Lebanon's refugee crisis will fuel construction sector growth

According to a BMI Research report, the influx of Syrians into the country will end up being a bonus rather than a burden

There are estimated to be over 1 million Syrian refugees in Lebanon, which has placed a strain on the country's infrastructure.. A McConnell / UNHCR

While the influx of Syrian refugees places a strain on Lebanon’s existing infrastructure, it will also drive demand for additional investment into the construction sector according to a new report.

BMI Research’s latest assessment of Lebanon’s construction sector, released on Friday, found that the country’s absorption of Syrian refugees will require a “dramatic and wide-ranging ramp up of infrastructure investment”.

The report said that due to the country’s “fragile” economic and political foundations, the funding needed will largely come from foreign donors and multi-lateral funding institutions".

The Lebanese government announced in April it was seeking US$10-12 billion from the international community over the next seven years.

“Given the scale of Lebanon's investment needs and the anticipated availability of international donor funding to finance infrastructure projects we hold a positive view of Lebanon's construction sector growth outlook,” BMI Research said adding that the country has one of the smallest construction industries regionally in value terms, at $3.2bn as of 2015.

Lebanon's population has surged since the Syrian exodus began in 2011. According to the United Nations high commissioner for refugees (UNHCR), there are more than 1 million Syrians registered in the Lebanese capital, but an estimated 500,000 are believed to be living around the country.

The impact of this population growth on structural demand for additional infrastructure can be illustrated by the country’s power sector, where per capita electricity consumption has plunged since 2010. Lebanon is now one of the most underserved electricity markets in the Middle East and North Africa (MENA) as of 2016, according to BMI Research. The country faces similar strains in its water and waste management sectors.

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However with this higher demand comes opportunity. A number of power projects are currently in the construction pipeline aimed at addressing the country's growing power deficit. These include the $ 470m Deir Ammar Combined Cycle Plant, where General Electric and Greece-based J&P-AVAX have secured equipment and construction contracts, respectively. The government is also considering renewable projects and, according to BMI Research, has three wind projects each valued at between $100m to $150m under final review.

Other infrastructure-focused initiatives announced in the past year, backed by multi-lateral institutions and international donors, include $200m from The World Bank to upgrade the road network in Lebanon. The funds will be used to renovate about 500km of roads in the first phase of the government's larger plan to rehabilitate the road sector.

The United States has pledged $140m to help Syrian refugees and the communities hosting them. The funds are expected to target the construction of new water and waste-water treatment infrastructure.

The report added: “More broadly, the tailwinds to construction sector growth offered by the refugee influx will be complemented by a brightening macro-economic outlook, which should likewise support higher construction sector growth in the coming years. Our Country Risk team expects that positive political momentum in Lebanon will support an uptick in investor and consumer confidence over the coming years, which will result in a modest acceleration of GDP growth."

Lebanon has the highest debt-to-GDP ratio in the Middle East. Earlier this month, a senior official at the country's ministry of finance said the nation may tap the Eurobond market again this year for long-maturity debt, depending on market conditions and the prospect of US interest rate increases.

The state often adopts this strategy to plug its deficit shortfall. This has been exacerbated in recent years by sluggish economic growth and Syrian refugree crisis.