A Diamond’s Eye View of the World

a multi-faceted look at the middle east, and the middle west

at the opening of the year: the country version

Posted by adiamondinsunlight on January 9, 2007


The Oxford Business Group has posted 2006 Year in Review analyses for the many countries its analysts cover. All are available online at OBG’s website – select a country from the list at the right, and look for the Year in Review analysis on the left, under the “[country name] – news briefing” heading.

As a sample, below is the OBG’s review for Lebanon:

The first half of 2006 saw the Lebanese government led by Prime Minister Fouad Siniora make some progress in rebuilding confidence in the economy and announce measures to reduce the country’s massive debt, which was running at 183% of GDP. Steps were also taken to revive the stalled privatisation process, carry out further state reforms such as boosting accountability, transparency and government spending cuts.

Heading into the summer months, Lebanon was looking to a bumper year in the tourism sector, with direct receipts of $2bn or more predicted. The ongoing political stability and the favourable expectations for the economy had seen a strong movement of foreign investment into the sector, with well over $1bn committed to new developments. There were also a series of announcements that a similar figure would be invested in Lebanon’s real estate market, with the majority in both cases coming from cashed up Gulf states riding the oil price boom.

However, all of this changed in July when Israel launched its military strike against Lebanon, or as Tel Aviv put it, against the Islamic group Hizbullah. While the 34 day war, and the extended blockade imposed by Israel may have hurt Hizbullah, it was the Lebanese people and the country’s economy which bore the brunt of the campaign.

Months after the war, the cost of the direct damage caused was still being added up, but a conservative estimate of the destruction of 35,000 homes and businesses, a quarter of Lebanon’s road bridges and overpasses, much of the country’s electricity network and sundry other havoc has been put at $3.5bn.

Additionally, the economy has been hardly hit by the trade embargo applied by Israel, lifted only in early September. With estimates that GDP will fall by as much as 7% for the year, driving the Lebanese economy into negative growth, some predictions have put the total long term losses brought by the war at up to $15bn.

However, Lebanon’s woes didn’t end when the guns fell silent on August 14. Simmering tension between the country’s many political factions came to the boil, with the Syrian- backed Hizbullah withdrawing from the government and, along with its allies, including the Free Patriotic Movement (FPM), led by Christian politician Michel Aoun, pushing for a national unity government.

By December, the efforts to unseat the government of Prime Minister Siniora had seen six cabinet ministers resign and President Emile Lahoud refusing to accept the legitimacy of the ruling coalition. Hizbullah, which was in part staking its claim to a greater say in the running of the country on its self proclaimed victory over Israel, called its supporters out into the streets of down town Beirut.

This show of force, which at times saw more than 100,000 pro-Hizbullah demonstrators camp in the central business district, dealt yet another blow to the country’s economy. Retailers in Beirut’s CBD saw sales fall by more than 30% in December, in what is usually one of the busiest seasons. The catering, tourism and hospitality sectors were also hard hit by the ongoing political instability, which has been little eased by efforts at mediation by the Arab League and other parties.

Despite the instability, there were still some positives for Lebanon at the end of the year, with Central Bank Governor Riad Salameh tipping a balance of payments surplus of $2.5bn at the end of December and a 7% increase in deposits held by Lebanese banks, giving holdings of $63bn by the end of 2006.

Salameh said that Lebanon’s foreign-currency reserves had risen to $13bn during the year, up from the $12.5bn at the close of 2005. He also said this would allow the Central Bank to weather any fluctuations in the markets, as would a predicted fall in interest rates in 2007.

However, the long running political infighting appears likely to offset any advances in the economy, threatening a positive outcome of the international donors’ conference scheduled to be held in Paris in late January to try to drum up more financial support for Lebanon.

Another more immediate victim has been the government’s privatisation program, which has stalled amidst the year’s battles, both military and political. The program’s cause was not aided by the assassination in November of Industry Minister Pierre Gemayel, yet another factor that added to the destabilisation of the country.

Though talks are continuing over forming a new government, there are no guarantees that Lebanon’s deeply divided factions will be able to work in harmony if they do join forces, imperilling the recovery of the economy from the blows it suffered in 2006.


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