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One macroeconomic affect of the war would affect consumer prices. The land, sea and air blockade imposed by the Israelis forced most consumer goods and foodstuffs to disappear from market shelves within the first few days.
As the war prolongs, scarcity will lead to rampant price rises. Inflation was hovering below 4 percent prior to the war, down from nearly 120 percent in 1992. A protracted crisis in Lebanon would create pressure on the Lebanese pound, which the Central Bank is currently comfortably defending with around $13 billion in foreign currency reserves. On the first day of the fighting, it is believed that the Central Bank used $500 million to prop up the pound. Reserves may have been depleted by around $2 billion already.
In the short to medium term, unemployment is set to rise to nearly 20 percent from its current 10 percent. What is more worrisome is a possible workforce drain that might not permanently return to Lebanon after the end of the war, especially when the economies of the Gulf countries are booming and require skilled and unskilled laborers.
One of the immediate economic casualties of the conflict has been Lebanon's resurgent tourism industry, which accounted for 20 percent of its GDP.
Although Beirut was not able to establish itself as a regional air transit hub - a current aspiration of Israel - tourism had emerged as an important force for the real estate, construction and financial services sectors.
In mid-May, Tourism Minister Joe Sarkis said 1.6 million tourists - a 45 percent increase over 2005 - were expected to visit the country in 2006, generating some $2 billion in much-needed foreign currency. The majority of the tourists who visited Lebanon were Gulf Arabs who preferred it to Western destinations following the September 11, 2001, attacks. Due to the rise in oil revenues, Gulf Arabs invested large sums in real estate projects and in the equities market. It is believed that some $11 billion were invested only by Saudis over the past 10 years in the real estate sector. It is not clear if real estate prices might witness a beating this time because Lebanese tend not to sell during prolonged crises as demonstrated during the country's Civil War.
Human toll beyond death and injury is often the most difficult to calculate. The minimum value of possible indemnities while considering compensation only for implicit life earnings per person would be more than $2 billion. Incomes will be squeezed further as destruction of houses and cars during war is not covered by insurance firms. Very few Lebanese have life insurance that includes a war clause. As a result, income distribution will be affected even more in a country that has historically witnessed high wealth disparity.
The United Nations Economic and Social Council for Western Asia reports that 25 percent of Lebanese families live on less than $620 a month, and more than 5 percent of families live in "absolute poverty," defined as less than $300 a month. The most recent invasion has displaced almost 1 million Lebanese, leaving them vulnerable to security threats, hardships in obtaining shelter, medicine, food, and other basic amenities. The cost of development of the various regions is also great as the bombed areas will suffer from inadequate services, infrastructure, schools and buildings.
If the rebuilding of damaged regions takes time, regional disparities will add to already uneven economic development.
The cost of environmental damage is also enormous, with most of it resulting from the worst oil spill in the country's history. The leakage of more than 10,000 tons of heavy fuel from the Jiyyeh power plant due to repeated air strikes by Israeli warplanes on July 13 and 15 resulted in the pollution of as much as a third of the Lebanese coast.
Although Saudi Arabia and Kuwait were quick to announce aid packages for Lebanon - Riyadh pledged a $1 billion deposit in the Central Bank to support the economy and gave $500 million for reconstruction, while Kuwait announced $300 million in assistance - the greatest predicament of all is the leadership vacuum that continues to beset the Lebanese political scene and the resurgence of pro-Syrian groups within it. The violence will only add to the ambient sense of political hopelessness that will exacerbate the economic impasse in the country.
Sfakianakis is a senior financial adviser at the Gulf
Research Center in Dubai. THE DAILY STAR publishes
this article in collaboration with the center.
on the partnership after the signing ceremony, the
Minister of Transportation for Egypt, Eng. Mansour,
said: 'The transportation sector in Egypt has stirred
tremendous enthusiasm among the local and foreign
investors and we are confident to draw in more
investments to the country. Significantly, there is
tremendous investor interest from the Arab world in this
sector recently and we are looking at more
partnerships.' (Right: Signing Ceremony).
The agreement is a pioneering initiative and this is the first time public and private sectors have joined hands to pursue development of infrastructure and projects in Egypt. The minister said the new holding company will also spin off subsidiary investment companies focusing on individual projects as it moves ahead with its investment strategy. These entities will be entrusted with the development of various transportation projects on the basis of Build Own Operate and Transfer (BOOT) system.
'We are confident that these projects will generate job opportunities in accordance to the vision of the President of Egypt, Mr. Hosni Mubarak, and in turn help in social and economic development in new cities in the country and Upper Egypt,' the minister added.
Commenting on the foray into Egypt, Mr. Jawaan AL Khaili Chairman of National Holding and ADIH, said: 'The economic partnership between Egypt and the UAE has kept apace with the growing bilateral relations between the two countries. The UAE is one of the largest foreign investors in Egypt and reportedly Abu Dhabi Investment Authority has invested some US$400 million in Egypt, spanning sectors such as telecommunications, cement, agriculture and finance.'
He said the depth of the UAE-Egypt relationship is also reflected in the building of Sheikh Khalifa City in Egypt. 'We are confident that our entry into Egypt will further strengthen relationship between the and Egypt with benefits to all,' AL Khaili added.
The Abu Dhabi-based National Holding was established in 1999 and has grown significantly managing various investments in the and the MENA region. NH owns significant stakes in North African companies such as Orascom Telecom Algeria and Citadel in Egypt. It is also a significant stakeholder in National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Abu Dhabi Commercial Bank, among others.
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