ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(77)584
Vol.1977/0191

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i
COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)584 final.
, 1
Brussels ,21November 1977•
/
COMMISSION COMMUNICATION' TOTHECOUNCIL PITTHE
GUIDELINES OFCOOPERATION BETWEEN THECOMMUNITY
ANDTHELEBANESE REPUBLIC
COM(77)584final.

COMMUNICATION TOTHECOJNCIL
InanExchange orlettersoontained inthePinalAotoftheCooperation
Agreement 8i<*neclwithLebanon,theCommunity statedthatitwasprepared
toundertake ,inconjunction withthiscountry,thepreparatory workon
settingoooperation intrainandtoappraiseprojects ,aspartoffinancial
andteohnioal oooperation ,sothatdecision maybeadoptedassoonasthe
Agreement entersinto^orce.
PursuanttothiBExchange ofletterstheCommission issubmitting inthis
communication proposals ontheposition to"beadopted "bytheCommunity within
theCooperation Council,whioh,aocording toArticle 5ofthe.Agreement
andArtiole9(0ofProtoool N°1tothiBAgreement ,mustdefinetheguidelines
ofoooperation andtheepeoi^ioobjectives opfinanoial andtechnical cooperation .
ThisproposalhasbeendrawnupintheformofadrartCooperation ^Council
decision .Itsoontentwillhavetobeapproved bythetwopartiesconoemed
atameetingoftheadhoogrouppendingtheir*ormaladoption bythe
Cooperation Oounoilaptertheentryinto^orceo^theAgreement .Itiswith
theguidelines approved inthismannerasastartingpointthatthepreparatory
workforeconomic ,teohnioal andfinanoial oooperation willhavetobedone,
enthebasiseftheUchangeoflettersreferredtoabove.
HieCouncilwill#'indannexedtothiscommunication anoteontheeconomic
ι
andfinancial situation orLebanon|thesedatawerecollected mainlyduring
afact-finding missiesundertaken byrepresentatives optheCommission andthe
BI!«Inaddition ,thelankhascollaborated oloeelyindrawin/ruptheattached
proposals entheimplementation o**financial andteohnioal cooperation .
IndrawingupthisproposaltheCommission tookasastartingpointtheidea
thatCommunity aidshouldnot,strictlyspeaking ,beconsidered astransrere
ofresources butratherassupportformeasurestobetakentoestablish
economic cooperation underArtiole 4oftheCooperation Agreements .Similarly ,
theCommission considered that,*orbothpolitioal andeconomioreasons,one
oftheprinciples whichitwouldbedesirable totakeasabasis'forcutting
intoeffectfinancial andteohnioal oooperation withtheLebanese Republic
wouldbethefinancing ofoperations withintheframework ortriangular
oooperation *

-2-
In"theCommission 'sviewtheworktobedonewithintheCommunity onthe
"basisofthiscommunication shouldheundertaken bothatagreement with
thepartner onthecontentofthedraftCooperation Councildecision can
stillheobtained before20November 1977»Thiswouldensurethatprojects
andschemesareidentified andtheinitialrinancin£ reouests examined before
theentryintoforoeo-ftheCooperation Agreements inaccordance withthe
Exchange ofletterscontained inthePinalActtoeachAgreement ,

Guidelines foroooperation withtheLebanese Republic
1Thefollowingobjectives havebeenadoptedasgeneral /guidelinesforthe
oooperationtobeestablished betweentheCommunityandLebanon *"orthebenefit
ofbothparties I
(i)Restoration anddevelopment ofbasicinfrastructure withaviewto
speedingupeoonomioreooveryandregionaldecentralisation ;
(ii)Development ofidustrialandagricultural potentialwithaviewto
inoreasing production ,improvinglivingandworkingconditions and
reduotin^regionaldisparities j
(iii)Promotionofindustrialoooperation betweenfirms,inparticularwith
aviewtofacilitating thetransferoftechnology ,thedevelopment o*
investment andtheestablishment ofjointventures.
2.Teehniealandfinaneialoooperation willbeputintoe^eotinaccordance
withthefollowing prineiple® «
(i)DveryeffortwillmadetoensurethatCommunityaidisusedtosupport
©een§fnieeeoperatien eohemeatobeimplemented underArtiole4o*the
Oeeptratien Agreement .
Withthisendinview,spteialattentionwillbepaidtooperations which
wouldpermitthesimultaneous useo*differentformsofaid,inparticular
tooperationslikelytoattracttechnology ,capitalandotherbenefits
resultingfromtheimplementation o'theabovcmentioned Artiole4.
(ii)Communityaidprojsetswillfeedenized,whorepossible,insuchaway
aitoencourageetherprovider®offund,tolendtheirsupport,in
particularwithintheframeworkoftriangularoooperation ,

-2-
3.Onthe "basisoftheprinciples referred toat1and2aboveandinthelip-ht
oftheobjectives o-fLebanon'sdevelopment prolamines ,theaidspecified in
A^tiole 2ofProtoool No1totheCooperation Agreement will "beusedinaccordance
withtheprovisions ofthatProtoooltofinanceorpart-finance projects and
measures whichcorrespond tothefollowing economiopriorities :
I.INFRASTRUCTURE
Infrastructure neededforthere-establishment ofeconomicactivity andfor
regional development ,inparticular thedevelopment ofindustrial zonesoutside
theBeirutareaandtheinfrastructure neededfortheestablishment ofsuch
zones.
II,DEVELOPMENT OFPRODUCTION
Industry
(i)Project©forthemodernization ,restructuring anddecentralization o**smalland
medium-Bleed firmsandforraisingthelevelofcompetitiveness ofLebanese
industry |
(ii)Projectsfosteringtheintroduction ofnewtechnologies .
AffPieulture
Frej©et§eentributing tothedevelopment ofagriculture ,inparticular projects
tohelpimprovethestandard oflivinginthelessdeveloped ruralareas.
III.TRAINING .RESEARCH ANDTECHNICAL ASSISTANCE
(i)Researohschemesforthedevelopment oftechnology adaptedtoLebanon'sneeds.
(ii)Trainingandtechnicalassistance sohemes,inparticular schemeslinkedto
theaboveobjectives .

COMMISSION
OFTHEEUROPEAN COMMUNITIES Brussels ???.
EUKOFEAN INVESTMENT ' ••
BANK
LEBAN0N
ECONOMIC AND FINANCIAL SITUATION
ProvJilonsl eddritj :P>.ue«b*bCe*200,B-1042Bruite*}-T«!eohor»e 7350040/7358040-Telecraphjs adtf-sw ;"COMEUP -

CONTENTS
Pap;e
I.SUMMARY AND CONCLUSIONS 1
II.GENERAL ASPECTS 5
III .ECONOMIC SITUATION ONTHE EVE OFTHE CIVIL WAR -6
IV.CONSEQUENCES OFTHE CIVIL WAR FOR THE ECONOMY 10
V.RECOVERY MEASURES AND PROSFECTS 13
VI.ANNEXES 19
è

EXCHANGE PATE ON JUNE 1977
0.29 u.a .
1Lebanese pound (L£)=
US$0.32
1u.a . =L£3.^9

•1.
SUMMARY AND CONCLUSIONS
Bounded bySyria tothenorth and east andIsrael tothe south ,Lebanon
has acoastline ofnearly 200kmasthecrow flies .In1975 iithad a
population ofabout 3million ,and ofthat total probably half were
foreigners .
Onthe eve ofthe civil war ,the economy was expanding rapidly owing to
growing demand forconsumer goods from theMiddle Eastern countries ,the
closure oftheSuez Canal and the strategic significance taken onbythe
port ofBeirut asaresult ,and lastly theimportance oftheBeirut
money market asaconveyor belt forrecycling petrodollars .GDPgrew
byanaverage of7V2%1P®rannum from 1968 to1973 *This growth was
accompanied byasignificant decrease intheshare ofagriculture inGDP
(9%in1974 asagainst 12%in1964 )andanincrease intheshare of
manufacturing (16.6 %asagainst 12.8 %),asector consisting mainly of
light and small-scale industries .This trend warlargely influenced by .
thearrival ofseveral hundred thousand non-skillet ,workers who ,being
badly paid andinsufficiently protected bysocial legislation ,didnot
benefit from theoverall improvement inthelevel ofincomes ,which was
moreover essentially concentrated intheBeirut -area .
Supported bytheexpansion ofconstruction ,particularly thebuilding of
luxury aooommodation forspeculative purposes ,andindustrial infrastruc­
ture ,gross fixed capital formation reached ?.?fiofGDPin1973 »but
that same year publio investment was still only 3%ofGDP .There has
been amarked lack ofprogress inport ,road andtelecommunications
infrastructure ,afeature that iBeven morepronounced inthecase of
the social services .
Over thelast fewyears ,themonetary Pituation hasbeen narked byan .
influx offoreign capital tmd thesteady appreciation oftheLebanese
pound .Prices rose byanaverage ofnomore than2V2 #Perannum from
1966 to1972 whereas increases of11 ';!>wore recorded in1973 and 197^.
./.
1... ...Unless otherwise stated ,allgrowth rates areexpressed inreal terns .

2.
Aft '**showing virtually nogrowth between 1963 and 1970 ,exports tripled
during the foliowinj three yearn .Lebanon benefited from the crowing
demand for consumer goods intheMiddle Eastern countries and stepped
upitsexports ,mainly toSaudi Arabia and Syria .The trade deficit con­
tinued toincrease ,however ,and stood at$910million in197 l+»namely
26%ofGDP .Earnings from tourism ,transport andcapital invested
abroad kept thebalance ofcurrent payments inequilibrium ,except in
1973 *Onthe eve ofthecivil war ,official gold and currency reserves
stood atS1650million ,theequivalent of11months' imports .The pu­
blic external debt was less than $1Q0million and servicing absorbed
only about 1%ofthevalue ofexports ofgoods andnon-factor services .
The civil warhas had disastrous effects onthe economy .The number of
dead oomes tobetween 40.000 and50.000 .Amillion people left thecountry
andhalf ofthem are still abroad .Fixed capital destroyed isestimated
atabout 81300million andlosses instocks atabout $900million . -
Beirut suffered themoat damage ,particularly intheservices sectors
all thewarehouses andhandling equipment inthe port ofBeirut and
meet efthebighotels inthecentre ofthecapital were put out ofuse ,
half the telecommunications network was destroyed ,the oldbusiness
eentre wagrased totheground ,along with alarge number ofhouses
andadministrative buildings near thecombat zone .Theindustrial es­
tates inthe suburbs ,which were very close totherefugee camps ,were
seriously damaged .
The first task ofthenewgovernment ,which took office inDecember
1976 ,was toensure food supplies and' toprovide aidforthehomeless .
Itnowintends toget thepublic services functioning again assoon
aspossible ,especially inBeirut ,sothat thecapital canresume nor­
malactivity .However ,areturn tonormal would seem todepend toa

3
large extent ontheamount ofexterna ;!aid that canbeobtained ,and
1this aidhasnotbeen coming through asquickly asexpected ,causing
delays inthepublic reconstruction programme .The Government does not
intend toparticipate directly inthereconstruction oftheprivate
sector 'sproductive capacity .However ,itplans tochannel external
aid totheIndustrial Development Bank orprivate long-term credit
institutions ,which will beresponsible forallocating t.»eaid .The
State could supplement this aid byloans from budgetary resources
representing upto10#oftheamount ofreconstruction investments .
There are also plans tocreate industrial estates outside theBeirut
area jtheState would provide thebasic infrastructure and would be
responsible fordeveloping housing around these estates .ACouncil for
Development andReconstruction isresponsible forcoordinating theallo­
cation ofexternal aidand theState 'sbudgetary contributions .Itmust
also draw upalong-term development plan where theemphasis isal­
ready known tobeondeveloping regionalieation .
Having dropped by2>0%in1975 andby65%in1976 ,GDPfor1977 will
probably still be^+0%under the197 *+figure .Gold andcurrency reserves
have nonetheless remained attheir past level (ft1600million inMay
197^)•TheLebanese authorities' foreoapts forthenext fewyears ,which
pPidiet areturn tonormal at?from 1979 toreprobably already tooop­
timistic .Several factors areacting asacheck onrecovery ,including
thefollowingi thelack ofstrong government ,theemigration ofalarge
number ofskilled people and the fairly strict division which still
exists between theformer warring factions .
Inthelonger term ,Lebanon still hau arole nsaprovider ofservices
which isbased mainly onitsgeographical position and itstrading tra­
dition ,itstourist potential andexperience inthefield ofengineering .
But inorder toavoid arenewal ofthe factors which gave rise to
friction between religious groups and arecurrence ofincome differentials
between regions andsocial groups ,theState must encourage the
./.
Λ
InJune 1977 »foreign aid forreconstruction wasroughly putatbe­
tween US ft100million and 150million .

decentralization ,ofactivities bypromoting theestablishment ofindus­
trial firms outside Beirut and byimproving theproductivity ofagri­
cultural holdings ,especially inthe poorest areas ofthe country .In
order todothis ,Lebanon could take advantage ofitsgeographical
closeness tomarkets where demand forindustrial consumer products and
fresh agricultural produce isstrong andmake full use ofitsservices
infrastructure ,which ispotentially anexcellent asset .
Lastly ,thedevelopment ofthese twosectors should preferably nolonger
rely ontheavailability ofimmigrant workers whoaccept lowwages
without complaint .Industry andagriculture should beencouraged ,by
stricter social legislation ,tomove into lines ofproduction which re­
quires arelatively high level ofskills .
Lebanese industry ,however ,,clearly does not have abig enough local
market and its success depends onthecontinuing expansion ofdemand in
theGulf States and inSyria and ontheability ofLebanese products to •
cope with growing competition from other Mediterranean countries ,which
eonsider theMiddle East asthenatural market fortheir exports .In
order togetback enits feet again ,Lebanese industry must therefore
» ^
getbeyond thelevel oftraditional industries (textiles ,cub-contracting
eoflgtruetien industries ,food processing )andmove towards industries
requiring high skills ,whera there inloan competition with other countries
intheregion .Thie presupposes animprovement inthelevel oftechnical
qualifications and the signing ofmany more technics "..;oo;.'"ration agree­
ments with experienced foreign firms .Italso presupposen greater capital
investment ,which canonly show areturn inthelong term .
These re-modelling tftheLebanese economy depends ofcours eonareturn
topolitical andmilitary stability inthecountryf itwould also begreat
lyhelped byapositive solution tothePalestinian problem and the
demarcation ofpermanent frontiers intheregion .Lastly ,theGovernment
must bestrong enough toimpose minimum ,economic guidelines and the
management capacity oftheadministration muct beadapted accordingly .

I.GENERAL ASPECTS
Bordered byanarrow coastal plain ,theLebanon mountain range covers the
greater part ofthecountry ,which hasatotal area of10L>-C)0km2 .Tothe
east aninland meseta andthewestern slopes oftheAnti-Lebanon range
make uptherest oftheterritory .Major variations inaltitude andthe
presence ofsufficient rainfall mean that agreat variety ofcrops can
begrown !fruit andvegetables ,tobacco ,citrus fruit andbanana trees
givewayhigher uptocereals ,olive trees andvines ,andthen pine
forests .Lebanon hasnorawmaterials .Deposits ofoilandgaswere ,
however ,discovered in1975 .Theroadnetwork isfairly dense ,railways
playing aseoondary role .Theports ofBeirut andTripoli areamongst the
largest intheMiddle East .Twopipelines ,onefromSaudi Arabia andthe
other from Iraq ,have their terminals ontheLebanese coast .
Lebanon hadS.Omillion inhabitants in1973 .Ofthispopulation ,60%
areintowns withmore than 10000inhabitants andthere are 11/2million
people inthegreater Beirut area .
Thehigterv efmodern Le>anon iamarked byintermittent clashes between
theMuslim andGhriitian communities .Just before thepresidential
eli@tien §in195® «&civil Vf&rbroke outbetwt /Oi.Christians andMuslims ,
which ledtethearrival efAmerican forces attheGovernment 'srequest .
Theeriiii continued atministerial level until 1961 ,when anumber of
officers attempted acoup d'ltat .Since 19&7 ,political activity has
been disrupted bytheconsequences efPalestinian guerilla strikes
against Israel carried outfromLebanese territory andbyIsraeli raids
6§fardatheheart efBeirut .From 1971 onwards thecrisis worsened
with thearrival efPalestinians fromJordan .Civil warbroke outagain
inApril 1975 jafter afewmonths ofrespite thecountry onceagain
witnessed violent fighting which carried onuntil November 1976 ,when
theSyrian armed forces entered Beirut .MrSarkis ,thenewPresident of
theRepublic elected bytheParliament ,formed agovernment inDecember .
Although thepreoence oftheArab peace -keeping force isallowing a

gradual return tobasic economic activity *th.eseparation ofthetwo
communities along theformer battle lines means that many activities
cannot beresumed .Continuing clashes intheSouth have hampered the
restauration ofconfidence ,andhave blocked initiatives andtheinflux
ofmassive aidforreconstruction from theArab countries .
II.ECONOMIC SITUATION ONTHEEVEOFTHECIVIL WAR
Since 1959 ,economic growth inLebanon hasbeen fairly strong ,probably
around anannual average of5%to6 Growth accelerated attheend
ofthesixties toreach anaverage of?V2#during theperiod 1968 -75«
This expansion canbeexplained bythedevelopment ofexports ofgoods
andservices totheoil-producing countries andstrong growth inthe
construction andbanking sectors ,stimulated bycontributions ofArab
capital .This ;fcrend ,which essentially benefited theBeirut area ,was
aeoompanied byaninflux ofseveral hundred thousand non-skilled immi­
grant workers ,whowore notsufficiently protected bysocial legislation
andwho ,mar® often than not ,lived intheshanty towns surrounding
Beirut .Attheroot ofconniderable social problems ,this growth was
eventually hampered bythe <congestion ofBeirut ,andtheimbalances were
heightened byinadequate administrative reforms andoutdated public
servieei .,
Intheagrioultural geetor .therapid improvement inproduction inthe
more fertile areaa ,such asthecoastal strip flndtheBekaa plain ,was
partly offset bythefact that thelose fertile land wasabandoned ,with
theresult that theaverage growth inagricultural production didnot
exoeed aVjs Perannum froffl to19?0 ,XtvasGreater forfruit and
certain vegetables ,butcereal andmeat production decreased .
Theattraction ofemployment inother sectors oftheeconomy caused
people toleave theland andby1970 theagricultural population repre­
sented only 19%ofthetotal working population asagainst *+9%in1960
thearea under cultivation decreased from 260000hectares in19&5 to

210 000 in1972 .The lack ofmanpower inthe fertile areas was remedied
bythearrival ofbetween 200000and300000immigrant seasonal workers ,
coming mainly from Syria .TheState setabout making theabandoned land
productive again andextending theirrigation network and theplantations
offruit trees ;this was done mainly through the"Green Plan ",oneofthe
many offices which come under theMinistry ofAgriculture butaread­
ministered autonomously .Itwashoped that these projects ,inparticular
theirrigation schemes ,would bring about accelerated growth asfrom
1977 .
Thesecondary sector 'scontribution toGDP is21%and itemploys 25%
oftheworking population .Manufacturing industry has a15%share inGDP
Getupbytradespeople whowanted tomanufacture products which had
r
previously been imported ,itonly really gotunder way atthebeginning
oftheseventies when itDtarted concentrating onexports totheMiddle
1Eastern markets .The firms -were primarily small-scale and were concen­
trated inthesuburbs ofBeirut ;they specialize infood processing ,
building materials ,metal andplastic processing ,textiles andclothing .
Theonly bigundertakings were tworefineries and onecement works .The
State 'soutward-looking economic policy ,thecreation ofnfree zone in
Beirut ,theiix-year profits taxexemption and flexibility intheappli -
eatien oflabour land (around H+C000immigrant workers without work
permits ,that isabout half theworking industrial population ),were all
factors that encouraged rapid expansion inthis sector ,,where fixed in­
vestments doubled (atcurrent prices )between 1970 and1973 *
Theconstruction industry 'isshare inGDPisaround ^.5 />>•Public invest­
ment hasremained very lo\ growth inthis sector ,especially over
thelast fqwyears ,hagbeen inhousing ,owing tothestimulus provided
byArab capital seeking {speculative investments .Demand consequently
turned towards luxury apartment blocks ,which remained partly unoccupied ,
while the freeze onthelowest rents and theinadequacy oftheState
programme forsubsidized houtiinn created alack ofaccomodation ,in
particular forPalestinian and £»yrian immigrants .
./.
1 . .. , -..... ,According tothe1970 census ,theaverage number ofemployed perfirm
was 12.

8.
The services sector employs $o%oftheworking population and has a
69%share inGDP .Athird ofthese services are exported .Asthe
gateway totheMediterranean forseveral Middle Eastern countries ,Lebanon "
has taken advantage ofitsgeographical situation todevelop trade and
transit activities (more than half ofthetrade crossing itsfrontiers
istransit trade ),andthewealth ofscenery andarcheological sites has
encouraged thecreation ofatourist industry (around 1million tourists
parannum ).Lastly ,Beirut hasbecome animportant money market over the
last fewyears and thebig international banks have setupthere .The
majority ofthebigLebanese banks have been bought upbyfpreign banks
and there arenow foreign interests inthe capital ofall ofthem .
Owing totransfers from expatriate Lebanese and the influx ofArab capital ,
gross fixod capital formation gradually increased itsshare inGDP (18%)
in1968 ,22#in1973 )1butpublic investment remained well below the
needs oftheeoonomy (3%ofGDP )causing severe congestion inport ,
toad and telecommunications infrastructure and inthepublic services ,
together with considerable delays inthebuilding ofschools and sub-
sidised housing . •
Thecentral government 'sburtret regularly showa acuiplus ,representing
anaverage 1%ofGDPannually .Theimpact ofpublic expenditure onthe
eoonomy ismoderate (in1973 itrepresented amere 2C c,'»ofGDP ,andofthis
only %was forthe .central budget ).
Over thelast fewyears ,themonetary situation hasbeen marked byan
influx offoreign capital attracted bythesteady appreciation ofthe
Lebanese pound ,thebanking facilities and anincrease infixed deposits ,
which in1973 v/ere72%ofGDTaaagainst only ^+5#in1969 *Private sector
credit usually takes the form ofrhort-term loans ;inorder todevelop
long-term credit ,theGovernment created theNational Bunk fortheDevelop­
ment ofIndustry andTourism in1973 »but ithadhardly gotunder way
before the civil war broke out .
___ •/•
Transportl 7 houoingJ 9 finance !k%\trader 3 public admini­
stration !7#1other services !11?».

9
Consumer -prices increased by11%in1973 and 12%in197 **asagainst an
«
average rise ofonly2V2 #'per annum since 1966 .Previously theappre­
ciation oftheLebanese pound inrelation toother currencies had softened
the impact ofthe rising prices ofimported products ,whereas salaries
were showing only amoderate increase *
Thebalance ofpayments showed agrowing surplus inspite ofaworsening
ofthe trade deficit .
After showing virtually nogrowth between 1963 and1970 ,exports tripled
1during the following three years .Taking advantage oftherapid increase
inpurchasing power intheMiddle East ,Lebanon greatly developed its
industrial exports based onsemi-finished imported products (71%oftotal
exports in1972 ,58%in1967 )*Theappreciation oftheLebanese pound
from 1971 to1973 (anincrease ofaround 32%against thedollar )only
had alimited effect onthe volume ofexports ;itwas theavailability
ofalow-paid labour force that enabled Lebanese products toremain com­
petitive .
?h§trend efimports ',which doubled invalue indollar terms between 1970
and 1973 «wasprincipally .dictated bytheneeds ofprocessing industry and
bysubstantial eteekpiling inanticipation ofprice rises ontheworld
market during 1973 ftnd 107 i<«
The trade difieit went from S3^0million in1969 toSG70million in
1973 (^3 and15%ofGDI?raepuetivoly ).Thecurrent balance ofpayments ,
however ,haeremained virtually inequilibrium aince 1969 -except in
1973 when there wu§adeficit ofalmost $10Cmillion -ov.'ing toearnings
from tourism (81^0million in1972 ),transport ,income from capital
invested abroad and other invisibles .
1Calcul&tod incurrent UB£•../

•10.
Thequadrupling ofnetcapital inflows (8280million in1973 )caused
arapid increase ingold andcurrency reserves .Bytheendof197U ,
official reserves hadrisen to$165Omillion \ofwhich onequarter
wasingold .
Thepublic external debt isvery low ;itstood atless than $100million
2
attheendof1973 .Servicing absorbo only around 1%ofexports of
goods andnon-factor services .
Ontheeveofthecivil war ,Lebanon -with apercapita GDPofaround
$1080-wasthus enjoying arelatively high standard ofliving by
comparison with theother non-oil-producing Arab countries .However ,
therapid economic growth which began atthe endofthesixties caused
regional andsocio-economic disparities towiden andreawakened bitter
feelings between religious groups .This kind ofgrowth was theresult of
theexperience andtalent ofLebanese businessmen ,theavailability of
alow-paid labour force ,ahdtheGovernment 'sle.isser-faire policy .The
oorollary tothis total "lack ofState involvement wasacivil service
that wasunable toimplement thereforms which should have accompanied
thenewgrowth intheeconomy andbyabudget that wastoosmall to
finanee theeconomic andSocial infrastructure work needed forbalanced
development .
Ill ,C0N8&..UENCSU VTTlth'CIVIL WARFPUTHEECONOMY
OfLebanon'® £{vgulation of3million before thecivil war ,around
1million lift thecountry during th«fighting andaround half oftheee
arepresumed tohave loft permanently .Moroover ,about 250000people
weredisplaoed within thecountry ,because ofthegeographical divisions
between the different communities .
"henumber ofdead wasbetween *+0COOand50000andaround 100OCOvere
woundedi moet ofthecasualties belong totheyounger sections ,ofthe
«aaMMHMamiMH
working population .
./.
rr
Importn over eleven months oftheyear .
2
ofwhich only 856million paid .

Fixed capital loanos areputataminimum of81500million including
three-quarters intheprivate sector (losses instocks -livestock ,
goods stolen ordestroyed -oome tomore than $900million ).These
looses were felt most greatly inBeirut ,where thelongest andmost vio­
lent fighting took plaoe .
y/f.
InflPirioulture .fixed oapital losses come to$*100 million ,these uffected
thopumping stations intheirrigated areas oftheBekau plain ,liventock
forbreading and therelevant installations ,dairies andplantations
ofoitrus fruit andbananas ,where lack ofupkeep cause irreparable
damage insome oaflos .
Intheindustrial eentor .thedestruction ofequipment andbuildinga came
tomere than 0220million ,andwasrestricted totheindustrial suburbs
ofBeirut whieh eentained mostly light ,small-aoale industries (textiles ,
weedwerking findplaetioa ).Around 23%oftheoountry*s whole industrial
potential wa§affected by'thewar *
The atatinnB were spared ,but thepower supply network and
the tpan§f©Fffl§P §t«tien §were forthemost part putoutofuse ;theloases
incurred bytheLebanese Electricity Board come -to .atotal of$25million .
\
IfltheMfJdjM g©8t6Pi severe damage wastuntainod bythuport ofBeirut ,
1
whieh handled two-thirds efth&gooda traffic »all thowarehouses -apart
frem thegrain ail© -ant ).most Ofthehandling equipment were destroyed .
Lessen areputataround ft70million .Thebuninesc centre ofBeirut was
rased tetheireund findthebighotela intheoity oentre andmoat ofth«
banks WERE putautefuse (total coat ofIOBCIGP inthis cyctori around
8^00million )•Lastly ,alarge number ofapartment blocks (fl300million )
andadministrative buildings (ft300million )intheoombat zones were des­
troyed .Three-quarters efthecapital 'sfleet ofbuses areoutofaction ,
Thetwoother porta •Tripoli and tfidon -mainly handle oilshipments .

Beirut 'stelephone network isonly working atkO%strength ,and the
%
telex centre has been destroyed .The fleet ofpublic works vehicles
has been completely written off ,and some bridges and other structures
inthe countryside have been destroyed .Ahospital wasdestroyed in
Tripoli .
This destruction has had the further effect ofpreventing movement of
either workers orgoods and tha drop inthelevel ofactivity during
thehostilities resulted inaloss inGDP of25%to30%for 1975 and .
60%to65%for1976 .Bycomparison 'with 197*+,thelevel ofvalue added
ineach sector developed asfollows :
1975 1976
Agriculture 70% 50%
Industry ,construction ,electricity 70% 20%
Servioes 70% HO%
Asfighting progressed intheBeirut port area ,Lebanon 'sexternal trade
fell rapidly !
(inItmillion at Exports Imports Trade balance
197^prioea )
197H , 2100 k220 -2120
1975 1320 2'960 -16^0
197© *+10 1230 -820
Thecountry 'sgold andcurrency resorves stood at It160Cmillion at
theendof1976 asaysinut ft1kOCmillion atthebeginning of1975 .
Despite the fuet that theLebanese pound romwincd fully convertible
throughout theheetilitiea ,itdropped invalue byonly about ?0%
against th«dollar between April 1975 andMarch 1977 *
Thencaroity oflocal agricultural products undimported products result
inanincrease inprice levol^j inflation had theeffect ofdoubling
prioes onaverage ,though there haa oinc *»been adrop ofaround 30

13
IV.RECOVERY MEASURES AND PROSPECTS
Assoon asittook office inDecember 1976 ,theGovernment drew upa
list ofpriorities : .
1.Aid tothewarvictims :food aid initially andaid torehouse the
homeless (around 300000people ).
2.Measures torestore thepublic services -port ofBeirut ,fcater supplies ,
electricity ,public transport ,and telecommunications -tonormal
functioning sothat thecapital canresume its former activity .
3.Reconstruction ofproductive capacity .
k.Recovery oftheeconomy .
Food requirements wore met rapidly ,whereas thereconstruction ofhousing
will behelped bylong-term 2%loans andbythecreastion ofaHousing
Dank .Areturn tonormal inthepublic services sector would seem to
depend toalarge extent on ,theamount ofexternal loanu that can be
obtained .Inthia context ,theport ofBeirut has received aid from the
XBBD (8£5million )endUSAID (ft5million ),andtheLebonese Electricity
Beard will b§receiving ft25million ^from theAFESD ar.d theAbuDhabi
Fundj theWorld Bank will also finance theprogramme forthereconstruc­
tion ofth§postal findtelecommunications netv /orks ,probably tothe tune
of ft17million ,and islikely tocover thepurchase ofroad repair equip­
ment too (ground ft6million ).
TheGovernment dees notintend toparticipate directly intheresonntruc -.
tion ofth»privets sector 'srroduetivo capacity .Uptonov itliasmerely
granted afewloan /:iforreconstituting atocka intheagricultural and
industrial Hectors .The Government plane tohelp toward thereconstitution
offixed investments with loans of5to20years' duration granted through
theIndustrial Development Bank orprivate banks .This financing could
1cover thewhole cost ofreconstruction projects and theinterest rate
will depend ontheterms onwhich thecorresponding foreign aid isob­
tained .TheGovernment hasalso t;etupaNational Institute forInvest­
ment Quorflntooa .which will cover damages cauued byacivil war orany
1Ofwhich 10%indirect loans ./.

other public disorder .There arealso plans tocreate industrial estates
m
outeide theBeirut area ,inorder topromote aregional policy .The State
would provide thebasic infrastructure andwould beresponsible fordeve-
ψ
loping housing around these estates .
ACouncil forDevelopment andReconstruction ,directly answerable tothe
Council ofMinisters ,isresponsible forcoordinating the activities of
theministries and thevarious aid received ,but itsmain task istointro­
duce along-terra development plan .The objectives ofthin plan have not
yetbeen defined ,but itisalready known that theemphasis will beon
regionalization .
Since the end ofthe civil war ,the economy has been gradually reorganizing
itself ,but thelovel ofactivity remains ^0%less than that for197 1*.
Industrial production has reached around 5° ofitspre-war level ;the
port ofBeirut isoperating attwo-thirds ofitscapacity ,made possible
bydiroot unloading from ahipa into lorries .Cince January most banks have
been open forbusiness again and theGovernment 'sadministrative department
with afewexceptions ,are carrying outessential duties .
«
Tax revenue for 1977 could cpme toL£ 1100million ,which i*approximately
th© 197^l§ve>l .Thin will not ,however ,prevent theappearance ofaconsi­
derable current deficit ,towhiph must b»nrtdod Ax-.onHiture reconstruc­
tion end o'ljilteL presets .
Foreign &id |inparticular Arab aid ,wannot penerou *nstv;eLebanese
authorities hadhoped following the war .InJane 1977 ,itwarestimated
according toth&information nvailtble that firm commitments offoreign
aid forroconstruntien were nohigher than 8100 -150million .Much larger
sums hadbeon promised tytheoil-producing Arab countries ,but their
actual commitment <3091110 tob«t'@ |,<-ninnt onVnerestoration oftotal peace
inthenouth ofthecountry andth*r^-ufitab ]ichmont ofastc-ble political
r&gime whose authority would notdepend onthepresence of'theArab
peaoe-keoping forces .European Governments also aeem tcbeslow ingetting
export credits flowing Menin.

Over thenext fewyears ,theLebanese authorities forecast areturn to
normal economic activities according tothefollowing programmes
Value ofGDP .as%of197H GDP
1977 1978 1979
GDP 69% 86%105%
Agriculture 77%90% 105%
Industry ,electricity ,.construction 68%88%106%
Services 69%85ïo 1C+%
Itiavery probable ,however ,that several factors will contribute to
plowing down the rate ofrecovery ,amongst which are the following :
(a)thefrequent fighting inthecouth ,thelack ofstrong government and
thenbsence ofreforms tomitigate theimbalance between the communi­
ties f>renoting anacheck onthoreturn offoreign bonks ,newventures
byLebanese industrialists and thereturn oftourists ;
(b)reconstruction work isnotprogressing asfact asplrmned (inadequate
aid ordifficulty infetching aconsensus onnewreconstruction pro­
jects ,Bueh astheonefprthocentre ofBeirut );
(e)theavailabt workforce ifsmall because thereligious demarcation lines
are §*.1X1wry difficult toarose (with theresult that there orenew
high-unemployment areanr.longnide very high-wege areas )andtlso be­
cause aiighifie&nt proportion ofqualified people ,whohad left the
country during thewar ,prefer toremain intheir new places ofem­
ployment (mostly theGulf countries );
(d)theabnence ofLebanese firmn ininternational banking operations and
onexport markets over tholast fewyears hasmeant that rival money
markets have been developed ,thus reducing foreign demand forLebanese
aervices orproducts .
Those factors will also influence the trend -fJiObalance ofpayments and
therecovery ofexportn canbeexpected tobemuch slower than planned ,
while importo could drop slightly .

Official foreign trade forecasts
(inUSSmillion at197' *prices )
197' * 1977 1978 1979 1980
Exports 902 5^0 690 880 1110
Importe 1814 1250 1BhO 2390 2860
Trade balance -912 -710 -1150 -1510 -1750
Over and above theproblem ofeconomic recovery ,the introduction ofa
new economic policy which would £uide thecountry along new economic
lineo comes upagainst theadministrative inadequacies ofthe country and
thedifficult parliamentary balance which isholding upthepreparation
ofthenecessary legislative reforms .
The structure ofthoeconomy must certainly continue torely onalarge
services nector .Lebanon isinpossession ofpermanent factors which
favour thedevelopment ofsuch activities :
-itsgeographical cituution and cultural context place itatthevery .
crossroads oftwoworlds ;
-atrading tradition which extends beyon:i the frontiers ofthecountry
owing tothelarge Lebanese community abroad ;
-anopen toenamie policy which excludes any protectionist moanure onthe
part oftheot§te ;
-dynamio and oompetont buainfior.men andexecutives ?;
-ooneidarabl® experience ,inthe fisldn ofconsultancy andengineering ;
-aclimate ,scenery andarcheologieal treasurer ,.which are ideal for
tourism .
However ,aninth«psut ,t'nexpansion cfeorvicei could er.tail nerious
Inoomfl differentials between rialrut ,whera most nerviy .:aotivities are to
b9found ,md ther@nt oftliocountry ,«»ap«»ci3l3y thehinterland ,r»nd
also between the .iooin ]nroupii .Co»i«.vu»ntly ,hnmonionr .-ievelopment ro-
quiroB thasetting-up ofAgenuine rogionalizfction policy ,thecreation
ofnewdovolopmnnt n9tr0TJoii.nod onin.lurtrin.'l activities ;itth*same
time animpro'^mont intheproductivity' offchapoorest agricultural areas
ahould bring inoome level 3closer together .

Lastly ,thediversification ofthe economy should compensate forslover
%
growth inthe servico3 sector than inthe past ,•portly because the con­
fidence needed forinternational trade canonly berestored very slov /ly,
but ulso because the reopening ofthe Suez Canal and the fact that the
Gulf ports are less congested ,have reduced the importance ofthe port
ofBeirut .
A3regards agriculture .thowain objective must betorsduce disparities
inincome levela between theagricultural population and people working i
other sectors .With this inmind ,modern methods must beapplied to
increase productivity ,inparticular farther irrigation vork ,measures
toencourage the use ofgreenhouses and thedevelopment ofstockfarming ,
enpecially poultry farming .
The development ofindustrial activities must gohand inhand with the
halting ofindustrial expansion inBeirut anditssuburbs 'where 75%of
thecountry 'smanufacturing firms arelocated atpresent ).Bearing in
mind th©generally ramaH size ofLebanese firms ,thin objective can only
beattained bythecreation ofindustrial estates with good link 2toth?
pert and the burliness centre inBeirut backed upbyadequate social
infrautruature * •
Industrial d<m *"apinmitr,mrely 011 !?.v\afollowing :
i.rapidly expanding demand inneighbouring Middle Eontorn countries ,ir
1particular Gaudi Arabia ,Uyrla and Iraq ;
li«a labour feroe whioh iiiqualified andofficient ,although numerically
insufficient !
iil.dynamie businessmen v/ith «solid trying background .
Lebanese industry ,however ,clearly doea nothave abigenough local marl
and itsguocess depends onthecontinuing ox}>»rision ofdemand inthe Gul :
£tate «and inSyria and ontheability ofLobanesse products tocope th
growing competition from other Mediterranean countries ,which consider
theMiddle Eaot sathenatural market fortheir exportn .Inorder toget
back onits feet again ,Lebanoae induntry must therefore getbeyond +ho
/______ *!*
1m* ■« .. . __./^_ A .These three countries absorbed 70JJofLebanon 'r.export ."of .mftnu fhpturf
products in1971+«

18.
level oftraditional industries (textiles ,sub-contracting construction
industries ,food processing )andmove towards industries requiring high
skills where there isless competition with other countries inthe region .
This presupposes animprovement inthelevel oftechnical qualifications
and thesigning ofmany more technical cooperation agreements with expe­
rienced foreign firms .Italso presupposes greater capital investment ,
which can only show areturn inthelong term .

twex1-C3ISIS O?GHCSSBCKS5TIC PRODUCT
_A£xicu.ltïLre
-Indîictry
.Jtan'afacturiiîE
.Construction .
•Slectricitj andvater
•Services
•TYansportations andccanuaicatioas
•*frade
•Finance cltlcinsurance
•Cvuer&iiipofproperty
•Publicadniaistratioa
.Ctiierservicesxa>Ixcillicnatcurroat-rices
EU
63
«1
173
69
2«1
23
1023
■K3
253
2<S
272T371
«S5
1"K7
753
219
1T3
382S
433
1723
197
<95
«51
522T572
651
1335
634
290
123
4<511573
675
1<73
1OS
330
140
«947
513
2241
285
610
507
791Averageannual
growthratefron
196*+to197^
19741lextcur-
irentbrices
745
18<3
1350
325
173
5544
557
2500
310
635
550
952%oftotal
1S54
6,2
10.9
11.3
5.<
8,2
9.9
7,6
9.5
10.2
11,1
7,8
12.3atcon­
stant -
3,1
8.1
2,3
5,0
flicu
4.5
6.1
7.0
7,9
4.7
9.011.9
20.6
12.8
5,6
2,2
iii_
8.1.
32.1
3.4
7.8
7.6
8.5
GDPatsstrketprxces 3203 5399 6365 7100 8137 9,2 6,0 100,0
iEstimated
'2Achangeinthestatistical basisadded
SoyrcesCentralDepartment ofStatistics .Lx150million totheaddedvalueinthissectorin1972.

«»EX2 X&NC:;±Z .FSCSUC?AZO>ITS ess
I I InI£nillioa atcurrent prices %oftotal
ΙΗο «73 TÎ71 1972 1973 1966 1973•
Cocsicptxon
-private
•Goveraneiit
Investment3«31
(3021)
(«32)
9534323
(3811)
(St2)
535«742
(4201)
(541)
10595652
(S031)
(571)
1297FI250
(S640)
(610)
154090.0 |
(79.7)
(10,3)
24.188,0
(79,4)
(9,6)
♦21,7
IGrcss domestic expenditure«<14 S23 5811 6949 7790 114,1 109,7
fÊêsôûrceraô -547 -362 -412 -584 -690 -14,1 -9.7
(T)Exports of£Oods andncn-factor serrij
{-)I^jr.orts cfroods andncn-factor servijîS1G41
ÎS 13331535
1srr1822
22342192
27762610.
330026,9
41,0.36,8
46,5
Iuross domestic product 3£57 4856 5339 6365 7100 100,0 100,0
(lietfactor income frcn tbroad I 13 165 19S 230 250 3.5i!_J
Gross national proauct3SS5 5051 5535 6595 73S0I105,3 I105,5
SourcetCentral Department ofStatistics .

21
AKNEX 3-BALANCE OFPAYMENT (1969-73 )
(inl£million atcurrent prices )
I
I1969 1970 1971 1972 1975
í-mporta1054 2044 2435 2953 3518
jExporto j010 943 1150 1551 1776
jTradebalance-1044 -1101-1295-1402-1742
Travel ,tourism I236 267 350"■ I
360 I 3Î0
ITransportation andinsurance |175 181 200 220 250
IOther non-factor services 309 328 370 410 445
IIntoror.t anddividcndn 1» 140 160 175 200
IEmigrants 1remittances 65 70 75 80 105
IOthor tranofore 75 8090 j95
balance onsorvicoo und tranofera 913 1051 1235 1355 1425
Balance oncurrent account »51 -40 -50 -47-317
Capital balance ,errorn and ominetonn 2SB 524 971 807 725
INetchanno inreserves 107 484 921 760 40â
I (increase : decroaaoi +)
I II II II !
f.ourc *1Central Department ofStatintioa .

AKSES4:EJtlKIISCSTSXAL F3CDUCTS (19S9-1973 )
I9S9 1970 1971 1972• ••
1973
Beverages 40001) 45732 45653 45541 49907
Tobacco (t) 1928 1669 1365 1209 1114
VoodC=i3)" 4S342 46545 48739 56665 73366
Textilefibres(t) 6629 6725 7256 7079 7599
Fertilizers (t) 52870
Cessent(CCOt) 1252 1339 1499 1626 1656
.4
Fetroleun products (000t) 1756 1832 1905 2012 2165
Electricity (kVh) 1139 1230 1375 1548 1791
Source;Ministry ofPlanning ,CentralDepartaent ofStatistics .
Κ