The growing pains of ICT

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It sure looks as if in the world and region, all things ICT are returning to normal. Shares in e-companies are no longer an anathema. The big market move of the season from a tech perspective, the Google IPO, clawed its way beyond obstacles to achieve figures that appear, all in all, more respectable than some headlines suggested. Earnings at multinational corporations from Cisco Systems to Dell look good – so good that a 5% quarterly drop in performance of Hewlett Packard’s enterprise server and storage division led the company last month to immediately sack three top executives, even as HP’s overall profits were up 9% for the quarter. The big names are also hiring. IBM announced in August that it has 18,000 new jobs on offer to bring its worldwide headcount to 330,000 at the end of 2004 and Microsoft said they would hire 6,000 to 7,000 persons during the coming 12 months on top of their current staffing of 57,000. The latest news from the ICT employment market in Germany, Europe’s strongest economy, is that salaries for information and communications technology specialists have accomplished a full rebound to sector income levels of early 2001. Across the MENA region, ICT growth also is again in focus. From PC and software sales to continued surging numbers of mobile phone subscribers, market watchers make enthusiastic projections and global ICT companies court Arab markets for their promising potential, even as these markets are marginal in their annual reports. With many signs to the unmitigated importance of ICT for regional economies and new good days for people in the sector, it appears paramount for a country like Lebanon to do its utmost in preparing the best possible environment for ICT companies to thrive here. International and local experts and executives for firms of all sizes and specializations in the Lebanese ICT community agree not only (despite their differences on many other things) that the country still has a good shot at being an ICT location, but are also in total unison on where crucial changes are needed first. “ICT in the Arab world is a high priority and opportunity for economic development and inclusion in the digital information age,” Microsoft’s regional manager, Charbel Fakhoury, told EXECUTIVE, and enthused, “Lebanon’s ICT potential is still to be fully realized and we are witnessing a strong momentum and support from executive leadership to expedite Lebanon’s realization of the ICT opportunity.” The right size for the Lebanese ICT industry’s production would be around $2 billion, or 10% contribution to GDP, suggested economist Louis Hobeika to EXECUTIVE, and underscored how the country has come a long way in ICT development but has lost ground within the region. “In absolute terms we are perhaps moving forward, but in relative terms we are falling behind,” he said. “One of the obstacles for companies to locate in Lebanon are the high costs in the telecommunications sector, which are three times higher than in the UAE. Our ICT sector today is of average value and average performance.” In Hobeika’s view, Lebanon has several models in the Arab world to look to as examples of who is getting things right: Dubai already, and soon probably also Bahrain, Oman, Kuwait and Qatar. For Lebanon to gain a new edge in ICT, experts and industry members agree that one urgently required improvement is the establishment of special technology parks. Co-locating numerous companies from one industry in shared environments has proven to lead to interconnections and mutually supporting industrial clusters, enabling stakeholders to advance together and become fit for international competition. Clustering boosts efficiency. Due to ICT companies’ pronounced needs for communications technology and highly trained staff, dedicated tech industry zones, as shown by multiple studies and practical examples, are especially helpful to ICT firms for optimization of their development potential.

The ICT community in Lebanon recognized these potentials earlier than their colleagues and public officials in many other Middle Eastern countries and entrepreneurs started drafting plans for ICT parks as far back as 1997. However, up until today, no large-scale plan has been implemented here. By contrast, tech zones in the UAE, Jordan and Egypt were designed after the first such Lebanese projects – and implemented years ago. Thankfully, however, Lebanon has one ICT technology park, which is demonstrating, albeit at a smaller size, how such an endeavor can be just as successful here as in the industry’s more conspicuous international locations.

The Berytech technological pole incorporates three essentials of a cluster for a growing ICT sector: hosting services, communication facilities, and an incubator where startup businesses can take their first corporate steps. The pole, a $4.5 million project established under strong involvement of Universite Saint Joseph (USJ), opened its doors in November 2002 on a site adjacent to the USJ Mar Roukos campus overlooking Beirut. Not even in its third year, Berytech is already home to some 40 enterprises and is currently researching where it can build additional facilities. “Our plan is to expand every year by 15 to 20 companies between startup and hosted companies,” Berytech president Maroun Chammas told EXECUTIVE. This growth target foresees significant incremental increases in the size of the facility, and the master plan calls for building each year 3,000 to 4,000 square meters in facilities until 50,000 square meters are added to its current 8,000 square meters in built-up area. As this expansion cannot be undertaken on Berytech’s current 3,000 square meter plot, the institution is trying to get land nearby on properties owned by a monastic order or, alternatively, seek buildings in Beirut. The latter option would also suit some resident companies, who told the Berytech management that they would like to be closer to the city, but the business incubator for startup enterprises would in any case remain at the Mar Roukos location. According to Chammas, thus far, all companies located at Berytech have been successful in their business ventures. The pole is open to companies from seven sectors, with information technology and multimedia/communications most developed in their presence. Although the shareholder base of Berytech consists of the USJ, 10 banks and seven industrial enterprises, it is one of the challenges for startups at the pole to acquire financing. “The fact that people are at Berytech makes access easier but Lebanese banks have not developed the business of lending to startups,” Chammas said, “it is one of our responsibilities to ensure that the incubator inspires banks with confidence.”

Startup entrepreneurs receive special support in the pole’s business incubator for a limited period of time. Hosted companies pay charges of $13/m2 per month in rent and $15 per month and computer terminal in connectivity fees. Although these charges may appear substantial by local standards, they have a great advantage in being fully transparent and calculable, said Ralph Bitar, manager of Soft Mind, a developer of corporate software solutions. “Here, a flat fee covers everything. Costs are not higher than in other buildings but benefits are much larger,” he said, and after trying out several locations in Beirut, his firm had found locating at Berytech a great improvement. Habib Maaz, CEO of another software firm, Unilog, concurred, saying his firm had been at Berytech since January 2003, and it had proven a good choice and location, which also impressed foreign visitors.

With Berytech’s good reception in the market, Chammas said he saw potential for having many more poles of its type all throughout the country. “I believe there is room for expansion everywhere in Lebanon.”

Enter the Beirut Emerging Technology Zone. With a projected size based on a one million square meter site, the BETZ project is of a different dimension to Berytech and incorporates a scale that would make it perform in the same league as the Dubai Internet City, the Middle East’s showcase ICT zone. But whenever the BETZ topic comes to discussion these days, opinions among the Lebanese ICT community are divided. Initially put on the table in 1997 through a grant for a feasibility study by USAID, the BETZ concept actually dates back to the bubble days of the new economy. This in itself would not be a problem as the need for a substantial ICT industry zone is as great now as it was then. The problem arises from the project’s enormously sluggish evolution. For the first few years after the proposal’s creation, the BETZ feasibility grants were stuck in various government drawers, with government experts in favor of the project having to produce contrived explanations every time they were asked why the study was experiencing yet another delay in implementation. When the study finally came to see execution around 2002, it was carried out by an American consulting company – somewhat understandably, knowing that US funding in international assistance likes to work that way. Less clear was perhaps, why research for something called BEIRUT Emerging Technology Zone would spend much time evaluating sites in far corners of the nation. As several communities were examined, ICT and development enthusiasts in some of them invested themselves considerably to present their community as location of choice for the project. Relief should have set in when in spring of 2003, IDAL chairman Samih Barbir could make a jubilant announcement that BETZ would be built in Damour in a partnership between IDAL and the municipality. For many in the ICT community, this announcement came so late that they were inclined to question the government’s intentions and validity of the project in numerous respects or were simply in disbelief that BETZ could now be put on the promised fast track of construction and welcome its first tenants by autumn 2006. As if to prove them right, the municipal elections followed and with them a change of elected officials in Damour. Since then, the situation of the project has been obfuscated by disagreements and lagging negotiations, the latest results of which apparently were that the municipality no longer wants to be a partner in owning the project but merely wants to lease the land to BETZ and receive annual rent to the tune of $4 million. Rumours circulating about the municipality’s position moreover talk of local fears to see inflows of outsiders and a tossup of the town’s sectarian balance, instead of welcoming the project’s manifold opportunities for developing the community. For supporters of growth in the Lebanese ICT industry, this is worrying news, because they are convinced that missing out on BETZ now would mean missing out on a crucial chance.

“Microsoft has been a strong supporter of BETZ,” Fakhoury confirmed to EXECUTIVE, describing the zone as “a milestone ICT project that will show Lebanon’s commitment to encourage ICT.” His company was dedicated to continue discussions with stakeholders on how local and multinational IT companies would be able to contribute and benefit from BETZ but warned, “If the project does not get real support, a real boost, it will move slowly.”

Thomas Schellen

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