Survival of the fittest

If Nasdaq trends and international industry surveys can be believed, ICT is not only returning to a growth cycle more moderate than the last spurt that ended in 2000/2001, but is also more sustainable. As happened with the ICT industry worldwide, Lebanon’s information economy also felt struck by the bursting of the e-bubble and was shaken by the weakness of business confidence that flooded planet earth over the past 24 months. On top of that, there were the socio and politico-economic troubles of the region to contend with. However, living through these experiences did not fundamentally alter the many concerns and issues the local industry has to confront.

Take violations of intellectual property rights (IPR). “Basically, the level of piracy on all fronts is more or less the same,” said Walid Nasser, a lawyer who locally represents international organizations concerned with IPR protection. IPR is a crucial concern to anyone in the knowledge economy, from software engineers to content providers. Initiated at a global level, software piracy and theft of intellectual property have been exposed. According to the international industry pressure group, Business Software Alliance (BSA), an eight-year high-powered campaign has helped reduce software piracy as a worldwide phenomenon from 49% in 1994 to 39% in 2002. In the Middle East, the BSA reports, the margin of piracy reduction over this period was the highest of all world regions, from 80% to 49%. However, while piracy was reduced in Lebanon, the rate of suppression was much less impressive than in the UAE or Israel. With 74% percent of piracy (down from 83% a few years ago), Lebanon still ranks among the world’s least IPR-enforced countries. The government’s ICT experts at the OMSAR technology unit could vigorously refute recent unfounded claims in a report by the US trade delegate that Lebanese ministries operate on pirated software, but the fact remains that this country is listed among the 25 nations – 13th to be precise – with the highest software piracy rates. To make software piracy non-palatable to corporate offenders – in reality, no one goes after the individual – legal recourse is essential. And here, enforcement is key. “We want court decisions with amounts that really deter,” Nasser said. “The laws are really good, they just lack muscle. We are still dragging our feet and treating this as a minor offense.”

Enforcement is better now than it was immediately after passage of the 1999 IPR law, but not decisively so. Taking a software pirate to court in Lebanon consumes much time and cash, and can take between two to four years and cost between $5,000 and $10,000 in legal expenses, according to Nasser. “At the end of the day, you will get a court decision in your favor if the file is handled properly,” he said. “But if the fine is no deterrent, you’re wasting your money.”

So far, legal battles for IPR protection in Lebanon have been fought and financed by multinational corporations with regional interests. Although they often decried the unfairness of businesses working from unlicensed copies of their products, local software developers have neither joined the BSA (and one couldn’t blame them; the BSA is a costly club for the major players) nor pushed for prosecution of violators. However, an improved economy and greater demand for Lebanese software will see an increase in piracy. “The more the sector will grow, the more piracy will become a problem,” admitted Ali Shamseddine, vice president of the Association of the Lebanese Software Industry (ALSI).

The Lebanese telecommunications infrastructure is as sore a point as it was before the spring 2001 crash of the internet bubble. Bandwidth for connecting to the global data backbone remains limited and expensive, and the country is in danger of losing its edge of having a more advanced mobile network than other countries in the region. In the view of Jalal Fawaz, president of the Professional Computer Association (PCA), next to the general business concerns that relate to the country’s economic environment, the completion of the telecommunications infrastructure through establishment of a public data network tops the list of industry-specific concerns for local ICT companies. The same concern is high on the mind of Intel Corporation’s regional business development manager, Tony Prince. “I would like to see an improved infrastructure,” he said, “better broadband would be a necessary condition for the evolution of the business. People such as ourselves could do business better.” According to Kamal Shehadeh, an economist specialized in regulatory frameworks and telecommunications affairs, the non-development of telecommunications infrastructure in the past few years has had a negative impact on the entire ICT industry by creating technical availability bottlenecks as well as access barriers through high prices. “Access to broadband is a very expensive proposition at current tariffs,” he said. “Prices for regular phone connectivity to the internet have come down, but are still very high, even prohibitive.”

A contributing factor to the problem is that the state-run communications infrastructure network would presently not be able to handle a flood of demand for high-speed internet access, giving the monopoly provider absolutely no incentive to encourage demand for broadband access. This market structure issue reflects how the monopolistic nature of Lebanese telecommunications has negated the chance of establishing a legally licensed private sector data structure, Shehadeh reasoned. The only way to change the situation is to license alternative providers, such as the private sector data network operators. “Is it a realistic and reasonable request? Yes. Can it be done? Yes,” he said. “It has been done in other economies less developed than this one.” But at the end of the day, this is a political decision, he added. Retaining talent is the next headache that Lebanese ICT companies face today just as they did three and four years ago. “A second main concern is the human resources issue,” Fawaz said, “how to create growth to keep people inside the country.”

In a best case scenario, a talented young software engineer or computer science graduate will leave Lebanon in search of the advanced training and experience, which she or he can acquire in the technologically most developed countries. This person will stay abroad for a limited time and at some stage return to Lebanon with the will to put the acquired expertise to work in the local economy.

In practical reality, Lebanese ICT companies, face the daily threat of losing human resources, often because a company cannot offer their best minds the advancement they seek, even if that company wants to keep them. “We have had ten years of ICT brain drain,” Shamseddine said, “and the only way to bring them back is to have proper jobs, properly paid.” In the experience of ALSI president Fares Kobeissy, Lebanon’s narrow ICT career market is a clear impediment. “Our industry has upward mobility as a requirement,” he said. “People need to grow into better positions and better jobs.” What acerbates the problem for the companies in the local ICT industry is that their high share of labor cost translates into extra-heavy additional burdens of National Social Security Funds contributions. Exempting ICT companies from income tax would alleviate the burden, suggested Kobeissy and Shamseddine. “We want labor laws different from the ones existing today,” said Michel Nseir, head of the PCA software committee. He admonished that the inflexibility of regulations (designed to protect professionals in labor contracts) disallows for effective subcontracting and temporary project-based work agreements. Additionally, Nseir asked for adjustments to visa regulations, which would make it easier to bring in tech experts from countries such as India.

Intel’s Prince would wish for people purchasing ICT equipment to receive a break from Value-Added Tax to reduce the cost of ownership. With such a catalogue of needs and concerns, it becomes quite clear that the Lebanese ICT companies must see more than an improvement of conditions in the worldwide climate of their industry. Doubting existing mechanisms for investment promotion, companies are crying out for comprehensive public sector support of this industry, which its members consider as one of the top prospects for Lebanese economic leadership in the region and eventually beyond. For the moment, however, the mood is strained. “The way things are going, the policy of the government is destroying what little we have in IT today,” Nseir said. “New investors in tech are not encouraged, and instead of growing, we are sleeping. IT is suffering terribly. The only firms that were able to make it were those that could keep up in the local market and expand in export markets.”

“It is very hard these days to do business in Lebanon related to information technology,” concurred an investor involved in the sector. A big weeding out is taking its course, and only the strongest companies have any prospects.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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