Like the mythical phoenix, Beirut rises from ashes

Beirut's stock exchange, having reopened Sept. 18, is the first step in the development of a full-fledged capital market that government officials hope will finance the city's future growth. In the 1950s and 1960s, Beirut was the premier financial center in the eastern Mediterranean. Its location, together with low taxes and strict laws guaranteeing banking secrecy, made it the major financial gateway linking the West to the Middle East.

"We consider the stock exchange to be very important for Lebanon," Nasser Saidi, first vice governor of the Bank of Lebanon, tells Insight. "We need a market to finance reconstruction -- our banks don't have sufficient capital to finance the scale of projects required -- and we also need a new role for Beirut. We have to become a regional capital market, attracting capital through Beirut to other countries in the area."

Money already is flowing into Lebanon -- $6.5 billion of incoming funds covered last year's $5.4 billion trade deficit -- but officials hope the figure will rise as more investment opportunities become available. "The incoming investment is still minimal compared to the possibilities available," explains Trade and Economy Minister Yassin Jaber.

Incoming money has been channeled mainly into real estate, fueling a boom that has sent prices soaring. A luxury condominium overlooking the Mediterranean on Beirut's Corniche, complete with private yacht-mooring facilities, can cost up to $3 million. With little access to mortgages from local banks, buyers are forced to pay in cash. "People are paying these prices," exclaims Nabil Aoun, chairman of the Beirut-based brokering firm Fidus. "The money is coming from Lebanese who work outside the country and from Arab investors who believe in the program of Prime Minister Hariri. There's a lot of Arab investment in real estate, especially in hotels."

So far, there is little sign of American investment in Lebanon. U.S. companies have bid for some of the lucrative reconstruction contracts, but most have been awarded to European or Arab firms. In part, this is the consequence of a travel ban imposed on U.S. citizens by the State Department. The ban, issued in 1985 in response to the hijacking of a TWA airliner, became more critical as radical Islamic groups began kidnapping foreigners. The last Western hostages were released in 1992, but the United States fears the kidnapping might resume.

Some American corporations such as American Express sidestep the ban by employing non-U.S. citizens in their Beirut offices. Diplomats also note that a handful of Americans defy U.S. law and make the trip anyway -- traveling via Europe and having their visas stamped on a separate sheet of paper -- risking fines of up to $2,000 an possible imprisonment. "Several dozen Americans a year do violate the ban and come here discreetly," says a senior Western diplomat in Beirut. "I've never heard of anyone being fined." Despite these complications, the United States has become Lebanon's second-biggest trading partner -- American-made consumer goods are popular among Lebanese. Nevertheless, CDR's Baroudi estimates that American firms have lost up to $1 billion in contracts to date.