Lebanon - ECONOMY

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Lebanon - THE ECONOMY

AS THE LEBANESE state fragmented, so too did the national economy. Many observers have argued that because of this fragmentation, there was not one economy in the late 1980s, but several. Areas held by some militia groups, most notably the Maronite Christian heartland controlled by the Lebanese Forces, appeared well on their way to becoming de facto ministates. These militias were successfully usurping basic functions of government such as taxation and defense.

Despite the fragmentation, there were still some shreds of the official economy. In late 1987 the main port of Beirut and Beirut International Airport were subject to intermittent government regulation. The Central Bank (also cited as Bank of Lebanon or Banque du Liban) maintained sizable financial reserves, although these declined sharply in the mid-1980s. There were spiraling budget deficits as the government attempted to reestablish the credibility of its security forces and maintain at least some social services.

Measuring the government's impact, however, was another matter. Although the government's financial role in the economy was growing, its role in the daily economic affairs of the Lebanese people was declining. The importance of the official economy in the late 1980s depended on where one lived and how one felt politically. But the economic collapse could not be separated from the human tragedy. For example, two of the most salient facts of life in Beirut in February 1987 were the collapse of the Lebanese pound to less than one-hundredth of a United States dollar and the request by Palestinian religious authorities for a ruling on whether or not it would be permissible for the besieged refugees in the camps at Burj al Barajinah and Shatila to eat their dead. In a country where violence had become endemic, where some 130,000 people had been killed and a further 1 million--a third of the population--had been injured, calculating the impact of the central government on the economy would be impossible.

In the years that followed the outbreak of the 1975 Civil War, political developments dominated economic affairs. Improved security conditions--such as from late 1976 to early 1978, or from September 1982 to January 1984--yielded considerable economic benefits, as relative peace enabled the recovery of commerce. Peacekeeping forces--Syrian, Israeli, United Nations, United States, and West European--brought with them favorable economic conditions in the communities where they were stationed. But the positive effects were frequently shortlived. For example, when Syrian troops entered Beirut in February 1987 (the first time a recognized power had attempted to enforce its authority in the capital since the February 1984 collapse of the Lebanese Army), there was a brief flurry of guarded economic optimism. The upswing of the Lebanese pound lasted only three weeks. But overall instability was the norm from 1975 to mid-1987, and it became clear that nothing short of a total change in the country's political and security structure--in effect, the end of sectarian partitions and militia rule--would lead to any sustained revival of what had once been one of the world's most vibrant economies.

By 1987 Lebanon had entered an era where reliable statistics on the state of the economy were usually absent. Lebanese economists were sometimes able to compile a few indicators, but the numbers were often based on incomplete data. But even without complete statistics, the downward trend of the national economy was obvious.

Bearing testimony to this trend, the Lebanese National Social Security Fund reported in May 1986 that 40 percent of the 500,000- strong private sector work force was unemployed. Industry was running at barely 40 percent of capacity, and per capita income was down to around US$250 a year in 1986, five times lower than eleven years earlier.

In 1985 estimates of the gross domestic product (GDP) varied from L�30 billion to as high as L�48.3 billion. In either case, GDP was no more than half of what it was in real terms in 1974.

Although the collapse of GDP began with the start of the Civil War, the fall of the Lebanese currency began much later. On the eve of the war, it required only L�2.3 to buy a United States dollar. Currency values declined over the next several years, but it was not enough to destroy the basic Lebanese confidence in the pound, which was backed by substantial holdings of gold and foreign exchange. Whereas in 1981 the exchange rate had averaged L�4.31 to the dollar, by the end of 1982, with the new government of President Amin Jumayyil (also spelled Gemayal) in office, the exchange rate was back to L�3.81 to the dollar.

The pound, however, began depreciating rapidly in the aftermath of further Beirut clashes in early 1984 and the withdrawal of the Multinational Force (MNF) of peacekeeping troops from the capital. Although there was widespread currency speculation, the Central Bank could do little to investigate this problem became of Lebanon's tough banking secrecy laws.

Between January and December 1984, the pound lost just under half its value against the dollar, while in 1985 the trend gained speed, resulting in a further 60-percent erosion in value. The Central Bank was widely criticized, especially by the commercial banks, for failing to act decisively to halt the pound's slide. But even greater criticism was directed against commercial bankers and leading politicians, who were constantly accused of speculating against the national currency.

By 1986 the country was on the verge of hyperinflation as the pound lost almost 85 percent of its already shrunken value during the course of the year. On February 11, 1987, the currency crashed through the psychologically important barrier of L�100 to the dollar and continued its fall. By August the pound was trading at more than L�250 to the dollar. Compounding the problem was that these events occurred after a year in which the dollar had fallen sharply against most major international currencies.

The fundamental principle of the Lebanese banking system had been a freely convertible pound. Citizens were free to hold foreign currency accounts in their banks, and remittances received from friends and family living abroad could be processed with relative ease through banking channels. As the pound began its decline, the importance of foreign currencies (particularly the United States dollar) grew, and a "twin currency" economy emerged. Complex systems were soon set up to circumvent the banking system, not for fear of governmental interference but to prevent the loss of deposits or of letters of credit through bank robberies. In the twin currency economy, foreign cash and drafts on bank accounts held outside the country became increasingly common. It became impossible, however, to calculate how much foreign cash was entering the country once transfers began to bypass the banking system. But it was clear that most people were not receiving enough to retain their pre-1975 living standards.

By 1987 ordinary Lebanese were living in a very strange economy. Public services functioned according to the ability of the government to pay staff, the ability of different groups to tap into utilities (with or without official permission) and the ability of local groups (with or without official help) to keep services operational. The costs of basics, such as gasoline, home fuel oil, and cooking gas were all subject to government price restraints, yet prices could double or triple in times of shortages, as roads between refineries, gasoline pumps, and fuel depots were cut. People found the government price controls ineffective, and the struggle to secure vital goods and commodities reflected not so much a free market as a free-for-all. By 1987 a dozen years of conflict had shown them that economic control, as well as political power, came from the barrel of a gun.

By the late 1980s, years of conflict had distorted the economy. Total GDP was down, but the proportion of GDP contributed by the government was up. The national currency collapsed, and the country began sustaining balance of payments deficits. One commentator noted that 1986 marked the first time since the Civil War started in 1975 that Lebanon had suffered economic hardship to such an extent that it had affected the middle classes as well as the traditional urban poor. Another observer argued that Lebanon, once the model of modernity in the Middle East, was being threatened with "de-development."

Lebanon

Lebanon - RECENT ECONOMIC HISTORY

Civil War and Partial Recovery, 1974-82

Lebanon traditionally has had a dynamic economy. In the years leading up to the Civil War, the country enjoyed high growth rates, an influx of foreign capital, and steadily rising per capita income. Although imports were often five or six times greater than exports, earnings from tourism, transit trade, services, and remittances from abroad counterbalanced the trade deficit.

In 1973 (the last prewar year for which detailed figures were available in late 1987), GDP at current prices totaled US$2.7 billion, compared with just US$1.24 billion in 1966. In 1974 GDP rose to around US$3.5 billion because of an increase in the value of the Lebanese pound. Per capita GDP rose from around US$560 in 1966 to US$1,023 in 1973 because productivity increased faster than population growth and because the Lebanese pound gained ground against the dollar.

The Lebanese economy was healthy in the years leading up to the Civil War. The service sector grew fastest during this period. Commerce grew at almost the same rate and by 1973 accounted for almost one-third of GDP. The growth of commerce had important implications because customs duties were a major part of government revenues, sometimes amounting to nearly half of the government's total income. The Lebanese pound was strong, credit was easy, and there was a balance of skilled and unskilled labor. Internal markets were protected, and Lebanese industry was finding increasingly useful outlets abroad, notably in the Persian Gulf countries.

The petrodollar boom that followed oil price increases by the Organization of Petroleum Exporting Countries after the ArabIsraeli October 1973 War led to a period of expansion for Lebanon. Lebanese banks became major channels for soaring Arab oil revenues. In addition, Arab, West European, and American bankers bought shares in Lebanese financial institutions to secure a share of the profits.

Economic development, however, was uneven. The government was so wedded to free enterprise that it essentially failed to reduce economic and social inequities in various communities. President Fuad Shihab (also cited as Chehab) made some effort to remedy these inequities by pursuing development projects in the traditionally neglected south and north. But the center of the country--Beirut and the central Biqa Valley--was riding a seemingly never-ending economic boom.

The impetus for socially oriented economic development declined under Shihab's successor, Charles Hilu (also cited as Helou), and disappeared entirely under President Sulayman Franjiyah (also cited as Franjieh). The consequences of economic neglect were felt in the late 1970s and the 1980s, as Shias, who had migrated from the south and the outlying reaches of the Biqa Valley, made their increasingly militant presence felt in Beirut, transforming the southern half of the city into a new, Shia canton, to rank alongside overwhelmingly Christian East Beirut and predominantly Muslim (i.e., Sunni and Druze) West Beirut.

The first nineteen months of the Lebanese Civil War (April 1975-November 1976) witnessed widespread destruction of infrastructure and services, mostly in Beirut. Industry sustained direct damage valued at between L�5 and L�7 billion. Indirect damage was valued at between L�972 million and L�2.23 billion. Some 250 industries, capitalized at L�1 billion, were destroyed, and as much as one-fifth of industry's fixed capital was lost. After the first nineteen months of fighting, losses amounted to L�7.5 billion (L�6.2 billion sustained by the private sector and L�1.3 billion by the public sector), according to the Beirut Chamber of Commerce and Industry.

Post-1976 recovery was limited, with industrial production approaching only two-thirds of prewar levels. Further clashes in l978 again hampered production. Although in 1980 industrial output in current financial terms appeared to exceed prewar levels, inflation had rendered such comparisons almost meaningless. In 1979 the newly established Council for Development and Reconstruction (CDR) unveiled a L�22 billion reconstruction program to span five years, backed by Arab aid. Only some of the proposed reconstruction work was initiated, however.

Instability ruined the tourist industry. The Civil War included the notorious battle of the hotels, in which the Phoenicia, St. Georges, and Holiday Inn--all major luxury hotels--became fiercely contested militia strongpoints. A score of smaller establishments suffered the same fate, as fighting ripped through the heart of the capital. Because the hotels were close to the Green Line, which divided the warring factions, they were forced to remain closed for business when the fighting stopped.

After the war, there were indications that a less centralized industrial economy might emerge. The cities of Zahlah, Sidon, and Tripoli, for example, enjoyed a boom. But growth in these cities reflected fragmentation of the country as much as economic revival.

Lebanon's ability to export industrial goods was damaged by internal unrest and external pressures. The good reputation once enjoyed by Lebanese clothing manufacturers was undermined by imports of cheaper garments that were relabeled and reexported as "Lebanese." By the end of 1981, Iraq had halted all imports of Lebanese garments, and Egypt had frozen preferential terms for Lebanese industrial exports because of false labeling. Although the Egyptian and Iraqi measures were rescinded in 1982, they were symptomatic of the pressures that Lebanon faced throughout the 1980s.

Events elsewhere in the region also had an impact on Lebanon. A tripling of world fuel prices between 1973 and 1981 reduced the country's competitive edge. When Syria imposed restrictions on transit trade, freight forwarders found it increasingly uneconomic to ship goods to Persian Gulf destinations via Beirut. The prices of imported raw materials were higher than ever, while export markets were increasingly restricted. Thus, even before the Israeli invasion of 1982, the Lebanese economy was in bad shape.

<>Invasion and Trauma, 1982-87

Lebanon

Lebanon - ECONOMIC HISTORY - Invasion and Trauma, 1982-87

Lebanon, torn by its sectarian and political disputes, was further cursed by invasion and a seemingly endless intermingling of internally and externally inspired conflict from 1982 onward. Beirut suffered grievously between June 6, 1982, when Israeli troops first crossed the Lebanese border, and September 16, when they completed their seizure of West Beirut. Normal economic activity was brought to a standstill. Factories that had sprung up in the southern suburbs were damaged or destroyed, highways were torn up, and houses were ruined or pitted by artillery fire and rockets. Close to 40,000 homes--about one-fourth of all Beirut's dwellings--were destroyed. Eighty-five percent of all schools south of the city were damaged or destroyed. The protracted closure of Beirut's port and airport drastically affected commerce and industry. By 1984 the World Bank and the CDR agreed that Beirut would require some US$12 billion to replace or renovate damaged facilities and to restore services that had not been properly maintained since 1975.

In a December 31, 1982, national broadcast, President Amin Jumayyil called for the world to launch a new "Marshall Plan" to help reconstruct Lebanon. A series of conferences were held with major potential aid donors. A number of reconstruction projects were launched with support from the World Bank, the United States, and France. Roads began to be repaired, ports were cleared of debris, and schools and hospitals were built or rebuilt. But nothing was done on the grandiose scale Jumayyil had originally envisaged.

It became clear that Saudi Arabia and the Persian Gulf countries were not prepared to provide Lebanon with major reconstruction funds until the World Bank and other Western financial institutions had taken the lead in the reconstruction effort. And repeated breakdowns of fragile truces meant that from 1984 to 1987 there were no real opportunities for large-scale reconstruction efforts.

Still, financial and business circles were optimistic between September 1982 and January 1984 because Western-backed reconstruction plans seemed attainable under the presidency of Amin Jumayyil. But the mood did not last. Economic progress was insufficient to override the recurrence of sectarian strife, and the government seemed ineffective in reconstruction and reconciliation. When Beirut was again divided in February 1984, and the troops of the ill-fated MNF evacuated, a turning point was reached. From that point on, it became impossible to ignore the downward spiral of the Lebanese economy.

Foreign banks began selling and moving out. The decline of the Lebanese pound intensified, and hyperinflation set in. Public debt soared, and only drastic cutbacks in government purchases, which were virtually restricted to oil, ensured an overall balance of payments surplus in 1985. By 1986 the inflation rate was well over 100 percent. Government revenues from taxation and customs duties continued to erode. And one account declared that at the end of 1986 "currency speculation and black marketeering have become the principal areas of business activity." Economic control was falling into the hands of those who possessed hard currency. The militias' tight grip on customs revenues gave them increasing control over what was left of the national economy; and their strength increased as the central government's control over national finances weakened. Although the Central Bank was still the guardian of one of the highest volumes of per capita foreign assets in any developing country, the government's ability to use these assets to reconstruct the country's shattered financial system or national economy was doubtful.

Lebanon

Lebanon - AGRICULTURE

The variety of Lebanon's agricultural lands, from the interior plateau of the Biqa Valley to the narrow valleys sweeping down to the sea, enables farmers to grow both European and tropical crops. Tobacco and figs are grown in the south, citrus fruits and bananas along the coast, olives around the Shuf Mountains and in the north, and fruits and vegetables in the Biqa Valley. More exotic crops include avocados, grown near Jubayl, and hashish, a major crop in the Biqa Valley. Local wines, even those produced in times of war, have won international prizes. Since 1975, however, Lebanon's fertile land has not been fully exploited because of almost constant warfare. In addition, the livestock production, which had made up a significant part of total agricultural production before the war, fell off drastically, especially after the 1982 Israeli invasion.

Land and Irrigation

Almost one-fourth of Lebanon's of land is cultivable--the highest proportion in the Arab world. Most of these 240,000 hectares are rain fed, but in 1982 some 85,000 hectares were reported to be under irrigation, 20 percent more than in 1970. Another source estimated that in the mid-1980s 400,000 hectares (including marginal land) were cultivable, with about one-fourth of this irrigated. In 1981 the UN's Food and Agriculture Organization (FAO) estimated that around 108,000 hectares were permanently cultivated and that 19,300 hectares had been reclaimed for cultivation since the inception of the 1963 Green Plan, a project designed to reclaim 15,000 hectares over 10 years. The FAO estimated that no less than 280,000 hectares of land in various parts of the country were reclaimable for agricultural production.

In the early 1980s, the government prepared plans to irrigate an additional 60,000 hectares, and by 1984 studies were under way on 6 major irrigation projects, all designed to be carried out as part of the 1982-91 reconstruction plan. The biggest project, to be implemented by the Litani Water Authority, was for irrigation of some 15,000 hectares of high land (between 500 and 800 meters above sea level) in southern Lebanon over an 8 year period, scheduled to start in 1990. Observers reported in 1986 that the government planned to increase the amount of irrigated land, through various dam and irrigation schemes, from 65,000 hectares to 125,000 hectares.

In the late 1970s and early 1980s, Lebanese officials reported that small tributaries of the Hasbani River were being diverted into Israel near the northern town of Metulla. Independent water analysts stated that after the 1982 invasion, Israel engaged in a much more serious diversion of Lebanese waters by attaching stopcocks at a pumping station on the Litani River. The stopcocks were designed to switch at least part of the flow-- which is generated entirely within Lebanon--to Israel via a specially constructed pipeline.

Lebanon's land tenure system is characterized by many small holdings, but the number has declined over the years. In 1961 about 127,000 farms were reported operating. The partial census of 1970, however, recorded some 75,000 farm holdings, of which 46 percent were smaller than 2 hectares while only 12 per cent had 10 hectares or more. In 1981-82 there were some 64,000 active farms, with only 50 in the 100-to 1,000-hectare range.

Landholding patterns were also affected by massive population movements in the 1970s and 1980s. Lebanon's internal refugees strove assiduously to maintain title to their lands, many of which came to be controlled by rival sectarian or political groups. A case in point was in southern Lebanon. After the 1978 Israeli invasion, many Muslim landholders fled to other parts of Lebanon, hoping to reclaim their land following Israel's withdrawal. But instead of handing the land over to the United Nations Interim Forces in Lebanon (UNIFIL), as was expected, Israel turned it over to the Christian South Lebanon Army (SLA). The effect was to dispossess many of the former landholders.

Two important socioeconomic trends made it difficult to evaluate the farming structure in the 1980s. The first trend was consolidation of holdings, as Beirut-based professionals began buying up small farms before the 1975 fighting. The war may have slowed this development, however, because it complicated longdistance supervision of land. At the same time, the trend toward large families, especially in the south, made the old system of dividing holdings among male offspring less feasible, although in many cases this factor was offset by the migration of males to the city or emigration abroad. Even elderly farmers acknowledged that the old land inheritance system had to be changed. But the pace of such change could not be monitored easily in the troubled conditions of the 1980s.

The number of farms dropped during the war, resulting in more tracts of untilled land rather than in more ownership transfers. Small freeholders who choose to continue farming often lived in poverty. Even before the 1975 Civil War, the average annual income for the head of an agricultural household was estimated at L�500, compared with L�1,100 for a counterpart working in industry or L�8,060 in the services sector. One report noted that 56 percent of those engaged in agriculture in southern Lebanon, most of whom were landowners, also had second jobs in the late 1960s.

Crop Production

The impact of war and sectarian politics on Lebanese agriculture was unclear. It is obvious, however, that the Civil War did take its toll on the production of most crops.

Although there was a recovery from 1979 to 1981, it was not sustained, as the 1982 Israeli invasion disrupted production in the southern half of the country, especially along Israel's so-called "security zone." Even in the relative calm between 1978 and 1981, about 1,100 hectares of tobacco were destroyed, 300 hectares of agricultural land were abandoned because of land mines, and 51,000 olive trees and 70,000 fruit trees were destroyed, according to the United Nations High Commissioner for Refugees.

Regional politics also played a major role in the fortunes of Lebanon's crop production. For example, in 1984 fruit exports reached their lowest level since 1962, in part because Syria had restricted imports of Lebanese produce. Syria imposed these restrictions not only to prevent the sale in Syria of Israeli produce available in Al Janub Province but also to pressure the Lebanese government to abrogate its May 1983 peace agreement with Israel. Indeed, Israel's flooding of the market in Al Janub Province with various agricultural products, especially bananas, caused some to claim that Israel was "dumping" surplus produce on a market that could not afford produce imported from any other country.

The collapse of the Lebanese pound in 1984-85 also had a major impact on crop production. On the one hand, the collapse improved Lebanon's ability to compete in foreign markets; indeed, exports of agricultural products notably fruits and vegetables, increased in 1985. On the other hand, local consumption slumped as fruit and vegetable prices rose an average 85 percent during the year. The fall of the pound also sparked price increases for seeds, fertilizers, feeds, and insecticides.

Tobacco played a major role in the economy of southern Lebanon before the Civil War. The Administration for Tobacco and Tombacs (R�gie des Tabacs et Tombacs), a state monopoly, dominated tobacco marketing. Claiming that the marketing arrangements benefited only the largest tobacco growers, in 1973 about 10,000 small planters demonstrated in Sidon against the low prices being paid for their crops. Economic conditions thus helped alienate from the state the predominantly Shia south, a factor that contributed to the troubles of the later 1970s and 1980s. Henceforth, restructuring of the monopoly became a persistent demand of the southern Lebanese, Shia and Christian alike.

The Israeli invasion of 1978 badly affected tobacco production for several years, as dividing lines between militia groups hampered gathering and marketing of the crop. Planters found it difficult to get their crops to the reception sheds set up by the Administration of Tobacco and Tombacs in Bint Jubayl because the sheds were in the center of the border strip from which Israeli forces had declined to withdraw following their pullout from southern Lebanon on June 13, 1978. According to some sources, SLA leader Saad Haddad, to whom Israel had formally handed over control of the border strip in 1979, sometimes seemed deliberately to hinder farmers from getting crops to market in areas controlled by the UNIFIL or Muslims.

The purchase prices of the Administration for Tobacco and Tombacs failed to keep pace with inflation. In 1985, for example, the government raised prices by only 10 percent, although production costs rose by at least 40 percent and the increase in the cost of living was even higher.

In addition to tobacco, citrus crops suffered from years of fighting. Citrus fruits are grown on the coast, particularly in the southern half of the country. Between 1965 and 1972, yields rose steadily from 19 to 27.4 tons per hectare. Citrus played a vital role in agriculture, accounting for as much as half of total agricultural output. But the Civil War destroyed some 4,000 hectares of orchards around Ad Damur, and urban sprawl led to the loss of orchards around Tyre and Sidon. Nonetheless, production increased to a record 365,000 tons in 1981. A three-year decline in production followed in the wake of the 1982 Israeli invasion and the loss of more citrus-growing land.

The Biqa Valley, with 40 percent of the country's cultivable land, is the most productive agricultural region. It, too, has suffered from war and foreign occupation. By 1987 Syrian troops had been in the Biqa Valley for more than eleven years. During that time, they clashed with Palestinians, Christians, Israelis, and Shias. The 1982 Israeli invasion and the arrival of the Iranian (Pasdaran) Revolutionary Guards also brought economic hardship to the valley.

Declining wheat production was one indication of the collapse of traditionally productive agriculture in the Biqa Valley. In ancient times, the valley had been part of Rome's Syrian granary, providing wheat for the empire's eastern provinces and for Rome itself. But as time went by, with arable land limited, pressure grew for intensive, high-value cropping. In modern times the amount of land devoted to wheat decreased--from 68,000 hectares in 1968 to around 50,000 hectares between 1972 and 1975. Still, some twothirds of the field crop acreage in the Biqa Valley was devoted to grains, primarily wheat and barley.

The 1975 Civil War prompted drastic changes in wheat production. From 1977 to 1979, the Lebanese devoted 45,000 hectares to wheat. In 1982 the amount fell to 23,000 hectares, in 1983 to 20,000 hectares, in 1984 to 17,000 hectaresin 1985 to 14,000 hectares, and in 1986 to 13,000 hectares. Production plummeted from a record 76,000 tons in 1974 to 9,000 tons in 1987. A major reason for declining wheat production was an increase in the production of profitable crops: hashish and opium poppies.

Hashish had long been grown in the region around Al Hirmil in the northern Biqa Valley. Before the Civil War, the government had encouraged local farmers to grow sunflowers instead, but these efforts were blunted by the onset of civil strife and by wealthy zuama (sing., zaim) and politicians who controlled the illegal export market. Hashish became a major cash crop in the 1970s and 1980s. Annual production rose from about 30,000 tons at the start of the Civil War to around 100,000 tons in the early 1980s, when hashish was grown on an estimated 80 percent of agricultural land around Baalbek and Al Hirmil.

By the mid-1980s Lebanon had became one of the world's most prominent narcotics trafficking centers. Before 1975 much of this trade was exported by air from small airstrips in the Biqa Valley. After the valley came under Syrian control, the drug crop left the country by sea through Christian-controlled ports to Cyprus or it went overland to Syria; sometimes it went through Israel to Egypt, reputed to be the world's largest hashish consumer.

The production and sale of hashish undoubtedly brought some prosperity to the Biqa Valley, but financial benefits and overall gains to the economy were not easily quantifiable. Before the 1982 Israeli invasion, the Palestine Liberation Organization (PLO) was believed to have been earning about US$300 million annually from hashish trafficking. Christian middlemen were profiting, as were Shia growers and Syrian smugglers. And one reporter argued that the crop was worth "billions of dollars to the worldwide Lebanese underworld network."

Growers not only planted more drug-producing crops but also sought to increase the value of their crop. By March 1987, according to a report prepared by the United States House of Representatives Foreign Affairs Committee, the high profitability of opium had caused extensive replanting in the Biqa Valley. The report stated that "with the breakdown of law and order in Lebanon, production, processing, and trafficking are on the rise, and a great deal of hashish production in the [Biqa] Valley has been supplanted by opium, in recognition of the more lucrative heroin trade. It is estimated that up to half the land available for drug cultivation in the [Biqa] Valley is now being used for opium, where previously only marijuana was grown for hashish, largely destined for the Egyptian market. Numerous processing labs are known to exist, both in Lebanon and to a lesser extent in Syria." The report did not estimate the magneude of production but said, "It is clear that opium production in the [Biqa] Valley has increased dramatically while hashish production has dropped sharply."

Lebanon

Lebanon - INDUSTRY

The State of Industry

Lebanese industry expanded rapidly in the late 1960s and early 1970s. By 1974 industry accounted for an estimated 20 percent of GDP, up from 13 percent in 1968, and industrial exports amounted to 75 percent of total exports. This growth was characterized by a proliferation of small industries and was fueled by easy credit, a strong local currency, abundant and cheap supplies of skilled and unskilled labor, subsidized electric power, and trade protection at home and expanding markets abroad, particularly in the Persian Gulf countries.

By 1974 an estimated 130,000 people were employed in industry, and the total nominal capital of industrial establishments stood at around US$1.1 billion. The textile industry alone employed some 50,000 people. A further 20,000 were employed in the furniture and wood products industry and some 15,000 in the leather products industry.

Years of strife changed all this. In 1981 the Lebanese Industrialists Association reported a 25-percent decline in industrial capacity, and more than 70 percent of all industrial capacity was believed to have been idle for at least 500 days during the previous 6 years. Layoffs were heavy, with industrial employment in 1981 about half of what it was in 1974. The Union of Textiles Manufacturers estimated that in 1981 the industry employed only 12,000 workers and that less than half of the 1,200 prewar factories were still in business. One of the country's biggest factories, a knitting plant in the Beirut port duty-free zone that had once employed 10,000 workers, was destroyed. National Cotton Mill (Filature Nationale du Coton), the biggest weaving and spinning factory in the Middle East, laid off all but 450 of its workers. In Tripoli, Lebanon's largest compressed wood factory was closed in 1981, with the loss of 600 jobs. One of its problems was that it could not compete with the import of wooden products through the illegal ports.

Following the 1975-76 fighting, the government could no longer afford to try to revive the economy through export subsidies. Even when capital was available, industries were reluctant to use it to expand capacity or modernize machinery. One commentator noted that producers tended to concentrate on improving profits rather than productivity.

Civil strife and disorder continually hampered production, and the financial climate was rarely conducive to investment. The comparative calm of 1977-82 allowed considerable decentralization of Lebanese industry; and Zahlah, Shtawrah, Sidon, and the coastal strip under the control of the Phalange Party all enjoyed a limited economic boom. In the far north, remote villages in the Akkar region began to prosper because of their distance from the country's principal areas of conflict.

The collapse of business confidence that accompanied the political debacles of 1984 closed hopes for sustained recovery. The Central Bank's tight fiscal attitude limited the money available for investment. Capital investment in industry shrank rapidly in both real and nominal terms, which reflected pessimism over the future of Lebanese industry. For example, investment fell from US$147.4 million in 1980 to US$94 million in 1983. By 1984 investment was down to a meager US$34.9 million and to only US$10.6 million in 1985. In addition, industrial production fell 3.7 percent to US$250 million in 1984.

In April 1986, Central Bank governor Naim offered to allow the statutory reserves and treasury bonds held by specialized banks to be used as credit for industry. Although some industrial credits appeared to be available at reduced interest rates, it was clear that economic measures alone would not revitalize the nation's fragmented industries.

Lebanon

Lebanon - Cement

Cement was Lebanon's biggest single industrial export in 1980, accounting for 15.5 percent of industrial exports. Sales to Syria at that time accounted for about 40 percent of all cement exports. In early 1981, however, exports to that country came to a complete standstill because the Syrians, then in the middle of a major program to construct their own cement works, could not reach agreement with the two principal Lebanese cement works on the terms and conditions of cement sales. Thus cement exports to Syria in 1981 totaled only L�34 million, down from L�119 million a year earlier. Overall cement exports dropped to L�201 million but recovered to L�227 million in 1982 as alternative export markets were found. Lebanon's principal cement works in 1982 were situated in the north, away from the fighting around Beirut, so the industry could continue exporting by sea from Tripoli and overland by truck.

In early 1983, when the country's political status showed signs of stabilizing, the Lebanese Cement Company (Soci�t� des Ciments Libanaises--SCL) secured a US$36 million syndicated loan to finance a planned US$79.3 million expansion program. Production was expected to increase to 250,000 tons a year, and unit costs were expected to decrease through a change in power supply from oil to coal (with the company running its own generating stations). The reported purchase of a 30- percent stake in the company's parent, Eternit Libanaise, by Prince Abdallah al Faisal, eldest son of the former king of Saudi Arabia, heightened international confidence in the industry's prospects.

But Syria's decision to terminate Lebanese cement imports, the return of instability, and difficulties in finding fresh export markets destroyed prospects for the revival of the cement industry. In July 1983, SCL laid off 300 workers at its Shikka works as it became clear that the industry faced disaster. By the end of 1983, the scope of the disaster was starkly apparent: total cement exports amounted to only L�27.5 million--an 88- percent drop from the 1982 level.

In the early 1980s, the Jumblatt family established the Siblin Cement Company, building a factory near Sidon to provide cement for the local construction industry. The Siblin plant, built with Romanian technical assistance and with a production capacity of 300,000 tons per year, was formally opened just before the Israeli invasion of June 1982. The plant was badly damaged during the fighting, and it was not until 1986 that work to get the plant back into commission could begin in earnest. A fresh injection of L�15 million in capital from local entrepreneur Rafiq Hariri made the company Lebanon's largest shareholding venture.

Lebanon