Lebanon's shadow economy reels as Israel pummels Dahiyeh

Relentless Israeli air strikes have led to losses of $1bn so far, devastating an area home to thousands of small businesses vital to the economy, which had developed over decades

Eduardo Ramon

Hezbollah-affiliated economic activity in Dahiyeh generates around $70-$80mn in revenue a month

Lebanon's shadow economy reels as Israel pummels Dahiyeh

Salwa Baalbaki

last update on 25 Oct 2024

Israel’s campaign to destroy the military, security and financial infrastructure of Hezbollah in Lebanon has also crippled the economic and social framework in the southern suburbs of Beirut, where the bulk of the attacks have been targeted. Many residential and commercial buildings have been reduced to ruins in the militant group's heartlands.

The suburbs to the south of the capital are known as Dahiyeh. They are the second-largest urban area in the country after Beirut itself, home to about 1 million Lebanese and 400,000 Syrians and Palestinians. Rapid growth has blurred the municipal boundaries that once separated the area into seven distinct parts—Chiyah, Ghobeiry, Haret Hreik, Burj Al-Barajneh, Mraijeh, Tahwitat Al-Ghadeer, and Lailaki—making the suburbs into one distinct unit. Dahiyeh also became a Hezbollah stronghold, with wide popular backing for the Shiite group and its ally, the Amal Movement.

Beirut’s southern suburbs initially emerged in the 1960s as a poor area on the fringe of the capital amid internal migration away from the countryside. People abandoned rural life and sought better economic opportunities in urban centres. Lebanon’s civil war, fought between 1975 and 1990, further accelerated this expansion, as waves of people from southern Lebanon and the Bekaa Valley flocked to the capital's outskirts, including from Israeli attacks, to pursue better security, social solidarity and economic prospects.

By the turn of the century, Dahiyeh had shed its rural roots and become middle class. It embraced modernity and grew fast, mirroring Beirut and blending into nearby districts in Mount Lebanon.

Vibrant economy

The new residents of the southern suburbs built vibrant economic and commercial sectors. Some of these ventures even began competing with major businesses in Beirut. The influx of expatriate funds – especially from Africa – helped the area grow into a sprawling urban centre bustling with opportunities across various sectors.

Hezbollah-affiliated economic activity in Dahiyeh generates around $70-$80mn in revenue a month

The southern suburbs' sustained economic activity prompted Lebanese banks to open more than 100 branches in the area and provide loans for many commercial and industrial projects. Small and medium-sized enterprises became the backbone of the local markets, drawing shoppers from across Lebanon and offering a lively alternative to nearby commercial districts.

Despite this economic growth, most residents still commute to Beirut for work. The area's proximity to Rafic Hariri International Airport, tobacco factories run by the state-run Lebanese Tobacco Authority, and the industrial zone of Choueifat provided many with steady jobs and income.

The economic and social impact of Hezbollah's political and financial network on the southern suburbs has been significant. Experts estimate that 50,000 to 60,000 people are affiliated with Hezbollah's political, militant, and logistical wings, alongside healthcare, media, and social institutions. These activities are worth around $70mn to $80mn monthly, with approximately one-third of that circulating within the local economy due to the concentration of Hezbollah's operations and members in the area.

Since the 1980s, Hezbollah has built a parallel economy from its heartlands through institutions such as Jihad Al-Binaa, Waad Housing Company, and the financial institution Al-Qard Al-Hassan. These entities have played a key role in the socio-economic development of the southern suburbs through a cash economy model used before and after Lebanon's 2019 financial collapse.

Al-Qard Al-Hassan, founded in 1982 and officially licensed as a charity in 1987, gained prominence by providing low-interest cash loans against short-term collateral, such as jewellery. Although this practice violates Lebanon's monetary laws, it offered residents an alternative to commercial banks, fostering the growth of small and medium-sized enterprises.

Reuters — A statue of Qasem Soleimani, in front of a destroyed building belonging to the "Al-Qard Al-Hassan" association, after an Israeli raid on the southern suburb of Beirut, October 21, 2024.

Displacement and economic despair

Today, the residents of the southern suburbs find themselves displaced, watching their homes and livelihoods crumble under relentless Israeli air strikes. Their life savings, built over decades through hard work both in Lebanon and abroad, are being reduced to rubble by the ongoing conflict. The hard-won progress made by the southern suburbs is now being buried beneath the region's bloody history and the scourge of proxy wars.

Unofficial estimates suggest over 37,000 businesses in the southern suburbs, including shops, bakeries, and pharmacies. Dr Roger Khayat, an advisor to the Lebanese Chamber of Commerce and Industry, states that only 1,290 businesses in areas such as Haret Hreik, Lailaki, Burj Al-Barajneh, and Ghobeiry are officially registered with the Chamber, probably about a third of the actual total.

Many operate entirely informally, without financial records. Khayat estimates that these businesses employ between 27,000 and 30,000 people. Additionally, the area has around 3,000 warehouses and between 600 and 800 factories.

Since September, Israeli air strikes have intensified, forcing residents to flee and businesses to shut down. Khayat notes two primary types of losses: the destruction of industrial machinery and the loss of goods and products in warehouses. Until the air strikes cease, assessing the full extent of losses or the cost of rebuilding remains difficult.

According to Khayat, if a ceasefire is reached, businesses will require at least six months to a year to recover. The losses so far are at around $1bn, with the southern suburbs contributing about 5% of Lebanon's GDP, according to his estimates.

Home to more than 37,000 businesses, Beirut's southern suburbs contribute to about 5% of Lebanon's GDP

The Lebanese Industrial Directory records 572 factories in the southern suburbs, including 84 in clothing, 55 in leather production, 27 in woodworking, 15 in printing, 94 in chemicals, 38 in miscellaneous products, seven in jewellery, two in metalworks, 35 in furniture, 53 in mining, 29 in food production, and 131 in transportation. These factories are predominantly small-scale operations, as the large-scale industry that once operated in the southern suburbs faded as the area became more of a population centre.

Salim Al-Zenni, head of the Association of Lebanese Industrialists, says districts such as Metn, Keserwan, the Bekaa, and nearby Choueifat became Lebanon's industrial areas. In the southern suburbs, small family-run workshops producing shoes and clothing emerged. These workshops represent only a small fraction of the total industrial output across Lebanon.

Although factories in the southern suburbs were not directly targeted, they sustained damage due to the intensity and destructive force of the missile strikes. And there is no sign of any let-up. On the contrary, strikes have only increased in scale and intensity. The relentless nature of Israel's bombing campaign has made it impossible to even begin to quantify the damage sustained so far.

Some factories in Bekaa Valley and southern Lebanon have also shut down as businesses take preventive measures to protect their employees. However, whenever conditions allow, these factories rush to reopen, even if only for a brief time, to generate products from their stored raw materials while they can.

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