDL also says it needs an additional $580m to purchase new equipment.

Today EDL currently takes in only 16% of its costs. The 84% deficit is a result of EDL charging customers only a third of what it costs to produce electricity, as well as widespread theft with houses and shops hooked up illegally to the electric cables in the streets. The Kuwait Fund for Arab Economic Development (KFAED) made a $35m loan granted to EDL last year conditional upon a new pricing system and improved collection capabilities.

In June the Lebanese government signed a deal with Ansaldo of Italy for the first phase of repair and rehabilitation work on Lebanon's electricity power stations. The work, which is also to take in the country's hydraulic and hydroelectric stations, is to cost the government $66m and is scheduled to be completed in 18 months.

A second major task is to rehabilitate and expand the local telephone network, seen as crucial to entice businessmen back. Lebanon has around 230,000 electronic and 220,000 mechanical lines. The latter suffer from frequent failures or are simply out of order.

The CDR has signed preliminary agreements with three companies, Alcatel (France), Ericsson (Sweden) and Siemens (Germany) to replace all mechanical lines with electronic fines and to add 50,000 lines to the current network. The cost of the rehabilitation programme is estimated by the Horizon 2000 plan at approximately $620m. Last November KFAED approved a second $35m loan package to repair and upgrade the telephone sector.

Housing is another problem that the Lebanese government faces, linked as it is to the complex problem of Lebanon's war displaced. One-fifth of all Lebanese were displaced during the war. The government estimates $750m is needed to rebuild their homes. An extra $1.6bn is required for building new homes to induce the illegal occupants, themselves refugees from another area, to leave the homes in which they are squatting.

Walid Jumblatt, the minister for displaced persons, was recently informed by US ambassador in Lebanon of the American Agency for International Development's decision to offer $3m worth of aid to assist the return of the displaced to their homes. Also in June, the UAE donated $35m to Lebanon, mostly for the rebuilding of houses which were destroyed during the war.

Beirut's international airport is crucially included in the reconstruction project. The government has now begun caning for competitive bids for rebuilding. The initiative comes as the Middle East Airlines (MEA), Lebanon's national carrier, recently announced an annual growth of 10% to 15% and concluded that in 1993 it expected to make a profit for the first time in years.

If it is to be viable, the Horizon 2000 plan will require a huge input of foreign aid and loans which will be mostly dependent upon internal stability and external confidence in Lebanon. There was little in the way of substantial foreign aid last year for Lebanon.

However, with the appointment of Rafiq Hariri as prime minister last October, things may have started to move. The "Hariri effect", as it is locally termed, has brought about a stabilisation in value of the Lebanese pound, and a much-needed injection of credibility into the Lebanese government.

This is already producing results. Lebanon received a considerable fillip when the World Bank granted a $175m loan in March for reconstruction. The World Bank's grant is of far greater significance than the amount might indicate since it signifies the confidence of the World Bank and, indirectly, the United States in Lebanon's credit.

The World Bank based its loan on a preliminary study of Lebanon which promised an optimistic economic future. Lebanon, the study concluded, will see a substantial budget surplus starting in 1996. (This surplus will provide half of the financing for Horizon 2000's second phase). By 1999 the public debt, which constituted 49.1% of GDP in 1992, is expected to decline, while GDP itself is expected to grow at 8% annually for the next five years.

A number of constraints, however, were imposed by the World Bank on Lebanon. The loan is dependent on the government agreeing to greater control on spending in order to balance the budget deficit, and the introduction of new taxes on real estate, energy consumption, and imports. The Ministry of Finance is preparing a new set of tax laws. It is also undergoing a $lm rehabilitation and retraining programme to improve its administrative capabilities, in cooperation with the UJNDP and the IMF.

The Lebanese government hopes the World Bank loan will encourage others to contribute to Lebanon's reconstruction. Indeed, just four days after the World Bank announced its grant, the European Community promised to provide Lebanon with a reconstruction aid package-worth over $37m

As much as Lebanon is looking to the West for technical assistance, it is hoping for financial aid from the Gulf which, until now, has come in a trickle rather than a flow. However, that could change. A meeting of potential investors in Lebanon's reconstruction was held in June in the Summerland Hotel in Beirut. Of the 390 people present at the meeting, 190 were Gulf Arab businessman.

In particular, there has been a marked increase in Saudi interest in Lebanon and the central role it is playing in Lebanon's reconstruction, since the nomination of Hariri (who holds Saudi nationality) as prime minister. Saudi businessmen were in force at the Summerland meeting and a Saudi consortium helped in preparing the meeting.

In addition, the 12-man committee for the real estate company that is to manage the rebuilding of Beirut city centre includes three Saudi businessmen. Saudi Arabia recently announced it would soon re-open its embassy in Beirut which was dosed in 1985 after being overrun by Islamic fundamentalist demonstrators.

Lebanon's reliance on Arab and foreign aid, however, has raised concern among some critics of the plan who argue that the country's independence could be compromised. Such critics fear foreign aid would be linked to Lebanon's performance in peace talks with Israel.

The second phase of the 10-year plan is expected to be half-financed by Lebanon itself from the previewed budget surplus. There are already promising signs that the government appears to be moving rapidly towards a balance between its revenues and expenditures.

Yet some analysts say that to expect the government to achieve a budgetary surplus by 1996, as projected, is wildly optimistic and would require economic growth higher than that of the average growth in the dynamic economies of South-East Asia.

Another possible source of financing for Lebanon's reconstruction is the assets many Lebanese have abroad. The IMF estimates the assets of lebanese residents in foreign banks at $7.39bn (the amount held by all Lebanese, including emigrants, is estimated at a beginning figure of $5bn).

Disgruntlement at the lingering stay of Syrian troops in Lebanon, concern over Israel's incursions into south Lebanon, and apprehension about the possible outcome of the Arab-Israel talks is usually more than enough to convince most Lebanese of the expedience of keeping their money safely abroad. When it comes to investing money in Lebanon, the Lebanese tend to be more cautious than anybody else.
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Title Annotation:Lebanon's effort to develop its economy
Publication:The Middle East
Date:Sep 1, 1993
Words:1430
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