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Folder Title: Private Sector Services - Sector Summary - October 23, 1991
Folder ID: H47353
Project ID: P005336
Dates: 10/23/1991
Fonds: Records of the Middle East and North Africa Regional Vice Presidency
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© International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org II IIIIl l IIII Ill II Ill II Ill III ll II Ill IIll ! H47353 R1997-210 Other#. 150 124763B Private Sector Services - Sector Summary - October 23 , 1991
DECLASSIFIED WBG Archives
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• PRIVATE SEC[OR SERVICES SECTOR SUMMARY
The combined Private Sector Services sector (including all trading activities) is highly significant in Lebanon and pre-war accounted for over 40% of Gross Domestic Product. The elements of the sector concerned with the rehabilitation progranune have been considered in this paper.
Private Sector Services Industries have been divided into three sections:
Section A - Trade ond Tnmsportation Services
This includes the private sector (ie non-infrastructure elements) of:
0 Maritime Services
0 Trucking
0 Air Frc:igln
0 Pipelines
0 Warehousing and Storage
Section B - Non Banking Services
This includes:
o Professional Sc:rviccs .. ·• o - Insurance
Sfftion C - Tourism
This includes the hotel, resaurant and hospitality industry in general.
PROJtK.7 WORK.ING !'APER PREPARf.D FOR INTERNAL PROJECT TEAM USE & DISCUSSION Priva.tc Sector Servicn 1 • TRADE AND TRANSPORTATION COF GOODS}
SECTOR SUMMARY
1. CURRENT SITUATION
The sector comprises those private sector activities linked to Trading and the Transportation of goods, including:
o Maritime Services (ship owners, forwarders etc)
o Trucking
o Air Freight
o Pipelines
o Warehousing and storage (except petroleum products, which have been dealt with in the separate Oil and Gas Industry Assessment).
111e Government involvement in the sector is largely concerned with the fixed infrastructure of the sector, such as:
o Ports
o Airports
o Roads
These vital aspects have been dealt with in the separate detailed assesi;ment of Transportation infrastructure. The operation of the private sector is overseen by the recently created Ministry of Overland, Maritime and Air Transportation, except for matters concernins,. triiport licences and pipelines, which are the respon."ihility of the Ministry of Industry and Oil.
The sector has suffered considernbly from the war years both from direct damage (cg to vehicles and aircraft) and due to neglect (cg deterioration in storage facilities).
2. PROBLEMS AND CONSTRAI1'.TS
The expense of War Risk insurance has considerahly increased the costs of the industry. Although rates are now d!!clining and the 'War Risk' premium for Lebanon was 0.25% for air and sea freight as of 22 October 1991.
PROJECT WORKING PAPER PREPARED FOR INTERNAL PRO.IECTTEAM USE ct DISCUSSION Priv•tc Sedor Sen-Ices • A · Trade and Trans1,ortntlou Services 1 .SE\T BY :BECHTEL DAR. EGYPT BECHTEL DAR EGYPT~ 415 7684343 :; 5/ s,
• Cabotage Rules, these rules restrict the opportunities for foreign trucks to collect return cargo in Lebanon. Given Lebanon's needs to encourage exports any such rules should be reviewed to determine if they are Lebanon's overall best interest.
In common with much of Lebanese infrastructure, storage facilities have been neglected during the war years. The efficiency of stores ( eg controlled temperature store energy consumption) and the level of losses in storage should be reviewed. The overall efficiency of sectors such as the valuable agricultural exports can be materially affected by the quality and efficiency of storage and distribution facilities.
The opportunities of the rehabilitation programme and the removal of restriction." on the use of diesel powered trucks wm creale opportunities for the Lebanese truck owner. This expansion in the industry creates opportunities for developing an industry to meet sociul or regional development aimc;, eg by making credit available to owner operators. The action required would be ac;certain the policy aims desirable and then to design a suitable credit facility to meet these. The subsequent stage of the project would he to facilitate the sourcing of these funds.
-,. -•
PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Priv1&tc Sector Services • A • Trnde and Trom1portaUon Services 3 • TRADE ANO TRANSPORTATION CQF GOODS}
Section 1
The sector accounted for an estimated 7.2% of GDP in 1973, declining to 6.4% in 1988 (Sourccl!: UN and World Bank quoted in Overview paper). The 1988 figures were derived from an estimate of a gross output of US $ 538 million:
USS Million (1988) Gross Value Output Added
Land Transport 170.8 101.1 Air Tram;port 295.7 57.3 Sea Transport 34.5 24.0 Other 37.t 26.0 ------Total 538.1 208.3
The totals for land transport include for taxicabs and buses. If these arc eliminated, the total for Land Transport is reduced to a Gross Output of US $ 94.1 million and a Value Added of US $ 101 million
Employmenl in lhe seclor is difficull lo quantify as the only available dala consolidates 'Trade' with restaurants and hotels. However, on the basis that the later is primarily the domestic wholesaling and retailing trades, an indication of the employment is probably given by that for 'Transport, Storage and Communication.~· alone:
1215. l28S
Employment 45,529 20,500 % of Total- .. .. 6.1% 4.5% Source: Nati~nal Employment Office Nnti;: the 198S ligurc i.\ an estimate and shuuld be treated with caution (the figure for industry in the same table under estimates industrial employment by ovt:r 40% when compared wilh Census 1'Clurns lo the Ministry of Industry)
1.1 Trade
The I .cbanon and Beirut in particular, has been a major centre for 'Entrcpot' trade. The earliest available estimate for re-exports from the Lebanon is for 1979, when (according to the Beirut Chamber of Commerce and Industry - BCCI) they were worth the
PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Servlct1 • A - Trade nnd Trnnllportatlon S.rvlctt 1 SE\T BY:BECHTEL DAR. EGYPT :22-10-91 6:44P~ BECHTEL DAR EGYPT ~ 415 768~343:# 2/ 2l t
• equivalent of US S 290 million. Assuming this is correct, then the level prior to 1975 was probably significantly grc::atc::r, due:: tu the closure of the Suc:z canal and the contribution from the oil export pipelines. Estimates in the ,Export Potential' Report suggest that the net foreign exchange earnings from this activity could have been about US $ 40 million per year in 1972, from a gross re-exports of USS 400 million. Other sources suggest that tran.,it revenues, from for example Jordanian phosphate, Syrian cotton, and Iraqi and Saudi oil. amounted to US S 500 million in 1972.
The primary suppliers and markets for the re-exports were the Middle Ea~t hinterland. Lebanon possessed a geographic advantage in being situated as a 'land gateway' for Mediterraneum sea freight to countries such as Syria, Jordan, Iraq, Saudi Arabia, Kuwait etc.
In more recent years, the level of earnings from this activity is believed to have dedineu, due to a number of reasons:
o economic difficulties and war in the main 'hinterland' markets (eg Iraq/ Kuwait)
o re-opening of the Suez canal
o growth of modern port capacity in the main Arab market.~ previously partly served by transhipmcnts via the Lebanon.
o difficulties in operating within the Lebanon, including disruption to lhe Ports and to road links to the 'hinterland'.
o growth of f-'ar East to Middle East trade at the expense of European to Middle East trade.
o imposition of some import/ export restrictions in the Lebanon from 1977.
The liCCl estimated that re-exports were worth around $67 million in 1989 and $45 million in 1990. Hpwcver, there may be serious under-recording of these re-exports (macro economis~ave suggested multipliers as large as three to cqmpensatc for under recording).
The Israeli occupation of southern Lebanon complicated the position of re-exports. For a period, due to the possibility of leakage of goods from the occupied zone, several Arab countries, including Saudi Arabia prohihited imports from the Lebanon. Since then, Lebanese exports have been permitted on a case by case basis. The available data is unclear on the impact of this on re-exports.
1.2 Transpurtution Services
PROJECT WORKING PAPER PREPARED F'OK INTERNAL PROJECT TEAM USE a DISCUSSION Prb·•tc Scctur Services •A• Trade and Tr11n,port11tion Servlett 2 SE.'\T BY :BECHTEL DAR . EGYPT :22-10-91 6:45P~ BECHTEL DAR EGYPT~ 415 768~343 :# 3/ 21
• 1.2.·1 Matritime Transport Senices
This sector comprises a heterogenous array of at least 253 companies and agencies, some large some small. The field survey found the companies distributed:
Beirut 216
K..esrouan • Jbeil 14
North Lebanon 11
South Lebanon 7
Bekaa s
The sector includes a range of functions:
o Ship Owners
o Charterers / Brokers
o Importers / Exporters
o Stevedores
o Forwarders
Lebanon has 49 Ports. Beirut is the principal port and the main centre for shipping and forwarding in the Lebanon. The port ha.~ been frequently closed during the war years. Tripoli is also a busy port, with good equipment and facilities. Jounieh, north of Beirut is Lebanon's third most important port and handled some 111,000 tonnes in 1978 (EIU Country Profile 1990-91, p25). Saida is still relatively unimportant, although there were plans for the co11§"11Ction of a 2000m jetty in 1988. Tyre is the fifth recognised commercial port. The recoil"tructed pon of an-Naqoura in the South (Israeli controlled area) was inaugurated ill June 1987. All ports have suffered and some continue to suffer from operation by the 'militias' with consequent loss of customs revenue for the Goverrunent.
In addition to the commercial ports, there are 26 private ports. These include the specialised oil terminals such as at Tripoli and Zaharani and the EDL (Electricity Authority) fuel terminal.
There are three de facto pom\ J iyyeh, Khaldeh and Minyeh.
Prior to the war, Beirut had li1tlcs with 300 intc:rnatiunaJ ports and some 1,500 ships arrived at its wharfs each year. Beirut accounted for an estimated 75% of the maritime
PROJECT WORKING PAl'l::K PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Prlvate Sector ~nkn • A · TrMdt ond Tran!lport,dioa ~niccs 3 SE:'ff BY : BECHTEL DAR. EGYPT BECHTEL DAR EGYPT-
activity of the Lebanon. Beirut port activity dropped during the war years, from • approximately 4.1 million tonnes in 1974 to an estimated 2.2 miltion tonnes in 1988 . Some of the traffic was diverted to other Lebanese ports, for example, Tripoli received only 668 ships in 1974, but 1165 by 1981. However, much traffic was lost to the Lebanon entirely and diverted to ports in neighbouring countries (cg Cyprus, Turkey, Syria and Egypt.
The Lebanese shipping fleet has continued to grow throughout the war years from a total of 167,000 Gross Registered Tonnes in 1975 to 505,000 Gross Registered Tonnes in 1985.
Fipre 1
'n,ou1and GtOII A1glat1r1d Tona 800
500
400
300
200
100
0 1175 ,111 ,,n 1111 1111 ,. ,.. 1• 1• ,.. •• Vu,
Source: UN., Statistical Year Book (1985/86), p721
(sec Figure 1). During the war ye3rs, operating costs were substantially increased due to the cost of war risk insurance(?? Bechtel provide more data??). However, these rates have now dropped down to international levels (0.025% of ship value 1?)
DATA REQUESTED FROM DON GRAFF
Figure 2 gives the available data for the import and export of goods for 1982 to 1985.
PROJECT WORKING l'Al'~K t-REPARED FOK INTERNAL PROJE<., TEAM USE & DISCUSSION Private S1.~tor Services • A • Trude 11nd Tr"usporhaliun Scnkes 4 SE:\T BY :BECHTEL DAR, EGYPT :22-10-91 6 :47P~ BECHTEL DAR EGYPT- 415 7684343 :# 5/ 21
•
Year Goods Lo~ded Goods Unloaded Total Pet.roleum Dry Total Petroleum Dry C:r'ude Product~ Cargo Crude Products C.1rgo
1982 506 126 380 2,534 332 2,202
1983 400 400 2.700 ~00 2.200
1984 400 400 2.700 500 2.200
1985 151 151 1.053 19 174 860
SOURCE : UN . . Statist1cal Year Book (1985/86). p.734
'T11e sector suffered some direct losses from the wur, with one company alone reporting the loss of 850 c001tifners.
The 'Export Potential' report concluded that the shipping activities in the 1970's were generating up to $5 million per yeur in foreign exchange earnings, if some allowance for passenger receipts is made. In line with the developments in the re-export business, it is believed that earnings from shipping have declined during the war years. Other than for serving the domestic market, the prospects for recovery are not good.
Bechtel's survey estimated that there were 105 agencies in Beirut handling Import / Exports and Freight Forwarding. Of these over 90 arc estimated to be sole traders.
PROJECT WOKKING PAPER PREPARED l•'OR INTERNAL PROJEC.1' T~AM USE & DISCUSSION Privott Sector Sl!rvic~ · A · Tr.&de and Trasportation Services 5 SE.\T BY :BECHTa OAR . EGYPT :22-10-91 6:54P~ BECHTa OAR EGYPT- 415 7684343: ~ 6/21
• The contribution from the various activities wiLhin 'shipping' to GOP ha.c; been estimated (Lebanon: The Gross Domestic Product .... ):
Us $ Millio.n
Resident Agents' fees from container traffic 1.4
Revenue Generated by Lebanese owned ships handling container traffic between Lebanon and Cyprus 8.4
Revenue generated by Lebanese owned ~hips operating longer routes between Lebanon and other countries ( container traffic) 6.3
Revenue derived by Lebanese owned ships from general cargo traffic 8.4
Fees of resident agents from cargo shipping 1.1
Revenue derived by Lebanese owned ships from passenger traffic 8.8
Total 34.S
of which 70% is gross value added, ie approximately US$ 24 million.
In addition to the above, the heading 'Other Transport', which includes pipelines, travel agencies, private couriers and storage, is thought to account for a funhcr $ 37 million of gross oulput and about S 26 million of added value.
To deal with some- of identified problems in the sector. various projects have been planned in the past. These include a Ll. I00 million project to improve container handling facilities and repair cold storage and maintenance equipment al Beirut port.
1.2.2 Truckina
Figure 3 gives some data on the growth of the trucking sector in Lebanon from 1964 to 1988. Prior to 1975 there were several, large, locally owned trucking companies opcraling in Lebanon, such as: Levant Express, Nathanial, Debbas etc and a number of foreign owned international companies. All of the foreign companies and the majority of the local ones have ceuscd to operate, leaving Gezairi Transport as the largest locally based, international transport company.
l'ROJECT WORKING l'APER PREPARF.D H>R INTERNAL PROJECT 1'EAM USE & DISCUSSION Private Sedor Servk-e5 • A · 1'rade and 'l'nanaportation Servlca 6 SE.\T BY :BECHTEL DAR. EGYPT :22-10-91 6:54P~ BECHTEL DAR EGYPT- 415 7684343:# 7/ 21
• Fiore 3
Number of Trucks 60,000
50,000 ·------·- ··· ·-·----- .... ______-···-·· ...... ------· ·-··- ..
40,000
30,000
20,000 1------
10,000 ·------
0 1965 1970 197S 1985 1QS8 Year ~121Stp1tl1 Sources: Middle East & North Africa 1990, 6th Ed., Europa Publication Ltd Lebanon, Gros, OomHtfc Product and Grosa National Product tor 1988, UNTCO 1991
Most of the private sector maritime transport agents also engage in overland transport activity, mainly as agents.
The 'Export Potential' report calculated that overland freight businesses based in Lebanon in the 19101 -·were generating no more than $3 million per year in foreign exchange earnings. In line with the developmentS in the re-export business, it is believed that these earnings have declined during the war years. For the reasons given in Section 1.1 above, the prospects for the recovery of this overland transit business are not good.
One estimate is that there were 35,000 trucks and buses in Lebanon in 1982 (EIU Country Report 1990-91, p26).
1.2.3 Air
Beirut is Lebanon's International Airport and was a major hub airport, serving national and major international carriers. 1974 was the peak year for air movements into and out of Beirut Airport, with one movement on average every 11 minutes. In that year. the
PROJECT WORKING PAPER PREPARED •·oR INTERNAL PROJECT T£A.M USE & DISCUSSION PrlYate Sector Stl"\'lc:e!C • A · Trade and Tr.ansportation Sel"\'l~s 7 SE.'IT BY :BECHTa DAR. EGYPT :22-10-91 o:55P~ BECHTa DAR EGYPT~ 415 7684343:# 8/21
• airpon handled some 2.8 million passengers and 145,897 tons of cargo (EIU Country Report 1990-91, p2). Pre-war, the 'Export Potential' Report estimates that this bu!\incss was generating S 30 million in foreign exchange earnings alone.
Due to sectarian differences during the war years, plans were made to utilise Halat airport in the Chri~tian held areas to the north of Beirut. However, these arrangements have never been implemented. Riyak Airport (Bekaa) and Koleyat Airport (North Lebanon) were utilised during the war years for internal transport.
Da~Cloeed 250
200 ...... ·· ················· .. ... ········ ····· ...... ···· ················
150
100
50 ......
0 1m ,m ,m ,m ,~ ,. ,. ,~ ,m 1~ ,. •• ,w ,. 1• v.. ,
Operation!; at Beirut Airport were heavily disrupted during the war years (sec Figure 4). The Israeli invasion resulted in the closure of the airport for 115 days . In September 1983, the airport was again closed due to the fighting in the Chouf In 1984, further fighting caused the airport to be closed from February to July.
A USS 210 million dollar programme has been aIU1ounce to expand facilities at Beirut airport and in 1984, a West German firm (Ruetcrhau) completed a new $3.9 million airframe overhaul and maintenance hanger for Middle East Airlines (EIU, Country Profile 1990-91, p25).
PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & UlSCUSSION Private $«tor Services • A • Trode and Trnnsporbtlinn Senk"I!• 8 .::,t..\l 1:SY :J:StLHlt.L UAK . t.liH'l
• During the war years aviation insurance rates were the highest in the World .
The Lebanon has two major national airlines. Middle East Airlines (MBA), which mainly provided passenger transport and Trans Mediterranean Airlines (TMA), which was primarily conccrn~d with freight. Over the 'war years' foreign airlines ceased to fly to Beirut and the market became almost entirely served by the Lebanese carriers.
This report is concerned with the position regarding airfreight and hence with TMA However, MEA is reported to have three Boeing 747 and to have taken options on leasing new Airbus 3 lO's. These wide bodied jets would give the airline a very considerable freight handling capacity.
TMA was established in 1953. In the early years of the war, the airline benefitted from an increase in airfreight due to the reluctance to store goods in the Lebanon and hence the need for a quick turnaround. The disruption caused by the Israeli invasion resulted in a loss for the company of LL 57 million in 1982. This was followed by the loss of traffic riKhts in northern Europe, the USA and Japan and hence the dilicontinuation of the airlines round the World freight service. This resulted in further financial losses. In 198S, TMA suffered from a three week han on entering Saudi airspace and despite the lifting of the ban, it found it difficult to regain lost business. Flights were suspended in July 1986, as a result of a pilots strike over the non payment of salary. The loss making venture was taken over hy the Government in August In July 1986, the airline was acquired in a leveraged buyout and in December. resumed flights to Europe, the Middle East and the Far East. It is understood that the Bank financing the deal has since run into difficulties and the airline is effectively state owned. The airline has been operating primarily using Sharjah (UAE) as its main base.
Table: TMA Recorded Financial Losses
U.. Million
1979 (26)
1980 ~ -• (12) 1981 (3) 1982 - (52) 1983 (S6) 1984 (127) 1985 closed 1986 closed
Direct damage to airlines during the war included the destruction of a total of eight aircraft belonging to MEA and TM.A In addition, direct damage to private ground facilities included hangars, buildings and other equipment totalled up to $115 million.
PROJECT WORKIJliiG PAPER PREPARED FOR INTERNAL l'.KOJECT TEAM USE & DISCUSSION Private Sector Scrvlce1 · A • Tr1tdl! 11ncl Ta·1tn1portatioo Senk-es 9 SE.'ff BY : BECHTEL OAR. EGYPT ;22-10-91 6 :57P~ BECHTEL DAR EGYPT~
• 1.2.4 Pipelines
Two major crude oil pipelines crossed the Lebanon and terminated at Lebanese ports, where storage, tanker loading and refinery facilities were located.
TAPLINE from Saudi Arabia to Zaharani goes through territory that Israel has occupied since 1967. After the opening of alternative export routes (Gulf and Red Sea) in 1975, Saudi Arabia ceased to export crude from Zaharani. However. sufficient crude wa~ pumped to provide feedstock to the Zaharani refinery, between 1975 and June 1982. In Fchruary 1983 TAPUNE informed Lebanon that it would cease all operations in Lebanon. In September 1984, T APUNE stated that the section of pipeline from Jordan to the Zaharani refinery would remain closed. In October 1984, an Israeli water company announced that it would use part of the pipeline for carrying irrigation and power station water.
The TAPIJNE had a capacity of 470,000 barrels per day (approximately 22 million tonnes per year), when it started operations in Deccm~r 1950. Lebanon did not take title to the crude and hence the value of these "rc•export.~" are not included in Lebanese statistics. Lebanon was paid a LL 1.50 / 1000 t transit fee (minimum of LL 20,000 per year) plus a LL 20,000 per year "Protection Fee", plus a 2.88 pence /t loading fee. The total direct income from the pipeline charges to Lebanon was modest at about $20,000 per year. However, as pointed out in the 'Oil and Gas' sector assessment, Lebanon also gained from a supply of crude at an attractive price. The export terminal at Zaharani has the capability to load tankers up to 150,000t.
Iraq-Tripoli pipeline exported Iraq crude via the tcrmin6ll at Tripoli. The line capacity was reported to he 600,000 harrels per day, of which 385,000 barrels per day were exported via Tripoli (December 1981 data). As with the TAPUNE, the Lebanon did not take title to the "re-exports" and so the values should not he included in trade statistics. A spur from the pipeline also ran to Banias. The Tripoli export terminal has a capability of handling 250,000 tonne tankers. The Iraq-Tripoli pipeline was closed by Syria in April 1982. In December 1988, Iraq abandoned the pipeline.
~ ·• 1.2.5 Warehousmg.-
Information on the history of storage facilities for oil products is provided in the Oil & Gas Sector assessment.
Controlled Temperature Stora"c
Controlled Temperature storage ('cold storage') can be sub-divided into three clac;ses by purpose:
PROJECT WORKING PAPER PREPARED FOR IN'l'ERNAL PROJECT TEAM USE & DISCUSSION Priva~ Sedor Servk~• • A · Tnadc and Tl'IUlsportaUun ~lce11 1O SE',T BY :BECHTEL DAR . EGYPT ;22-lU-91 6:5tlP~ BECHTEL DAR EGYPT- 415 76tl4343:#ll / 21
0 "Public Cold Storage Facilities", which usually comprise the bulk of the capacity in the sector (in the UK 80% of capacity). These facilities arc operated by companies as a service to other organisations and charge a fee for storing goods.
o Manufacturer's Stores, ic those storage facilities dedicated to a particular production plant.
o Retailer (and Hoteliers / Caterers) stores.
Due to the seasonal nature of storage requirements, the economics of storage tends to favour the "Public Storage Facilities". These facilities are able to serve different customers in different seasons and hence achieve higher levels of utilisation. For example, a "public" fruit store may store local produce, when available, and for the remainder of the year handles and stores imports.
Stores can be further divided into two main technical classes:
o Cold Stores, ie Low Temperature Stores. These operate at temperatures of minus 18 deg C and below and store frozen foods. Storage periods are often of the order of many months ( cg to cover the out of season period of a crop).
u Chill Stores operale at temperatures above freezing point and store fresh produce (ic meat, vegetables, fruit, uairy product~ etc). For many fruit and vegetable products the humidity and atmospheric composition of the store are controlled in addition to the temperature. Products may be stored for only a few days or for a few weeks. Hence, the volume stored is smaller than for cold storage.
Except in areas with a large export orientated, fresh produce agricultural hase, the bulk of controlled temperature storage capacity tend to be 'cold' rather than 'chill' storage . . The situation in the Lebanon differs from a conventional pattern. in that there fr, a substantial fresh proS,.Ucc agricultural base, requiring con.~iderablc chill storage capacity (particularly fruit),~hilst the frozen fonds sector is relatively under-developed The controlled temperature sector in the Lebanon divides into three: · o Chill Produce Stores in the agricultural areas. u Cold Storage for frozen foods import!\, owned by the importers. o Storage facilities in the Port zones. The latter have been dealt with in the separate Ports assessment. There is no tradition of 'Public Cold Storage' (or rented storage) in the Lebanon. PROJECT WORKING PAPER PREPARED FOR. INTERNAL PROJECT TEAM USE & l>lSCUSSION Private ~tor ~rvl""elj · A - 'l'r-.. dc und Tr;anspor1»tinn Servkl!11 11 :22-10-91 6 :59P~ BECHTEL DAR EGYPT- i15 76843i3 :#l2/ 21 • l. Institutional Responsibilities 2.1 Governmental Ministry or Public Works This Ministry until recently had responsibility for the operation of transport infra~tructure such as the Ports. Mlnlstcy or Overland, Maritime and Air Transport This new Ministry now has responsibility for overseeing the sector. There arc reports that the division of responsibilities bclween this Ministry and its predecessor are not entirely clear (at least to outsiders) and this perceived overlap i~ hindering the operation of the sector. Ministcy or Industry and OU Import licences are required for certain goods, mainly with a view to protecting local manufacturers. An export licence scheme exists for some goods and is desianed to prevent shortages on the local market. This scheme also applies to re-export~. The Ministry of lnduslry and Oil had responsibility for the overseeing the operation of the pipelines across Lebanon. 2.2 Private Sector Organisations The following organisations are involved in the sector: Lebanese Ship Owners Association Chambers of C-<>mmerce The most important is the Beirut Chamber of Commerce and Industry (BCCI), which certifi_cs e"ports and produces regular statistics on exports and re-exports from the Lebanon. Figure J gives the regional distribution of the members of the Chamber relevant to the sector. There are also regional Chambers of Commerce promoting the activities of members in their areas. International Maritime Chamber PROJE(.'T WORKING PAPER PREPARED FOK INTERNAL PROJECT TEAM USA!: & DISCUSSION Prlv.te Sector St:nlcei · A · Trade 11nd Tr11n!Cportatioa Scn>lcn 12 SE\T BY :BECHTEL DAR. EGYPT :22-10-91 6:59P~ BECHTEL DAR EGYPT- 415 7684343:#13/ 21 Fiaiure S Members or Beirut Chumber of Commerce International :..J .... 0 M ,... co V ra ~ ~ I11-< 'o - t- X- ~ ;~ LU a::i -z t- C1> M Cl) ·uQ) J C: rn g C: -Q,) < o«I m c, C ·- C: C: ~ Cl) ~g ~ o«I 0: U'i ·- 0 a: C: Q) Q) u C: G) gi "' ·- 0 - C: - - 0 E c:: 0 ·u'f- "' ; .c:C, ·-... ! .8: i- ~ e Q,) ·- Q) ns ·- ra E ·- - s = ... > 0 C1) Q) ... ·- .a > ~ ns ... ~, g, s i ~i=. ~ 'O 0 ... ~ ~ u.U- U LU t) .s Cl) Cl) Q.. < ~..- PROJECT WORKING PAPER PREPARED fo'OR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Services • A • Tnde and Tr11nsport.11tion Servlct!l 13 SE.\T BY :BECHTEL DAR . EGYPT :22-10-91 7:00P~ BECHTEL DAR EGYPT ... 415 7684343 :#14 / 21 . • 2.3 Financina= Institutions The issue of Finance sources has been dealt with more fully in a separate paper. The primary source of medium and long term finance has been the equity investments of the owners of the enterprises and by internal generation of funds. A joint public/private National Bank for Industrial and Tourist Development ha!i provided some credit but not for trading purposes. but due to inflation and other reasons has not been effective in the past ten years. Lebanese banking regulations have precluded medium and long term lending by the commercial banks. Short term trade finance has been provided by the commercial banks and trade finance absorbed a little over one half of total bank credit ('Sources of Finance' report) -~-· PROJEl."T WORKING PAPER PREPARED •·01t INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Scrvict'I • A • Trade and Tr11.D1iportDlino Senlt.es 14 SE\T BY :BECHTEL DAR. EGYPT :22-10-91 7:0lP~ BECHTEL DAR EGYPT- 415 7684343 :#15/ 21 • 3 Needa Standards An inherent feature of the sector is that it can easi1y expand to meet demand. The only major fixed capital investments are in storage facilities eg oil storage, cold storage, bulk storage and container handling. The other major investments are all by their nature mobile (ships, aircraft and trucks) and in cases of capital constraint they arc all capable of being obtained either on lease finance or on short term hire. For most purposes, it is unlikely that this sector would prove to be a medium term constraint in the rehabilitation or development of Lebanon. In the immediate short term, it is possihle lhal the sector could constrain the rehabilitation of Lebanon and this section attempts to deal with this issue. 3.1 Trade The primary need from 'Trade' is for foreign exchange and income generation. This issue is dealt with in the Export Potential assessment. 3,2 Transportation Services 3.2.1 Maritime Transport The demands on the maritime transport sub-sector, given a return to stability in Lebanon, will be met by normal international shipping. 3.2.2 Trucking The demand for international trucking can be met by the normal movement of vehicles from other regional countries. The need for int~nl trucking will have to be met at least initially by a considerable investment in trucks inside: Lc:banon. The demands of the initial phase of the recovery prognmunc will require, construction purposes alone, between 400 and 500 trucks of various sizes up to 20 + tonne aggregate trucks. This represents an investment of betwc:cn US $ 20 and 30 million. In the short term, some of these vehicles could be hired or leased from neighbouring countries. 3.2.3 Air The demands on the air transport sub-sector, given a return to stability in Lebanon, will be mc:t by normal international air transport, plus some special charters for the recovery programme. PROJECT WORKING PAPER PREPAJU:l) FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Senic:1:11 • A • Trade and Tntasportatlon Services 15 SE'\T BY :BECHTEL DAR. EGYPT :22-10-91 7:0lP~ BECHTEL DAR EGYPT- 415 7684343 :#16/ 21 • 3.2.4' Pipelines The rehabilitation of the existing pipeline system is not needed for the recovery of Lehanon. Longer term plans for natural gas pipelines while being desirable arc not essential for the programme. 3.2.5 Warehousing The demands for conventional storage and container laydown areas have been dealt with in the 'Ports' assessment. Other essential facilities are expected to be provided as an integral feature of job-sites. Controlled Temperature Storage Facilities The need for controlled temperature storage facilities has been assessed by comparison with the statistics for European Countries, as provided by the European Cold Storage Trade Federation in Brussels. The statistics include only 'public storage• and arc based on data supplied by mcmhcrs of the relevant national federation and hence do not include all available storage facilities. The figures include chill storage for agricultural products: Cubic Metres Total Controlled Temperature Storage per Capita France 0.1 Greece 0.1 Spain o.os• West Germany 0.08 UK 0.09 ,- • The- Federation in Spain is only recently established and may not be fully representative of the total capacity. Basing on a population of Lebanon of 3.5 million, the level of cold storage appropriate would appear to be: Maximum (based on 0.1 cu.m. per person) 350,000 cu.m. Minimum (based on 0.057 cu.m. per person) 200,000 cu.m. The minimum provision level takes account of the lower GDP per capita of Lebanon and hence the lower propensity to consume frozen foods. PROJECT WORKING PAPER PIU:PARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Prlva~ Sector ServiL~" • A · Trade •nd Transportation St!rviccs 16 · SE'\iT BY:BfCHTEL DAR. EGYPT :22-10-s1 1:02r~ BECHTEL D:\R EGYPT- 415 7684343 :#17 / 21 • The provision level is a gross figure an - PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Servlces • A • Trade and Tnnsl)()rtation Scnka J 7 SE:\T BY :BECHTEL DAR , EGYPT :22-10-91 7:02P~ BECHTEL DAR EGYPT~ 415 7684343 :#18 / 21 " • 4. Present Performance and Constraints 4.1 Trade Trade activities are currently constrained by two factors in addition to those listed in Section 1: Lebanon is not a signatory of the T.I.R. (Transport International Routier) Convention. If T.I.R. rules were applied tully in the region, this would seriously inhibit Lebanon cross border traffic and create delays due to border formalities. However, according to report.Ii to the Bechtel team by those involved in the freight forwarding business in Lebanon, fcw other countries in the region fully apply the T.I.R. rules, even if the country is a signatory, and the advantages of T.I.R. are thus seriously eroded making joining T.I.R. is unnecessary. There may be a hidden agenda in the comments of the freight forwarding companies, since the more complex the cross border arrangements arc, the more the forwarder can charge for his services. The benefits from reduced border formalities through the T.I.R. convention may be of more benefit to Lebanese manufacturers, who stand to gain from a reduction in transport costs, particularly if the European market is to be seriously developed. Transhipment tariffs are now higher than competitors (Limassol Cyprus, Alexanc.lria Egypt and Mercin Turkey). 4.2 Transportation Services The available data for sea transport is distorted by the loss of effective Government control of ports and deliberate under recording of traffic at ports nominally under Government control in order to minimise the payments of customs dues. 4.2,l Shipping -~-· Present Operations There arc at least five shipping lines currently offering a direct service to Beirut, all dealing with containerised traffic only. In addition, one Scandinavian operator i~ currently running a general purpose ship for wheeled traffic and oversize pieces. Container traffic was estimated to account for approximately 60% of total sea tran.~port to Lebanon in 1988 ('Lebanon • The Gross Domestic Product.. ..'). The number of containers destine<.! for Beirut was estimated at 3,500 per month. Approximately 10% of these were shipped direct on Lebanese owned ships. The remaining 90% were transhipped via Cyprus. Lebanese owned ships accounted for approximately 25% of this traffic. The statistics for imports via Beirut in 1988 were: PKOJEC.'"T WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Servicn · A· Tr-tide 11nd Tr;mlfpurhatlon Servi\."t:S 18 SE'\T BY :BECHTEL DAR. EGYPT :22-10-91 7:02P~ BECHTEL DAR EGYPT- 41S 7684343:#17/ 21 • The provision level is a gross figure and makes allowance for the need to provide storage capacity for fresh produce by the agricultural sector (cg apple stores). In the case of Lebanon, this requirement represents a large part of the total capacity . -.. ·• PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION PriYale Sector Services • A • Trade and Transportation Scnku J 7 SE.'ff BY : BECHTEL DAR . EGYPT :22-10-91 7:03p~ BECHTEL DAR EGYPT- 415 7684343 :#19/21 • Cargo Ships handled 1,877 Total Cargo 2.2 million tonnes of which: Fuel 1.2 million tonnes Wheat 0.5 million tonnes Livestock 233,100 head The other 'legal' port.~ arc thought to account for a further 1.38 million tonnes. 'Illegal' ports were estimated to handle ahout 40% of all cargo, which would amount to about 2.4 million tonnes. Hence, a total throughput of about 6 million tonnes through Lebanese ports. Shipowners report two major factors inhibiting their operations, other than normal commercial competition from foreign ships, and these arc: Labour - Lebanese legislation places restrictions on the nationality of crews of Lebanese registered vessel~. However, ship owners report difficulties in recruiting sufficiently qualified Lebanese nationals to meet these requirements. The existing maritime training school, Dekwaneh (Batroun), is reported to have difficulties in offering sufficiently high quality training. Several owners have reported to the field work that the recent re-organisation in the Ministries responsible for transportation have resulted in an overlap and confusion concerning the is..\uing of crew licences. Maintenance - there are no adequate ship maintenance facilities (cg dry docks) in Lebanon and ship repairs arc usually effected in Cyprus or otbcr foreign ports. 4.2.2 Maritime Support Services The current level of activity is helieved to have recovered to close to its pre-war level, with 8,000 containers and 360,000 tonnes of cargo handled in July 1991 (Al Nahar newspaper). ~- The largest company- operating in the area of Maritime services is Sonaport Co.. This company has sevc:ral subsidiaries, each of which are probahly the largest and most influential in their field: PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Scrvh:ca • A • Trade 11.11d TM&Hportatlon Sl!rvil.ft 19 SE\T BY :BECHTEL DAR . EGYPT ;22-10-Sl 7:04P~ BECHTEL DAR EGYPT- 415 7684343 :#20 / 21 • Company Ownership Field or Operations Sotrama 60% Sonaport Wheat Transport 40% Kaisi Co. Sonatrans 50% Sonaport Container Transport 45% Shehabuddin Co. Sonacim 55% Sonaport Building Materials 45% Berjawi Co. Transport Sonaport 55% Sonaport Stevedoring Stevedoring 45% Mekkawi Co. Co. Sonas Co. 55% Sonaport 45% G Ghandour Equipment damage and shortages ( cranes, warehouses etc) have been frequently cited as constraints on the capacity of the sector. 4.2.3 Truckl ng The sector comprises mainly individual truck owners who contract often on a single trip basis with the 'transport companies'. This is a pattern not uncommon in other countries and well suited to the low entry cost and ease of entry to the industry (perhap~ the ultimate 'footloose' industry). Maintenance can and is purchased from wherever is most advantageous, inslqtt-Or outside Lebanon. The pattern also fiLS well with the man management problem inherent in the industry. The operating costs, in terms of fuel and maintenance are a function of the care taken by the driver, large companies have difficulty in ensuring that drivers do not abuse their vehicles. At the opposite extreme, the owner/driver ha~ none of lhese problems. The market appears to approximate to a desirable free, highly competitive state, with rates negotiated by the individual owner operators and not the subject of any fixed agreement. In times of high demand, such as the present situation with the requirements of the recunstruction of Kuwait and Iraq, international trucking rates have increased substantially. Rates for one 60 cu.m. load from Lebanon to Gulf area have increased PROJECT WORKINl'; PAPER PREPARED FOR INTERNAL PROJEC.'T TEAM USE & DISCUSSION Prlv•tc Sutor Stnlc:n • A · Tnedc and Tl'an,portatlnn Stnices 20 SE\T BY :BECHTEL DAR . EGYPT :22-10-91 7:05P~ BECHTEL DAR EGYPT- 415 7684343 ::21 121 • from $1200 per load to $2000 / $2200 per load (excluding transit taxes). The increase in rates should encourage additional capacity, allowing a return to the lower rates in the medium term. In the short term, the rates wil1 penalise Lebanese exporters and the transit trade. Toe Trucking sector divides into two categories: Internal Transportation of Goods, ie within Lebanon. lntemational Transportation ot Goods, ie the transport of goods beyond Lebanon (cg Exports and re-exports effected by road, transhipment business, imports). The division is fixed by legislation, which we understand prohibits the use of diesel powered trucks within the Lebanon, except for 'International' transportation along designated routes. The logic behind this ruling is not clear and it is recommended that Lebanon follow normal international practice and permit (and encourage) the use of diesel powered vehicles. These arc more efficient than the gasoline / petrol powered trucks currently in use; require less maintenance, and arc more commonly available. There were few reported criticisms of the standard of the international road network, the only exception being the problems of moving high loads. In these ca.~s, we understand that it is necessary for trucks to have a man on top of the load, with a wooden stick to lift overhanging cables clear of the load. IL is recommended lhat the highway authorities review the routes designated for international and major trunk traffic to ensure that there are no height restrictions less than those internationally recognised. Obstructions below this height should be removed, before permanent damage is caused. The responsibility for damage caused hy low ohstructions on these routes should rest with the highway authority, who in tum would have the right to claim from the 'utility' company (eg EDL) for damage caused. In common with most countries, abnormal loads (ic greater than normal international dimensions) should not be permitted, as of right, but should require prior approval and surveys of the proposed routes, as well as special fees and escorts. a) Internal Irans2,_ort The most serious constraint on the 'Internal Transportation' of goods appears to be the choice of gac;oline power and the age and condition of the vehicles. These factors arc probably closely linked. Permitting the use of diesel powered truck.~ would allow the Lebanese truck owner the flexibility of: o purchasing short delivery standard new trucks; o purchasing good condition used trucks from other countries; o hiring or leasing additional vehicles from elsewhere in the region to meet short term peaks in demand; PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Services • A • Trade and Tran~purtLtliun Scnh:n 21 SE\T BY:BECHTEL DAR. EGYPT :22-10-91 7:36P~ BECHTEL DAR EGYPT~ 415 7684343:# 3/23 • o using vehicles either internally or for international trade, thereby increasing vehicle utilisation; o reducing operating costs (particularly fuel). The security conditions have resulted in a sectarian division in the trucking services, along the lines of the geographic areas serviced. Data for 1988 gives a total number of trucks registered for public use at 3,500, of which 90% were in use. In addition, records show that there were 55,000 trucks registered for private use. It has been estimated that of the 'private' trucks, approximately one fifth are in fact available for public use (source: 'Lebanon -The Gross Domestic Product and Gross National Product for 1988'; UN TCD 1991). The field survey work suggests that there are approximately 2000 to 3000 trucks of 25 tonne capacity and greater. However, the condition of these is reported to be poor. No data exists on the availability of vehicles to transport aggregate. However, given the demands of any recovery programme and the policy of prohibiting the use of beach sand, the increased volume and the greater distance over which the material must be trucked, means that a considerable increase in truck numbers are required. There arc fewer than 30 refrigerated vehkl~s registered in Lebanon and their condition is reported to be very poor. In practice the requirements for refrigerated trucks is met by vehicles registered in the Gulf. There are a large numher of tran~port companies engaged in 'internal transport'. The largest of these arc believed to be: Shehab Eddin, with about 60 trucks of 25 tonne capacity. Kasiy Company, with a about 60 trucks of 25 tonne capacity. Sonaport, ~ttr about 50 trucks of 25 tonne capacity. b) International Transport The total number of trucks available for use in the International sector is effectively unlimited. The available pool consists of trucks operating throughout the region (including the Arabian Peninsular) and with widely diverse ownership. As noted previously, the market responds healthily to increased demand, by increased prices, which in turn will attract additional capacity. Specialist trailers for u~e un L:bunesc trade arc in more restricted supply and it is estimated that there are: PROJF.CT WORKING PAPER PIU:PARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Servtcei · A • Tnule ud Tnansportatlon Services 22 SE.\T BY :BECHTEL DAR . EGYPT :22-10-91 7:37p~ BECHTEL DAR EGYPT~ 415 7684343 :# 4/ 23 • o Less than five heavy lift trailers of up to 150 tonne capacity. o Few flat trailers and low loaders (these can be obtained from Syria). Visa requirements present some constraints to the sector. Non Lebanese drivers entering the Lebanon can obtain a 72 hour transit visa to enable him to unload at a destination in Lebanon (it is unclear if he is permitted to then obtain a return load, if not then consideration should be given to removing this constraint). Lebanese drivers are only permitted to enter Saudi Arabia for the purposes of direct transit to another country. They arc not permitted to take loads to Saudi destinations, these must be transhippcd at the border. The general security situation in some countries presents some problems. In Syria, escorted convoys arc organised from border check point to check point anu on to international border. In Lebanon iL'ielf, there arc reports that additional 'tran.~it taxes' are being levied hy some 'organisations'. 4.2.4 Air It is understood from the Transportation Assessment that the airports connection to the Electricity du Liban grid system has been damaged and the airport currently operates entirely from standby generators. The available data is that TMA has seven Boeing 707 cargo planes available and currently claims to be transporting 16,000 to 17,000 tonnes per year of freight. TMA currently operate twice weekly from London (with a further slot available) and four times weekly from Amsterdam. The Amsterdam service collects cargo by truck from other European airports for onward flight to Lebanon. Including the possible third flight from London, the current TMA cargo capacity from Europe is estimated at about 13,000 tonnes per year maximum. A~suming each 707 has a capacity of 38 tonnes, then if all the aircraft were rededicated to serving the LeLtatTOn on a daily basis, the total airfreight capacity would be 49,000 tonnes (assuming five flights per week and an 80% load factor). In addition to TMA, the cargo cupacity of MEA's fleet of pas.'ienger aircraft, comprising three Boeing 747's (15,000 kgs), eight Boeing 707's (3,500 kgs) and five Boeing 720's (3,500 kgs) would be equivalent to about 15,000 tonnes per year. If the two leased Airbus 310's arc included, this would add an another 4,000 tonnes per year capacity. At prei1ent, MEA arc operating from London, Paris. Brussels, Madrid, Copenhagen and Berlin. Freight from the USA is heing shipped acrosi1 the Atlantic via Virgin Airlines and transhippc In addition to these, Air France has already resumed operations to Lebanon, bringing with them an additional 10 tunnc:s of capacity per trip in its A300 aircraft. We also understand thut Air France is currently considering introducin& an all freight service. PROJEC.."1' WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Servlct!ll ·A· Tr,ule nod Trau1purtation Sen-Ices 23 SE.\T BY :BECHTEL DAR . EGYPT :22-10-91 7:39p~ BECHTEL DAR EGYPT~ 415 7684343 :: 5123 • The uvailability of uircrnft from the existing operators is unlikely to prove a limiting factor to any 'Rehabilitation' programme, since additional capacity can easily be found from other operators in the World. As required for the rehabilitation / recovery programmes, additional air freight capacity can easily be chartered. Competitive rates are currently being offered by Soviet aircraft, such as: Antonov AN12 Maximum Payload 45,000 kgs IL-76TD Maximum Payload 50,000 kgs Antonov AN 124 Maximum Payload 100,000 kgs These aircraft can he booked from European, American or Far East points of origin, dependant on requirements. However, all arc subject to war risk additionals. The opportunity exists for increasing the efficiency of any air freight system established to support the progranunc, by utilising the return journey to European destinations for the tran.c;port of tropical produce from Lebanon or other countries in the region. 4.2.5 Pipelines The two crude oil pipelines are currently closed. Neither pipeJinc is reported as being maintained and their exact physical condition is unknown. The TAPLIN E is unlikely ever to re-open as: o economically viable routes for exporting Saudi crude via the Red Sea and the Gulf are available. o sections of the pipeline are controlled by the Israelis and may have been use o the export terminal at Zaharani is unable to bundle modern large tankers {150,()()()t maximum capacity). The use of the Iraq-Tripoli line is highly unlikely: o Iraq has economically viable export routes via the Gulf and Turkey. o whilst the section of pipeline from Banias to Tripoli could easily be repaired, it would make little economic sense to use this for crude expons from Syria as the exports arc currenLly despatched from Banias. PROJECT WORKING PAPER PREPARED }'OK INTERNAi. PROJF.CT TEAM USE & DISCUSSION Private Sector Scrvicn •A· Trade and Tr.sn,portation Services 24 SE.\T BY :BECHTEL DAR . EGYPT :22-10-91 7:42p~ BECHTEL DAR EGYPT- 415 7684343:# 6/ 23 • 4.2.6 Storaae Facilities Information on the status of storage facilities for oil products is provided in the Oil & Gas Sector assessment. Controlled Iemp,erature Storage Facilities Some storage facilities exist in the Portli and these have been covered in the separate Ports assessment paper. a) Chill Stores The bulk of existing controlled temperature storage facilities available within the Lebanon are chill storage facilities in the agricultural areas (particularly fruit). The estimated total chit! storage capacity is around 250,000 cu.m .. The larger stores (above 3,000 cu.m.) are believed to be distributed: Bekaa Valley 5 South 4 North 5 Damour 1 Beirut & suburbs 5 In addition, there are not more than 15 stores (mainly for apples) in remote and mountain areas of capacity less than 2,000 cu.m .. Stores follow conventional patterns for seasonal agricultural stores ie: o They are often associated with packaging / processing lines ( cg washing and waxing). o The older, larger, chillers utilise ammonia refrigerants, whilst those built after 1970 use 'freon' (consideration will need to be given to eventual con~r..i1on to more ozone friendly refrigerants). o Stores arc highly loaded at the end of the main agricultural season, but arc almost unused for six months per year. Storage costs are reported at about $30 per torme per month. The condition of many of the stores gives some concern. Toe total volume of chill storage would appear tu be reasonable in comparison with the needs of the population. However, the condition of the existing stores requires more detailed investigation, particuJarJy with a view to establishing the level of post harvest losses due to poor storage. PROJECT WORKING PAl'l::K Pll£PARED FOR INTERNAL PROJ~C.'T TEAM USE & DISCUSSION Private Sector Servlct!fl · A • Tntd~ ;1nd Transportntlon Services 25 SE\T BY :BECHTEL DAR. EGYPT :22-10-91 7:43p~ BECHTEL DAR EGYPT~ 415 7684343 :# 7/ 23 • The level of utilisation is low due to stores solely being used for local production. In the medium term, once imponed produce is again in demand and can be stored with confidence, store utilisation will increase as suitable stores arc filled with imponed produce when their price is sufficiently attractive. b) Cold Storage Cold storage facilities in Lebanon are generally for handling imported frozen chickens, meat, fish and vegetables. They are mainly located close to the pore areas. Some of the chill storage facilities is reported to be dual purpose and capable of operating down to ·cold storage· temperatures. An estimate provided by one of the major Cold Storage companies suggests that the total imports of frozen products into Lebanon arc: Imports of Frozen Food Tonnes per year Meat 6,000 Fish 4,000 Butter 3,000 Vegetables 2,000 Total 15,000 Assuming that these products arc stored for less than 4 months and allowing fur some diversity of the utilisation, then the requirement for cold storage is currently 5,000 tonnes. At this level of demand, there is approximately 12,000 to 15,000 tonnes of surplus capacity. However, as the recovery programme proceeds, the demand for cold storage will incre~,--considcrably from this level, due to: o incrcuscd consumer demand (frozen foods tend to be demanded by the wealthier working and middle class) o increased confidence on the part of suppliers to stock frozen foods due to the demand and the increased reliability of the power supply. o increased levels of frozen food stored in country to take advantage of lower seasonal produce prices (the risk and cost of storage currently discourages this activity). PROJECT WORKING PAPER PREPARED lo'Oll INTEllNAL PROJECT TEAM USE & DISCUSSION Priv.ate Sedur S4:ni«."C!J • A • Trude .and Tnansportatlon Servlcn 26 SE.~T BY:BECHTEL DAR . EGYPT :22-10-91 7:43p~ BECHTEL DAR EGYPT- 415 7684343 :# 8/ 23 • The total above represents a per capita consumption of frozen foods (assuming all imported) of about 4 kg per ycur. The comparuble total for the UK is approximately 70 kg per year ( calculated from data in the 1989 Marketing Pocket Book). The comparison with European norms for total controlled temperature storage provision suggests that the existing level of provision is low and additional storage capacity will be needed in the medium term (probably double the present cold storage capacity within five years). 4.3 GENERAL PERFORMANCE CONSTRAINTS 4.3.1 Stability Whilst the sector is one of the most resilient and 'footloose' of all aspects of the economy, stability is essential for long term development. Specific areas where stability is required can be summarised a.c;: o Security - elimination of the probability of war damage. o Law Enfon.:ement • both criminal and commercial o Economic Stability - of the home market demand o Monetary Stability o Fiscal Stability Security The implications NB: DON GRAFF REQUESTED TO SUPPLY THESE RATES In the case of fixed assets, an attempt was made to provide for war risk insurance for industrial and tourism assets, by the establishment of a National Institute for Investment Insurance (1977). This Government run institution was intended to provide war risk in.4iurance for capital assets at nominal rates (0.2% per annum). The concept failed for a number of reasons (see Industry Assessment). PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Services· A, Trade and Tran.,port1tion Servkes 27 SE.'ff BY : BECHTEL DAR. EGYPT :22-10-91 7:44p~ BECHTEL DAR EGYPT- 415 7684343 :# 9/23 • The net result of any war risk insurance is to make explicit the economic cost of the absence of security. An economically more efficient alternative is to eliminate the war damage. Law Enforcement The transport sector can provide a target for criminal activity and its elimination and the imposition of conventional policing is essential. Economic Stability The long term planning of the support fucilities for the sector, such as specialised warehousing (eg cold storage etc) requires a stable home market for these services. Monetary Stability Instability in the exchange rate hus resulted in the dollarisation of many transactions. This phenomenon reduces the risks for the entrepreneur caused by monetary instability. Fiscal Stability One problem particular to Lebanon has been the fixing of customs duties in Lebanese pounds using an artificial 'customs duty' (commercial dollar) exchange rate to convert the invoiced cost. Due to the differences hetween the market exchange rate (typically l.L470=$1 in 1989) and this special rate (reported at l.l..6=$1 by Abdo Aynuh in 'Le Commerce du Levant', 15 Feb 1991) the real value of this duty has varied and has been . insignificant. The commercial dollar is currently being revised to bring it into line with the open market rate, causing further uncertainties to the market, whilst this process is slowly carried out. ,-- 4.3.2 Working Clpital Almost every respondent to the field work reported that a shortage of working capital and trade financing was the most important factor constraining their expansion. 4.3.3 Spares and Repairs Spares and repairs for key existing equipment are a priority along.~ide working capital. In general, this requirement is restricted to non-mobile assets. - PROJECT WORKING PAPER PREl'ARED FOR INTERNAL l'ROJECT TEAM USE & DISCUSSION Prtvau Sedor Services • A · Tradl! 1&od Tr.an11portatlon Senl~-n 28 SE'\T BY:BECHTEL DAR . EGYPT :22-10-91 7:44p~ BECHTEL DAR EGYPT~ 415 7684343 :#10/23 • 4.J.4 Power Supply The impact on the sector of the present disruption in power supplies is con.~iderable. Field work in the Lebanon suggests that power is currently available at times between 7 am to 2 pm and that un-planned outages may occur three or four times during this period. This absence of power has inhibited the development and storage and importation of frozen foods and fresh produce. It is probable that a significant proportion of food is currently being spoilt by lack of adequate storage facilities. Due to the frequency of this problem occurring. the losses from spoilage due to power failure are at present uninsurable in Lebanon. Some facilities arc sustained by the use of privale generation facilities, but the true cost of operating these is considerably greater than the cost of large scale power generation. Estimates made in the 'Power Report' for this project are that there is a SO"A> cost penalty for own generation. A more serious disadvantage from own generation is the diversion of capital investment from other assets to standby generators, which merely duplicate investment already made by the Electricity company. ln the case of cold storage, which usually has its own standby power in normal circumstances, the requirement becomes one of providing standby sets for the standby sets. A second problem is the diversion of scarce management time from productive tasks to the management of the power supply. The economies of scope are considerable in power generation - a storage facility should not have to manage its own power station, it should leave this tasks to the experts. 4.3.S Communications The absence of good communication has a direct effect on the sector to a greater extent than power, and in the medium term development will be severely constrained unless the situation is improved. The most immediate problem is telecommunications. both internally and, more seriously, the difficultly in keeping in touch with overseas contacts. This factor was universally reported to Bechtel in the field work. -~ ~ 4.3.4 Skills The Lebanon in the 1970's is reputed to have had a relatively highly educated and trained work force, comparable with many European countries. Since then the position has become less clear and many sectors report serious skill shortages Probable explanations for this include: o emigration of skilled and educated workers o disruption to the supply of educated workers due to the civil war and retirement of the older workers (ie a demographic effect) PROJECT WORKING PAP[R l'KEPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sedor Strvl1.~11 • A · Tritdt und Transportation Servlcn 29 SE\T BY:BECHTEL DAR . EGYPT :22-10-91 7:45p~ BECHTEL DAR EGYPT- 415 7684343:#ll / 23 • o general ageing of the knowledge base. It is without question a fact that workers must be frequently re-educated / retrained during their career to match the pace of technological development. Training in specific processes and the use of particular machines can only he carried out directly by the industries concerned. More general vocational training and education is most efficiently provided directly for the individual who will benefit, ic by the state or private educational establishment. 4.3.S Legal Framework Several companies surveyed reported operating difficulties due to the failure of the Lebanese legal framework to keep up to date with modern trade law. On example of this is the absence of membership of the TIR convention. -~-· PROJE(..'T WORKING PAPER PREPARED •·oR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Senlces · A • Tntdc .and Tnaasportatlon Services 30 SE.\T BY :BECHTEL DAR. EGYPT BECHTEL DAR EGYPT- 415 7684343 :# 6/ 9 • 5 ACTION 11'EMS 5.1 T.I.R. Review Lebanon is not currently a member of the T.I.R. convention. This convention is intended to reduce border formalities for traffic in transit across national borders, allowing goods to be sealed at the point of departure and only unscaled for random checks and at the coun.try of destination. The bulk of international European road traffic operates under these rules. Several Middle East countries are also members of the convention, although it has been reported that the full provisions of the convention are not effective in the region. Membership of the convention will assist Lebanese exporters in their efforts to penetrate European markets, by reducing transport costs. Given the volume of road traffic to the Middle East from Europe, there may be opportunities for attractive transportation rates for return loads of Lebanese exports hy truck. Membership of the convention would be es..~ntial for this strategy to succeed. 5.2 Oraanisatlonal Review There appears to confusion in the industry as to the responsibility of the various Oovernmenl deparlrm:nts. The: review would seek to clarify these, where necessary, and ensure that the industry was aware of these divisions. 5.3 Road Transport r..egislation Review Two areas of legislation appear tu require attention: Diesel Powered Trucks The logic behind the reported restriction on the use of diesel powered trucks in Lebanon is difficult to appreciate. It is recommended that if this rule is in place that: - 1 It is repealed inunediately, without uny further investigation. 2 If there are any rules discriminating in favour of petrol powered trucks that these be reversed and positive discrimination in favour of the more effkicnt diesel trucks introduced. Cabotage Rules These arc ruks that restrict the opportunities for furc::iKn trucks to collect return cargo in Lebanon. In general such rules protect domestic trucking companies by PROJECTWORKJNG PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION l'riv1de Sedor Srrvices • A • Trade mid Tru11lfpurtation Services 34 ·3, ·~ SENT BY :BECHTEL DAR. EGYPT :23-10-91 3:49PM BECHTEL DAR EGYPT- 415 7684343 :# 71 9 . • restricting competition. The: <.:u:,ts uf such protection are carried by the Lebanese consumer and exporter. Given Lebanon's needs to encourage exports any such rules should he reviewed to determine if they arc Lebanon's overall best interest. S.4 Storage and Distribution Review In common with much of Lebanese infrastructure, storage facilities have been neglected during the war years. The efficiency of stores ( cg controlled temperature store energy consumption) and the level of losses in storage should be reviewed. The overall efficiency of sectors such as the valuable agricultural exports can be materially affected by the quality and efficiency of storage and distribution facilities. Possible examples of sub-optimality would be produce stores located in agricultural areas and used only during the immediate post harvest period. As opposed to stores designed to serve markets and ahle to maintain utilisation by storing products from other areas at other times of the year. 5.5 Truck Finance The opportunities of the recovery programme and the removal of restrictions on the use of diesel powered trucks will create opportunilies for the Lebanese truck owner. It is estimated that about 400 to 500 trucks will be required to serve the immediate needs of the recovery programme alone. If the opportunity to develop the Lebanese transport industry is not to he lost to foreign truck owners, a considerable amount of investment will be required in trucks (around US $20 to 30 million for the recovery programme alone). This expansion in the industry creates opportunities for developing an industry to meet social or regional development aims, cg by making credit avail~blc to owner operators. The action required would he ascertain the policy aims desirable and then to design a suitable credit facility to meet these. The subsequent stage of the project would he to facilitate the sourci~·of- these funds. PROJECT WORKINC. PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Senters • A • Trude und Trunispurtation Se1'\'i~-cis ~ 3,._, SE.'\T BY:BECHTa DAR . EGYPT ;23-10-91 3:49p~ BECHTa DAR EGYPT~ 415 7684343:# 8/ 9 • B NON FINANCIAL SERVICES SECTOR SUMMARY 1. CURRENT SITUATION The sector comprises Professional Services linked to the Recovery Programme, including Engineers, Architects, Lawyers and Accountants and the Insurance Industry. Apart from the provisions of the National Social Security Fund and the National Institute for Investment Insurance (no longer operating) in the C'J.se of insurance, there is no direct Government involvement in the sectors. Physical damage to this service sector was limited. Due to the growth in output of Lebanese Universities since 1975, the number of graduates in the population has increased from 4.3% in 1970 to 14.5% in 1987 (source: Labour Force a.~~ssmcnt paper). However, there are anecdotal reports of a con.~iderahle level of emigration amongst professionals und it is likely that those more experienced and hence marketable will have taken this opportunity. The reduced number of insurable risks as a consequence of the war have severely reduced the real level of insurance business within Lebanon and the active companies are small and <.'Oncentrate on business in other states. Due to the reduction in business within Lebanon, all foreign insurance companies left the country and now continue a low · level of business via local agent~. There arc 76 insurance companies in Lebanon, none with assets of more than a few million dollars. Several insurance companies have been linked in the past with Banking failures. 2. PROBLEMS AND CONSTRAINTS The primary problem area facing the Professional Services sector is likely to be the experience distribution of Lebanese professionals. Comparison with, for example, UK professionals per thousand population suggests that in some fields Lebanon has sufficient professionals, but that there may not be sufficient experienced professionals. For example, to he considered a qualified Engineer in most countries involves at least five years post gradua1'.hining and experience in an engineering company (higher academic qualifications are not normally an acceptable substituu:). The constraint fuccd by the Insurance ~ector is the small size of the companies involved, largely due to reduction in total business opportunities available. This reduces the opportunities for underwriting risks to a negligible lcvcJ and most reinsurance will have to effected in the main Western insurance markets. The legislative framework of the insurance industry and the degree of enforcement of this legislation give cause fur concern amongst potential policyholders. 3. TARGET STANDARDS PROJECT WORKING P/\PER PREPARED fOR lNTERNAL PROJECT TEAM USE & DISCUSSION l'rit;tte S~nr Services • B • Non Fin11Dci1tl Servkcs l SE.\T BY :BECHTEL DAR. EGYPT :23-10-91 3:sor~ BECHTEL DAR EGYPT~ 415 7684343 :# 9/ 9 • The implications of the Recovery programme arc that approximately 1,500 architects and engineers will be required in addition to those currently employed on private sector reconstruction projects. Similarly for the insurance sector, the additional premium income directly associate with the programme would amount to about US $15 million and the total exposure to about $1.5 billion. In the longer term, there will be a general need to expand the insurance sector to cover the needs of the rehabilitated economy, including insurance of the capital assets rebuilt in the rehabilitation programme. 4. ACTION AND PROJECTS The requirements of professional services for the rehabilitation programme can be met from Lebanese nationals. However, there will be a need to strengthen the professional core in country with experienced and prnfes.c.ionally fully qualified expatriate Lebanese. ln the short term, the level of risks implicit in the recovery programme cannot be met by the capital base of the exi!iting Lebanese insurance indu.~try. In the longer term, the development of a viable insurance industry should be encouraged by a suitable legislative framework, firmly enforced. - PROJECT WORKJNC. PAPER PREPARF.D FOR INTERNAL PROJECT TEAM USE & DISCUSSION Pri\'atc Sector Scn-kcs • 8 • Non Flnanci11l Scnkes 1 SE.\T BY :BECHTEL DAR. EGYPT :22-10-91 7:45p~ BECHTEL D:\R EGYPT- 415 7684343 :#13/23 • B NON FINANCIAL SERVICES Section 1 1.1 Professional Services Included in this sector arc key elements essential for the rehabilitation and recovery programmes: o Engineers o Architects, Quantity Surveyors etc o Lawyers o Accountants The profes.4iional services sector expanded considerably in the l 960's and early 70's, as Lebanon developed as the regional business centre. The 'Export Potential' report estimates that these professional services could have been contributing approximately US $ 3 to 4 million per year in foreign exchange earnings in the early 1970's. The sector has suffered dis-proportionately from the "brain drain" of educated Lebanc::se to other arab states and beyond. 1.2 Insurance Insurance services started as early as 1956 and, as reported in the 'Export Potential' paper, developed rapidly from the early l 960's, stimulated by the freedom of foreign insurance companies to operate and by the absence of exchange controls and the consequent freedom to invest premium income most advantageously. The growth of the Lebanese economx.._after 1967 and particularly the increase in transit movement of goods created opportunities for the induslry. Further impetus was given by the insurance law passed in 1968, whkh gave tux concessions to the industry. The expansion was met both by the establishment of foreign insurance companies· in Beirut and by some local companies. The earliest date for which total premium receipts is available is 1980, when they amounted to $42 million. Taking into account premium income and investment income, the sector is believed to have been generating about S 9 million per year in net foreign exchange earnings. The events of 1975 resultc::d in the departure of all the foreign companies from Beirut, leaving behind local companies to act on their behalf as agents, typically at cost of around 20% premiums. PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Prlvalc Sc..1or Services • 8 • Non Flaonclal Senkct 1 SE\T BY :BECHTEL DAR. EGYPT :22-10-91 7:46P~ BECHTEL DAR EGYPT- 415 7684343 :#14 / 23 • The war years particularly restricted the activities of insurance companies, since many risks became uninsurable:. By 1990, the industry appears to have become almost entirely orientated to serving the overseas market. Many of the local insurance companies were established by commercial banks as a means to diversify and recycle funds within the Group. The failure of a number of these banks has resulted in the failure of the associated insurance operation, since often the insurance company's funds had been utilised to support the bank. -.. .. PROJECT WORKING PAPER PRErAR.ED FOR. INTERNAL PROJECT TEAM USE&. DISCUSSION Private Sector St!nk.-et1 • R • Non fo'inancild ~nk•si 2 SE\T BY :BECHTEL DAR . EGYPT :22-10-91 7:46P~ BECHTEL DAR EGYPT- 415 7684343 :#15/ 23 • l, Institutional Responsibilities 2.1 Governmental National Social Security Fund Toe fund provides some elements of insurance cover for: o Sickness allowance o Family allowance o Retirement About one quarter of the population of Lebanon are covered by the scheme (ie about 767,000 in 1988). The fund is finunced in part by a contribution by employers of 23% of wages made up of: 7% for sickness cover 7.5% for family allowance 8.5% for retirement Foreign workers are not eligible for the retirement benefit and hence a reduced rate is payable of 14.5% of wages. 2.2 Private Sector Organisations 2.2.1 Professional Syndicates The Engineering profession is governed by Syndicates of Engineers. These include associated disciplines such as Architects. There are two syndicates, one based in Beirut and one in Tripol,h ,- -Both syndicates register engineers working in and outside the Lebanon. PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECT TE.AM USE & DISCUSSION Private Sector Strvltc?s • 8 · Non Fiaanclal Servh:a 3 SE'ff BY : BECHTEL DAR . EGYPT :22-10-91 7:46P\f BECHTEL DAR EGYPT~ 415 7684343 :# 16/23 • 2.2.2 Association of Guarantee Companies in Lebanon The Association gathers some statistics from its memhers for publication and represents the industry in dealings with Government on legal and taxation matters. Due to difficulties with tax accounts, some of the statistie!\ may not be accurate. The detailed organisation of the sector is controlled by a number of technical committees: 1. Life and Heal th 2. Motor Vehicle 3. Transport 4. Fire 5. Misc. Accidents 6. Accidents at Work 7. Accounting (Audit) PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJECI' TEAM USE & DISCUSSION Private Sector Senlceti • B • Non Financial Sl!nkn 4 SE\T BY :BECHTEL DAR. EGYPT ;22-10-91 7:46P~ BECHTEL DAR EGYPT~ 415 7684343 :#17 / 23 • 3 Needs Standards 3.1 Professional Services The primary need from the sector will he to manage and service the construction element of the rehabilitation progranune. Current best estimates arc that this will amount to about $300 million per year. Using accepted norms for the proportion of professional services in this total of 15%, this would give a total requirement of $45 million per year. It is probable that this level of services would have to be reached very early in the programme (part way through the first year), in order that the physical activities can be completed to schedule. Average charges for professional fees in the Middle East approximate to aboul $4000 per man month for professional grades (ie including supports services, margin etc). This would imply a total requirement for some 11,250 man months per year of professional Architect / Engineer time. Assuming each is charging to projects for 10 months per year, then this amounts to a minimum requirement of 1,125 professional Architect / Engineers to service the rehabilitation programme alone (ie excluding the level of 'private sector' business currently progressing. 3.2 Insurance Services The level of construction and general economic activity implicit in tbe recovery and rehabilitation phases imply a considerable need for insurance services. The types of insurance required for the constmction progranune will include: o Insurance of goods in transit o Insurance for the Construction Contractor, eg: a) _ Public Liability Insurance. Typically minimum requirements are stated in the contract and a typical minimum would be US $ 5 million. b) Workmen's Compensation. Similarly to a) above, the minimmu amount would be of the order US S 5 million. c) Loss or damage to Contractors Property. This is often at the contractor discretion, but amounts of 20% of the contract value arc not unusual. d) All Risk Insurance of the 'Works' up to hand over to the client. This would cover toss due to natural causes, such as storms, landslides, fire etc. The limit is not normally explicitly stated, but PROJECI' WORKING PAPER PREPARED FOR INTERNAL PROJEcr TEAM USE & DISCUSSION Priv1dc Sector Senlces · H • Noa Financial Strvkcs 5 SENT BY :BECHTEL DAR. EGYPT ;22-10-91 7:47p~ BECHTEL DAR EGYPT- 415 7684343 :#18/23 . • the maximum exposure may be the total value of the contract plus a percentage:. In some circumstanceSt there may be an additional liability for consequential losses surrered by the client. Given un annual construction volume of US S 600 million and a typical contract period of two years, the total insurance company exposure may amount to USS 1.5 billion. Typical premium income would be about US S 15 million. o Insurance of the completed projects by the owner. -,. .. PROJECT WORKING PAPER PREPARED FOR INTERNAL PROJE<...'T TEAM USE & DL4\CUSSION Prlv•tc Sector Senlcet · 8 · Non Fin11nclal Senkn 6 S~ BY:BECHTEL DAR. EGYPT ;22-10-91 7:47PM BECHTEL DAR EGYPT~ 415 7684343 :#19/23 • 4. Pi-esent Performance 4.1 Professional Sen-ices In recent years the output of graduate Lehanese has reached particularly high levels (see Lebanon - Labour Force Paper) creating a considerable pool of junior professionals that is dis-proportionately large when compared with the numbers of trained skilled workers and with the number of experienced profes.~ionals. In 1970, the proportion of the workforce with a University education was 4.3%, whilst by 1987 the proportion had risen to 14.5%. The Syndicate of engineers, Beirut report that there were 11,222 Engineers registered with them (see Table for breakdown by discipline). In addition. 2,500 Engineers were registered in Tripoli. Of these, the Syndicate Administration estimates that only 60% are practising in I .ebunon. Inter-country comparisons of the requirement for profeMionals are difficult due to cultural differences (for example the UK figures show comparatively high number.ii of Accountants and low numbers of Engineers, whilst in Japan this is reversed). However, the data for the UK is provided below (extracted from 'Marketing Pocket Book, 1989'): Professionals per thousand population Accountants 2.1 Architects 0.5 Lawyers 1.0 Chartered Engineers 3.5 Chartered ~,veyors 0.8 If the output from Lebanese Universities is representative of the proportions of members of the various profcs.4-ions, then using the data for University educated workers, this would suggest that some of the compv.rublc figures for Lebanon would he: Professionals per thousand population Lawyers 8.3 Engineers 3.2 PRWECT WORKING PAPER PREPARED FOR INTl!RNAL PROJECT TEAM USE&. DISCUSSION Private Sector Servk-.:1 • B • Non Flnaancwl Servi~ 7 SE.'IT BY:BECHTEL DAR. EGYPT :22-10-91 7:48P~ BECHTEL DAR EGYPT- 415 7684343:#20 / 23' • Figure 1 - SYNDICATE OF ENGINEERS, BEIRUT DISCIPLINE 19111 CML II.SM ARCHITECTUFE 2.383 WATER 2a ELECTRICAL 1,180 M!CHANICAL 858 ELECTAOMECHANICAL 117 ILICTAOTICHNIC 411 l!Ll!CTRONIC 148 COMMUNICATION& 40 l'LICHT 411 AIR NAVIGATION 1 AIR CONTROL 111 MARINE 12 CHEMICAL 133 f'eTROL.£UM ,1 MINING ,, INDUSTRIAL 30 PRODUCTION 12 MILL • ARTS & INDUSTRIES ,o RefRGERATION 12 PUBUC HEALTH 2 POUTECHNIC 15 MATHEMATICS ' AUT o...cfive 4 AGRICULTURE 530 - OTHC~ 37 TOTAL 11,222 NOTE& 1 Source: Svndicale of EngnNra leirut 2 Inell OM only tr>ON englnMrl payw,g 1egi11Ja :I A lunhel 2,500 l!ngirle«S a,• regla1e1111J with t 6yn PROJECT WORKJNO PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & OJSCUSSIO~ l'riYaetc Sector Mnlces • B • Noa FinMnciad Servicts 8 S~T BY :BECHTEL DAR. EGYPT :22-10-91 7:48P~ BECHTEL DAR EGYPT ... 415 7684343 :#21/23 • The comparison is nol entirc:ly fair since, the number of lawyers in the table for the UK includes only those practicing and not those who had entered commerce. Whilst the UK figure for Engineers represents only those Engineers who had completed at least five years of approved training and experience since graduation and bad been accepted hy the regulatory body as qualified Engineers (the comparable figure for total graduates may be twice this). Taking into account the age distribution of Lebanese Engineers, the majority of whom will be relatively young. the figure for Lebanese Engineers of 'Chartered Equivalent' is probably less than one per thousand. Estimates of the construction sector in "Lebanon· Gross Domestic Product and ..... 1988" suggest a level of construction activity of $ 711 million for 1988. This is based on the iuuing of permits for the construction of some 4.9 mUJion square metres. Recent report." from the Lebanon suggest that the current rate of building permits is approaching this leve~ implying a total construction activity of about $800 million (1991 values). A~suming that the bulk of this work is small scale private construction with a low level of profe.~ional and managerial services (say 10%), this implies a total turnover of $80 million. The bulk of this is likely to he within constn1ction companies and hence does not represent 'professional services' under the conventional definition. Recent developments in the particularly the Arab states, which have traditionally provided the bulk of the employment for expatriate Lebanese professionals may make it likely that there is a pool of available Lebanese expatriates willing to return to the Lebanon. if conditions arc suitable. 4.2 Insurance There are 76 registered insurance companies operating in the Lebanon. Of these, fifteen companies dominate the sector with approximately 75% to 80% of the market. The next tier of 40 companies have a combined market share of around 20% and the remaining companies, who are basically non-active, have the remainder (up to 5%). There are no foreign insurance companies operating in Lebanon. other than on an agency basis with a local company. . ... Two companies are ·-reported to be active in reinsurance. The bulk of rcin.,urance is underwritten offshore by foreign companies. The 'Export Potential' report estimates that the insurance business in Lebanon is now almost entirely orientated to serving overseas clients (approximately 80% of premium income) and amount\ to about US S 21 million in 1990 values. Most of the active Lebanese companies operate offices in the Gulf area in order to cater for thi~ husincss. It is understood that there i.~ still a tax concession in place for the insurance industry, whereby 25% of premiums received arc free of tax. During the early stage of its development, the Lebanese insurance industry had an advantage, over others in the rc:gion, from the lack of exchange controls. However, many other countries in the region now .1lso have this advantage and moreover, have governments able to commit PROJEC.."1' WORKING PAPER PREPARED FOR INTERNAL l'ROJEC.'T TEAM USE&. DISCUSSION Priva&e Sector Senlce1 • B • Nun Fln111ncial Senlces 9 Sf.'jT BY :BECHTEL OAR. EGYPT :22-10-91 7:49p~ BECHTEL DAR EGYPT- 415 7684343 :#22 / 23 • • considerable funding in !iupport of their domestic insurance industry. Toe offices of the Lebanese insurance companies in these states are able to take advantage of some of these tax and other incentives. In conunon with most developing countries, the insurance industry suffers from its small size and its lack of underwriting capacity. The typical total premium income of a major Lebanese insurance company is of the order of $3 to 4 million, with technical reserves of $2 million. The capacity of local in11urance companies to meet the rapid growth in insurance demanded by the recovery programme needs to be assessed carefully. The sector is currently under·rc:guhucd and the close links between the various small banks and insurance compc1.nics make the robustness or the insurance companies difficult to determine. It appears unlikely thut the local companies will be c-cLpable of handling the increased risks, without reinsuring the entire amount overseas. PROJECT WORKJNG PAPER PREPARED FOR INTERNAL PROJCCT TEAM USE & DISCUSSION Private Sector Services • B • Non Financial Strvlces 10 SE.\T BY :BECHTEL DAR. EGYPT :22-10-91 7:49p~ BECHTEL DAR EGYPT- 415 7684343:#23/23 5 Action Items S.1 Proresslonal Services The indications arc that the requirement for professional services for any feasible recovery programme can he met by the available pool of graduate Lebanese professionals. The key area of concern will be the experience base of the large pool of recent graduates. It is anticipated that the requirement to meet the need for experienced professionals can be met from recruitment of expatriate Lebanese currently working in the other arab countries. 5.2 Insurance It appears unlikely that the lehanese insurance industry can directly meet the needs of the rehabilitation programme. However, unless the appropriate actions are taken to reform the framework of the industry and enforce these rules, the industry will not he able to develop and assume a growing role in this key area. It is recommended that these be addressed in at comprehensive study to determine the optimum conditions for encouraging the industry and protecting the policy holder. Given the size of the market, it will be necessary to encourage some consolidation of the 76 currently active companies in order that companies with sufficient underwriting abi1ity develop. PROJECT WORKlNCi PAPER PREPARED FOR INTERNAL PROJECT TEAM USE & DISCUSSION Private Sector Senicea • B • Non Financial ~nkcs 11