MAR 2 3 1987 "More Than Ever Before, Lebanon Stands Ready to Face All Challenges."
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CONSTRUCTION INDUSTRY AND ITS ROLE IN LEBANESE ECONOMY by Nicolas Elie Chammas B.E., American University of Beirut June 1985 SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE OF MASTER OF SCIENCE IN CIVIL ENGINEERING at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY December 1986 O Nicolas E. Chammas 1986 The author hereby grants to M.I.T. permission to reproduce and to distribute copies of this thesis document in whole or in part. Signature of Author: !F_ W _ -Department of7-Civil Engineering December 10, 1986 Certified by: F*kd Moavenzadeh Thesis Supervisor Accepted by: Ole Madsen, Chairman Civil Engineering Departmental Committee ARCHIVES MASSACHUSETTS INSTITUTE OF TECHNOLOGY MAR 2 3 1987 "More than ever before, Lebanon stands ready to face all challenges." President Amin Gemayel Baabda Palace March 25, 1986 -2- CONSTRUCTION INDUSTRY AND ITS ROLE IN LEBANESE ECONOMY by NICOLAS ELIE CHAMMAS Submitted to the Department of Civil Engineering on December 10, 1986 in partial fulfillment of the requirements for the Degree of Master of Science in Civil Engineering ABSTRACT The purpose of this study is to investigate the role of the construction sector and its main participants in the Lebanese economy. It comes at a time when the country as a whole is torn into bits and pieces and when, following eleven years of war, the economy is in shambles: the industrial sector is virtually crippled, the wheels of commerce are slowly grinding to a halt, and the national currency is fast becoming worthless. In this tormented context, the construction sector, as will become apparent in the following pages, has incredibly maintained its resilience. Thesis Supervisor: Fred Moavenzadeh Title: Professor of Civil Engineering Director, Center for Construction Research and Education -3- ACKNOWLEDGEMENTS I offer my sincere thanks to His Excellence Cheikh Amin Gemayel, President of the Republic of Lebanon, for his moral support and warm encouragements. I extend my gratitude to: His Excellence Mr. Victor Cassir, Minister of Economy and Commerce, Industry and Petroleum His Excellence Mr. Khatchig Babikian, Former Minister and President of the Parliament's Commission for the Reconstruction Mr. Mitri Nammar, Administrator of the City of Beirut Dr. Fouad Abi Saleh, President of the Association of the Lebanese Industrialists Mr. Bahaeddine Bsat, Former Minister and President of the Syndicate of Engineers Cheikh Fouad El-Khazen, President of the Association of the Lebanese Contractors Dr. George Frayha, Director of the American University of Beirut Off-Campus Program. I wish especially to thank Professor Fred Moavenzadeh for his guidance and invaluable advice. I also appreciate and acknowledge the participation and information provided by several individuals and organizations, which made this work possible. I am endebted to my sister Tina for her patient typing. My deepest thanks go to my family. Their love and support contributed greatly in the achievement of my academic endeavours. -4- 35 O3 36I I I-- 35030' Al U.--h 36"3C I I Al Oubayvil ,Halbs z. 1, Al Min -. _N~h' Si -. ~ GTripoli . Al Hirmal ASH SHAMA / Al[O .*Amyun -I .,BIBs;harri,/ / Oumae * i/i. "-I~ '2 - ~ NY -110-1 ! / AL I BIOA 8aabk '-I lb*-* 4 " -3400'-- / Mec Al Oullylsh, AdDlmui 2 dd Din K ~j' *Bar]a '-' 'Jubb Jannin i·/,~ -3030'-- ·f-~51 'fr ausloolAci an i r /-~i. · -5, UNDOf / , Zone . Baniyias GOLAN HEIGHTS (Israeli An occupied) Nbqurah' Al Ounaviirah" /" As $Snamayn, A; S r$h a; SughP1 , NahArlyyA 33"00o sRAEL35'35030' jliZ 36'000 not nocssua.fjybolfo'tofl.' 36030' -5- TABLE OF CONTENTS Page TITLE PAGE .*.................... ...... 1 ABSTRACT ..... ... .......... ...... 3 ACKNOWLEDGEMENTS ................... .. 4 MAP . ... ... ... ... ... ... ... ... 5 TABLE OF CONTENTS ...... .............. 6 LIST OF EXHIBITS ................... .. 9 INTRODUCTION ................... .... 12 CHAPTER I. GEOGPAPHY .................. 14 CHAPTER II. PEOPLE .................... 17 2.1 Ethnic and Linguistic Groups ........... 17 2.2 Religious Groups ................. 18 2.3 Demography .................... 19 CHAPTER III. ECONOMY ........ .......... ... .. 22 3.1 General ................... .. 22 3.2 Impact of the War on the Lebanese Economy .... 27 3.3 Industry ...... ..... .......... 31 3.4 Commerce and Services ............... 36 3.5 Banking ................... .. 39 3.6 Agriculture .................... 41 3.7 Transportation .................. 44 3.8 Work Force ......... ............. .. 45 3.9 Foreign Firms in Lebanon ............. 47 CHAPTER IV. THE ROLE OF CONSTRUCTION IN ECONOMIC. DEVELOPMENT. ................... 51 4.1 The Construction Industry in the Middle-East .. 51 4.2 Construction's Role in the Economy ........ 53 4.3 Construction's Contribution to Employment . .. 55 4.4 Other Contributions ................ 56 4.5 The Nature of Construction ............ 56 4.6 The Structure of the Construction Sector .... 58 CHAPTER V. CONSTRUCTION INPUTS ........ ........ .. 60 5.1 Demand for Resources ............... 61 5.2 Building Materials ................ 63 5.2.1 Contribution of Building Materials to Economic Growth. .. ............ 63 5.2.2 Success Criteria for the Production of Building Materials ........... 64 5.2.3 'lypes of Material Inputs. .. ....... 65 5.2-3.1 Cement. ................ 66 5.2.3.2 The Asbestos-Cement Industry. .. 68 -6- Table of Contents (continued) Page 5.2.3.3 Iron, Steel and Aluminium. 5,2.3.4 Wood . 5.2.3.5 Water............ 5.2.4 Construction Materials Prices. 5.3 Labor 5.3.1 Labor Supply . .. .. 5.3.2 Labor Demand............ 5.3.3 Labor Wages ............ 5.3.4 Labor Training .......... 5.4 Equipment ................ 5.5 Finance ................. 5.5.1 Owner's Perspective . .. 5.5.2 Constructor's Financing.. .. 5-5.3 Commercial Banks Financing . 5.5.4 Public Financing . 5.6 Land ................... CHAPTER VI. CONSTRUCTION PARTICIPANTS ........... .. 84 6.1 Overview .. 84 6.2 The Professional Sector . ... .......... ..... 85 6.3 The Consulting and Contracting Firms ... ..... ..... 88 6.3.1 Consulting Firms . ... ... ... ... ..... 89 6.3.1.1 Dar Al-Handasah Shair and Partners ..... 90 6.3.1.2 Dar Al-Handasah Nazih Taleb ..... ... 92 6.3.1.3 Associated Consulting Engineers. ..... 93 6.3.1.4 Rafik El-Khoury and Partners . .. ..... 93 6.3.1.5 Typical Roles and Fees of a Lebanese CEDO. *............. .... *. 94 6.3.1.5.1 Roles............ 94 6.3.1.5.2 Remuneration .. ... .. ..... 96 6.3.2 Contracting ................. 97 6.3.2.1 Overview . .. .. .. .. .. .. ..... 97 6.3.2.2 Tendering . .. .. .. .. .. ... .. 100 6.3.2.2.1 Tendering Methods . .. .100 6.3.2.2.2 Bonds............ .. .102 6.3.2.2.3 Tender Documents .. .. ... .. 103 6.3.2.2.4 Subcontracting . .. .. ... .. 105 6.3.2.3 Major Contracting Firms .. .. .. ... .. 106 6.3.2.3.1 Contracting and Trading Co. (CAT) .. ......... ... .. 106 6.3.2.3.2 Consolidated Contractors Co. (CCC). ......... ..... 110 6.3.2.3-3 Kettaneh Freres . .. ... ..... 112 6.3.2.3.4 Fares-Minefa, Hariri-Oger, Mokbel-Wayss and Freitag. .... 113 6.3.2.3.5 Zakhem International S.A. .... 115 6.3.2.3.6 Almabani ......... ..... 118 6.3.2.3.7 Societe Nationale d'Entreprise (SNE) ..... .. 120 6.3.2.3.8 Alfred Matta-Enterprise. .. .. 120 -7- Table of Contents (continued) Page 6.4 Other Participants . ... ... ... ... ... ... 121 6.4.1 Technicians . ... ... .... ... ... .... 121 6.4.2 Future Professionals . .. ... ... ... ... 122 CHAPTER VII. CONSTRUCTION DEMAND AND OUTPUTS . .. .... .... 124 7.1 Composition of Demand . .. .. .. .. 124 7.1.1 Demand for Construction Type . .. .. .. 124 7.1.2 Private Versus Public Demand . .. .. .. .. .. 126 7.1.3 Geographic Distribution . .. .. .. .. .. 131 7.1.4 Demand for New Construction Versus Maintenance Work . .... .... ... ... 133 7.2 The Housing Crisis . .. .. .. .. .. .. 134 7.2.1 Overview . .. .. .. .. .. .. .. .. .. .. 134 7.2.2 Scope of the Problem . .. .. .. .. .. .. .. 135 7.2.3 Proposed Solutions .... .. .. .. .. ... .. 137 CHAPTER VIII. THE REGULATORY ENVIRONMENT . ............. 140 8.1 Regulating Construction Activity . ...... ...... 140 8.1.1 National Planning for Construction . ...... ... 140 8.1.2 The Construction Code and its Limitations. ....... 143 8.1.3 Relations Between Main Participants . ..... ... 147 8.1.3.1 Owners and Users . ...... ....... 150 8.1.3.2 The Government as Client . ...... .... 151 8.1.4 Controlling Construction Work . .... ..... 153 8.1.4.1 Standards and Codes of Practice. .. .... 153 8.1.4.2 Contract Documents and Tendering ....... 154 8.2 Regulating Relations Between Participants and the Government . ...................... 156 8.2.1 Company Formation and Registration . .... ..... 156 8.2.2 Taxations . .. ......... ........ .. 157 CHAPTER IX. FUTURE PROSPECTS AND THE RECONSTRUCTION . ........ 162 EXHIBITS . ... .......... .......... ....... 171 REFERENCES . ............................. 225 -8- LIST OF EXHIBITS Exhibit Number Caption Page 1.1 Lebanon's Principal Ethnic Groups . ... 171 2.1 Religious Composition of Lebanon . .... 172 2.2 Projections of the Religious Composition of Lebanon . ..... ...... .. 173 2.3 Evolution of the Lebanese Population . .. 174 3.1 Deficit of the Ministry of Oil . ..... 175 3.2 Oil Production and Consumption . .... 175 3.3 Geographical Distribution of Industrial Concerns . ......... 176 3.4 Industrial Production and Export ..... 177 3.5 Transfers of Lebanese Working Abroad ... 178 3.6 Repartition of the Country's GDP ......... 179 3.7 Evolution of the US Dollar, 1975-84 . .. 180 3.8 Evolution of the US Dollar, 1985 ........ 181 4.1 The Construction