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ICT infrastructureOverviewSpecial Report

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

by Nabil Makari June 28, 2021
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.” 

June 28, 2021 0 comments
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EnvironmentOpinionSpecial Report

Could social enterprises lead Lebanon’s economic recovery?

by Michelle Mouracade June 25, 2021
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.

June 25, 2021 0 comments
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EconomyOpinionSpecial Report

Attracting Capital to Fintech in Lebanon

by Nassif Shalhoub June 24, 2021
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.

June 24, 2021 0 comments
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OpinionpolicySpecial Report

Transparency and accountability in international assistance: The case of Lebanon

by Rania Uwaydah Mardini June 23, 2021
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.



June 23, 2021 0 comments
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EconomyMediaQ&A

Forging a silver bullet

by Alexis Baghdadi June 23, 2021
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.

June 23, 2021 0 comments
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EconomyMedia & AdvertisingSpecial Report

Hard cash for hard talk?

by Thomas Schellen June 22, 2021
written by Thomas Schellen

If you contemplate how local creativity has fared in the past 20 to 30 years, and especially if you contrast Lebanese creative and cultural content productions with productivity and innovation in the real economy, content has traversed a very long road in a very short time indeed. There could hardly be greater diversity, for example, between a 2007 play on the glory and fall of heroic Queen Zenobia and a 2021 animation movie on the fictitious Arab dictatorship of Alephia, nor could their creative pathways be more constructively conflicting.

The first production, Zenobia, being a Mansour Rahbani tale set to music and dance, extols the near-mythical queen of the fleeting Palmyrene Empire of third century AD fame and her tragic desire to build an identity. The second, Alephia 2053, being an hour-long animation movie in the dystopian genre, advocates a very young-adult message of fighting corruption, martyrdom for the cause of freedom, and ridding the world of yet another hereditary, oppressive (and of course male) tyrant dynasty in the mid-term future.

Cashing in on creativity

The sole common touch point of these two content productions – diametrically opposite to each other in terms of artistic style, visual language and narrative, technology and target audience, and historical projection line of past and future – is their shared ingredient of Lebanese creativity. Both were concocted in the creative cauldron of overlapping, fragmented, contradictory, and complementary belongings that arguably distinguish this country and set it apart from much larger states in the Arab world and from your average small society anywhere.

Thus, in order to test the hypothesis that content creation is one of the economically potent sub-sectors of a media and communication industry that could help pull Lebanon out of its self-inflicted swamp of job insecurity and sub-standard productivity – the topic that was on the agenda of the third roundtable organized at the end of March 2021 by Executive Magazine and the United States Agency for International Development USAID) – Executive inquired about the economy of their latest content production with Spring Communications. This digital agency is the company whose unit Spring Entertainment launched Alephia 2053 online at the start of astronomical spring on March 21 and witnessed more than 8 million YouTube views of the feature by end of April. https://sg.news.yahoo.com/youtube-hit-alephia-2053-brings-182927216.html

At the start of his conversation with Executive, Rabi’ Sweidan, the head of Beirut-domiciled Spring Communications, creator and co-producer of Alephia 2053, is full of exultation over the achievements of his new production, which he dubs the ”first-ever dystopian entertainment in the Arab world.” According to him, the animated feature’s reception by audiences in Arab countries over its first month has not been varied in response to the dominant political ideologies of said countries but rather reflects national demographics and internet penetration. In other words, it is digital entertainment that, once released and having gained momentum, moves on its own trajectory.

However, while Arab and other viewers of Alephia 2053 would easily be reminded of fairly recent and even some ongoing totalitarian experiences (according to Sweidan, viewers from countries such as Algeria, Iraq, Syria, Yemen, Sudan and others said that the story resonates with them as a home story with elements of their reality), the tale’s dystopian-totalitarian framing in the perspective of its creator also has elements of purposeful departure from content obsessing over a falsely glorified past into content that speculates to a more productive future.

“If you are always looking at the past, [you are] walking backwards and we believe that you will tumble in the present [time] and fall in the future,” Sweidan says, conceding that for him as content creator and producer this future also is one of hoped-for economic and commercial rewards. “We are basically a strategic content and communication agency [that is] driven by a purpose. Content is one way of what we believe is the future of communication. We are a content-driven agency and believe that we can make money out of it,” he tells Executive.

Sweidan fundamentally holds the view that conflict, meaning first of all the conflicts of competing ideas and the intensive discussions that are endemic to Lebanon, is a fount of creativity rather than an obstacle to it. Consequently, he has no problem at all in associating the Lebanese paradigm of abundant conflict with creativity and the potential for marketable content that to him seems to follow creativity as surely as the vernal equinox follows upon the winter solstice. He cautions, however, that this market potential for Lebanese content is not in Lebanon but from Lebanon, meaning directed at other markets. “The big question for me is not if there is potential. The big question is the challenge whether it can be monetized to benefit the creators of the material, and the creative community and industry in the wider sense. The potential is there for the Lebanese, the challenge is how you can monetize it,” he says.

In this regard, his recipe for finding acclaim and pulling viewers to the firm’s content has been to follow the circuit of international creative festivals around the – mostly developed – world that provide conventional or digital content of Lebanese origin with exposure which financially restrained content creators could never buy with their own means. According to Sweidan, Spring made its bet on the pull-potential of such exposure more than ten years ago and scored award nominations and awards for several productions.

This vision and the fast success of his latest production in terms of high viewership notwithstanding, Sweidan admits that the forward-going potential of Lebanon-based production houses is limited by the cowardice of capital in the face of uncertainty. “The more the situation is uncertain in Lebanon, the less people are willing to come and invest in this talent,” he says.

Drains on creativity

In the wider context of barriers faced by Lebanese communications and ideas-focused enterprises, Spring’s experiences as outlined by Sweidan show that content creation as industry in Lebanon today is in the same boat with journalistic media and marketing communications agencies. This entire industry is assailed by challenges of a small native market, difficulties in access to finance and risk capital, intense commercial competition from rivals with deeper pockets in regional and international markets, and uncertainty pressures that push creative talents into seeking refuges of stability, away from Lebanon – a burning problem in 2021 that is inadequately subsumed under the long-standing moniker of brain-drain.

Notably, although the latter point of the industry’s sensitivity to adverse developments in the country’s living environment must be assumed to be a universal deterrent to anyone’s will of accepting the laborious burden of rebuilding this country’s economy, the vulnerability of minds was during the Executive roundtable series of March 2021 highlighted more in the media and knowledge economy roundtable contexts than in the roundtables dedicated to real economy and hospitality sectors.

Acting as a content focused and purpose driven enterprise, the Spring Communication venture moreover shares another key denominator with the, by no means excessively large, realms of quality-oriented marketing communication and authoritative journalistic media in Lebanon: a fierce determination to be independent.

On the other hand, content creatives face a contradiction that is inescapable when local origin-content seeks to compete with others in a global or even Arab village of content consumption. This is the question of what actually is Lebanese content or Lebanese creativity. “I don’t know how one can identify Lebanese content per se in an era where identity is seen as a personal self-assessment or choice in a fluid universe of identity choices,” Sweidan notes.

In this sense, Alephia 2053 might be seen as neither fully Arab nor fully dystopian but as a work of anti-totalitarianism that draws inspirations from many diverse sources which are as far apart in time and space as 1917 Petrograd, 1934 Nuremberg, 2003 Baghdad, or 2021 Pyongyang. Thus the particular production value of Alephia 2053 is perhaps not that is part of a by now well-established and almost tired genre of dystopianism – after all, the last decade’s myriad dystopian fantasies in their end-of-world rationales did not anticipate the universal infodemic and overwhelming infections of social media as the most damaging and consequential geo-dystopian experience of this age. Rather, the appealing element from the regional cultural perspective might be that the production is not ignorant of the Arab experience and approach in seeking for a culturally acceptable solution to the universal problem of human tyranny.

Fuel for academic juices

However academic this discussion of Arab contributions to the dystopian genre could be, and how far or near a global content culture and such a culture’s aggregate wealth of diverse local inputs might reside in the future, the content entrepreneur Sweidan has experienced concrete disadvantages not because of global-local identity conundrums but because more powerful and organized states in the Arab sphere have entered the competition over influencing global perceptions of their societies – and thrown financial resources at the task. “Creativity for us is a form of soft power and a driver of social influence. Arab countries around Lebanon have realized the importance of creativity and are spending 100s of millions of dollars [on their creative industries]. What is very difficult is that I am competing with investments from countries that have a lot of money and have decided on policy level, government level, that this is very important for them,” Sweidan says.

On this uneven playing field of Arab content production, Spring largely auto-financed the production of Alephia 2053 by contributing to the venture an – undisclosed and even uncharted but very large – number of man-hours. Taking such efforts forward into a monetization model for a Lebanese content creation industry will require mobilization of investors into digital-era technology, prominently including artificial intelligence, Sweidan says. And it will not be something that any one niche content company should go alone. “There will now be a need to work in an ecosystem that can complement the work of the creatives while ensuring the most important aspect for creative companies, which is independence,” he emphasizes.

Creation of this ecosystem of content creation and communication-driven companies in Lebanon, however, requires something beyond private sector sharing of interests. Here, Sweidan is not bashful. He says, “Our homegrown talent, for whatever reason, is world class. Our digital content is world class. At the same time, the competition in the region is starting to copy us and move with great speed. In the short term, if you ask me, we need a bit of stability just to know where we are standing. This is not something that the private sector can do. This is something that the public sector can do. In the longer term, if there is one thing that I would love, it is for the government or the public sector to designate the content creation industry in Lebanon as a strategic pillar for the country.”

June 22, 2021 0 comments
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EconomyOverviewSpecial Report

With the wind in their sails

by Alexis Baghdadi June 21, 2021
written by Alexis Baghdadi

While the Lebanese Media, Publishing, and Content Creation industry appears to have been largely resilient to the disruption caused by the COVID-19 pandemic, it has had to review its operational models and strategies under pressure from an economic slowdown, inflation, and lack of government support. Yasser Akkaoui, Executive Magazine’s editor in chief, notes that in the past two decades, the industry has outgrown its domestic borders – a key factor in its survival. The industry has succeeded so far in maintaining its reputation as a pool of talent and quality in the region, despite important technological and financial advantages its neighbors possess. On the journalism front, Thomas Schellen, Executive Magazine’s editor-at-large, mentions the most recent World Press Freedom Index that showed Lebanon in a higher position than other countries in the Middle East. But this competitive edge needs to be carefully looked after and nurtured by the very professionals who forged it and wield it at home in order to preserve its core strengths, namely quality, creativity and freedom, before it can be thrust in new directions and markets to reap benefits. 

Laying the tone for the discussion, Akkaoui says: “We can think outside the box to outsmart hopefully the situation and the establishment and to be able to make sure that this space has a chance to strive and continue to be, a success story, a Lebanese success story around the world.”

Participants seem confident in the skillset of Lebanese talent, a skillset that can be leveraged to develop promising opportunities. It is worth noting that media and content professionals invested themselves in acquiring their skills and knowhow to offset the limited capacity-building opportunities locally and the near-total absence of government support for the industry. As an example, Gabriel Chamoun, chief executive officer of The Talkies, cites the growing number of talented writers developing their skills through script writing workshops and study abroad programs. “This was lacking for a long time, I wouldn’t say today that we have a huge pool of good writers but we’re getting there,” he enthuses. This type of self-development is essential to grab an early share of what seems like a promising Arabic-speaking content creation market. Despite Arabic being one of the fastest-growing languages on the internet, the language is extremely underserved, and in varying degrees of quality. “While 7 percent of Internet consumers are Arabs, only 1 percent of Internet content, or less, is in Arabic,” says Eli Khoury, chairman of Quantum Communications. “International media companies are ‘arabizing’ their content while every study in the world, including the EU report, show us that people like localized content, they don’t want translated content anymore,” adds Alia Ibrahim, co-founder of Daraj Media. In her view, taking advantage of relatively lax censorship laws and combining this with talent can help produce much-desired high-quality content in Arabic whether in terms of journalism, arts, marketing or communication. Even if local talent is unavailable, it has become much easier for the media and content production industry to work remotely with best-in-class professionals, noted Ibrahim. The COVID-19 global lockdown provided just the right conditions to jump headfirst into this model. Additionally, inflation in Lebanon has resulted in a relatively low cost of living for professionals earning “fresh dollars,” which could help media companies with access to this type of income attract top talent to Lebanon – provided the country can offer one day present enough incentives in the form of security and safe living conditions. This will allow Lebanon to compete globally and sell productions to services like Netflix and Amazon.

Rocking the boat

After painting such a rosy picture, one might be tempted to think that the industry has a bright future ahead of it, but the reality is that getting there will not be entirely smooth sailing. Several factors threaten the cruise if the self-appointed navigators do not plot their course smartly.

First among the common challenges faced by the industry is the loss of income, brought about by the economic crisis, and consequently of operations and growth capital. Traditional media suffered from the drying up of advertising revenue, increased printing and production costs, and the loss of subscribers who either left the country or didn’t renew their subscriptions. Additionally, the relatively well-established traditional media outlets and production companies, either fall under direct political ownership or rely on political funding from local or regional political forces or advertising agencies linked to these forces. “All these models are today in a deep crisis,” argues Ayman Mhanna, executive director of Skeyes, as most of them are unable to think in terms of creative business models and build creative links between quality and monetization. The near absence of dedicated investment funds have further aggravated these dire straits, forcing companies to downsize and turn to external markets and fresh dollars to ensure their survival. The issue of revenue is slightly more complex when it comes to journalism proper. “Initially journalism as we all know is very expensive and it’s very unlikely to make any profit. So our business model right from the beginning was based on the idea of creating content that can be monetized to fund our journalism,” says Ibrahim. Uniquely within the industry, traditional print journalism incurred additional income losses from the COVID-19 pandemic as newsstands closed down due to lockdowns and movement restrictions, forcing these outlets to move to online-first or online-only models – a strategy that wasn’t necessarily well-planned ahead.

A second challenge is the state’s neglect of the industry, reflected in an antiquated legal environment and zero state-led initiatives to support the sector. Intellectual property laws are largely insufficient, for example. “When it comes to feature films and big international productions, the role of the state or the government is very important. And no country has managed to develop this without an active role from the public sector,” says Chamoun, citing examples from Morocco, such as the Centre Cinématographique Marocain (the Moroccan cinematographic center) and the Royal Film Commission in Jordan which offers a 25 percent cash rebate incentive to international productions filming in the Kingdom. For news journalism, the repercussions are on freedom of speech again. “Defamation laws, libel and slander are written in an extremely vague way that is interpreted by the judicial bodies based on the political balance of power of the moment,” comments Mhanna.

To be fair, the state has paid some attention to some aspects of the media sector, which brings us to the third challenge: the threat to freedom of expression. This asset is one of the pillars of the industry, without which creativity and quality analysis – but also accurate information – cannot exist. True, Lebanese media professionals enjoy relatively better leeway than their Arab counterparts, but this a statement we should be wary of, warns Mhanna: “It is that very statement that our authorities use to justify new limitations on freedom of speech, arguing that we are ‘still better’ than Egypt, Jordan or Turkey […] That’s an argument we will never accept.” In the past two years since the start of mass protests in Lebanon, attacks on freedom of speech have intensified, he laments, painting a dark picture. “Unfortunately, we had to wait for a tragic event, the assassination of [journalist and activist] Lokman Slim, to understand that we live in a country governed by impunity at every single level, not only when it comes to killing journalists or writers, but also impunity in terms of financial management,” he says, adding that figures from 2019 to March 2021 showed an unprecedented increase in the number of attacks on journalism and freedom of expression, not matched even at the height of the Syrian occupation and other crises since 2005. Speaking on behalf of Executive Magazine, Akkaoui states, “We are independent in our journalism, and we have been paying the price quite dearly for the last 20 years, the frequency and intensity of attacks has increased. And we see and feel that oversight.” Limitations on freedom of expression are not restricted to journalism, but extend to other related industries, not least of which in the Arts and Culture fields, noted Mhanna. Theater productions have been denied a stage – literally – since the COVID-19 lockdown and have therefore not come under the radar, but other forms of artistic content have been the target of censorship and attacks by polarized media outlets and so-called electronic armies.

Finally, the fourth challenge concerns the Lebanese talent pool itself and the infamous “brain drain.” One problem that aspiring media professionals face is the shortfall of academia and training centers when it comes to equipping them with up-to-date and in-demand skills. In a country facing a severe economic crisis, with limited local employment opportunities and insufficient investment in media companies, many fresh graduates and even seasoned professionals are left with the choice between expatriation and freelancing with overseas clients in order to secure “fresh dollars.” This is a highly competitive arena and getting there requires the right connections but most importantly the right skills which, as mentioned above, many Lebanese look beyond the borders to acquire. In journalism, the issue is twofold. Some universities do not offer their students enough quality education and tools. “In the context of journalism, the content creation that journalism does in Lebanon, leaves a lot of room for quality improvement and it has been so for many years,” echoes Schellen. Other universities fall short in terms of preparing and adapting them to the Lebanese context. “They become the local correspondents of the largest newspapers from the United States because they know how to write really well, and they master the tone that appeals to foreign audiences, but they don’t actually have such a strong connection with the ground in Lebanon,” says Mhanna. For Khoury, the talent pool in Lebanon is in danger of drying up: “The ones who remain are three kinds: those who are not really up to it and therefore have no chance to leave; the diehards who love the country and are willing to stay here; and those who don’t have the means to move. Otherwise, the good talents, I’m afraid are almost about to finish.” Chamoun adds that over 50 percent of people in the production field are now in the United Arab Emirates, Saudi Arabia, Qatar or elsewhere.

A safe harbor?

Some coastlines promise safe harbors for Lebanese media, publishing, and content creation companies, and consist primarily of niche markets targeted to the Middle East region. Dropping anchor in these ports will require collective efforts on the parts of the private sector. Alexis Baghdadi, Executive Magazine’s managing editor, addressed the panelists saying “It’s time to pass the torch of pioneering journalism and by running media content, content creation to another generation while you take on another role, which is not very different from your role, but more advanced, as guides.” Speaking for the United States Agency for International Development (USAID), Georges Frenn reasserts the importance of the sector in terms of the objectives set by donors, namely quality job creation for Lebanese and economic support and diversification. “Usually donors focus on agriculture, manufacturing, tourism, rural tourism and environment, but the [media, publishing and content creation] is very much interesting and this is why we are analyzing this and USAID is putting this sector as one of the sectors to partner with and support with partnerships,” he explains.

Consensus seems to be the need to produce quality content. Chamoun finds it necessary to reiterate the need for additional investment in content creation, “I think there should be an investment fund developed in Lebanon. When it comes to TV series, development is very important. It’s the name of the game. How to develop content from a concept, from an idea, and having what we call ‘a bible’ that could be then taken by Netflix, Amazon and the other big streamers.” Commenting on the small quantity of Arabic content online, Ibrahim finds that it is mostly of poor quality, and identified this as an opportunity for Lebanon.  “Today the production that makes money is drama, where we cannot compete on the production level because everyone is doing it,” she says, “We have an edge in what we’ve always been good at, becoming, or re-becoming the hub of the best writers, the best archivists and researchers and storytellers, and produce high quality content for this type of production. I genuinely believe we would first be contributing to closing this gap of Arabic content that is very sellable to international audiences, we can even do it in English.” While Arabic is important, Khoury notes that content should not be exclusively in Arabic. “Out of 10 million pages roughly consumed on the internet, 54 percent are in English. So I wouldn’t shackle myself with language. I would push for the authenticity and locality of the story, irrespective of the language.” Mhanna mentions the availability of international funds for quality content and journalism that could be targeted by local companies, asking “[Are] the owners and CEOs of the very established TV stations in Lebanon ready to actually introduce some real new type of content that is truly high quality journalism even if it would put [them] at odds with some of [[their] previous friends and sponsors.”

Mark Daou, chief executive officer of RPR, leads the exploration of examples for collaboration within the sector. Among those are “free zones,” such as in the United Arab Emirates, which could give creative industries room to develop their financial capabilities, offer them financial and legal facilitations, and probably create new employment opportunities. Another idea he discussed involved infrastructure and technology clusters that would solve a lot of technical difficulties for players in the industry. “Those centers will create a lot of knowledge that will create impact and it will allow a lot of young people to aspire to belong to a community that is physically present or at least virtually present,” he says.

For Dany Richa, chairman and chief executive officer of BBDO Middle East, Africa, and Pakistan, winning at the future of the industry requires having the necessary future skills: “You’d be surprised how talented the people that we have are. We don’t have enough of them, and this is where we need to work with universities to graduate more people in neuroscience, in data, analytics, coding, instead of grooming them unfortunately for the jobs of the past that we’re trying to hang on to.” Daou agrees that the private sector should actively engage educational institutions. “We should make sure we continue to get the flow of talent into our institutions to be able to flourish, because the reality is, we will not be able to recruit from abroad to Lebanon.” Here Akkaoui is prompt to point out that in the absence of public policy and safety net, “the disparity between professionals with access to “fresh dollars” and those still getting paid in Lebanese pounds will increase, and with it the misery.”

The public sector remains very largely absent from the discussion, amidst calls for more collaboration with the sector. “We need to contribute to building a strong public sector but we don’t have the luxury of time for it. We have been trying to push cultural actors to start thinking in terms of policies for the sector instead of only asking for money for their performance,” concedes Mhanna. Akkaoui adds: “We’re not as disappointed as the primary, secondary and tertiary industries, who depended on public policy, or public initiative […] which allows us to get organized, it’s most probably the industry where we can see much more cooperation between different stakeholders.” Ibrahim intones, “We need a strategy because, we’re really functioning in a vacuum; there’s no state, there’s a failed state and we’re literally doing the job of the state so this could also be an opportunity. Money alone will not solve the problem [we need] an overall strategy to educate properly and to keep them in the country, create an ecosystem where they can function. With some strategizing, it’s doable.” According to Richa, Lebanese people around the world are willing to help by commissioning work to Lebanon and employing Lebanese outside Lebanon. “It’s really encouraging that the diaspora is creating a platform where like-minded people can closely collaborate with one interest in mind, the interest of our people, because honestly we’re the only ones thinking about our people, our government aren’t thinking about our people, they’re thinking about staying in power and it’s sad, it saddens me,” he concludes. 

June 21, 2021 0 comments
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EconomyOpinionSpecial Report

Lebanon: Time to Think Sustainability

by Maya T. Dada June 18, 2021
written by Maya T. Dada

Lebanon’s financial and economic collapse – and failure of the economy’s institutional pillars – present an opportunity to rethink the country’s economic model and raison d’être, repair the causes, and modernize the way we think about and do business. Putting this within the context of Lebanon’s private sector, and in light of the challenging, unstable and negative environment in which private enterprises operate, there is an urgent need to explore alternative operating models, funding options, and business strategies that gear companies for growth while de-risking the operation. In order to do that, private enterprises will have to initiate a qualitative transformation that embeds sustainability at the core of their values and decision making: sustainability to ensure economic viability; improve institutional resources and capacity; respond to the ecosystem in which the business operates; and satisfy consumer-led demand.

Fundamentally, the private sector in Lebanon has always had the right ingredients for success: commercial wit – possibly inherited from our ancestors and facilitated by our geographic positioning – agile businessmen & business acumen, highly skilled labor or potential to produce the skilled workforce, and a business community that survived in doing business under harsh conditions despite the continuous absence of a business conducive environment and supportive policies and policymakers. Whilst fundamentals are there, challenges are numerous. Two crippling challenges have emerged for private enterprises following the financial collapse. The first is the absence and complete stoppage of funding from traditional commercial banks, considered to be a main inhibitor for growth and threat to private sector survival. The second is the scarcity of foreign currency in the local market, a necessary resource for obtaining raw material, and preserving income and value.

From family to partnership

With the absence of lending from commercial banks, other channels will have to be tapped for access to capital, such as local or foreign private investors, development banks, or funds, which – on top of their commercial incentives – may have developmental & social incentives. Moreover, capital may not be restricted to loan-based products, but can include a whole array of simple or blended products from equity to senior debt.  Funding may be in local dollars, in which case there is ample supply but less demand, or ‘fresh’ dollars, in which case there is ample demand but less supply. Investors, particularly institutional ones, offer important networking, technical assistance, synergies, opportunities for reaching out to other markets, connections to potential customers and suppliers – but most importantly offer long term value and position the company for growth, modernization and better resiliency.

Most institutional investors nowadays are responsible and socially conscious investors, who will require the companies in which they invest to comply with their environmental, social and governance (ESG) standards. Therefore, to be able to access capital from such investors, family-owned businesses in Lebanon must transition to an institutional mindset and embed ESG standards that reflect their own values and those of their potential partners. Owners will have to understand that their decisions must not only create value for their family, but also their employees, value chain, community and other stakeholders. Sustainability issues will be at the core of decision making for institutional investors when considering investing in any company.

What does that mean for most Lebanese companies? It means that the issue is not only to have a convincing story about the company’s economic feasibility and viability; owners must go beyond. To transition from a family mentality to an institutional one, it implies that family members must accept to institute a functioning and effective board of directors that provides discipline, accountability, and objective and expert opinions from independent members.  Lebanese enterprises that wish to access capital are advised to develop written policies and procedures to ensure transparent decision making based on the company’s values and principles, integration of checks and balances, a code of conduct that clarifies rules and standards, and very importantly transparent and accurate reporting. Written policies and procedures ensure commitment and adoption across the firm. New partners would be looking at a corporate governance structure that promotes trust between stakeholders, better risk management, and sound decision making to ensure long term sustainability.

Companies are required to understand the impact of their decisions on the community in which they operate, and manage their environmental and social impacts to support sustainable value creation. Energy use and their implications, proper waste management and disposal of hazardous waste, toxic emissions, natural resource conservation, adequate working conditions, health and safety measures, diversity and inclusion, engagement with community, among other issues are ones that must be understood, assessed and addressed.

The earlier Lebanese companies incorporate ESG concerns into their framework and decision making, the better they are positioned to access capital, overcome the credit constraints in the local market, and ensure smoother onboarding of new partners and long-term value creation.

Export-led recovery

Most Lebanese companies cannot operate without access to foreign currency, a scarce resource nowadays. Foreign currency is used to import raw material, make required investments, and preserve value in an environment with a depreciating currency. To access foreign currency, Lebanese companies must focus on an export-led recovery. Are we ready for exports?

Despite the devaluation, there generally does not seem to be an opportunity for Lebanese products to compete on account of price – because economies of scale are lacking – but rather to compete on quality, uniqueness and sophistication. This comparative advantage is important because it not only positions Lebanese enterprises for exports into more sophisticated markets, but also creates more highly skilled jobs, opportunities for economic growth, and prospects to transform the economy into a more modern one.

Additionally, exports help Lebanese enterprises de-risk by dissociating them from a contracting economy and a volatile currency.  The key is to understand what products can make breakthroughs by understanding what consumers in offshore markets are looking for; then work on modifications, required certifications, and consistency.

There is no reason why Lebanon’s private sector recovery cannot be export-led. Trade has been a pillar for prosperity for all people who have occupied our land many centuries ago. It all goes back to our history and geography. Lebanese are culturally diverse, having inherited aspects of different cultures and civilizations. Geographically, our land is unique in being accessible to the GCC, Europe and North Africa, with a Mediterranean that has made openness possible, and that has made trade our skill. We have a huge diaspora with a reach to all continents. Sometimes we forget our potential. Sometimes we need a crisis to be reminded. Sometimes we need to look at our history – not our present – to build a future.

June 18, 2021 0 comments
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policySpecial Report

Integrity safeguards in financing elections and political parties

by Omar Kabboul June 17, 2021
written by Omar Kabboul

Money is often deemed an integral component of democracy as it enables political participation, campaigning, and representation. However, when money is not efficiently regulated, it endangers the integrity of both the political and electoral processes, it weakens institutions, and jeopardises the quality of democracy.

Lebanon is no exception to the rule. The dissection of the money-politics relation in the Lebanese context shows how entrenched corruption is in a system made of sophisticated networks of clientelist networks across both the public and private sectors whose sole purpose is to maximise private gains. As such, a sound enforcement of campaign finance regulations as initially envisioned by lawmakers is intertwined with an advanced global regulatory framework for political funding.

 

Corruption as a prevalent aspect of the political life

Whilst systemic corruption is hardly regulated through traditional means of campaign finance, maintaining integrity safeguards in financing elections and political parties could be the cornerstone of a competitive electoral process, a guarantor for a modern functioning democracy despite everything, when coupled with other well-grounded measures to control political financing and funding of political parties in the first place.

Looking at Lebanon’s scores across the indicators of integrity, transparency, and accountability would help experts in the field understand the interplay of the de jure and de facto realms of campaign finance in the country. For instance, the supervisory commissions which were first and foremost tasked with monitoring electoral spending have faced impeding challenges, ranging from the lack of will to the lack of effective support teams, manpower, and budget, which would enable efficient reinforcement of prerogatives and regulations alike.

The expediency of campaign finance regulations

The campaign financing system was introduced for the first time in the 2008 Parliamentary Election Law no. 25. The law established the Supervisory Commission on Elections Campaigns (Chapter 3, Article 11), whose prerogatives evolved around the regulation of campaign spending and the use of media; however, the commission was linked to the Ministry of Interior and Municipalities, with the minister supervising its work, despite calls for its independence administratively and financially.  At the time, the commission fell short on enforcing campaign spending regulations, either for limited capacities, or legal loopholes. For instance, while the law provided for advertisements’ audit by the commission, the latter could not make use of this competence.

In June 2017, Parliament passed Law no. 44, which brought about many changes on the campaign spending front. The introduced reforms reinforced the statute of the commission to a great extent, whose mission was no longer restricted to elections campaigns, but covered the whole electoral process, and was named as The Supervisory Commission on Elections (SCE) – rather than The Supervisory Commission on Elections Campaigns (SCEC). The commission had by then the opportunity to exert greater control in order to increase transparency of campaign finance and a great level of independence from the Ministry of Interior and Municipalities, with the exception of the election management roles which were retained by the latter. However, the SCE lacked the resources to audit the campaign finance reports submitted by candidates, as well as the power to enforce penalties for violations.

The definition of electoral spending as stipulated in the 25/2008 and 44/2017 laws is very restrictive, given that spending outside the campaign’s window is allowed, in addition to the law’s shortcomings in sanctioning cash distributions. Whilst the SCE has access to the candidates’ campaign accounts, it cannot audit the personal accounts of the candidates, through which most spending is processed as the Banking Secrecy Law that was not lifted for candidates as is the case with the campaign accounts.

While it stands true that the administrative and logistical constraints impeded the SCE’s operations, the commission needed four months to audit the reports submitted by candidates, let alone being faced by a staunch resistance of media outlets to provide the commission with the respective paid media advertisement data which should have been reported.

Private and public funding of political entities

The challenges, which both the SCEC and later on the SCE encountered, are entrenched in Lebanon’s political financing system. Private and public funding of political parties is often channelled via unrestrictive routes.

As listed by the Administration and Cost of Elections (ACE) project, the world’s largest online community and repository of electoral knowledge, the sources of private funding, namely subscriptions, donations by individuals or corporation, as well as contribution by supporters are never disclosed nor regulated as has been the case in Lebanon for a while, nor do they compare in amount and influence to foreign support and the use of public resources for sustained private gains.

For instance, funding by foreign sources and abuse of public sector or state resources outweigh private funding in influence and have avoided accountability and regulation for decades. These often take the form of vote buying, clientelism via public employment offered to constituents, as well as parastatal institutions meant to circumvent ministries and uphold voters’ freedom in exchange for services. Hence, most of the services offered to voters are largely unaccounted for, as the electoral laws exempt candidates from reporting on service delivery by an affiliated charity in the case where this service delivery has been ongoing and consistent for more than 3 years in a row prior to the election date.

As such, there is an urgent need to approve new laws, including bills that give the Constitutional Council more enforcement capacities which would enhance the transparency in reporting the sources and uses of said political funds. In that regard, the notion of transparency is codified in the United Nations Convention against Corruption (UNCAC) which Lebanon joined in 2009, and calls on all countries to strive to “enhance transparency in the funding of candidatures for elected public office and, where applicable, the funding of political parties” (Article 7(3)).  

Way forward

Liberating Lebanon’s democracy and institutions from the influence of money should not be restricted to reforming the Electoral Law. This step should be complemented with other reforms and bills such as lifting banking secrecy on all candidates’ accounts as well as those of their family members, revisiting the political parties law which dates to 1909 (Law of Associations), amongst many others meant to reinforce the role of regulatory authorities as provided for in Lebanon’s Anti-Corruption Strategy 2020-2025, which are primarily intended to prevent grand legalised corruption, such as the appointment of civil servants, public procurement and allocation of public money. As such, monitoring the source and spending of political financing channelled to contenders, either through public funds or foreign support, is very critical.

Lebanon stands at a crossroads ahead of the upcoming parliamentary and municipal elections scheduled for 2022, following the promulgation of the national anti-corruption strategy that brought about serious plans for reform, which if applied, would set the ground for a healthier and better financing of the political life.

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 “Integrity Safeguards in Financing Elections and Political Parties” webinar organized in partnership with Executive Magazine.

https://youtu.be/CO1qEMCQ_50

 

June 17, 2021 0 comments
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EconomyLeadersOpinion

Purpose at the edge of chaos

by Executive Editors June 17, 2021
written by Executive Editors

Chaos is a complex system ruled by discernable patterns where the agency of minute initial changes creates hugely different outcomes. The chaos system, while appearing predictable early on, thus cannot be predicted in its future outcomes. Also, if there are conscious forces of agency that perpetuate the deterministic chaos that is Lebanon from the perspective of a governance system, they appear to cherish obscurity. Our socioeconomic fate thus is uncertain as well as obscure on any time horizon, despite overwhelming evidence of dysfunctional public agency that underlies the problems of our economy.

Secondly, even when discussing the survival strengths or the residual weaknesses of Lebanese public and private sectors, the full identity and extent of the chaos system tend to remain impervious to analysis. Perhaps this is because, by human reason, such an insidious, logic-defying system ought not to exist.

By contrast to the unpredictability of the public system, however, there are many reasons to marvel at the survival skills of our private sector economy – which have been demonstrated more convincingly with every passing month of our 20 months of open economic crisis. Proven survival skills create opportunities. Yet a precious few observers, one of them Executive Magazine with the support of partners and stakeholders, have dedicated themselves to highlighting those opportunities.

This Lebanese constellation – of public development barriers and private development wants – today warrants newly discussing the social enterprise fundamentals: the purpose of business units in their evolutionary habitats of profitable industries. Profit and purpose belong together if the economy is to function as an ecosystem, as the noted international central banker Mark Carney – whose sterling reputation in the global finance realm was built over his tenures at the Bank of Canada and the Bank of England – preaches in a very recent discourse on the relationships of economic value and moral values.

According to him, companies with an internal sense of purpose and high employee buy-in into their purposefulness perform better for society – and prove themselves in times of disruption. “To build a better tomorrow, we need companies imbued with purpose and motivated by profit,” Carney writes.  And purpose, he emphasizes, is modeled and informed by an underlying set of values.

Ergo, developing a new game engine, in the form of a collaborative and rational private sector paradigm, seems to be the only answer that would allow for the Lebanese private sector economy to thrive at a not-impossibly-distant future time point. All the available evidence suggests furthermore that the construction of this economic growth framework has to start with rebuilding socially productive entities in the categories of industry and the firm – quasi the formation of stronger Lebanese business tribes and superior warriors that can compete in the global game world of economic Warcraft.

SNAFU

Perhaps the construction of a new economic paradigm for Lebanon then needs to commence from two opposing points: construction of a new constitution for the state – an ethical state – on top and building industries from the granular structures of their two core economic unis, the ethical family (and socially alert family business) and the ethical firm. Firms, by collective wisdom of today’s inclusively minded female and male economists, are the core of capitalism, their habitat is the marketplace, and their survival depends on corporate governance in alignment with ruling standards and goals, known as ESG (environmental, social and governance) goals. 

The first issue, a stakeholder discussion for creation and encoding of new purpose in the DNA of five Lebanese industries, provided the thrust to the special report on the Economic Framework for the Creation of Sustainable Private Sector in Lebanon, which the Executive team worked on in partnership with the United States Agency for International Development (USAID) and in alignment with over 50, highly qualified, stakeholders from finance, advisory, strategy design and operation in the fields of manufacturing, food-processing & agro-industry, media & content creation, food & beverage concepts and hospitality, and technology and knowledge enterprises.

This project was kicked off in February. Its first stage entailed diligent selection of a steering committee (SC) and a foundational SC meeting wherein our consultative approach determined the five industries that the project would focus on. Roundtables convened on March 30 and 31, resulting in 10 hours of recorded insights that were transcribed into approximately 70,000 words of raw minutes, condensed, journalistically augmented, and contextualized with expert comments in the writing and production of a benchmark report that was printed and presented on June 9.

Will history absolve us?

We noted three outcomes to this exceptional report. The first outcome was an affirmation of the capacity for brainstorming and constructive dialog that participating stakeholders have and the assurance that these experts and practitioners are perfectly motivated to construct a better economy. A second result of the deliberations was that industries have as yet underused potential for coordination in the current crisis. As a third conclusion and implication of untapped potential, the roundtable discussions have hinted at vertical and horizontal opportunities of supply chain development and innovative pairings of industries for mutual benefits.

Painting a realistic picture of the constructive discussion of our over 50 roundtable participants requires noting their will to listen to each other and hear out opposing views, but also means acknowledging that long-standing economic weaknesses and risks in the private sector economy have been exacerbated by the crisis and that there will be no lasting solution without political change, even if the economic actors do their best to perform as if there was no public disruption.

The detriment of entrenched old problems is reflected also in other challenges to our collective sanity that are documented in this issue, namely the perennial combat against corruption and the quest for a restructuring of our banking industry that will enhance our future economy, not cripple it further.

While there are comets of a new banking reality flashing through our financial sky, the harbingers of better times are yet feeble prospects. They have resisted our journalistic hunger for a clearer picture as reports on the banking sector’s current health, or absence thereof, will have to be assessed on basis of accurate sector data – which are still not in our line of vision – as well as implementation of restructuring and forensic audits. But being confronted with a banking picture of many imperfections today only whets our appetite to bring you, in the third quarter of this year, a fuller and deeper understanding of where banking stands and what it can again become.

The one thing in the past few months that was as important for this magazine as our project on creation of sustainable private sector employment in Lebanese industries, and even more energy-consuming than the development of our five economic roundtables, was the challenge of elevating our inner purpose and making it stand up to the burden of this ongoing crisis. We – every last member of the Executive team – have worked, striven, revised, and worked more on developing our purpose in midst of the social, economic, and worst of all political crisis that has bounced all Lebanon from one moment of despair to the next.

In a journalistic nutshell, the anchoring of purpose in the enterprise and the needs to counteract the deterministic chaos in the state, were the on-agenda drivers of this April/May 2021 issue of Executive, which we present to you belatedly, and which will be drivers of our future.

It may or may not be true that, as about a dozen staff researchers at the World Bank have just suggested in the Spring 2021 Lebanon Economic Monitor, this country’s still ongoing economic crisis will go down in history as one of the most extensive and consuming episodes of recession that have been recorded in the past 150 years.

But taking this observation from its opposite implication, Lebanon’s economy may yet deliver new empirical evidence that there is that real existent transition zone, between the realms ruled by anarchic disorder and stagnant order. This is the realm that has been dubbed the edge of chaos. Described constructively and optimistically, it is the place of bounded stability where new solutions can be innovated and verified in a sphere of maximum complexity.

It is then not inconceivable that the painful quagmire of the historically exceptional Lebanese crisis can ignite the mixture of desperate needs and applied ingenuity that can unleash what Carney calls the “magic of capitalism”, meaning the solving of a burning social problem with a profitable business model, which can generate a self-sustaining and/or scalable process which by virtue of its creation unlocks new answers to basic and current economic problems. Thus, in the extreme economies at this edge of chaos, developments can be initiated that shape the future of systems, such as the global economy that is battling to find its path between stagnation and anarchy.

Post scriptum: the edge of chaos is an exciting state of mind; a cozy place for the fainthearted, it sure ain’t.

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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