20 February 2007
BEIRUT: Lured by generous government subsidies, low costs and accessible capital, local industrialists are expanding outside Lebanon as the postwar economy continues to sag.
At the moment new factories will only complement local operations, said the president of the Association of Lebanese Industrialists (ALI), but if the market continues to shrink, so may the production capacities and workforces of the country's factories.
"I don't know any industrialists who are not looking abroad. Expansion is the first step, and then they will decide whether to maintain a presence" here, Fadi Abboud told The Daily Star in a telephone interview on Monday. "Production capacity in Lebanon might not be shrinking now, but when they start producing elsewhere this may happen because costs are so much lower."
Gulf countries such as Qatar have become a popular venue for industrial expansion by Lebanese firms, he said.
The emirate boasts the cheapest electricity in the world - just $1.60 per kilowatt, 10 percent of the price of electricity in Lebanon - thanks to its copious natural-gas reserves, and the royal family has put generous subsidies in place to attract manufacturers.
"You get land more or less free of charge in Qatar, and you can get up to 70 percent of capital from the Qatar Bank for Industrial Development at favorable interest rates of about 6 percent," Abboud explained.
Any energy-intensive sector that produces in Qatar and exports to Lebanon will pay production costs 40 to 50 percent lower than locally, including shipping rates, he added.
The need to reduce overhead motivated Uniceramic, Lebanon's largest tile manufacturer, to enter into a joint venture with the Saudi Arabian private-equity fund Intaj Capital last week, said general manager Nabil Ghorra. Intaj will invest $100 million and own a majority stake in the new entity, Uniceramic Holdings, which will have completed the acquisition of an Algerian factory and the construction of a new facility in Qatar by the end of 2007. The two plants plan to have a collective production capacity of over 40 million square meters of tile by 2009.
"Our performance is a mirror image of the political situation right now," he added.
The double-digit growth the construction industry witnessed over the past two years was reversed during the war, and every developer that can afford to postpone construction is waiting for the investment climate to improve, Ghorra said.
"We still believe the Lebanese market is going to rebound, and we are not moving machines and production now, just complementing operations in Lebanon by establishing a presence in countries where gas is available, so our costs will go down. The point is to strengthen our brand and consolidate our activities in areas where our products have not been able to compete with lower priced goods," he added.
The few industrialists who were reluctant to expand before the war, are now looking for strategic partners in potential new markets.
Even though Dalal Steel is performing well thanks to rising demand for its prefabricated housing units in Nigeria and its contract with UNIFIL, owner Toufic Dalal is scouting locations in Sudan for possible expansion.
Lebanon's food manufacturers are also setting their sites on regional markets, said Georges Nasroui, who heads the Syndicate of Food Manufacturers.
Some companies in the sector are simply focusing on boosting regional exports, but others are moving to places like Egypt, where processing costs are very low and government facilities are generous.
Waji al-Bizri, owner of the Paint Factory and the ALI's vice president, built factories in Egypt and Jordan after his Lebanese plant was destroyed in Israel's 1982 invasion. The move has helped offset losses from the volatile Lebanese economy.
"The Egyptian government exempts industrialists from taxes for 10 years, and sells pieces of land in industrial zones for reasonable rates," Bizri said of the incentives offered by other Arab markets.
Not only are energy and labor costs cheaper elsewhere in the Middle East, but the regional expansion has allowed Bizri to maintain his Lebanese workforce when the economy dips.
"It has helped a lot because we can use employees and engineers optimally, if they are not working full time in one place they can work elsewhere and we don't have to lay them off," he explained.
Abboud faults the absence of government incentives for the current situation.
"I think our government is not worried, and some ministers in the government think it's even better for industrialists to leave the country and get the benefit of subsidies offered by other Arab governments," he argued.
"Lebanon needs 40,000 new jobs per annum, and I don't know how they think they will do this without a successful industrial sector," he added. "Before the war we were struggling to create 15,000-20,000 jobs a year in all sectors. Now we are producing negative jobs."
