LEBANON: BUSINESS IS BOOMING, SO WHO NEEDS A

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 000808 SIPDIS DEPT FOR NEA/FO, NEA/ELA ALSO FOR IO A/S BRIMMER P FOR DRUSSELL, RRANGASWAMY EEB/ODF FOR RDEMARCELLUS PARIS FOR RWALLER STATE PASS USAID BEVER/LAUDATO/SCOTT USUN FOR WOLFF/GERMAIN/SCHEDLBAUER NSC FOR SHAPIRO, MCDERMOTT DOD/OSD FOR FLOURNOY/KAHL/DALTON DRL/NESA FOR WHITMAN OVP FOR HMUSTAFA TREASURY FOR PARODI/BLEIWEISS/CORREA USDOC FOR 4520/ITA/MAC/ONE E.O. 12958: DECL: 07/16/2019 TAGS: ECON EIND PGOV LE SUBJECT: LEBANON: BUSINESS IS BOOMING, SO WHO NEEDS A GOVERNMENT? REF: 08 BEIRUT 1395 Classified By: Ambassador Michele J. Sison for reasons 1.4 (b) and (d). SUMMARY -------------- ¶1. (SBU) With the summer tourist season in full swing, business in Lebanon is booming, despite the lack of a government and contrary to international trends. Businesspeople's attitudes toward the cabinet formation process range from mild curiosity to relative indifference to utter disdain. While a growing economy in the midst of continued political uncertainty is excellent news for Lebanon, the business community's apathy regarding what is happening at the political level is a disturbing indicator of its lack of faith in state institutions' ability to provide it support and services. End summary. GOOD SUMMER FOR BUSINESS -------------- ¶2. (SBU) The summer tourist season has started out strong in Beirut, with business contacts reporting record sales figures and booked hotels. While official figures are not out yet, it is clear that Lebanon is overflowing with tourists, mostly Lebanese expatriates back to visit family, but also large numbers of Gulf tourists escaping the sweltering heat of the Arabian Peninsula. The notorious traffic has become even more atrocious, restaurant bookings are difficult, and businesses are rejoicing. ¶3. (SBU) Tony Salameh, CEO of Aichti, an up-market clothing chain and franchiser for various luxury brands, says the summer has so far been "exceptional," with sales increasing dramatically even from last year's excellent results (reftel). Elie Khoury of Thrifty car rental reports that all his cars are reserved for July and August, and a black market has sprouted in the rental market charging prices double or triple the normal rates. Hotels are seeing record occupancy rates, as tourists pour in on packed airplanes (septel). Government officials have increased their growth estimates for 2009 from around 3.5 percent to the 4-6 percent range. �A; WHO CARES ABOUT THE GOVERNMENT? SECURITY = GOOD BUSINESS -------------- ¶4. (C) This flurry of economic activity is occuring as Lebanon's political class struggles to form a government, a process that, notably, the majority of Embassy business contacts do not seem to care about. The most important guarantor of economic prosperity is not the government, they tell us, but a stable security situation. Salim Zenni, President of the Lebanese-American Chamber of Commerce, said uncertainty about cabinet formation would not have an impact on the economy this summer, as long as the politicians continue to talk to each other without inciting violence. Citibank Country Manager Walter Siouffi stressed that the Lebanese are used to political ups and downs and are highly resilient. "We can live without a government. We have been through far worse than this," he said. ¶5. (SBU) Finance Minister Mohammed Chatah told the Ambassador in February that the Lebanese economy can grow under the direst of circumstances, noting that it grew by more than 8% in 2008 even though there was no president and no functioning parliament for the first five months of the year. Salameh echoed the same sentiment this week when he told us, "All we need is three months of stability to reach our annual BEIRUT 00000808 002 OF 002 targets. And as long as politicians are talking to each other, we don't need a cabinet." Zein Harb, chairman of the agro-food company Alfa Interfood, expressed disdain for the whole political process, saying, "Let the political class play on their turf, and we in the business class will play on ours. We don't care about politics. We want to work." ¶6. (SBU) Even as business booms, however, there are looming fears that violence could once again put a halt to economic activity in Lebanon. In particular, statements from Israeli officials that they will hold the GOL responsible for all Hizballah's actions if the party participates in the cabinet have inspired anxiety among our business contacts about the possibility that another violent confrontation between Hizballah and Israel before the end of the year will jeopardize both their businesses and their lives (septel). COMMENT: NO FAITH IN THE STATE -------------- ¶7. (C) The Lebanese are famous for their business acumen, taking advantage of every moment of stability to make money. This flexibility and resilience is good news for the Lebanese economy in the short term. Nonetheless, businesspeople's indifference to the government formation process is a reflection of the lack of faith they have in the government and its institutions. Factories in the Bekaa Valley produce their own electricity to run their operations, hotls have their own water treatment, and entrepreners do their best to go around government entitie, which they see as impediments to, and not facilitators of, their businesses. Ultimately, Lebanon will need a government to take on improvements in the electricity sector, to come up with an infrastructure development plan, and to create an environment conducive to investment. End comment. SISON