TFLE01: LEBANESE INDUSTRY HEADS CALL FOR BUSINESS

UNCLAS SECTION 01 OF 03 BEIRUT 002526 SIPDIS SENSITIVE SIPDIS NSC FOR ABRAMS/DORAN/SINGH/HARDING E.O. 12958: N/A TAGS: IS LE MOPS PGOV PREL SY EFIN ECON ETRD EINV SUBJECT: TFLE01: LEBANESE INDUSTRY HEADS CALL FOR BUSINESS CORRIDORS TO SAVE ECONOMY SUMMARY -------------- ¶1. (SBU) Leading Lebanese business and industry associations have asked Embassy Beirut for the immediate establishment of safe commercial corridors for passage of imports and exports. Lebanese business leaders stressed the need for industry leaders to have "a sense that this war will never happen again" in order to make the investment to rebuild damaged and destroyed industrial infrastructure. Direct physical damage of industrial sites is estimated at USD 150 million, with indirect damage resulting from the broken supply-chain estimated at 30 million USD per day. Non-industrial sectors have begun to be negatively affected, with agricultural concerns being unable to bring in needed supplies and to move out produce and other products. Despite difficulties, confidence in the GOL amongst Beirut business leaders remains high. End Summary. LAND CORRIDORS NEEDED TO AVOID ECONOMIC COLLAPSE -------------- ¶2. (SBU) The Beirut Chamber of Commerce and the Association of Lebanese Industrialists have intensified their calls for an immediate cease-fire, or failing that, the right of passage for goods and materials coming in and out of Lebanon. Chamber officials told the Embassy that there would be a concerted effort in the coming days to engage both the Lebanese government as well as the international community to find means of "keeping the economy going at a bare minimum." Albert Nasr, senior economist for the Chamber, characterized the current economic situation as "very bad," adding that the national and international distribution networks here have been largely suspended, with less than one percent of Lebanon's pre-conflict import and export capacity remaining through overland transport and out of Syria. ¶3. (SBU) Chamber and Association members asked for any kind of secure business corridor to allow traffic in both directions, supporting the import of raw materials and export of products. In addition, several members stressed the importance of moving personnel via the corridor who need to travel abroad to market products and look for more investment opportunities. ¶4. (SBU) According to Embassy sources, food and consumer goods importers are becoming increasingly worried about dwindling stocks. Import/export representatives estimate that Lebanon relies on imports to satisfy approximately 90 percent of its consumer product demands. Replenishment of supplies will be impossible without the establishment of commercial shipping corridors. Several industry groups have set up working groups to study possibilities of setting up single-port corridors originating from and returning to a Mediterranean port, either in Turkey or Cyprus. In addition, businesses are seeking USG support to secure safe passage of goods waiting to enter Lebanon from the Masnaa border crossing with Syria or the safe transfer of stocks warehoused in "dangerous areas." Entry of these existing goods into the market would ease pressure on the local markets, according to several major Lebanese importers. SUPPORT BEYOND CORRIDORS: SOFT LOANS, USAID, AND OIL -------------- ¶5. (SBU) There is a general sense of disappointment and disbelief in recent events amongst the members of the Chamber. Noting their own personal and professional obligations to the Lebanese economy, Chamber Vice-president Wajih Bizri called on the U.S. and other "friendly nations" to give Lebanon the economic support it needs to rebuild. Bizri added that Lebanese business leader need two things in order to rebuild: first, the belief that this would be the "final time" a regional security issue would disrupt their business in this magnitude (i.e., a final, lasting solution between Hizballah and Israel); and second, GOL support to those business damaged, through tax breaks, soft loans, and other incentives. ¶6. (SBU) Several Chamber members requested that USAID support for Lebanese industry become as active as in Jordan and Egypt. Bizri offered that the current situation presents the U.S. a unique opportunity to help Lebanese industry and BEIRUT 00002526 002 OF 003 advance the U.S. vision for Lebanon. Chamber board member Salah Ossiran suggested that the USG use its influence with oil-producing countries to arrange for a 50 percent reduction in oil prices for Lebanon, implying the USG had previously made such arrangements for Jordan during the first Gulf War. The cutting of energy costs at this critical juncture, opined Ossiran, would have a tremendous positive psychological effect. Ossiran added, "don't worry about rebuilding the bridges. Iran will take care of that." ¶7. (SBU) Damage sustained by Lebanon's 20 largest industries has led to over 10,000 Lebanese workers losing their jobs since the beginning of hostilities, according to the Association of Lebanese Industrialists. 30 to 40 percent of active industry has been damaged, according to the Association, with direct physical damage estimated at USD 150 million. Indirect damage caused by production stoppages has led to estimated losses of approximately USD 30 million per day. The Association estimates that "hundreds" of small companies in the south of Lebanon and Beirut's southern suburbs have closed. Large multinational companies - such as Microsoft, Cisco Systems, Oracle, GE and Procter & Gamble - have either relocated their regional offices outside of Lebanon or have minimized operations. The President of the Association of Lebanese Industrialists offered, "we will need a kind of Marshall Plan in order to rebuild Lebanon's industry." AGRICULTURE IN BIQA' VALLEY UNABLE TO PICK, DELIVER PRODUCE -------------- ¶8. (SBU) The Biqa' Chamber of Commerce describes the economic situation in the Biqa' Valley as "paralyzed." The Biqa' is Lebanon's major agricultural production region. With the agriculture sector in its peak season, lack of safe transport for supplies and product has adversely affected farmers' capacity to harvest and deliver their produce. According to Ibrahim Tarchichi, the president of the Union of Farmers in the Biqa', there is a current labor shortage as many third country national (TCN) farm hands have fled. Tarchichi characterizes the current situation as "a total crisis for Lebanese agriculture." Vegetables and fruits are either in the fields or in warehouses, according to Tony Thome, the vice-president of the Vegetable and Fruit Traders Association. Agriculture traders may neither export nor transport goods to other locations in Lebanon, due to security risks and the disruption of the transportation network. ¶9. (SBU) The Lebanese poultry industry has begun to feel the effects of the lack of secure transport from the Beirut port to agricultural areas inland. Biqa' Valley MP Ily Skaff contacted the Embassy on behalf of the Syndicate of Poultry Farmers, saying that there is a shortage of poultry feed in the Biqa'. He added that there are large quantities at the Beirut port, but truck owners are scared to drive all the way from Beirut to the Biqa'. Skaff requested Embassy support to secure an inland corridor to prevent immediate catastrophic losses in the poultry sector. CONFIDENCE IN SINIORA REMAINS HIGH -------------- ¶10. (SBU) When asked about business' relations with the Siniora government during the crisis, the board members of the Chamber all agreed that they have the utmost confidence in the Prime Miniser. As one Chamber officer put it, "we feel we are part of this government." Bizri explained that they were not seeking any sort of financial support from the GOL, adding "Siniora wouldn't even give money to his son right now." Rather, GOL assurances of other incentives, such as soft loans and tax incentives during the rebuilding process, would be seen as sufficient government support for industry. Chamber Board member Fadi Saab shared that the PM's office had asked businesses to sustain their payroll until the end of August. For the large part, business owners have agreed to the PM's request. However there is growing concern that if no means of increasing cash flow arise soon, most companies would not be able to sustain their payrolls for a second month. ¶11. (U) Comment: The Lebanese business leaders in contact with Embassy Beirut share many of the same complaints and concerns, namely the re-establishment of the supply-chain. While frustration with perceived USG "complicity" in Israel's BEIRUT 00002526 003 OF 003 military action is high, Chamber and Association members continue to be clearly motivated by maximizing return on their investments. With many business owners unwilling to take financial losses to keep their businesses and employees afloat, finding a solution to the endemic supply-chain and cash-flow problems in Lebanon is all the more critical to staving off a wider economic crisis. End comment. FELTMAN