Private developers are hoping that demand for real estate and a possible opportunity to participate in government projects will help revive Lebanon's struggling construction industry, which has been hit by both regional uncertainty and domestic political tensions.
Traditionally one of the most vibrant sectors of Lebanon's economy, the building industry has struggled to regain momentum as instability has escalated in neighbouring Syria.
Figures released in May by the Order of Engineers in Beirut and Tripoli show a fall in the number of construction permits issued in the first four months of 2012. Project space covered by new permits between January and April 2012 was also down 10.5% in a year-on-year comparison, totalling 4.7m sq metres.
The drop in construction activity is attributed largely to concern that the violence in Syria could spill across into Lebanon. Sporadic, low-level clashes between groups in various parts of Lebanon, most notably Tripoli, are fuelling fears that the unrest could escalate, while a decline in bilateral trade has led to a drop in import materials for Lebanon's construction industry.
Some of the country's biggest developers have felt the impact of regional unrest on their operations. Building giant Solidere (the Lebanese Company for the Development and Reconstruction of Beirut Central District), for example, announced in early June that its net earnings for 2011 had fallen by 16.9%, with post-tax profits down almost $33m on those of the previous year.
"These results were achieved despite the domestic situation and regional tension, as well as unstable conditions which Lebanon has passed through since the beginning of [2011]. These conditions have negatively affected the economic, commercial and real estate activities in general," Solidere said in a statement issued on June 5.
Nadim Knaider of wood products supplier Knaider International said it would be some time before the construction industry saw a marked improvement in performance. The company has been struggling since late last year.
"It started about seven months ago," Knaider said at an international construction trade fair in early June. "The market in Lebanon is very, very bad. Even last year was exponentially better, compared to the situation we are in now."
Despite concerns, there are signs that demand in the real estate sector could play a part in driving new construction developments. Albert Aoun, the chairman and CEO of International Fairs & Promotions (IFP Group), which hosted the International Construction Trade Exhibition for Lebanon and the Middle East in early June, was confident that overall property sales for 2012 remained as yet unaffected by regional instability.
He said the first quarter of 2012 had brought an 8% rise in real estate sales, together with a 12% increase in the average value per transaction. Significantly, the number of real estate sales to foreigners rose by 16%, indicating that overseas investors still viewed Lebanon as a safe destination.
Industry players will be hoping that this demand for real estate, buoyed by a wave of confidence, could help generate activity for the construction industry, especially in new builds.
Many are also hoping that the challenging economic climate could prompt the government to consider introducing public-private partnerships (PPPs) and give businesses a greater role in Lebanon's infrastructure projects.
The Lebanese Economic Organisation, a business lobby group, has already urged the government to fast-track plans that would permit the private sector to participate more fully in the country's projects.
In a statement issued in June, the group said there were a number of gains to be made from adopting the PPP model it had recommended for infrastructure developments. It cited a reduction in Treasury costs, improved services and the major boost that the building industry would receive as three key benefits.
Lebanon's infrastructure projects have fallen significantly behind other construction ventures as the state struggles to balance increasing demand for transport, utilities and social services with limited funding.
Introducing PPPs in infrastructure projects may well stimulate the construction industry and lead to a reduction in delays. However, with the drawing up of schemes likely to take time and the unrest in Syria ongoing, many businesses in Lebanon's construction industry are concerned that in the short-term at least, they still face a number of challenges.
© Oxford Business Group 2012
