Following the roundtable discussion on Manufacturing, we quizz the chief executive officers of two high-profile companies that are adding value to the real economy of Lebanon: cloud infrastructure component maker Multilane in high-tech manufacturing, and paints producer Sipes International, a stalwart player in the chemicals sector. With all the infrastructure shortcomings of Lebanon, fulfillment of one practical want would set these industrialists’ minds onto steeper growth: the implementation of dedicated manufacturing zones or “special economic zones” (SEZs) as building blocks of a real-economy industrial ecosystem.
Chief executive officer of Multilane, Fadi Daou, sums up how he perceives the fundamental problem of manufacturing in Lebanon. “All the existing laws in our system center around a consumer industry and none of them focus on the export sector,” he says.
Like approximately 90 percent of systemic industrial manufacturing problems, this battle over the creation of industrial zones or SEZs is nothing new but all the more enmeshed in sticky interests. According to a World Bank report from 2018, Lebanon has had a program for establishing industrial zones “for several decades” and a strategy for such zones was developed in 1995 by the Investment and Development Authority for Lebanon (IDAL). More recent by comparison was that some five years ago, a program for SEZ master-plans and pilot zones was heaved onto the political table as result of a collaboration between UNIDO and the Ministry of Industry. This occurred after several years during which the topic of industrial zones in context of the Syrian refugee crisis had been shouted by UNIDO from the country’s development rooftops. Back in 2009, the Lebanese Parliament started to discuss the establishment of a SEZ in Tripoli which was enacted as a law but until now has never seen the light of day. A certain plot of land allotted for the creation of this zone and the appointment of its chairman are all that has been done in this direction so far.
Daou comments that “the Tripoli SEZ was founded as a quasi government organization and it won’t be able to operate as an independent free market industry sector.”
Daou stresses the need for a private sector-driven SEZ to operate outside the local jurisdiction, saying: “We need to create an echo system or a legal setup that will allow a competitive operation of multinational companies in Lebanon which have been able to operate in the SEZs of Dubai, Vietnam, Tunisia, Malaysia and Thailand.” He tells Executive: “SEZs will help us export products rather than export people and will become the foundation for creating jobs.”
Wajih Bizri, president of Sipes Group, echoes Daou’s views by saying “the best lobby we can do as businessmen and as industrialists is to put an effort to create the SEZs which should be completely independent from anything related to the government bureaucracy.”
He continues, “There is a need to have multi SEZs in different areas geographically and demographically to be available for different sectors.” According to him, future SEZs will serve as a hub for IT export and for exportable services, adding that “On top of that we can open hubs for small and medium size businesses in these zones and let them develop.”
“If we succeed in that then we can talk about developing the five sectors we talked about at the roundtable especially IT, Intelligence, other industrial sectors and even service sectors,” Bizri says. He moreover suggests merging some of the industries discussed at the roundtable or having a common export bureau for these industries.
While he considers lobbying with the current public sector a waste of time unless it is restructured according to the International Monetary Fund (IMF) demands, he advocates for bringing in European experts who can assist industrialists and show them the way to export to Europe, especially with the devaluation of the Lebanese pound and the drop in salaries in Lebanon.
When asked about how important the brand of Lebanon is to his enterprise, Daou says, “For me as a manufacturer it is not very critical. In our sector our end customers don’t necessarily care where the product is coming from. They care that the supplier, us in this case, is not at risk of delivering a high-quality cost-competitive model on time.”
While being committed to these standards, Daou’s high-tech manufacturing venture could build a Lebanese brand, a brand which, according to him, “has been damaged because Lebanon is viewed as a country of risk.” For some other industries, namely fashion or food products, Lebanese branding could be relevant “for sympathy purchasing,” he says.
Daou adds, “The brand of Lebanon can best be improved by us being able to create a more competitive environment in which we can meet the delivery needs of our customers. I believe what we really need to do is to mitigate the risk by removing the financial risk to our market segment to be able to freely transact in the banking sector as we would in any other country and we need to eliminate the historical barriers that have existed in our sector and have prevented us from growing or creating or helping or enabling other companies in our sector to grow in this country.”
For Bizri, the brand of Lebanon has suffered a lot in the past three to four years. However, he says, “It is still an important brand in the agro industries where it has an advantage. Other than agro industries, the brand of Lebanon does not have an added value in the present circumstances because of the lack of transparency linked to Lebanon and its government.”
“To best improve the brand of Lebanon, it is a must to have a transparent government. And we have to start moving forward with the IMF. Besides, we need to have political stability which will eventually lead to some economic stability. You cannot put all your efforts on branding something which cannot be branded,” Bizri concludes.
Regarding the creation of synergies with the other industries that were discussed at the roundtable series, Daou says, “I don’t necessarily see from my industry a relevant collaboration with an agro or fashion or hospitality industry which is completely unrelated in terms of their needs. However there are common principles for operating any business in that there needs to be a synergy, for example the most critical thing is the banking sector. Today, we are underwriting the banking sector and it is not as effective and efficient as it used to be. Another area could be rendering the labor laws to be more compatible with the free market economy.”
He emphasizes that access to finance is not what is holding him back but cautions that the current system is not viable for the creation of new industries, adding that the formation of an ecosystem will achieve more than subsidizing the sector. However, the banking sector needs to be stabilized by creating mergers. “There is a need for creating a hybrid model system, a crypto currency for that matter. Any way that will let us be able to transact with our people and to receive money from abroad without being charged a huge amount of money,” he says.
For Bizri, Lebanese industries face daunting but surmountable barriers of finance. “Accessing finance today is very difficult with all the question marks about the Lebanese economy. But it is not an impossible mission. We need to concentrate and depend somehow on the Lebanese diaspora by offering them interesting investment opportunities,” he says.
This, however, relates to a bigger challenge that exceeds private sector bargaining. “It is a very difficult mission today to access the money markets and convince them to invest in Lebanon before the government does something very transparent with the IMF,” he adds.
Survival and growthSome segments of the manufacturing industry that managed to survive the financial and economic crisis in the country so far are considered a hub for future growth.
“I strongly believe that our industry segment can be a cornerstone for the creation of tens of thousands of jobs in the country,” Daou enthuses, citing the success of Multilane in reaching as clients top-shelf names in the knowledge economy and purveyors of global cloud services. “In this sector, manufacturing is becoming competitive and the labor costs in Lebanon have become more competitive and affordable,” he says.
Mismatches of supply and demand are in favor of companies that supply quality components to cloud computing infrastructure and create new opportunities for Lebanese high-tech manufacturers with their recently improved cost structures. “What we need to do is create a demand model for these jobs in Lebanon through enabling an ecosystem,” Daou explains.
In addition to the tech industry, the agro, pharmaceutical, cleaning and personal care industries are doing very well according to Bizri. “These industries can improve their exports even with the crisis hitting Lebanon. They are working with very high capacities and their possibilities for export are very high,” he says.
Export opportunities nonetheless do not automatically solve challenges that have arisen in the past year of domestic distress for Lebanese manufacturers. “My field [of paints manufacture] is down since it is related to construction which is on hold in Lebanon nowadays. So we are facing real problems like not having demand for any construction material,” Bizri explains.
Plan B, sort of
Industrial companies that survive the current crisis are considering a plan B in case things become worse.
“We have survived because in our business we don’t depend on local consumption. Our market focuses primarily on exports. We are getting fresh dollars and we are able to grow but the risk is the country risk,” Daou says. This perception of Lebanon is a measurable impediment and will not just disappear tomorrow. “In the global economic and banking sectors Lebanon is seen as a risk country. Our company, which is growing at a 25 percent rate per year, has mitigated the country risks by having operations in different parts of the world like the Far East, Silicon Valley, Munich, and Dubai,” he explains.
The litany of potential disruptions is familiar. Daou cites airport closures, the inability to buy diesel for the company’s generators, the loss of all governmental electricity supplies, the cutting off of internet access, and the blockage of the company’s imported raw materials or banks’ ability of receiving fresh dollar transfers from Multilane’s foreign customers as obvious risks. But if the company’s ability to supply its customers from its plant in Lebanon were to be paralyzed by any of those potential impediments, it would adapt – just not from Lebanon.
“We have plans that enable us to click the switch and start operating and manufacturing completely from places outside Lebanon so the supply to our customers will keep flowing,” Daou says, adding the sobering view that transacting out of Lebanon is becoming increasingly difficult even for agile manufacturers with strong exports.
For companies that don’t have overseas operations like Bizri’s company, the situation is still more complicated. “We are trying as much as possible to reduce our overheads and to diversify into different businesses like anything related to chemical industries. Besides, we are trying the possibilities of export today,” the industrialist explains. His Plan B is survival of the core, preservation of manufacturing capacity even if hardships strangle the sector further. Bizri says, “In case the situation gets worse, we have to reduce further our overheads and to reduce our working period from six days per week to three days.”