EconomyOpinionSpecial Report

A crash course to avoid the crash

by Nada Rizkallah
written by Nada Rizkallah

Given the enormous investments needed to bring the Lebanese industry towards sustainable, low-carbon development, the financial sector will have to play a major role in allocating affordable and cheap funding to sustainable investments that shall contribute to the green transformation, while discontinuing any funding provided to activities that harm the environment. Indeed, awareness has been rising among central banks and regulators that the financial system has to take into consideration the environmental challenges and climate risks facing the real economy. In fact, the central banks play an important role as guardians of the financial and macroeconomic stability, as climate change and environmental damages may have direct consequences on price stability and levels of inflation.

This included the central of bank of Lebanon (BDL) which developed a set of industrial and sustainable energy subsidized funds granted through the Lebanese banking sector, to deal with this challenge in practice, prior to the unstructured sovereign default announced by the resigned government and the severe financial crisis still heavily weighing on all the Lebanese economic sectors. In this respect, the Lebanese banks provided long-term subsidized financing at low interest rates that were only eligible for disbursement, subject to sustainability assessments performed by accredited institutions and were monitored by both the banks and the regulators. This contributed earlier in the acceleration of the awareness and implementation of sustainable measures, to enable the funded industrialists to apply further enhancement of their sustainability policies and adopted measures.

No ESG, no money

As a matter of fact, Lebanon suffers from one of the highest negative environmental, social and governance (ESG) scores, reflecting its severe exposure to environmental risks, extremely high social risk and weak governance measures.

The United Nations Development Programme (UNDP) estimates total solid and chemical waste arising from industry to be around 326,000 tons per year (Source: UNDP report), with most of it generated in Mount Lebanon and the Greater Beirut areas. Many environmental issues like the chronic waste management crisis and the absence of any recycling measures, as well as water, air and noise pollution can be resolved if strict ESG measures are adequately implemented, by imposing on the government and companies to take due actions to enable them secure any future funding or equity investments.

In order to engage and implement strict ESG policies, a serious and trustworthy government has to be formed engaging action for the immediate execution of the long awaited political and economic reforms, including reinitiating the negotiations with the International Monetary Fund (IMF), in order to re-establish trust in the country and resume the path to financial stability that can revive economic activity and future investments in the country. The promised financial pledges from a number of foreign donors will bring economic aid to Lebanon. However the multi-development banks (MDBs) and other donors, such as the World Bank, International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Agence Française de Développement, etc. are only expected to offer financing that would be fully integrated to support reforms including sound environmental management, which would reflect the importance provided by them for supporting the environmental agenda in Lebanon. Nonetheless, this will not be enough to solve all the country’s problems, unless the authorities apply the necessary reforms and prioritize ESG factors as part of their full economic and financial recovery plan.

In parallel, joint initiatives by the Ministry of Environment, the Ministry of Finance and the BDL have to be closely incepted with the donors, in coordination with the Lebanese Industrial Association (LIA) to join efforts, with clear objectives to reduce the industrial pollution in targeted industrial companies. The Ministry of Environment will have to strengthen its monitoring and enforcement capabilities for all financial sectors to follow suit. In fact, they jointly need to set up several prerequisite mechanisms for financing the abatement of the industrial pollution within the industry sector and to provide the necessary technical assistance for ensuring the ESG implementation and the sustainability of these interventions. The banking sector will also have to resume its active lending role in the economy, by implementing transparent ESG policies in its lending criteria, otherwise it will not be capable of raising new direct cheap financing from MDBs. In fact, for previous loans granted by MDBs, local banks were required to implement strict social and environmental management systems (SEMS), consisting of assessing the environmental and social risks and opportunities arising from any borrowers’ business activities, prior to granting or renewing any related facilities, that were regularly monitored by the donors.

Raising the issue

The major issues and difficulties anticipated and previously faced are the weak participation and awareness of the industries in the implementation of pollution abatement measures which may affect achieving the set targets and the additional efforts that may be required to align the technical reports completed by the industries to meet ESG requirements.

While Lebanon is still suffering from the regional political constraints and the continuous delays in the formation of a decent trustworthy government, it would be still recommended that the LIA initiate immediately more active and focused collaborations among industrialists to create and implement enhanced sustainability awareness, including practical measures and collaborations to improve the ESG implementation and proceed with the needed lobbying with some credible deputies to promulgate or at least prepare the needed regulations. In parallel, this would pave the way to pre-secure in due time the terms and conditions required to raise cheap financing and enhance their performance capacity, to meet the growing ESG and competition needs. The benefits could be immediately witnessed with potential cheaper production costs, higher exports raising fresh funds liquidity, obtaining fresh funds financing (such as through Cedar Oxygen), while awaiting political stability and reforms.

In fact, it would be a good initiative for the industrial sector to provide special attention and focus on how integrated supply chains opportunities may be initiated among stakeholders, in order to adopt local alternative resources to save on the import of raw materials and save on paying very high sums in foreign currencies. For instance, manufacturing industries of plastic packaging, nylon bags, water pipes and tanks, cartons, etc. that are importing most of their raw materials could eventually coordinate with the recycling industries and other concerned parties, to recycle existing plastic and paper waste in Lebanon to be used as part of their raw materials. This would have several benefit edges including the reduction of the cost of acquiring raw materials, cheaper and more competitive products that can be exported, thus attracting fresh funds and actively contributing to the ESG implementation, while maintaining a stable supply chain and contributing to lowering pressure on the Lebanese pound and inflation. This will eventually have spill-over effects that would benefit end-consumers and all the local economy.

Finally it would be worth highlighting that the absence of standardized data about business practices relating to social and environmental concerns is a key barrier limiting the flow of socially responsible investments, especially in the MENA region. Another challenge lies in educating all relevant stakeholders about the importance of ESG standards in investment and lending decisions by training existing resources, communicating with clients and ensuring continuous board and management engagement. Some basic methods that could be used to create more public awareness are: regular roundtables among all stakeholders, lectures, seminars, TV spots and programs, fairs, cleaning campaigns and press releases. NGOs, academic universities and institutions could also contribute to sponsor initiatives, organize seminars and environmental fairs to combat pollution. The visual media and programs also play an important role in exposing the environmental problems with scientific documents broadcasted to introduce different pollution problems objectively.

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OpinionpolicySpecial Report

Constitutional challenges and the fight against impunity

by Ghassan Moukheiber
written by Ghassan Moukheiber

Accountability is a fundamental tool for fighting corruption effectively, the formula for success being to make the cost of corruption, through holding the concerned individuals to account, much greater than its benefits to them.

However, the sad reality in Lebanon is the continued wide prevalence of impunity, particularly in the cases of grand corruption, which signals that corruption is systemic, in the sense that it is not accidental, but a tool for the real operation of the political system as a confessional-based multiple oligarchy controlling citizens and the state’s public goods, redistributed to political clients through acts of corruption.

Corrupt acts in such a system, are not only limited to criminal offenses, petty or grand, (such as bribery, misappropriation of public funds or illicit enrichment), but extends to practices, many of which are based on laws or decrees (thus the adjective often used of “legalized corruption”), involving the abuse of public office for the personal gain of political clients, such as the provision of services and the allocation of public goods, including public offices, public land and public contracts.

This article assesses whether or not the provisions, interpretations and practice of the constitution, cause, promote or facilitate this systemic state of corruption and impunity. It also suggests some follow-up actions.

The constitution, interpretations, practices and culture

When evaluating the constitution, we do not limit ourselves to its operative texts alone, but extend our review to the full “constitutional bloc”, which includes its preamble and a number of fundamental laws mentioned in the constitution, such as the electoral law, the by-laws of Parliament and government, the laws governing the Judiciary, the constitutional Council, the Higher Council for the trial of presidents and ministers and the Court of Audit.

Also,  we include in our evaluation political practice, which departs many times from the intent of the text and the constitutional principles. These practices, called “silent constitutional amendments”, result from various mis-interpretations, practices (or the lack thereof) and loopholes in the laws, not accidental, but meant to exist.

Constitutional principles and tools for oversight and accountability

The general discourse about ending impunity through constitutional means, usually emphasizes the important role that should be played by an independent judiciary. However, this fails to highlight other constitutional oversight and accountability means that are: popular, parliamentary and financial.

Distorted expressions of popular sovereignty

The constitution solemnly states that the People is the source of all powers/branches of government. However, reality distorts such supremacy and turns it upside down.

Distorted and rigged elections: Free, fair and regular elections, that should constitute the ultimate popular tool of accountability, have been regularly distorted to the advantage of the ruling oligarchic leaders that have succeeded in controlling the electoral results. Not only are the choice of districts and electoral system themselves tampered with, but there are other ways and means for controlling the results, such as ineffective tools to manage the elections, ineffective controls of campaign finances and media and pressure on voters.

Clientelism: Citizens who should be free and equal in the exercise of their political role, are captured by leaders as clients through sophisticated practices of corruption and confessionalism, such as in the apportionment and redistribution of public goods and services among political and confessional clients (e.g. public offices, land and contracts).

Emergence of popular empowerment: Direct oversight and accountability by the people, which was amplified by modern social media, is a novel and potent tool, which has been most effectively exercised since the October 17, 2020 and the massive popular demonstrations, as well as the parallel rise in effectiveness of the new civil society organizations and political grassroots movements. The direct action of citizen is putting an unprecedented pressure on the politicians, seeking more accountability and the pursuit of an effective fight against corruption.

Distorted separation of powers

The constitution solemnly declares in its preamble that “the [political] system is based on the principle of separation of powers, their balance and cooperation”. This indeed constitutes the foundation of the effectiveness of oversight and accountability. However, in reality, the practice developed the hegemony of leaders over the constitutional institutions (particularly through extra-institutional mechanisms such as the “Troika” and the “Dialogue Table”), and the preeminence of the executive over a weak parliamentary oversight and a weak judicial independence.

Weak parliamentary oversight: this is highlighted in a confusion between the offices of members of Parliament and ministers, especially in the context of the prevalent practice of the so-called National Unity Governments; rare meetings of the Plenary of Parliament for oversight sessions (an average of 21 meetings for questions in over 19 years); ineffective mechanisms of oversight and accountability provided for in the by-laws; oversight confined to committees that do not hold public meetings and do not report back to Parliament; the inability to form any parliamentary investigation committee; and inappropriate transparency of the parliamentary activities, particularly the absent use of the electronic voting system and of any  TV coverage of the legislative process.

Weak judicial independence and effectiveness: this is related to the lack of independence of the Judiciary as a third branch of government as provided by the Constitution; the inability to approve a pending bill meant to develop its independence, effectiveness and integrity; a similar inability to develop administrative court (the Council of State); the appointment of administrative judges in consultative positions within ministries; the need to reform the Constitutional Council, who in addition to its many institutional shortcomings (including its inability to accept requests for constitutional interpretation, as originally provided by the Taef Accords), is rarely used by the political system for the constitutional review of laws.

Immunity of public officials

The constitution solemnly declares the principle of equality of all citizens before the law. However, many forms and mechanisms for immunities specifically favor civil servants and public officials.

In reality, immunities have become the stronghold of political impunity, further reinforced by the abusive practice of confessionalism. The most striking example of institutional immunities, is the protection afforded to the president of the republic and ministers, who can only be tried before a special political jurisdiction, the High Council for the trial of presidents and ministers. The procedural law applicable to this jurisdiction makes it almost impossible to operate. A small window of improvement was opened by the most recent amendments of the illicit enrichment laws, which has now allowed the trial of ministers on that count before common courts.

Ineffective financial oversight

The historic rationale for the very existence of Parliaments originally was the exercise of the “Power of the Purse”, that should be the most potent tool for the financial legislation of taxes and the budget as provided by the constitution.

However, the practice has limited such power, if not made it totally ineffective. For more than 10 years, Parliament did not vote a budget; for more than 50 years, it did not vote a properly audited final state accounts (e.g. the State’s balance sheet) and since 2005 there were none produced. Parliament always invented drafting means to circumvent such obligation, required prior to the vote of any budget, a practice considered unconstitutional by the Constitutional Council. In addition to the above, parliament has few tools for the effective exercise of its own financial oversight, other than the finance committee, such as an independent budget office, as best practiced by many other parliaments.

Last but not least, the role of the Court of Audit mentioned in the constitution, has also been ineffective, particularly to oversee the budget and public financial expenditures.

Recommended actions

It appears from the above, that a distorted constitutional practice has weakened the proper functioning of the oversight and accountability mechanisms, to the extent that the political system has become similar to a “basket that doesn’t hold water”, a mere façade of laws and institutions, void of their much needed effectiveness. This signals, not only a lack of will to fight corruption effectively, but also, and much to the opposite, a concerted will to maintain the systemic corruption and curtail the effectiveness of any effort for accountability, oversight and transparency. Thus the state is not “failed,” but “captured.”

This will can be reversed by appropriate actions. A few bills were submitted to parliament to address some of the issues raised in this article, e.g. reinforcing the oversight functions of parliament, improving the means for holding ministers to account, limiting political immunities, improving the independence and effectiveness of the High Court of Justice, judiciary, court of audit and other oversight bodies.

Also, the government has recently completed the “National Anti-Corruption Strategy”, which includes many actions directed at preventing and fighting corruption (including reforming the Judiciary and the Court of Audit), but falls short of addressing many of the constitutional issues discussed in this article, which must be addressed appropriately, through further scholarship and dialogue, in preparation for the development of a special strategy and action plan to correct the many distortions of the constitutional tools of accountability.

Most of these efforts would probably not require modifications of the constitution itself, but filling the gaps of the fundamental laws forming the bloc of constitutionality and changing many of the legal misinterpretations and decades of improper practices..

Ghassan Moukheiber is a lawyer and former member of parliament

Disclaimer: The analysis, views and policy recommendations of this article do not necessarily reflect the views of the United Nations, including UNDP, or its Member States. The article is an independent piece commissioned by UNDP as a build up to the “Constitutional Challenges and the Fight Against Impunity” webinar organized in partnership with Executive Magazine.

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MediaOpinion

The end of the li(n)e

by Alexis Baghdadi
written by Alexis Baghdadi

In May 2021, clashes in Palestine took their habitual toll of innocent human lives. After a “ceasefire” agreement was reached with both sides unsurprisingly claiming victory, some establishments responded with smears, character assassination, and legal attacks on human rights campaigns. For wary observers, this amounted to a “same [expletive] different day” situation, except that what most of them failed to predict this time, and still struggle to comprehend, are the new “nuances” in public debates. The repeated use of terms like #apartheid, #settler-colonialism, and #ethniccleansing prompted many to ask “Has Israel’s ‘narrative control’ collapsed?”

While the usual suspect lineup of commentators and self-anointed experts continue their debate ad nauseam about right or wrong narratives, the real issue should highlight the momentous change in the way people are consuming information and questioning narratives. This discussion goes beyond conversations about the mainstream press’s hard editorial lines and catering to special interest groups versus idealized citizen or activist journalism, sometimes referred to as the fifth estate. It forces a reevaluation of the core role and responsibility of media institutions, outlining a true evolution.

Fakes and Breaks

Notwithstanding the tragic loss of lives, the issue extends beyond geographical borders to the way and the reason why information is relayed and consumed. As far back as we know, the purpose of information, from reindeer bone carvings to the first newspaper in the 17th century down to its online descendants, is to document events. It follows that the holder of the pen, so to speak, controls the narrative; a reindeer’s equivalent of a podcast would tell a totally different story about a very one-sided and bloody speciesist conflict. Social media platforms are only the latest iteration of such vehicles of information, distinguished from their peers only in that more people than ever can adopt these tools and use them to articulate and disseminate information.

Thanks to this new tool, narratives previously kept in check have gained prominence, but the resulting information overload has polarized media institutions and tainted the alternative space as a bog of biased and misinformed micro-discourses, leading to distrust of the media in general. En vogue discussions involve an arena where the “mainstream media” and the so-called fifth estate vie for relevance and survival by earning income, likes, and followers to establish themselves as opinion makers, shapers or influencers – just as Roman gladiators hoped for the “thumbs up,” a symbol of approval we still use in modern emoticons. One could endlessly rhetoricate about ethics in the many declinations of journalism as independent, investigative, analytical, citizen, activist, social, solutions-based, etc., with no clear outcome other than its self-promotion. A simple look at the institutionalized media outlets in Lebanon, and the mushrooming “independent” platforms, shows how these have become slaves to their labels and made themselves easy targets for condemnation and commendation, interchangeably. Nor is the unfortunate term “fake news,” vulgarized by populist politicians, limited to one era or form of dissemination. “Disinformation,” more accurately, has existed since the cognitive revolution was responsible for making us human by essentially giving us the ability to “tell the thing that isn’t there,” bluntly: the ability to lie.

No more tall tales

The idea of any type of narrative is losing its viability, a demise harried by the tableau of a battle between “fake” and “real” news, good and evil, promoted by many institutions, including the media themselves. But this reductionism does not hold up against thousands of voices and nuances. One can conjure up an image of humanoid figures in an M. C. Escher landscape, each upholding their own narrow perspective. The one entity with some advantage here is the implied external viewer who can at least see the whole picture. Like these figures, media institutions and consumers are often unable to shift perspectives. Their own limitations of identity and purpose restrict even their format; they may borrow each other’s tools and channels, but only in form, not delivery. This poses hurdles in the proper flow of information and negates any narrative.

One exit strategy from this rigged playing field is for media institutions to graduate from players into coaches. Amid the current Babel-like conversation, absolute objectivity and a dominant narrative remain more than ever elusive ideals. But educating people about how to navigate these subjects is within reach. The media have a golden opportunity to reposition themselves as educators about ethical and responsible use and consumption of information. Internationally, AFP’s Fact Check platform stands out as one example. In Lebanon, organizations like SMEX and SKEYES are also experimenting with this but unfortunately lack the wider reach of media outlets because they position themselves as activists. On the other hand, media institutions like An Nahar and even the National News Agency operate fact-checking services, yet these are widely perceived as polarized and lack credibility. What is needed is a strategic plan to develop a truly comprehensive approach combining competencies from each of academia, civil society, mass media, and social media to deep-dive into the proper usage of media channels while also appealing to the lambda social media users and content creators. Such a dream team can actively contribute to building a more constructive public discourse and eventually engage policymakers in higher stakes: upholding and improving existing media freedoms and ethics we risk losing otherwise.

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ICT infrastructureQ&ASpecial Report

Renaissance people of ICT

by Nabil Makari
written by Nabil Makari

In light of the economic crisis affecting Lebanon, and with the country’s talented workforce leaving the country, resulting in a brain drain, Executive sat down with Wissam Youssef, chief executive officer at CME, a multinational technology consulting firm based in Beirut, to discuss the Information and Communication Technology (ICT) sector, the possible new business model for the technology sector, and the role-models that Lebanon could develop. This Q&A follows the Technology and Knowledge Economy roundtable held on March 31, 2021, and the preparation of Executive Magazine’s action plan for reinforcing this and other sectors.

During our roundtable, you mentioned that due to the brain drain and the lack of economies of scale it is necessary to focus on premium outsourcing services. Could you expand on what types of services are needed?

Let’s start with a little brief on the outsourcing landscape in general. Usually you have two different levels of outsourcing needs. The first level is outsourcing for low-cost resources, which is typical for South America, Asia, and Eastern Europe. It’s more about focusing on obtaining low-cost mass scale resources, and they are available in countries like India, China, Vietnam, the Philippines, and others. This is a good market. However, in Lebanon we don’t have the scale to serve a similar market, we don’t have a massive workforce, the whole ICT (Information and Communications Technology) sector is currently employing around 10,000, even less, skilled resources. So to serve this market it’s going to be really tough on the Lebanese ecosystem. That’s why I don’t think it’s necessarily our main advantage, although today we are competitive on the cost side, but not necessarily on the availability of resources. That’s why I prefer to stay away from similar markets, unless there is a special opportunity of course. So this is where it comes to the low-cost layer of the outsourcing market. Then you have the more advanced layer, more focused on the added value, the technology added value, this is when outsourcing occurs not just for low cost but also for availability of skilled resources, and this is when companies look for skilled resources. This is happening all over the world because of the lack of skilled resources. It’s not just about low cost but also about skills and efficiency in terms of cost, the balance between quality and cost. This is where Lebanon has a real opportunity because we have skilled resources. This is not about mass, this is not about serving a need of 10,000 or maybe 1,000 resources, this is not the main target for premium services, it is more about filling a gap for a specific innovation product, innovative product or a niche company. This is where I think Lebanon has a real opportunity.

During our roundtable, CME was hailed as a success story. Can you tell us what CME is about? And also do you think that others could replicate this business model in Lebanon?

Let me give a little briefing of what we do and how we started. I think it is relevant and could be a case study for any new business. We are a technology company; we provide services, including outsourcing, but also products we develop, solutions, in different industries. We serve more than ten different industries, from Telecom, retail, healthcare, digital wallets, market research, insurance etc. It is really diversified, and we have a pretty diversified portfolio of technologies because of our scale. We have been serving customers throughout the past 17 years. We deliver for the whole supply chain system for Subway, everything that starts from the point of sale all the way to inventory management, procurement, operations, sales, compliance etc. Our solutions are deployed in more than 35,000 locations for Subway specifically, and other branches of course, all designed and engineered from Beirut. We also have a support team, 24/7, serving customers all over the world. We also worked with PayPal in the past; we developed for them the next generation mobile payment system that they currently use to compete with Apple Pay and Google for digital wallets. Thomson Reuters was also one of our customers, we supported them in deploying large billing systems for law firms, and we also served Allen & Overy (one of the biggest law firms in the world), White and Case and other big names in the law industry. This is the type of products and services for customers that we served in the past years.

One of the main capabilities that we have now is all-around diversification in terms of industries and technologies. We are also what we call the end-to-end solution provider, because we are not only software vendors, we are also hardware vendors, we design and manufacture hardware. It is not just about the software itself, and this is really unique because when I talk about hardware, it is not about large-scale hardware manufacturing, it is more about the Internet Of Things (IOT), smart devices. This is all engineered here in Lebanon. We are talking about product design, mechanical design, electronic design, and certification [such as the] Federal Communications Commission (FCC), all we can imagine. It is all engineered in Lebanon, prototyped and manufactured in China, and sold mainly to the US market. So this is the model that we have now. I think the main standpoints of CME today are first diversification, and second the track record that we have because it helps us acquire additional customers. The third one is what I call the end-to-end engineering services which is hardware and software, which is pretty unique and is similar to the model that Apple has actually. And the fourth one is about the resources, because all IT knowledge is about the resources. This is what is really unique about Lebanese talent; it’s multidisciplinary aspects and mindsets. This is a true differentiator, and this is why we are able to succeed in the premium services as well. And the real case study is around this point, because [we have] a tangible example of this. If we go to India or to the Philippines or China, usually we find someone who is really good; you can definitely find smart people and good developers, but they are more focused on a specific technology or industry. They do not really know how to make the link between the domain expertise and the technology, so it’s not just about technology or about writing code. Let’s say you are developing an insurance software, it’s pretty complicated, the insurance industry is not a straightforward industry, so if you deal with a developer focused on coding, then you need someone else who is going to do the analysis for him, to make the business case. Another resource, a third one, is going to test his work, so you end up hiring three instead of one. Whereas in Lebanon thanks to the academic background we have, [which is] one of the advantages we have, we are multitasking, multidisciplinary, so when faced with a challenge we really have the package, the background, to deal with this and to really play three roles in one: analysis, development and quality assurance. This is exactly what I call premium services: when you deal with someone who is really professional. If you go today and ask a developer to send you a username and password of a production system, one of the options is that he sends everything in one mail, and this is not professional. You will get the information but it is not really professional. A professional developer would have everything stored in a secure location and would send you a link that requires your authentication. This is exactly what I think Lebanon is capable of.

Do you believe the Lebanese ICT sector’s credibility has been reviewed downwards? If yes, do you think it can come back again?

There are different problems for the sector’s credibility. The Lebanese brand in particular. The first part is related to the government itself, and the way the country is run. When a high-level ranking officer in the government, minister or general director, goes on public media and claims that we [will not be able to provide] Internet by end of January, and this video reaches our customers in the US or the Arab countries, what do you think they will think about this? They will think their business is at big risk. They have huge operations that rely on the Lebanese talents in Lebanon. [That same day] one of the customers received a video on WhatsApp saying that Lebanon will “go dark” at the end of January. Imagine a company is going bankrupt in the next three months […] do you think the CEO will go on the news and say the company is going bankrupt in three months? Or [will he do] his best to make sure that everything will be managed properly to avoid the chaotic environment? This is really hurting us, and the same happened with electricity as well. I had to cover for our risks, to find solutions to provide our customers with plans B, C and D. Murex are offering to relocate their team to Cyprus, I read an article about it in the Commerce du Levant a few weeks ago. They are doing this because of the noise; financially it makes zero sense because we can operate here.

The second part, and it is also not contributing to build a real plan for Lebanon, is coming from the private sector, because whenever we are successful we go outside of Lebanon, and we claim success from a country outside of Lebanon. And this is not helping. I think we really need to convince the private sector that companies can go wherever they want, have offices anywhere. We are present in all continents, but we always take pride in our presence in Lebanon, we are not trying to hide it at all, this is our identity and we want to create a brand for the Lebanese ICT [industry], and I’m not blaming them, but we need to fight a little bit and create this brand.

How do you see the ICT sector in Lebanon building synergies with other industries?

I think there is a huge opportunity here. It’s a great question. I’m going to specify a set of industries that are really on the edge, and the mix between these industries and technology will create a huge advantage [money-wise].

The first one is healthcare. We have the best doctors, until now. The ICT [industry] might help them to stay in Lebanon, because most of the ICT companies pay in fresh dollars, because they sell outside Lebanon. One of the solutions we are developing now is a healthcare or wellbeing practice application. Soon we will be hiring doctors, just to give you the scope of this. […] If we really want to compete in innovative products, healthcare is a great resource for the ICT sector in Lebanon to create this edge.

Then you have the education sector. We also have really strong academic institutions in Lebanon, {like] the American University of Beirut (AUB), Université Saint Joseph (USJ), the Lebanese University, with hundreds of years of experience. We partnered with USJ to build an education system, an information management system for the students, and it’s going to be a partnership between CME and USJ. The ownership of the property is for CME but USJ has royalties in this. This is also going to add value to our offering. When we develop software for an institution like USJ, you really know it is going to be a Class A product, because it is one of the top universities not just in Lebanon. Theirs are actually the same needs as universities in France and Canada.

I just gave you two examples but there are many others like supply-chain, insurance, banking.

You mentioned bench lining during the roundtable? Can you elaborate on it from a policy view? Are you still hiring? How?

I talked about the bench lineup, that is similar to that of sport teams, the bench support for the football team. One of the main challenges in our industry, the outsourcing industry, [is the] speed of mobilization. Whenever you have a customer, the first question is the cost, and then how much time you need to staff the team. Is it a week? Immediate? Three months? If it’s three months I am not interested because other vendors can furnish the same service in a shorter time. So it’s not just about quality and cost but also availability and mobilization. This is something we struggled with in the past. Again, because of the lack of economies of scale in Lebanon, we don’t have a massive workforce. To mitigate this risk, we decided to develop the bench lineup: resources that are hired but are not necessarily assigned to production or an existing customer. There are what I call “overstaffed resources” without them being really aware of course, so they don’t really feel the difference between someone who is on the bench and someone who is really on production. So when you do that, you have an availability of resources to engage immediately with your customers. So it’s adding up to our real edge now on top of what we have now in terms of cost advantages and quality advantage. Thus is the main advantage of having a bench lineup, and the reason we couldn’t do it before is the cost. Due to the currency devaluation and all that is happening in Lebanon, we are much better on cost so we are able to have an overstaffed team to a certain extent of course.

Globally speaking, do you see a role model for the sector in Lebanon for the moment? You said the Silicon Valley model would not work. Do you only see premium outsourcing as a role model for now?

You mentioned a key word here, “for the moment.” You know, if you really want to be successful in this field, you have to have a step-by-step approach, and not an aggressive one. I really like Circular 331 [announced by the Lebanese central bank in August 2014] as an initiative of course; I have a lot of comments on the way it was executed. But 331 was more into building a “Silicon Valley,” and right now we don’t have funds, and people are not interested in bringing funds into the country. So if you really want the Silicon Valley model you need funds, because it’s all about investing in startups. And all of the startups are living on funding, so this is not possible in Lebanon today, it is impossible I would say […] The only chance today is to focus on services, the real added value, the premium services, even if we need to go into the low cost let’s do it. If there is an opportunity we will do it. We need to create jobs. People want work. This is the real economy we need to build now. If we start now promoting the professional services business for the ICT sector, then with time the same model that happened with CME will happen with others. Whenever we gain domain expertise, whether from insurance industries, banking or others, we are going to develop our own solutions, and not just be limited by what we provide to customers. When you do that you have a chance to become a Silicon Valley. Maybe in five or ten years.

Thank you for having been part of our roundtable discussions. How do you evaluate the idea of Executive’s action plan? What would you like to see in it?

I think, the more we talk about this, it’s better. As an ecosystem. One of the main challenges in our ecosystem is we don’t really have an umbrella where all the ICT companies, the key players of this industry, are collaborating or communicating. Because we always look at each other as competitors, which is fine, this is the nature of the business. But for the benefit of the country it is necessary to have similar gatherings to brainstorm, throw ideas, even if there is no tangible outcome but it is good to keep the discussions open. Most of the points were discussed three years ago with Adel Afiouni (former minister of technology), with the Investment Development Authority of Lebanon (IDAL), exactly the same model. We did not do anything but I don’t blame anyone. At least if we maintain this communication, if we don’t give up, we will give hope for others to start. I know that many will give up, but these roundtables, especially if we capitalize on them, regardless of the agenda, regardless of the outlook, if we capitalize on them and send positive stories to the Lebanese people, to the Lebanese youth, the upcoming engineers, to give them a little bit of hope, that’s it. I don’t blame anyone for leaving Lebanon, immigrating, but today it’s being promoted as the only solution, which is not true, at least for the software engineers and the technology sector. We need the other side of the equation, that’s it.

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ICT infrastructureSpecial Report

Getting cozy

by Thomas Schellen
written by Thomas Schellen

There are occasions where it is hard to walk a mile in another person’s shoes in order to understand and not judge them – simply because the shoes of the other are standing under a very distant bed. Outsourcing is a scenario for which this observation has been fitting. For a unionized worker in the US state of Georgia (not that there would be high shares of unionized workers there – a political candidate would statistically have to shake 15 employees’ hands before meeting one union member) the concept of outsourcing might easily convey an existential threat of job loss that means economic despair and social bleakness for her and her children. For a young knowledge worker in the Transcaucasian country by the same name (but with roughly 7 percent in nominal GDP when compared to the US state), the concept of outsourcing by contrast might flag a personal economic hope to score an outsourced job. She or he would enjoy the opportunity of capturing a slightly larger slice of the global income pie.

In this context of globalized competition for jobs among legally and socially very differently positioned and physically dissociated labor markets, outsourcing in the late industrial and information age has acquired an ambiguous flair depending on how and from where one looked at it. From the Lebanese perspective the idea to attract outsourced ICT services jobs such as call centers, which was theorized at some points in the reconstruction and development era around the turn of the millennium as natural opportunity for multilingual Lebanese providers, was hampered by the disadvantageous cost and unreliable access to required communication infrastructures. Another barrier against applying the outsourcing model locally was the in comparison with Asian outsourcing destinations noncompetitive cost of Lebanese human capital in the dollar-pegged country. 

But things are very different now. Outsourcing, once a practice of manufacturers which notoriously externalized not only parts of their supply chain to low-cost industrial locations but also their social obligations, has become services-oriented. Business process outsourcing (BPO) is something that the economy-hugging folks at Investopedia neutrally describe as “a method of subcontracting various business-related operations to third-party vendors.”

The evolution of outsourcing

Advanced from early-globalization era manufacturing practices, the application of BPO in services industries has become diversified. It furthermore appears to be in the process of emancipating itself from the seesaw of inconclusive zero-sum economic logic, by which the job gained in one new manufacturing location is the job lost in an established center of industry.

Instead of just a job being replaced by just another job – at best a questionable temporary gain in the age of rising AI and automation – the emerging paradigm of outsourcing could become a new non-zero-sum employment play as a huge range of digitally interconnected, complex jobs are globally realigned on a socially aware global playing field.

This implies that outsourcing is maturing into well-regulated and strategic digital outsourcing, a globalized application of the fundamental economic behavior of relying on division of labor for improvement of productivity. This incarnation of outsourcing comes with the promise and necessity of compliance with both productivity optimization objectives and high ESG standards, and lately also involves strategies of inclusiveness and social justice for disadvantaged groups.

Naming digital outsourcing as a specific opportunity in the context of new tech entrepreneurial and knowledge enterprise developments at the focus of the fifth roundtable organized this March by Executive Magazine in partnership with the United States Agency for International Development, it was prudent for Executive to investigate if the economic play of digital outsourcing is demonstrating a specific potential for Lebanon in context of the national convergence of economic need of underemployed or unemployed professionals, a current if temporary comparative edge owed to the depreciation of the Lebanese lira, and an ongoing trend of proactively tapping into the diaspora and their wider economic networks for creation of economic opportunities for remote professional work from Lebanon. 

A practical example that is currently seeking to prove this proposition of creating a digital outsourcing destination identity in Lebanon is the Lebanon Outsourcing Initiative (LOI) by the platform Bridge. Outsource. Transform. (B.O.T.). Launched this year by its young parent B.O.T. – a startup company of 2018 vintage that saw very strong revenue growth in the crisis year of 2020 but has yet to write profits – LOI is a directory of outsourcing services that Lebanese providers of such services – individual freelancers and small enterprises – can enroll in, says Charbel Karam, development and marketing manager at B.O.T.

“We took some of our expertise in outsourcing and put it into the Lebanon Outsourcing Initiative. We knew that the need existed for companies and freelancers in Lebanon to acquire clients from abroad. [We] also knew that we could access the Lebanese diaspora across the world. So we created an action plan for Lebanese diaspora to engage with service providers and freelancers in Lebanon,” he tells Executive, emphasizing that the reason why B.O.T. launched this initiative at the beginning of January 2021 was “to give back” to the community in Lebanon.

Marianne Bitar Karam, managing director of B.O.T., describes the LOI directory as a campaign that evolved from a marketing idea for the company into a wider effort of trying to attract attention to SMEs that provide services – which differ from B.O.T.’s portfolio – under the common theme of Lebanon as outsourcing destination. The company, which is supported by social enterprise builder Alfanar and the Lebanese International Financial Executives (LIFE) network, took the initiative of developing the website and starting to populate it with names of services providers after setting up a publicity campaign anchored on a video that features actress Zeina Makki.

“We consider it as a directory of services. Client companies who want to use a service that B.O.T. does not provide, can find [this service] from the website. We do this out of empathy with the Lebanese economy and did not want to do it by ourselves,” Bitar Karam says. According to her the initiative for the time being is a standalone marketing activity of social enterprise B.O.T and not incorporated as a separate enterprise, which means that there is no vetting of providers or broking of services of the listed providers by B.O.T. All due diligence and negotiation over provision of services is done directly between the directory-listed Lebanese provider and the client who seeks the service, she confirms. 

Good samaritans

The website of B.O.T. and the services directory by LOI share their base domain (https://letsbot.io/ and https://loi.letsbot.io/home) but the list of categories in the directory goes significantly beyond the seven digital service categories offered by B.O.T., with the latter extending from AI training data and data management to transcriptions and market research.

There is no financial fee or revenue sharing between B.O.T. and entrants in the LOI directory, says Charbel Karam. LOI is an activity that does not generate any income and the intention is to keep it this way. “Today this is an activity by B.O.T. As we develop further into future, we might change its legal status into something more incorporated and get the conversation going. In the future it might become transactional, or ad-base or free and subsidized and funded by organizations. We don’t know but we definitely hope that it continues to be free of charge,” he says.

The funding journey of B.O.T. since 2018 entailed financing support by UNICEF, which has now ended, and current funding commitments by Alfanar that entail technical assistance and also have allowed the enterprise to set its sights on expanding into Jordan.

Current projections for reaching a breakeven point should be discussed at the end of this year, adds Bitar Karam, who hopes that success in this year will demonstrate that B.O.T. can access markets and attract international clients. “Today our priority is to prove that our model is scalable abroad,” she says but after achieving such milestones the company would seek to attract investors in the following two years of 2022 and 2023.

With B.O.T. still in its early stages, its ability to prove the value proposition of Lebanon as digital outsourcing destination has still to be tested in the new economic realities of a changed global labor environment but Michelle Mouracade, the Lebanon country director of Alfanar, never tires of advocating for this proposition. She points out that B.O.T. saw a 230 percent revenue increase between 2019 and 2020 and asserts firmly, “We believe that Lebanon can become an outsourcing hub.”

Growing numbers and propositions 

In Bitar Karam’s and Charbel Karam’s view, the proposition will, however, require governmental support “on all levels” from revision of taxation schemes for freelancers that agree to formalize their activity and adoption of a tax formula that is suited for the building of social enterprises to infrastructure improvements and support of outsourcing initiatives by the Ministry of Foreign Affairs and Lebanese embassies.

On the upside of the aspiration of elevating the country to an outsourcing destination, the social enterprise angle of the Lebanon Outsourcing Initiative could contribute to attracting currently untapped investments from the growing global pool of impact investment funds that prioritize ventures which aim to provide economic opportunities for marginalized groups and disadvantaged communities, and measure the impacts they have in this regard, adds Mouracade, who also addressed this topic as participant in the Executive- United States Agency for International Development (USAID) roundtable on tech entrepreneurship and knowledge enterprises.  

As noted at the tech roundtable but also at preceding roundtables, the past year’s indications of the increased job engagement with the diaspora and remote work angles cannot be expected to last. The tremendous labor cost advantage under the depreciated local currency scenarios of lira and lollar is already being eroded by demands of creative workers to be compensated in hard currency for their remote services. Outsourced labor to Lebanon will have to adjust its remuneration demands upwards in predictable alignment with the real exchange value of the work done here.

The remote working propositions of outsourcing will (as will every proposition of long-distance employment contracts from Lebanon) more importantly need to be embedded in a social arrangement of long-term safety of such work and satisfactory social insurance, which is a tall but inescapable order for the next global social contract and stabilization of Lebanese life. By today’s visibility, the aspiration for creating the outsourcing destination Lebanon appears to open an attractive but temporary window of opportunity that calls for initiatives to urgently commence and anticipate growing impacts. “The more we have private initiatives [in ICT and tech entrepreneurship] and the more we work together, the more we can change the image of Lebanon and get support from the government,” says Bitar Karam. 

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ICT infrastructureOverviewSpecial Report

We can rebuild it, we have the brains – but for how long?

by Nabil Makari
written by Nabil Makari

According to the United States Agency for International Development (USAID) Trade and Investment Facilitation (TIF) project report, related to the Information and Communications Technology (ICT) sector in Lebanon, around 500 companies are active in the technology sector in Lebanon, among them 300 ICT companies and 200 startups, with the ICT workforce being estimated at between 15,000 and 18,000 persons. The report mentions that “Lebanese ICT companies are highly export-oriented.” However, these numbers have likely been affected by the economic crisis.

The first problem, which was expanded on, was the lack of finance for technological companies in Lebanon. Nassib Chalhoub, partner at Credly Advisors, mentions that, “In terms of startups and the ecosystem, we are currently witnessing a significant downturn.” For him, after the “significant crowding out effect” due to high interest rates in banks on depositors’ accounts, the ecosystem in Lebanon is currently struggling, and many companies are migrating to regional hubs, to the United Arab Emirates in particular. Fares Kobeissy, chairman and chief executive officer at Bluering, mentions the fact that many companies are leaving Lebanon, and that the biggest challenge, in his view, is “still how to access capital and financing,” not only in the form of equity but also from banks. Summing up, for Kobeissy, the two biggest challenges are the access to finance and helping companies reach new markets. This was also confirmed by Gabriel Deek, president at ISOC, in his belief that Circular 331 of the Central Bank of Lebanon (BDL), which guaranteed partially banks’ investments in startups, was a good idea but “could have been much, much better.” In addition, for Deek, one of the main issues is to access capital. With regards to the same circular, Jihad Bitar, general manager at SmartESA, comments: “the good side of 331 is that it changed the culture,” but on the negative size “it brought some laziness ad a habit of not being very professional and of overspending money to a lot of the ecosystem.” For Bitar, with regards to startup financing, the main issue is at the seed stage land pre-seed where, according to him, it is extremely difficult to access capital: “You are going to get lollars, not dollars, if you move to angels.” For Bitar, the moment that Kafalat stopped giving grants was the moment “this started to slowly kill the ecosystem.”

For Bassel Aoun, program manager at Kafalat, “access to finance is a common major point,” and that venture capital funds are, like most businesses, suffering from lack of access to capital. For him, startups and funds, emboldened by Circular 331, are currently moving to other ecosystems, believing they can capitalize on their know-how and launch second funds in the region. According to him, historical players on the venture capital scene in Lebanon have managed to raise new funds but outside of Lebanon, due to their track record in the industry: “This is the situation today. Access to finance is a problem on the level of the startup and it is a problem on the level of intermediate players, people that bring the money into the ecosystem.” In addition, according to Aoun, the investment tools needed for the financial advisors (for example safe agreements and convertible notes) are not available due to Lebanon’s lagging legal infrastructure. This mention of the legal framework was echoed by Karl Naim, managing director at StartechEUS, for whom the legal framework is “completely inexistent in Lebanon” for the tech industry. According to him, Circular 331 “unfortunately did not help the Lebanese startups at the time.” Due to this lag in legal infrastructure, it would be very hard to compete with other ecosystems in the region, taking into account seed or series A funding in the UAE, funding is reaching between $5 million and $10 million, compared to hundreds of thousands three years ago. Nicolas Rouhanna, of IM Capital, confirmed this view by adding that venture capital (VC) and 331 funds are currently moving to Dubai, and that the lack of financing would hinder growth for companies.

The second issue mentioned by the guests of the roundtable has been the lack of support in accessing new markets. For Chalhoub, we are witnessing a migration and value deterioration for successful Lebanese companies, as most of them “established prototypes and validated their concepts” in Lebanese market and therefore still suffer from the local risk, while these companies are, for some, exportable, and others not. For him, there is a temporary decline in the local tech and entrepreneurship ecosystem, which would require access to finance in order to regain its previous strengths. For Kobeissy, Lebanon lacks institutions whose entire purpose is to help local companies access new markets, and this lack of export promotion is, in his opinion, a big deficiency. For Gaby Deek, this lack of access to markets is more important than lack of finance, and for Bitar one of the main impediments to this growth in Lebanon is a lack of talents and soft skills. Bitar, on the other hand, sees the crisis as an opportunity as “only the professional and serious people will continue” their activities in Lebanon, which would rout out those he deems as “not very serious.” Echoing Chalhoub and Kobeissy’s opinions, Michelle Mouracade, country director at Alfanar, laments this lack of technical assistance to entrepreneurs, deeming that such support tis given only in accelerator programs but lamenting that they are not, in her opinion, getting help at the business plan level and their cash flow projections.

This need to access new markets nevertheless, requires talents, which are leaving due to a brain drain. For Deek, though the human capital is present, “we are not competitive in terms of education as we should be,” and he adds that imperfect education in ICT is why “access to talent is a problem and an issue for startups.” This is echoed by Naim, for whom, though the Lebanese speak three languages, which he deems important, when it comes to “real skills today, digital skills, digital marketing, software development,” he sees Lebanese universities as uncompetitive in comparison to their counterparts in Dubai or in developed markets.

A first solution proposed by the roundtable participants is to focus, with regards to the technology and knowledge sectors in Lebanon, on premium outsourcing. This was first mentioned by Mouracade, deeming that Lebanon could be an outsourcing destination for the digital sector. For Wissam Youssef, CEO at CME Offshore, there are three models for the Information and Communications Sector (ICT): the Silicon valley model, which he deems impossible in Lebanon due to the current situation, the mass outsourcing, which he deems difficult due to the fact the Lebanon lacks economies of scale, and the premium outsourcing model.

A general opinion, shared by most panelists and first mentioned by Gabriel Deek, is the need for self-reliance and not to count on the Lebanese State to implement reforms: “Never rely on the government, never rely on the public sector.” For Rouhana, the Lebanese crisis cannot be solved by the technology sector, but stakeholders can work towards fixing and solving the SME and startup crises.

One measure to solve the access to finance, according to Mouracade, is “to encourage businesses in Lebanon to have a social impact, measure it and communicate on it,” as according to studies she mentions, consumers are more likely to spend on a product or service from a social enterprise versus a product or service from a regular enterprise. Mouracade, cited the example of BOT, an outsourcing social enterprise that Alfanar supports. In 2020, their income grew by 230 percent because of their focus on outsourcing digital services and because of a pool of 2000 freelancers on their platform: “this is a social impact because many young people will not have other opportunities if it weren’t for BOT.” According to her, such organizations, which have a social impact and are focused on supporting youth in the digital sector, are also strengthening the social impact sector of Lebanon and this could attract potential investors, adding the global market for impact investing is worth $715 billion, according to the Global Impact Investing Network. For her: “If a company is providing vulnerable communities and SMEs and MSMEs with access to affordable products and services, there is a huge potential as well. In her opinion, this would also help relieve the brain drain as it would attract potential talents and entrepreneurs if they believe their work would have a social impact.”

Amine Goraieb, consultant at Alfanar, mentioned that he would like to “encourage all companies in Lebanon that think that they have a genuine social impact.” This would, according to him, help mobilize the diaspora and to support local companies having a social impact “by either introducing them to people or by delegating some of its activities to Lebanon.” Indeed, for Gohrayeb, the first question is for those who are vulnerable communities that still have access to technology: how can they access services that are otherwise difficult to access? According to him: “Lebanon is a poor country and getting poorer by the day, and affordability is a key barrier to technology.”

Another solution mentioned is the need to leverage the Lebanese diaspora for better market access. For Youssef, it is necessary to build on the “emotional connection” between the Lebanese diaspora and the Lebanese community living in Lebanon, since Lebanon has what he deems to be “success stories” in order to “build on those success stories and then approach the Lebanese diaspora with a model that creates jobs in the Lebanese market.” In addition, due to lower cost of operations, he recommended cuing candidates “without having real concrete projects” as this would release these companies doing outsourcing from a turnover problem due to a brain drain. For Nassif Shalhoub, this need to reach the diaspora is important, citing quasi government bodies and others, such as the World Lebanese Cultural Union, to enable connectivity between members of the diaspora, thanks to an application called diaspora ID, which connects all the “national councils and continental councils and connections of the Lebanese diaspora in the world.”

Nassif Shalhoub, with regards to access to capital, has also highlighted what he sees as a need to change the local mentality: “We have been raised over the past 6,000 years on being traders, and traders are greedy.” For him, valuations made by Lebanese owners in the ICT sector are too high and well above market benchmarks in the rest of the world, and this needs to change. “Why seek immediate relief? Why do you want to be Elon Musk without going through Elon Musk’s journey?” Highlighting the fact that Lebanon is already a risky environment, he recommended building more deferred options for investors to come invest in Lebanon. For Bassel Aoun, access to markets requires access to finance, and this could be done by working on brand name, including working on impact investing.

For George Frenn, from USAID Lebanon, access to market requires first to stabilize, then to “explore and find niches of growth, particularity on exports, and support them on enterprise level and sector level.”

Thomas Schellen resumes what he sees as the potential for the solutions expressed during this roundtable, with regards to the potential of impact funding, cultural union, and the Lebanese entrepreneurial spirit. The roundtable then moved to final words with participants, with Goraieb encouraging all companies in Lebanon to think that they have a genuine social impact, in order to help mobilize the diaspora, as the MENA region is catching up on social impacting with the rest of the world. Rouhanna, on his part, hints that IM Capital is working on funds for startups, growth stage companies that have a potential to scale and weather the crisis. Kobeissy mentioned his wish to see the tech community collaborate more. Elie Abou Saad also proposes to use the platform v-expo for an event to enable all tech companies who export their services.

The final note belongs to Yasser Akkaoui who believes that in entrepreneurship, the value is “in the ideas, and so that the ideas continue to flow, we need to create for them an enabling environment.” 

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EnvironmentOpinionSpecial Report

Could social enterprises lead Lebanon’s economic recovery?

by Michelle Mouracade
written by Michelle Mouracade

Lebanon continues to sink into its worst economic and financial crisis since the end of the civil war, witnessing soaring poverty, double-digit unemployment and unprecedented social hardship. Meanwhile, the ongoing political stalemate further undermines Lebanon’s ability to implement desperately-needed reform and receive any kind of financial assistance. In such dire circumstances, the ability to attract foreign investment is clearly a challenge.

There is, however, a significant and untapped opportunity to attract what is known as impact investment. In addition to seeking a financial return, the objective of impact investors is to support social enterprises, companies that generate a social and/or environmental impact that is measurable and scalable. In recent years, institutional donors have increasingly recognized the untapped potential of social entrepreneurs as new actors seeking sustainable market-driven solutions to old problems. But support remains limited to short-term funding for start-ups, with a lack of longitudinal follow-up to ensure successful implementation. As a result, both growth-stage social enterprises and those graduating from accelerators are left struggling to survive with scarce resources. This is the funding gap that impact investors have their eyes on.

With the deteriorating socio-economic situation and the need to create economic opportunities with impact, there has never been a better time for Lebanon to be a magnet for such impact investments, tapping into a global market valued by the Global Impact Investing Network at around $715 billion.

Historically, one of the main factors hindering the growth of impact investment in Lebanon has been the small pipeline of investment-ready social enterprises. The fact that social enterprises can only register as either regular companies or non-profits is also confusing and misleading. Although there are clear advantages for social enterprise to have a separate legal entity – including to benefit from tailor-made tax incentives – this has not prevented established social enterprises such as Fair Trade Lebanon, Souk El Tayeb, BOT and FabricAID, from operating as such and attracting impact investors.

Regardless of the legal entity under which it’s registered, three main criteria have to be met for a company to qualify as a social enterprise. First, the company needs to be solving a social, cultural or environmental problem by applying private sector business principles (i.e. selling market-based products and services). Second, its impact should be measurable, scalable and clearly mentioned in the company’s bylaws. Finally, it should reinvest the majority of its profit into the growth of the business.

So is the pipeline of social enterprises in Lebanon small or are we simply not classifying and supporting “businesses with impact” the right way? We strongly believe it is the latter, if we support “businesses with impact” in better modelling, measuring, scaling and communicating their impact, they could be classified as social enterprises and easily attract impact investors.

This is the mission of impact-focused accelerator programs and venture philanthropy organisations that provide social enterprises with grant funding, training, management support and access to markets. However, there are very few ecosystem players whose mission is to support social enterprises in Lebanon – Makesense, Fondation Diane and Alfanar are the only ones who are entirely focused on this sector. Moreover, as social enterprises grow, their funding needs can no longer be covered by grants, and can only be matched by impact investments.

Such impact investments also offer great opportunities for competitive financial return. The average realized gross returns of private equity impact funds in emerging markets in 2020 ranged between 11 percent and 18 percent.

Today, there is a real opportunity to strengthen the impact sector in Lebanon and attract impact investors and their fresh funds, while helping solve ever-growing social challenges. This will take time, but if ecosystem players come together – including social entrepreneurs, the diaspora, angel investors, institutional donors and foundations – the stage could be set for one of the most attractive impact investment markets in the MENA region, while supporting vulnerable communities in a more sustainable manner.

As Nobel Laureate economist Muhammad Yunus recently said, “When you hit the darkest part, you come up with the brightest ideas.” In doing so, we need to “throw away the old thinking and be outrageously bold” to reshape society post COVID-19.

Impact investment can significantly contribute to saving Lebanon’s socio-economic fabric. There has never been a better time to do this, by supporting social enterprises, paving the way for impact investment to be the norm, and building the foundations for a more equitable Lebanon that provides for its people.

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EconomyOpinionSpecial Report

Attracting Capital to Fintech in Lebanon

by Nassif Shalhoub
written by Nassif Shalhoub

According to the Pulse of Fintech H2’20, a bi-annual report on global fintech investment trends published by KPMG, overall global fintech funding across mergers and acquisitions (M&A), private equity (PE) and venture capital (VC) was $105 billion across 2,861 deals in 2020. The spending was reduced during the first half of the year but rebounded nicely in the second half, leading to the third largest investment period in Fintech ever.

In Lebanon, however, the story was different. What was once the MENA region’s third most advanced fintech startup ecosystem, hosting 14 percent of the region’s fintech startups, and the fourth most served market by fintech companies, with 27 percent of MENA fintech startups serving the Lebanese market back in 2015 and 2016 as per the Fintech Sector in Lebanon 2018 Factbook by the Investment Development Authority of Lebanon (IDAL), has lost several competitive advantages.

The banking failure and informal capital controls witnessed after October 17, 2019 threatened to put a sector that was heavily relying on payment innovations and banking solutions out of business. Security concerns after the August 4, 2020 Beirut Port explosion, as well as the need to live a normal life without worrying about how to secure basic needs, have also pushed a lot of talent to relocate.

Bridges towards financing

But the picture is not all black. The currency devaluation is an opportunity to invest in a more cost-efficient talent base. The burn rate can be slower in real USD terms for startups that are able to find export markets while keeping a considerable cost structure in Lebanon. If consultants are able to do it, then fintech companies should also be able to, provided that they secure bridge financing to help them alleviate the decrease in sales caused by COVID-19 travel restrictions and transition into new operating models.

Is this bridge financing easy to obtain? From my experience, investors do not shy away from risk, they shy away from non-matching risk/price formulas. Instant gratifications and unicorn dreams should be forgotten for the time being and serious Lebanese fintech players should be more rational and less greedy if they wish to attract capital.

Does less greed mean lower valuations? Adopting the simplest strategy indicates that, but if you position your venture properly from an M&A perspective and you structure the deal properly, then less greed means acknowledging the current situation and lowering the immediate consideration while building a higher future upside within a win-win framework.

The IFRS 13 standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The key principle is that fair value is based on the perspective of market participants rather than the entity itself, so fair value is not affected by an entity’s intentions towards the asset, liability or equity item that is being fairly valued. A target requesting funding should be able to distinguish between fair value and a specific price to be achieved during a transaction, and should be aiming for the highest pragmatic price.

The highest pragmatic price can be achieved through:

1-      Preparing well for your pitch and your audience. Not all investors are tech savvy and many find fintech propositions as an alien language;

2-      Choosing a good timing: valuations are time specific, hence you see different prices for listed companies on a daily basis;

3-      Building reasonable projections: no one likes to buy fish in the sea. Your potential is different from your history and different from what you can reasonably achieve while looking forward at each valuation date. You cannot attract investors by making them pay for the benefit they bring to you or the risk they take with you;

4-      Acknowledging and incorporating the risk in your pricing: closing a transaction is mostly about building trust and this cannot happen if investors perceive you as living in denial or unable to realistically assess your situation; and finally

5-      Building an efficient capital raising process: you cannot be in the market for too long and you cannot achieve the best price if you become the talk of the town! Any fund raising should be well structured with a clear process and timeline.

In conclusion, attracting capital to Lebanese fintech players has become difficult because of the macro situation, yet not impossible. Players with the right solutions can still attract funds if they plan and execute the process adequately.

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OpinionpolicySpecial Report

Transparency and accountability in international assistance: The case of Lebanon

by Rania Uwaydah Mardini
written by Rania Uwaydah Mardini

Wherever there are funds flowing, there is a risk of corruption. That’s a fact anywhere in the world and international aid, despite its humanitarian intent, is unfortunately no exception. In the event of a crisis, corruption risks are further compounded because standard controls either simply do not apply or because they take a back seat in the name of urgency. In Lebanon, corruption is already very high – for 2020, the corruption perception index (CPI) score and rank are 25/100 and 149/180 respectively – and crisis mode intensity is actually threefold, owing to the financial meltdown, the pandemic situation, and the aftermath of the Beirut Port explosion. In other words, the risk of international assistance funds to Lebanon being lost to corruption is not just high, it is skyrocketing! The obviously nagging question is therefore: what can be done about it? And yes, there is something to be done.

ACCOUNTABILITY AND TRANSPARENCY

Managing these extra layers of risk requires vision and closely coordinated collective action along the supply chain of international assistance with a view to ensure the accountability and transparency of the flow of donor funds. In this context, a main requirement for transparency and accountability is timely and reliable data as well as access to it. This is exactly the focus of UNDP’s collaboration with the European Union and the World Bank towards the realization of the Reform, Recovery and Reconstruction Framework (3RF). The 3RF “presents a set of sequenced, specific, and targeted reforms that support recovery and reconstruction in key sectors during the short term” and across three strategic priorities. One such priority is Anti-Corruption, Integrity and Transparency and core to it is to “fully implement the Access to Information Law and related Action Plan as part of the effective and coordinated implementation of the National Anti-Corruption Strategy.”  The Access to Information law, ratified in 2017, is a valuable legal instrument that should be used strategically to this effect where civil society and the media both have a fundamental function as watchdogs of implementation in addition to raising the awareness of the population with regard to this law and mobilizing it to be vigilant.

Another key requirement for transparency and accountability is corruption risk management which entails an elaborate process of risk identification, evaluation against related benefits, mitigation, and finally monitoring. It preempts the leakage and misuse of resources as opposed to looking for them after they have taken place and measuring their toll on organizational resources. It is the cost effective approach to addressing corruption and a key dimension of both the National Anti-Corruption Strategy and the 3RF.  Pillar 1 of the 3RF, Improving Governance and Accountability, advocates for carrying out rapid corruption risk assessments in ‘key reconstruction sectors’ in an ‘inclusive manner and using specialized methodologies’ as a means to “reduce opportunities for leakage and political co-opting of reconstruction resources, thus strengthening public trust in recovery efforts.”

 

ROLE OF CIVIL SOCIETY

Effectively, the world, and particularly the Lebanese community, are looking to civil society to play an even greater role than simply that of being a watchdog or raising awareness. This comes across obviously in the 3RF, which explicitly establishes the engagement of civil society actors as a critical success factor and priority – be it in the context of high-level dialogue, decision-making fora, 3RF institutional arrangements, or implementation oversight.  

 

Moreover, in a country where disaster is a common feature of national history, the post-Beirut blast reconstruction efforts have been almost entirely driven by non-state actors. As such, there is a general direction to channel donor funds through non-governmental organizations (NGOs). There is also an expectation that NGOs, given their insights into the Lebanese context, will actively contribute to the assessment of corruption risk and the design of effective and targeted risk mitigation strategies along the supply chain of international assistance, given that risk management is a key component of the 3RF.

 

It goes without saying that NGOs are also expected to model transparent and ethical behavior as a means to compete fairly for international funding. This entails: 1) transparent and timely reporting including of plans, budgets, processes, beneficiaries, clear operating standards (what help is available/ to whom/ in what quantities), and ex-post cost-effectiveness analysis; 2) maintaining clear, efficient, and confidential community complaint mechanisms; and 3) subjecting themselves to third-party assessments or at least having the willingness to do so. Such practices not only inspire trust, but also sow a culture of transparency and accountability in a community where such a culture is in strong demand, and optimize both the performance and integrity of the civil society sector itself, neither of which should be taken for granted. In fact, some NGOs are presumably affiliated with politicians where they serve as vehicles to further perpetuate corruption of the political elite. Thus, the transparency of NGO practices and operations is a key component of the success of international aid efforts and it is very important to note in this regard that the onus is on the donors to demand this transparency as per international best practices and to hold NGOs accountable accordingly.

 

 

SHORT-TERM RESPONSE VS LONG-TERM RECONSTRUCTION

That said, caution should be taken against turning Lebanon into an “NGO state.” A scenario where funds are controlled by NGOs and contracts are executed by the private sector is not without risk – a good example of which is price gouging by private sector actors in the healthcare industry with regards to the global pandemic. It is therefore critical to make sure that international standards are met before private companies are awarded contracts in situations of crisis and reconstruction. This is incumbent on the international community and on the government as well. In other words, even where public trust has been lost, a nation cannot do away with the role of the State. There are a number of functions that underpin day-to-day transactions – such as drafting and passing laws and preserving law and order, including maintaining a sound judicial system, to name a few – and these can only be shouldered by the public sector. However, at such a critical juncture where the State has been utterly crippled by the long-standing political deadlock and endemic corruption, the only way forward is to differentiate between short-term response and medium- and long-term reconstruction, a distinction that is adopted by the 3RF. In the short term, channeling aid through civil society and within a properly controlled transparent mechanism may well be the only means towards a relatively swift response for the benefit of those whose very livelihoods are hanging by a very thin thread. For medium- and long-term reconstruction and recovery however, there will be a need to engage the Lebanese government, and this is exactly what the 3RF calls for: a partnership framework that brings together the various stakeholders including public sector and civil society actors where each has their role to play towards creating a sound system of checks and balances. That said, a prerequisite is for the said government to begin to regain its legitimacy by means of a firm and demonstrable commitment to appropriate governance reform grounded in sound public financial management practices within the context of the 2020 National Anti-Corruption Strategy. In alignment with the 3RF, such engagement would be based on a sectoral risk assessment where civil society actors would also play a critical role in informing these assessments and as watchdogs. Of course, true reform requires an independent judiciary and independent institutions as the ultimate safeguards to ensure the rule of law.

 

In conclusion, international aid to Lebanon faces significant corruption risks, the management of which requires a carefully strategized multi-stakeholder approach for both short-term disaster response and longer-term reconstruction and recovery. Civil society is a key stakeholder in both phases and must model transparent and ethical behavior. The State is evidently also a key stakeholder, the engagement of which is envisioned for the latter phase and contingent on its efforts to regain the public trust. Efforts to implement the 2020 National Anti-Corruption Strategy are an imperative step in that direction.

 

Disclaimer: The analysis, views and policy recommendations of this article do not necessarily reflect the views of the United Nations, including UNDP, or its Member States. The article is an independent piece commissioned by UNDP as a build up to the “Transparency and Accountability in International Assistance” webinar organized in partnership with Executive Magazine.



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EconomyMediaQ&A

Forging a silver bullet

by Alexis Baghdadi
written by Alexis Baghdadi

Lebanese advertisers, journalists and content producers who took part in the Media, Publishing and Content Creation roundtable discussion organized by Executive Magazine in partnership with the United States Agency for International Development (USAID) were unanimous in agreeing they have a strong competitive edge over their regional peers, but also warned against the risk of losing this edge due to the continuous brain drain and the difficulty of accessing finances amidst an increasingly inhospitable business environment.

Tapping into the Lebanese diaspora and international donors were among the solutions proposed at the roundtable to finance operations. Following the discussion, Executive talked with Eli Khoury, chairman of Quantum Communications and a veteran of the media landscape in Lebanon, to pick his brain about more or less concrete proposals the sector needs to align behind and join efforts to achieve.

Do you have any comments on the Media, Publishing and Content Creation roundtable by Executive Magazine in which you participated?

The gathering was nice and pertinent, and I thank you for it. If there is one thing that left me hungry, is the fact that the discussion revolved too much on preserving the industry itself and not the challenges we have to contend with in this country, to maintain any kind of industry; from destroyed purchasing power to utilities and other basic needs. It is easy to get stuck in our comfort zone and maneuver through the difficulties to get by. I would say that, to ensure our survival we only need to spend around 25 percent of our efforts on the industry, and 75 percent on fixing the damn place.

What are the specific competitive talents that Lebanese professionals have in the media, content, and publishing industries among their regional peers? Why do they have this edge?

Traditionally, we have dominated the communications and media industry in the region for generations, even during the civil war. The later Gulf boom metamorphosed it into a combination of Lebanese and British knowhow. While they brought in the technical skills and a global language, we brought in an almost seamless multicultural sense due to an indigenous and intuitive “marketeer” DNA that we seemed to possess. Today we may have lost our edge but not necessarily our fundamentals. However, we are fast running out of time. 

Do you think, given the reduced access to education and tools as a result of the financial situation, that the local talent pool will be able to continue to evolve its skillset and retain its competitive edge?

I keep telling students and newcomers that the lack of facilities in academic institutions is not an excuse, especially since the Internet offers so many answers. When we were learning our trade back in the days, we too faced magnificent crises and wars – I wish we had the Internet back then, we had to learn through the limited press articles and books we could find or afford. Today, those who really want to learn and perfect their skills can easily do so, as long as they have the will to do it.

What is needed at the local institutional/vocational training level for the Lebanese talent pool to continue growing its skillset?

The issue is twofold in my view. We now have an unprecedented brain drain at both levels; the faculty and the students. Many of the best teachers, mentors and professionals are either already gone or they are not as available as before because they are busy surviving. Additionally, many potentially kick-ass students, those who are dedicated to learning their craft, have already “swum” abroad or are awaiting the first chance to do so, for they have access to the best universities and scholarships offered by embassies. Even the best of mentors, professionals or students who insist on staying, are not able to produce, train and progress properly due to the environment which is not in the least conducive to retaining talent.

There is a stated need for a community or hub of professionals to close ranks and support the sector. How do you see the role of such a hub concretely?

Any good deed nowadays is certainly most welcome, even if it just means fixing a window after the Beirut Port explosion. Any good citizen is bound to contribute wholeheartedly to any initiative. But I must admit that I am somewhat against such an approach, as I increasingly feel as if we keep doing it in vain. Intruders run the place to the ground, we rise to patch it up, only for them to destroy it again, and so on – and it gets worse every time. The thing is, we as a society and a republic are not bankrupt, we have all the capital and assets that this wonderful country, our long history and our hardworking parents have endowed us with. We are merely a cashless hostage. We media professionals, for instance, remain very well equipped with the knowledge and tools, even now, but to be really effective, we must agree on one diagnosis, we might not agree on the remedy, as good doctors sometimes do, but we must agree on the assessment at least, if we ever want to truly relieve the environment and go back to a lasting normality.

We must let go of personal and communal egos and stop beating around rotten ideological bushes – or avoiding them altogether. The one and only reason why we cannot agree on the diagnosis, remains the fact that we do not agree on who we are. If we, one day, tackle this core issue, we can then rain hell on those who destroyed our country and those who might wish to in the future. The remedy may be disputed left or right, but the diagnosis cannot be, else the patient dies. Some may justifiably lack the courage to grab the bull by the horns, that’s fine, but let them not pretend they are doing the best they can. I will go farther and say that more of us should have the balls Executive showed, when it published with a black cover or with nothing but blank pages. We need guts.

Do you believe in the power of the diaspora to support local or Lebanese professionals in the media, content, and publishing industries. Are we talking about individual access to markets and funding only? Can you think of examples?

I might sound controversial, but I will say that COVID-19 gave me hope. It transformed us into a Zoom and online society. Today, not just in Lebanon, people around the world are connecting online to discuss how to reshape the world we live in. With enough momentum, this can create a gigantic power. We can collect millions from the diaspora, we can support the industry and other industries, while over the head of the corrupt government without letting it lay its bloody hands on a single penny. But again, we need to stop giving out fishes and start giving out fishing poles. We do not need Band-Aid we need ER.

Are there larger-scale ways the diaspora or the hub can support these industries, with policy reforms for example?

If we as civil society don’t do something to fix the problem, nobody else will. But for that, you need a local anchor, not only the diaspora, and large scale action – all conditions considered. There are many good, small and large but fragmented attempts by the diaspora and NGOs; though varying in focus, as a result of varying in diagnosis, hence with little to no effects, and sometimes damaging ones. Otherwise, yes a lot can be done and at worthy scales.

To recap, is there a concrete plan to help the sector?

We need to lobby and continue fighting for our rights, on the streets or with the tools of our trade. That is a given. I would also propose building a center that defies the situation and provides the basic needs for professionals, from electricity to technical facilities, tools and access to multinational or even bitcoin financing. My guess is that there are many who would be willing to back such a project, including embassies. I read of several funds calling for [requests for proposals] for such kinds of projects. But one must tell people how one wants to be helped.

Might the diaspora or international community withhold support to large-scale initiatives in these industries, or impose stringent conditions due to the political crisis and government mismanagement of the economy and other factors?

It all comes down to why someone wants to help us as a nation, how they see us. There are some who want to help preserve the simple things they hold dear in this country, like the food, nightlife, beauty or freedom, etc. It is a love affair with many ingredients; but when the ingredients that make it up get degraded, there comes a time for one party to end it. If their heart is in the right place, then they will continue to help, but we also have to put in the work and give them hope. This isn’t always easy. Many, myself included, almost lost hope after the August 4 explosion, but I am not ready to give up yet. I guess it becomes instinctively unavoidable for some.

Do you believe there is hope for the sector yet? Does this hope extend to the rest of the country?

People have often accused me of over optimism. I believe there is big hope, and for a reason I will explain. Our problem is one of identity. Today, there are those who would like us to believe that before sects and ideologies, Lebanon was nothing but a void or a negligible fragment of anything but a nation. This is what is wrong first. This is why our constitutions have never been respected or implemented, like any decently successful country. This is why unwritten or written pacts don’t last and get broken at the first sign of change in balance. To deconstruct one’s tradition and history for any rational or emotional reason, be it mythical or cast-in-stone factual, is not modernism – in fact quite the opposite. A rich multicultural mosaic that thrives on the exchange of ideas, values, art and assets, this is who we were and still are and will be. History speaks louder than politics. Decades of regional conflicts didn’t end us. 30 years of war didn’t end us. Our nation and history seem to be stronger than religion, ideologies and tyranny, most importantly, despite many of its own people.

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