Despite the Central Bank’s (BDL) circular 331, which allows venture capital firms and banks to finance startups with less risks by guaranteeing investments up to 75 percent, Lebanese tech firms are casualties of the country’s economic woes. Between capital controls that restrict payment capacities abroad; the exile of talent fleeing Lebanon; and the sorry state of the electrical and internet infrastructures, Lebanon’s application, or “app”, creating firms are facing harsh difficulties.
Existing gaming developers in Lebanon have targeted a worldwide audience, with the bulk of their downloads in North America and in Arab countries with developed gaming culture like Jordan, Egypt, Saudi Arabia and the Emirates, according to Lebnan Nader, CEO and co-founder of Game Cooks.
MENA gaming app developers have created popular content, with apps such as Tarneeb Masters (4.5 rating on Google Play Store with over 10,000 reviews), Domino Hit, Conqueror of the Realms and others. In 2020, gaming startup Yayy’s games, a Beirut-Based gaming publisher and developer that has developed games such as Conqueror of The Realm, Domino Hit and Mess It Up, have had over 100,000 monthly active users. The gaming industry, once seen as promising in Lebanon, has seen the recent shutdown of Arab Arcade, an initiative that had launched to support the development of gaming apps in Lebanon.
From a business-model perspective, the gaming industry is divided into two primary segments: one, developers who create the gaming application, and two, publishers who promote the application on various outlets. Due to the current economic crisis, developers in Lebanon are facing a set of difficulties that are not only related to the crises of 2020, but also to Lebanon’s infrastructure as a whole.
For instance, GameCooks managed to establish an office in San Francisco in two days, online. “It took us 30 days to create a company in Lebanon,’’ reminisces Nader, lamenting the state of the regulatory framework.
Ziad Talge, founder and CEO of Yayy, is clear on the difficulties that app developers face due to high electricity costs and unreliable internet.
Ironically, the Covid-19 pandemic did provide a small boost for the gaming industry, with many people working from home and in need of distraction. As a result, according to Talge, gaming applications have been heavily downloaded ever since the start of the pandemic. According to Gamesindustry.biz, the first three months of this year marked the largest quarter for mobile game downloads ever, with more than 13 billion installs across the App Store and Google Play.
“We saw a huge boost in entertainment business, streaming, gaming etc.” says Hussein Hajo, Chief Operating Officer at YallaPlay, a Beirut-based gaming developer that has developed games such as Tarneed Masters. According to him, the boost in gaming applications downloaded, including his main application, Tarneeb Masters, is equal or slightly less than the growth in downloading of work applications developed worldwide as a whole.
In some cases, the covid pandemic actually hurt game developers’ business. Game Cooks, for example, has developed a niche in virtual reality (VR), which unlike other games, requires going to a virtual reality arcade to wear a VR mask – unless you have your own equipment. GameCooks’ games are linked to arcades around the world, and they obtain a percentage fee on every game played that is developed by their company. As a result of the Covid-19 pandemic, virtual reality arcades worldwide have been hit hard and many forced to shut down, slashing GameCooks’ profits.
Capital control strikes again
Capital control laws have made it difficult for venture capital firms to invest in developers due to the economic insecurity of Lebanon. Additionally, funding would primarily be used for international payments, payments that are no longer possible. This spending would typically cover marketing, software services, and staff and talents abroad, according to Hussein. “This affected us in executing our plans,” Hussein says, “Especially in marketing as you have to spend real dollars abroad”.
The Lebanese regulatory framework is also not seen as VC-friendly. “We live in the ice age with regards to regulation,” says Hussein. “We start paying taxes on our first day.” Gaming developers need time to register profits, and the lack of adequate subsidies does not encourage the development of applications in Lebanon.
To add, the internet in Lebanon is among the slowest in the Middle East. According to Speedtest, Lebanon ranks 159th out of 177 countries for internet broadband speeds. “We need a stable internet connection,” says Hussein, “We try to overcome that issue with our house algorithms and coding, but it is definitely an issue”. The work-from-home model also means that there is less bandwidth available for gaming per household.
While access to funding had been encouraged by BDL Circular 331 in 2013, the circular did not address shortcomings outside of the purview of the Central Bank such as the regulatory framework, the legal structures, and the ease of doing business. According to Doingbusiness.org, Lebanon’s worldwide rank is 143 with regards to how easy it is to do business, with 15 days to start a business and the average number of procedures needed at 22. Also, Circular 331 facilitated funding via banks, which are cautious by nature and less willing to take risks than venture capitalists, for example.
A once-promising venture built on Lebanese talents is facing threats. With the impossibility to pay for servers, publishers, or talent, while obtaining little to no funding, the gaming industry in Lebanon might possibly be contemplating its twilight.
- “We saw a huge boost in the entertainment business, streaming, gaming, etc.”
- Lebanon ranks 159th out of 177 countries for internet broadband speeds; a major hurdle for internet-dependent sectors.