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

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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