Economic potentialEntrepreneurshipHealthcareSpecial Report

Organic care and true beauty niches

by Thomas Schellen
written by Thomas Schellen

The global cosmetic and personal care market is growing, the upward swing especially boosting companies that produce organic and sustainable products. The specificity of new manufacturing trends and the evolution in marketing funnels, such as the rise of micro social media influencers, is shifting the research-intensive health-related sector towards viability of small enterprises, niche producers, and customized lifestyle products. 

Due to the Covid-19 pandemic, the overall social appreciation of proper personal care is increasingly on peoples’ minds. This begs the question for all countries that do not have the benefit of being homes of vaccine makers or personal care giants: how can our countries benefit from the changes in the marketplace, and improve the local production of personal care products? 

As with pharmaceuticals, this supply question is made much more urgent in Lebanon by the demise of the national currency’s artificial stability. In 2018, the Investment and Development Authority of Lebanon (IDAL) opined that there were four notable market opportunities in the healthcare sector, notably advocating the growing market for natural cosmetics. “Demand for natural and organic products is growing exponentially driven by increased awareness of health and wellness. Lebanon’s cosmetics industry ranks amongst the top 5 Lebanese exports indicating its strong position and its potential to grow to address regional and global demand.” 

This global demand is not to be scoffed at from the positions of small and medium suppliers in small countries. In its annual report for 2019, Cosmetics Europe, a lobbying and advocacy voice for the industry, expresses the expectation that “improvement in deliveries and technological progress will help online sales of cosmetics to grow significantly. Ecommerce represents an opportunity for small and large companies to expand their sales and client base.” 

hygiene and care market booms

According to Cosmetics Europe data, the European cosmetics and personal care market is the world’s largest at 79.8 billion euros in retail sales. “Including direct, indirect and induced economic activity, the industry supports over 2 million jobs. In 2019, over 206,800 people were employed directly, and a further 1.65 million indirectly in the cosmetics value chain,” says the organization. Modern cosmetics is not about torturing yourself with applications of potentially toxic substances for the sake of making a fake impression. “The vast majority of Europe’s 500 million consumers use cosmetic and personal care products every day to protect their health, enhance their well-being and boost their self-esteem.”

A 2019 global cosmetics market report by retail data research company Edited, similarly described the beauty industry as an economic landscape where direct-to-consumer (D2C) selling is increasingly sophisticated, due to positioning of products by pricing and highly-informed digitally native customers. Additionally, according to Edited, there is a great consumer desire for transparency in beauty products, as mind sets are changing to favor non-harmful, sustainably produced and cruelty-free tested products, and demand trends are shifting towards plastic-free recyclable packaging and economic transparency. 

“The beauty industry is seeing a greater regulatory crackdown against increased ‘greenwashing’ across the sector”, the report says and cites with initiatives such as the US Personal Care Products Safety Act to substantiate its prediction that the future “will force large beauty brands to rethink their approach to natural cosmetic formulations’’.

Credit Covid-19 for the exponential rise in hygiene and care awareness: a paradigm shift that is likely to translate into significant opportunities for companies in that market, whether established or start-ups. Moreover, in the Lebanese economic context, it is a valid question to inquire about the national capacity for production of care products, just as it paramount under the national economic emergency to substitute as much as possible imported brand medicines with far more affordable products of similar quality and local manufacture.

Prolific bees 

are swarming regionally

In Lebanon, the production and exportation of organic care products appears, at least in one case, to be thriving. Beesline, a Lebanese, family-run, apitherapy-based enterprise, initially had a slow-growing market presence in Lebanon. With time, their market presence evolved, and in combination with moderate exports for well over a decade, it eventually reached a stage where the company was invited to join the Endeavor network of companies in Spring 2014. 

Reported to have about approximately $7.5 million in annual sales in 2013 and a workforce of 180, company revenue took off. “In the past five years, Beesline focused its strategy across the region and accelerated growth in core markets. The company more than doubled its size in revenues in the past four years,” Hassan Rifai, marketing manager and second-generation member of the company’s founding family, tells Executive. According to him, the headcount is still 180 employees but the solid double-digit year-on-year revenue growth of more than 20 percent has propelled the enterprise into a new dimension of economic performance.

And this performance has not waned in 2020. “Like all Lebanese, we are used to challenges and work harder when they come. Despite all the challenges that we have faced, 2020 is still on a similar path of growth as in the past years,” he enthuses. 

Factors that cannot but be noted as drivers of this growth according to Rifai are the company’s allocation of about 5 percent in annual turnover to research & development, alongside intellectual property protection of its formulas; the consistent focus on exports, and the multi-tiered reliance on channels to market that entail traditional collaboration with distribution and wholesale intermediaries, as well as a focus on e-commerce through an proprietary platform plus third-party platforms.   

In terms of selling and marketing, the main marketing channel is digital, but online communication and selling channels are augmented with selling channels through pharmacies, and for some product lines, through hypermarkets and some beauty shops. 

“Quick use products, which are off the shelf and low-cost such as face masks, go to beauty shops and hypermarkets. Flavored lip balms go there too. More health focused products remain in pharmacies, but everything can be found on the online platform. Since we started our own e-commerce platform, we have been keen on growing it quite aggressively, and our platform generates more [turnover] than any other platform in itself,” Rifai explains.

What, on the other hand, is not a factor for the company’s success is the ability to rely on domestic raw materials. “We have to rely on imported raw materials up to 90 and sometimes 95 percent,” Rifai tells Executive without elaborating on the role of locally produced beeswax in the product range of Beesline. With the majority of raw material cost related to dollarized imports, he says, “Our cost actually increased quite a lot, yet we picked a pricing strategy where we tried to stand as much as possible on the side of the Lebanese consumer, by limiting the transfer of inflation to them.” 

Consequently, the company looks at a red zero in the home market for 2020 and its strategic projection for next year is similar. In this mix of seeking to acquire market share in Lebanon by sacrificing short-term profits and maintaining price levels in regional export markets, it is notable that the share of the Lebanese market in overall business according to Rifai amounts to only about 8 percent, whereas revenue and growth come from Gulf markets such as Saudi Arabia and the United Arab Emirates and ongoing expansions of sales in large regional markets such as Egypt, but also include forays into European and farther-flung markets in the United States and Oceania. “We started selling in some of these markets as of 2020 and are planning to push further from 2021 onwards,” Rifai says. 

Rifai explains that customer concerns have been shifting to organic product certification, compliance with environmental sustainability practices and fair governance standards. 

“The challenge or issue here is not about the origin of manufacturing but on the value proposition. We have pushed our value proposition towards sustainability and commitment to the environment,” Rifai concludes.   

Startups on the organic case         

One would expect the global market opportunity for producing and marketing organic cosmetics to naturally reverberate with some diverse minds in the Lebanese startup talent pool. One example of such a startup is Lagom Organics, an organic skincare company, whose founders Jennifer and Samer Abouarab spent serious time on research and development. They found themselves compelled to jump straight into exports because of the near total demise of the domestic market at the time of their venture’s launch in late 2019.  

Similarly, Salma Loves Beauty is a natural beauty startup with a range of olive-oil based soaps that has expanded into liquid soaps, potions, shampoos and sanitizers. Founder Rosemary Romanos had been working on and running the startup already for many months when the crisis first hit and she felt an immediate impact on the business. Nonetheless, in a decision to pursue her startup dream even as the tidal waves of depressed economic mindsets were washing over the Lebanese market, Romanos incorporated her venture in August of this year. 

Thirdly, the start-up Potion Kitchen has been included in the 2020 batch of ventures at the SMART ESA demo day in December. Founder Rafa Hojeij, who first came to the market purporting messages of plant-based skincare and clean beauty in 2018, is seeking to raise $65,000 in funds for expansion of production capacities and marketing in 2021. Her startup’s initial export orientation is directed at West Africa, where the Hojeij family of south Lebanese origin has extensive market knowledge. Potion Kitchen’s next target markets after that will be located in the Gulf region, Hojeij tells Executive.   

Among these young enterprises, Lagom Organics is based in Zghorta, North Lebanon. Co-founder and commercial head Samer Abouarab says that Lagom Organics is endeavoring to pioneer the regional market niche for skincare under an originally Scandinavian lifestyle concept of lagom and position the brand as the region’s first in the “indie organic skincare segment”. Lagom is a concept that refers to the perfect balance: not-too-much, not-too-little. The company is thinking to expand its market to Europe, South Korea, and the Pacific Northwest in the US. 

In the reality of doing daily business from Lebanon, Lagom Organics has discovered that local ingredients did not satisfy the quality requirements for the company’s luxury formulas of essential oils and “wild harvested” raw materials. While including up to 20 ingredients in the company’s two existing products (two more are in late-stage development and others under preparation), Samer Abouarab says he cannot locally source even one ingredient. Even as the company’s products when sold abroad are not heavily exposed to the Lebanese currency exchange rate problem, he concedes that the importation problem is one of the main issues faced by the startup. 

sustainable practices

Farmers and growers still lack knowledge in essential oil production and high quality products, and certified ingredients are not available from Lebanon, Abouarab tells Executive: “There is no local production. I have been in touch with several local farmers and growers because we use a lot of essential oils, but local production is still very low in quality and quantity.”   

These barriers notwithstanding, Abouarab is committed to producing the Lagom Organics product range in north Lebanon, noting the labor cost advantage and high work ethics of the company’s small production workforce of local women. Besides requiring certified imported ingredients and relying on special glass containers made from imported, novel and expensive, photonic glass, the company is artisanal in nature and committed to local production in Lebanon. Abouarab explains, “We don’t use machinery and our batches are very small, we produce like 1,000 pieces at a time whenever someone requests our product, manufacturing immediately and shipping to them,” he says. 

Salma Loves Beauty founder Romanos confesses, just as the other two maker startups, that she is highly insistent on the sustainable and environmental characteristics of her brand’s organic skincare products. She tells Executive that she joined up with a manufacturing partner who is a chemist and formulator that wants only to produce natural care products. She is marketing these products on the basis of a shared commitment to “never manufacture something that is toxic to the environment or the consumer.” She does not want to divulge performance numbers of the business, which has a monthly capacity of producing 4,000 soap bars, but tells Executive that her startup is already achieving turnover of below half a million dollars.

Lebanese start-ups adapt and step up

Economically, the venture handled its 2020 market experience with a strategy to distribute cost increases by first reducing the company’s profit margin and next seek reduction of supply costs. Passing cost on to consumers is only the final option when mandated by the need to have a healthy business with a healthy margin. “We took a cut in our margin. Because we have been [operating] before and after the [start of] the crisis, I have personally seen the changes in my margin and the first decision that I took was that I reduced my margin before I passed this cost on to the customer,” Romanos says. 

Romanos, who earned her first chops as an entrepreneur in Lebanon with an alternative energy startup in 2017, says that up to 80 percent of her cost base is tied to foreign currencies. She explains that she obtains all raw materials and inputs from Lebanese companies, but adds that many of these local suppliers in turn rely to varying degrees on imported materials such as plastics and packaging. Her products’ ingredients include olive oil, honey, jasmine, lavender, and laurel oil. 

“I personally made a switch to natural products when I was 21. I wanted to be more conscious about the things that I consume and it made a big difference with my skin and hair. The first product that I switched to was deodorant because I wanted something that was free of aluminum and preservatives. This was because I believe that anything that you put on your skin goes inside of your body,” she says. 

Two factors that the three startups and the established care player Beesline have in common are firstly that all of them are relying on native e-commerce platforms – in cases of Beesline and Salma Loves Beauty in conjunction with traditional distribution – and secondly that none of them has seen any state incentive, tax break, ministerial initiative or public sector support of their own company development in the cosmetics sector.

“The beauty industry is seeing a greater regulatory crackdown against increased ‘greenwashing’ across the sector.”

One factor that the three startups, and the established care player Beesline, have in common is that all of them rely on native e-commerce platforms. 

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EntrepreneurshipFinancing healthcareHealthcarePharmaSpecial Report

Drug money

by Thomas Schellen
written by Thomas Schellen

What a difference in perception a year makes – especially this year of 2020, and especially in all matters concerning health, directly or indirectly. Let’s assume – very reasonably – that you were cleaning your hands a few times a day at about this time in late 2019. Were you to have been engaging in any lengthy hand washing and extensive sanitary exercise back then, it might have led an observer to suspect that you suffered from OCD – obsessive compulsive disorder. In 2020, the same diligent hand-washing and frequent use of hand sanitizers would likely be regarded by the same observer as best practice and responsible behavior.

Further altered behavior patterns in relation to health have emerged over the past months, such as increased acceptance of telehealth in developed economies; hesitancy of people afflicted by various chronic or age-related conditions to commit to elective surgery; and highly restrictive visitation rules by hospitals and old-age nursing facilities. 

This year’s behavior shifts have found their clearest early economic expressions in financial markets and specifically in stock values. Whether it is the biotech index of NASDAQ that is booming at the cutting edge of medical innovations or something as mundane as the share price of Malaysia’s Top Glove, the world’s largest manufacturer of latex gloves that has seen its profits soar even as it relies heavily on migrant labor. 

Even for both the economic strategist and the prudent investor who does not gamble on the flashiest and risk-prone outliers of the 2020 financial markets that are under the reign of the pandemic’s heightened awareness and fear, keeping a careful eye on hot pharmaceutical and personal care manufacturers is a no brainer. Although this year many investors and advisors were noted for adopting the strategy to – in Bank of America’s term – “sell the vaccine” and divest from volatile assets, the overall healthcare sector and non-cyclical consumer goods such as soaps and other personal care products have fortified their auras of being composed of defensive stocks. 

Within the conventional wisdom of global equities markets, this means that stocks in the healthcare and non-cyclical consumer care segments, from makers of pain relief drugs and medicines for chronic conditions to manufacturers of hygiene products and cosmetics, are values to hold onto in times of economic and/or political instability. Thus, healthcare and specialized or adjacent industries – such as biotech and organic cosmetics – promise wider and more intriguing opportunities than the top horses in the mad coronavirus vaccine race that are on the mind of every last stock market gambler who is chasing after high-risk biotech propositions such as Moderna Inc.

On a curious side note, news of vaccine developments are gobbled up and acted upon not only by fortune hunters but also by criminal-cyber-attackers or state-backed hacking organizations – over the last few months those very opposite interest groups have both been targeting biotech propositions such as Gilead Industries (earlier this year when the biotech firm’s Remdesivir drug was touted as potential Covid-19 treatment and, more recently, vaccine makers such as Astra-Zeneca and BioNtech. 

Such observations of global financial trends in health and beauty care have ramifications for daring and risk-loving investors even when looking to identify opportunities in Lebanese manufacturing niches – despite the lamentable absence of relevant stock market information on health sector companies. Moreover, anyone with an economic sense should assume that understanding the value proposition of local pharmaceutical and personal care productions in this country matters a great deal at this very moment. 

This is not just for the reason that securing the supply of medical drugs for domestic consumption is one of the country’s core needs and that the importation of pharmaceuticals translates into a huge drain on funds – according to Ghassan Hasbani, the former deputy prime minister and minister of health, an avoidable drain of some $500 million this year – under the current exchange rate subsidization policy. The value proposition of Lebanese capacity-building in the wider health sector is seriously under-acknowledged, if one looks closer at the national potentials and untapped opportunities in manufacture and exports.

“The healthcare industry in Lebanon, at least before the crisis, was quite advanced. It is one of the industries that can play a major role. [There also is] big potential for skincare and organic [products and exports] because of quality of manufacturing in Lebanon, quality of talent in pharma industry, and [the] relatively cost-effective R&D in the country,” Hasbani says.

The astounding value proposition of domestic generic drugs

In terms of pharmaceutical drugs alone, local quality manufacturing capacity exists to cover the majority of domestic needs in both volume and value. “The total value of the [pharmaceuticals] market is about $1.7 billion and of that total we are importing around $1.3 billion of brand and generic medicines, [whereas] around $350 million [worth] are locally manufactured,” Hasbani tells Executive. According to him, the output of Lebanese pharmaceuticals manufacturing companies has in recent years increased from satisfying about 7 percent of total market value to 19 percent, and 76 percent in terms of volume – the disparity between volume and value being so large because the generics made in Lebanon, while of high quality, are far cheaper than the imports.

Hasbani adds that under a recent plan of the Lebanese Forces (LF) political party that he is a member of, the share of domestically manufactured medical drugs of the total market should more than double. “Now they are almost at 20 percent [of the market’s value]. The objective is to take them up to more than 50 percent,” he says. 

As one practical step to curb potential abuse of the old subsidy system and reign in the danger of perverse incentives – which the international pharma industry has long been reputed to offer in various forms – by which physicians may be tempted to prefer imported drugs in their prescriptions, the LF plan for addressing the problem of unsustainable pharmaceutical drug imports entails a suspension of doctors’ authority to tick a “non-substitution” box when prescribing medicines.

In a stepwise approach to dealing with the wider supply and finance problems of the Lebanese pharmaceuticals market under the economic crisis, the vision promoted by Hasbani is to first switch from the current exchange rate subsidy, under which about 85 percent of pharma imports are subsidized with about $1 billion per year, to a subsidy process that is based on achieving the lowest possible subsidy cost while securing quality. 

This would mean to prefer subsidizing imports of raw materials and, if not locally available, generics from reference countries. At the same time, the plan calls for allowing subsidies of imported brand drugs if no substitution is feasible at near or equal quality, while also lifting subsidies from certain over-the-counter drugs. “In this way we would have reduced the currency subsidy of imported medicines from the $1 billion that it is today to just under $500 million,” the former health minister explains.

In the longer run, however, the  solution to the medical supplies problem – which according to Hasbani would address a humanitarian emergency, and thus, is not something that would be contingent on political reform agreements with the international financial community and multilateral institutions – could entail the creation of digital wallets for Lebanese families. 

These wallets could serve as the 21st century version of social safety cards and be funded by $2 billion [of foreign aid] annually as means of disbursement of healthcare and other essential needs subsidies to 55 percent of the Lebanese households to the tune of nearly $300 dollars per household. “This method could avoid the use of reserves to subsidize imports. It would be more targeted and be using international aid to create a social safety net for vulnerable families,” Hasbani enthuses. 

As a positive side effect, such a solution would require the implementation of something that Lebanon’s economic policy stakeholders have vainly been waiting for since the end of the Civil War: a general census.

Barriers to such a solution of course exist by both anecdotal evidence and long standing patterns in the Lebanese system of fragmented self-interests. The interest of drug importers, for example, is substantial and well documented through lobbying of public influencers and decision makers. Interests more powerfully expressed, to this day, than the interests of the – not yet five years old – Syndicate of Pharmaceutical Manufacturers in Lebanon (SPIL). From a dysfunctional landline phone number on the syndicate’s website to total absence of relevant industry data on the site, and office staff that appear to deal with media inquiries by the “don’t call us, we will call you” method of communication destruction, the SPIL syndicate and the 11 individual companies comprising it, have by all evidence yet to mature beyond generic PR messages and “news” that al wazir visited this or that new manufacturing facility and “expressed his pride of the Lebanese pharmaceutical industry”.    

This year’s behavior shifts have been most clearly expressed by changed in the financial markets.

The total value of the pharmaceuticals market in Lebanon is about $1.7 billion, of that total, Lebanon imports $1.3 billion worth of medicine.

THE GLOBAL PHARMA MARKET

According to data published by the International Federation of Pharmaceutical Manufacturers and Associations, (IFPMA), the global pharma industry employs well over 5 million people (5.07 million in 2014), about 70 percent of whom are located in Asia, including Western Asia. The global pharmaceuticals market amounted to $997 billion in 2014, representing a cumulative 8-year increase of approximately 53 percent when compared with 2006 according to the same source. 

The industry’s gross value added in the same year reached nearly $453 billion worldwide, of which $154 billion were generated in Asia. On the other hand, the market concentrations of pharmaceutical consumption were located in the developed countries of the United States and Europe. In 2016, of the estimated $1.1 trillion global pharmaceutical market, $613.5 billion, or ca 56 percent, were achieved in these developed countries, with overall upward expectations for pharma sales based on the combination of ageing populations in developed economies and market expansion in over 20 so-called “pharmerging countries” from China and India to Brazil, Mexico, Turkey and Saudi Arabia.  

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Beirut Port explosionCovid-19HealthcareSpecial Report

Health care infrastructure under pressure

by Nabil Makari
written by Nabil Makari

Long seen as the health care centre of the Middle East due to its developed
hospital infrastructure and presence of heavily qualified medical personnel,
Lebanon may well lose this title soon, due to a series of unfavorable factors, including the economic crisis, the August 4 Beirut port explosion, and the Covid-19 pandemic. Despite the efforts of its health care personnel to provide adequate medical care and the current support of the Central Bank of Lebanon by providing dollar subsidies to importers at a fixed rate of 1,500 LBP to the dollar, Lebanon’s health care infrastructure is currently in the midst of its worst crisis in modern history with no clear end in sight.
The convergence of stresses on the health care system has revealed the lack
of up-to-date infrastructure; lack of medical personnel due to high emigration rates among doctors; and difficulties in obtaining medical supplies due to the devaluation of the Lebanese currency and reduced imports. Dr Charaf Abou Charaf, president of the Lebanese Order of Physicians, recently estimated that the total number of doctors who have chosen to leave Lebanon between July and September to be more than 400, which represents roughly 3 percent of the total number of Lebanese doctors. Nevertheless, at a level of three doctors per thousand of population according to Ministry of Public Health statistics for 2019, Lebanon is still in the upper tier in levels of doctors per population, close to France and higher than the United Kingdom according to thestreet.com, a financial news website. In addition, the August 4 Beirut explosion resulted in heavy damages to hospitals in Beirut, and for the moment reconstruction is stagnant.
Impact of the devaluation and BDL Circular According to Dr. Jamil Borgi, a cardio-thoracic surgeon at the American University of Beirut’s Medical Hospital (AUBMC), medicinal supplies have become more expensive due to the devaluation of the Lebanese pound, despite the fact that the Central bank subsidies 85 percent of the prices. This leaves the other 15 percent of payment subject to currency fluctuations and the difficulties of finding cash dollars (as per the BDL scheme, suppliers of medical equipment must provide the BDL with 85 percent of the dollar price in LBP at the official rate of 1500 LBP per dollar, and the rest in cash dollars).
Prices of insurance premiums and medical equipment are going up, and the latter are not always covered, according to Dr. Jamil Borgi, which is putting added pressure on hospitals and Lebanese citizens, both insured and uninsured. This has highlighted the need to restructure the health care
infrastructure in Lebanon in order to be able to cope with the economic crisis, the impact of Covid-19 and the destruction of the infrastructure in the Beirut blast.
Due to the difficulties in obtaining cash dollars, there is a shortage of
medicinal supplies. Given that the current BDL subsidies are temporary, and with no political solution to the economic turmoil, hospitals are worried that supply costs may skyrocket, due to the possibility of having to buy medical supplies at real market prices, with a currency rate which has fluctuated in the last two months between LBP 6,000 and LBP 8,800.
According to Dr. Alexandre Nehme, Chief Medical Officer at the Saint
Georges Hospital University Medical Center (SGHUMC), the impact of the
devaluation of the currency on the availability of medical supplies might be heavily affected due to the recent BDL Circular 573, which established that medical suppliers, in order to obtain dollars from the Central Bank at the official rate of 1,500 LBP to the dollar, must provide the Lebanese pounds needed for the conversion in cash. Otherwise, the importers would not be able to obtain dollars to pay their suppliers. According to him, this would add pressure on Lebanese hospitals as they are mostly paid in credit cards and SWIFT, and therefore if their suppliers were to insist on being paid in cash, hospitals would have difficulties obtaining it due to the current capital controls at Lebanese Banks.
Lebanon’s economic crisis casts a long shadow The impact of the economic crisis on medical personnel has been two-fold: the crisis has forced many hospitals to fire part of their medical personnel in an effort to cut costs,with AUBMC having laid off between 800 and 850 of its staff members on July 17th, 2020, and many have left the country in search of more secure opportunities abroad. The lack of personnel was actively felt during the aftermath of the August 4 explosion. “Our challenge is to keep our
working force; it is bleeding”, says Dr. Alexandre Nehme, highlighting the
need for hospitals to maintain an effective medical workforce.
In addition, the BDL circular 573 has come under heavy fire from prominent hospitals due to the difficulty in obtaining cash money to finance the purchase of medical supplies. Six university hospitals (the AUBMC, the Lebanese American University Medical Centre – Rizk Hospital, the Saint Georges University Hospital, the Hôpital Notre-Dame des Secours, the Hotel-Dieu University Hospital, and the Mount Lebanon Hospital) have issued a joint statement lamenting the current situation and apologizing for not being able to provide medical services in this current situation.
Indeed, the Medical Equipment & Devices Importers’ Syndicate requested on October 20th of hospitals that they pay 85 percent of their purchase bills in LBP cash, which the above-mentioned hospitals deem impossible. For them, requesting cash payment from their patients is near impossible, and will result in an inability to provide their patients with the required care, especially as the current limits on withdrawal make it very hard for many to spare the required sums.
Dr. Firass Abiad, chairman and director general of the Rafic Hariri medical
hospital, has highlighted to Executive Magazine that “it is all about
preparation”, adding that the hospital has instigated a staff development
program which has allowed them to generate enough nurses and personnel thanks to incentives. As a result the proportion of personnel that has left is lower than other hospitals. Unlike many other hospitals, Rafic Hariri has hired staff and trained them.

Dr. Abiad, says that, “We are facing three or four storms that are coming
together as a perfect storm,” referring to the financial crisis, the Corona
pandemic, and the staffing and equipment challenges in Lebanon.
Covid-19’s impact on Health Care In seven weeks, from October 26 to December 17, the number of infections rose from 72,186 to 153,049 and the number of deaths from 579 to 1248, according to Worldometer. Intensive Care Units (ICUs) have had to be expanded since the beginning of the pandemic and ICUs have reached a critical occupancy rate of 85 percent according to a November 7 World Health organization report. The AUBMC has created a Covid-19 Unit, but have currently reached maximum capacity due to the rapid expansion of the pandemic. At Saint Georges Hospital, many changes had to be put in place after the August 4 explosion. Before the blast different departments at the hospital were dealing with Covid-19, with half the emergency and half the intensive care units (and around 25 additional rooms) dedicated to Covid care. After the blast, St Georges’ damages were such that changes had to be made to cope with the increase in Covid-19 cases in spite of heavily damaged infrastructure. The changes included obtaining 14 hospital beds from the Lebanese-Canadian Hospital, establishing a walk-in for PCR tests and a drive through for the same. Damages at the hospital were estimated at $40 million, noting that by the end of October the hospital obtained only $10 million.
The hospital amongst the most affected since the beginning of the Covid-19
pandemic has been the Rafic Hariri Hospital. According to its Chairman, Dr.
Firass Abiad, the Rafic Hariri hospital has expanded its ICU unit quickly, from four beds before the pandemic to 22 in a matter of two weeks since the beginning of the pandemic. “We bought a lot of time for the country”, he says, due to the alleged rapidity and professionalism of the hospital staff in handling the Covid-19 patients. Nevertheless, as the number of patients goes up, so does the need of beds, especially as Covid-19 can be transmitted by air when an infected person coughs, sneezes or breathes heavily in close contact according to the World Health Organisation and therefore the medical staff must be extra careful with regards to contact with patients.
Overall, Rafic Hariri Hospital reached 28 beds for Covid-19, an ICU with five beds dedicated to children, and is working on nine more beds to become the largest Covid-19 ICU in Lebanon. According to the latest World Health Organization report dated November 7, hospitals in the Beirut governorate, for example, have reached 100 percent occupancy rate.
This will only get worse should the situation stagnate without the help of
former and international donors to establish hospitals and ICU units.
According to Dr. Ghassan Skaff, head of the neurological surgery department at AUBMC’s department of Surgery, in an Elsiyasa.com article dated November 1,should Lebanon not enlist the help of international donors, the country might reach a milestone of one million Covid-19 infections and around 10,000 deaths due to corona from here to June 2021.

In conclusion, Lebanon might have to relinquish its reputation as the health
care center of the Middle East. With medical personnel leaving, an expected hike in the price of medical equipment, and difficulties in obtaining the much- needed financing for importing the latter, which would result in the hospital sector lagging behind, Lebanon might very well end up with a stagnating medical sector, leaving no room for envy from its neighbors.

Between July and September, 400 doctors have been estimated to leave Lebanon.
Covid beds in Beirut governorate hospitals have reached 100 percent occupancy.

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Banking & FinanceBeirut Port explosionEntrepreneurshipFinancing healthcareHealthcareSpecial Report

Alternative medicine spikes

by Thomas Schellen
written by Thomas Schellen

Alternative medicine has been sitting in the shadow of traditional, Western
medicine for some time in Lebanon: alternative medicine. Though it is not
controversial, alternative medicine is still seen as a complement to traditional medicine. Long a fixture of the Lebanese traditional scene, with stories, and for some, memories of elder Lebanese concocting herbal remedies and using plants as alternative ways to treat disease, alternative medicine is not novel in Lebanon.
Nevertheless, the alternative medicine scene in Lebanon has mostly grown in later years due to the emergence of traditional or “Asian” forms of medicine, adding to the more traditional Lebanese remedies that were once more common. Results from a Lebanese national survey published by the Hindawi Publishing Corporation from 2015 reported that out of the respondent, almost 30% reported using Complementary and Alternative medicine in the past 12 months, defined as biologically based practices including substances found in nature, such as herbs, dietary supplements,
multivitamin, and mineral supplements.
In light of the difficulties faced by the health care sector in Lebanon, and the possible shortage of medicine due to Lebanon’s health care sector becoming more cash-dependant, it is worth considering the possibility that more will turn to alternative medicine to heal.
Broadly defined, alternative medicine is any practice that aims to achieve the healing process of traditional medicine but lies outside of medical science, and also aims to tackle emotional and psychosomatic (diseases involving mind and body) healing. It is often seen as fringe by medical specialists or considered unfounded.
One of the many kinds of alternative medicine is traditional medicine, such as Chinese or Indian traditional medicine, which relies on plants and other practices, which were developed before the advent of modern medicine.
Alternative medicine, though practiced by millions, has faced various criticism by the scientific community. According to Marcia Angell, a leading American physician and author, “there cannot be two kinds of medicine – conventional and alternative”, as she argues, the effectiveness of alternative medicine has not been proven by scientific methods, i.e. observation, hypothesis, and testing.
Yoga Asana (Physical Postures) The first of these alternative methods, and one of the most popular worldwide, is yoga. It is estimated that 36.7 million Americans were practicing yoga in 2016, according to a 2017 survey by Yoga Journal and Yoga Alliance. Between 2012 and 2016, the number of Americans practicing yoga grew by 50%.

Yoga, not being part of traditional medicine, is not regulated by the Lebanese Ministry of Health, therefore limiting available data on centres and practitioners.
It is evident, however, that the current economic crisis has reduced class
attendance, due in part to financial limitations, but also, due to Covid-19 measures, which have caused centres to reduce capacity up to 40%, if not more.
Executive sat down with Sarah Jawad*, a New York certified yoga teacher, who taught yoga post port explosion. “Classes were a combination of group therapy, where people were given the space they needed to talk about what they had experienced,” she says, “While the other half, was teaching the yoga sequence of the day.”
Hala Okeili, founder of Beirut-based Sarvam Yoga, confirms the transformational power of the practice. “It’s you and the outer world,” she says, “It’s what you do and how you are with others”.
Acupuncture: Chinese Medicine in Lebanon Acupuncture is a part of traditional, Chinese medicine, and is estimated to be over 800 years older than traditional western medicine. Since it is not part of the western
canon of medicine, it is considered by many to be alternative medicine.
Acupuncture works by inserting a fine needle into the body, targeting meridians, or vital energy pathways associated with certain organs, in order to balance the energies in that organ as a way of healing, or curing, disease.
There is currently no recognized syndicate for practitioners of traditional Chinese medicine in Lebanon, despite the effort of practitioners such as Dr. Edmond Ibrahim, a Lebanese acupuncturist, for more than 20 years. Practitioners have no permits as medical practitioners, though Dr. Ibrahim, having studied Chinese medicine in China, has had his degree officially recognized in Lebanon by medical authorities.
University Saint Joseph has been offering one year “Diplomas Universitaires”, though those are afforded to doctors (whereas in China, a minimum of five years is required to be a certified practitioner of Chinese medicine). No law in Lebanon forbids its practice as a specialization, but its practitioners are not recognized as doctors. Therefore, such services are not reimbursed by private and/or public insurances as medical services, however effective the treatment may be.
In Lebanon’s current context, one might think that such services would be more restricted due to the current financial situation, but according to Dr. Ibrahim, this is not the case: since the beginning of the October revolution, the number of his patients has increased. “People care about the results,” he said. “And we did not change the prices of the sessions,” offered at his clinic, which has remained at USD 50 dollars (billed at 4000 LBP per USD).
The impact of Covid-19 has been heavy on the medical profession as a whole and acupuncture is no exception. Professionals have had to decrease the number of intakes and waiting rooms are organized to avoid patients mingling for fear of contamination. Could acupuncture and other parts of traditional Chinese medicine become a substitute to more traditional western medicine in Lebanon?
Dr. Ibrahim states that Chinese medicine will become cheaper compared to
western medicine as it only requires needles, requiring less medical supplies, therefore buffering the devaluation of the Lebanese lira.
Healing Healing is defined simply in the same way as medicine, but with the idea that the body has a capacity to heal itself, and can be defined as the direct interaction between a healer and a patient in order to alleviate suffering. Healing encompasses a wide variety of practices, including meditation, acupuncture, massage, energy healing and others, all in accordance to patients’ specific needs.

According to Ramzig Azazian, a practitioner of healing with a clinic in Burj
Hammoud, who has an Indian and Chinese background in the subject, healing is not a complete process but rather a complimentary one to accelerate healing. “Because of the acceleration of our lives, people are looking for faster and faster methods of healing”, said Azazian.
Like other practitioners of alternative medicine in Lebanon, they are not regulated: practitioners have to travel abroad to learn their credentials. Azazian on the other hand is a licensed physiotherapist, but Lebanon does not regulate the practice of spiritual healing in itself. Healers do not receive payments via insurance, nor are their services covered by insurance.On the other hand, said professionals do not face the same hurdle in other countries such as the US, as acupuncture and other forms of traditional medicine are covered by insurance providers.
Will healing gain from a probable spike in the price of medicine? Covid-19 has had a heavy impact on healing services. The prices of treatment have fallen, according to Azazian, while the number of patients has grown despite harsh financial conditions, which affects patients’ ability to seek treatment. “People are more stressed,” said Azazian, “so the number of patients has increased and the incomes have been reduced.”
Homeopathy Homeopathy is a holistic form of medicine based on the principle that the body can cure itself, in which ailments are treated by minute doses of natural substances which will trigger the body’s natural system of healing. Those natural substances, if taken in larger amounts, would otherwise produce in healthy persons symptoms similar to those of the disease being treated.

According to a report by Zion Market research in 2018, the global homeopathy products market was valued at approximately $5.39 billion in 2017 and was expected to generate revenue of around $15.98 billion by the end of 2024, at an annual growth rate of 16.8 percent.
An initial session includes going through the patient’s history, checking for
traumas, medical history, and even how the patient sleeps, to prescribe the most effective treatment. Critics attribute the successes of homeopathic treatment to the “placebo effect”.
Homeopaths are traditionally doctors and there can be no certification as such without a three-year specialization in medical school in western countries such as France. These doctors have studied the classic curriculum to become doctors and have completed this extra specialization. The University Saint Joseph used to offer this option, with courses offered as of 2010, but recently had to close it down due to financing limits in light of the current economic crisis. Homeopaths are not recognized as such by the Lebanese Board of Medicine and the Ministry of Health, however, they are recognized for their other accolades, such as generalists or pediatricians (homeopaths are usually either in Lebanon). Homeopathic medicines
are also not covered by insurance.
Most homeopathic medicines are imported and therefore not largely available in Lebanon. In light of the cash crisis, treatments for chronic diseases may become less and less sought after, as prices will most likely spike. On the other hand, the treatment for acute diseases is very short term and inexpensive, especially as there are pharmacies in Lebanon that fabricate homeopathic medicine, whose prices would not be affected.
In conclusion, though the treatment for chronic diseases might be affected, the treatment for acute disease will probably remain unchanged.
*Name was edited to protect privacy.

In light of the health sector’s difficulties and shortages of medicine, more Lebanese may turn to alternative medicine.
The global homeopathy products market was valued at $5.39 billion in 2017 and was expected to generate revenue of around $15.98 billion by the end of 2024, at an annual growth rate of 16.8 percent.

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EntrepreneurshipFintechSpecial Report

Pandemic creates surge for MENA fintech development

by Mirna Sleiman
written by Mirna Sleiman

The number of Fintech startups have surged in the last 10 years: tech ventures which are positioned to serve and disrupt financial markets and the associated knowledge industries in the Middle East and North Africa (MENA) region. As of November 2020, the region has around 425 Fintechs as per the Fintech Galaxy Marketplace. 

Among ten different verticals grouped under the umbrella term “Fintech”, almost two thirds are found in three verticals: ventures in the “Payment, Transfers and Remittances” vertical take the lead with over 140 startups, followed by “Lending and Crowdfunding” and “Wealth and Finance Management” with 67 and 64 respectively. 

A look at distribution of Fintechs per country shows the United Arab Emirates leading with 154, followed by Saudi Arabia (86) and Egypt (67). Bahrain, currently in fourth place with 40 startups by our count at Fintech Galaxy (noting that these numbers vary between different reports and methodologies), is pressing ahead with Fintech infrastructure initiatives such as the new Central Bank of Bahrain (CBB) digital lab FinHub 973. Launched in October 2020, the platform aims to stimulate open innovation and connect financial institutions in Bahrain to fintech startups from across the globe by offering an API environment, a global Fintech marketplace and digitized regulatory sandbox. Lebanon, by our research, is the home country of 28 Fintech startups in Q4 2020. 

 The surge in MENA Fintech startups began about seven years ago when 29 new startups were recorded in 2014. Although the 2020 cohort of MENA’s new Fintechs – comprised of 21 in total – sharply dropped from 80 in 2018, primarily due to the uncertainties around the COVID-19 pandemic. However, new opportunities are now rising for Fintech players given the heightened need for digital banking services and increased customer sophistication.

I do not see a drop in passion for creating financial disruption in this region. And where there is passion, there are investors.  It’s estimated that the Fintechs in the region will raise $2 billion in venture capital (VC) funding by 2022 — and the sector only found footing in MENA three years ago. 

MENA fintech ecosystem trends

We have seen a paradigm shift in recent years as policy makers across MENA markets take steps to diversify their economies with a focus on making them less dependent on government spending and fossil fuels and more driven by innovation and sustainability. The financial sector, which has long been ripe for disruption, stands to play a key role in this shift, with demographics and financial inclusion being fundamental drivers. According to the World Bank, two-thirds of the adult population in the Arab world don’t have a bank account, and SME lending is well below the global average.  Indeed, fostering healthy Fintech ecosystems is seen as a leading pillar of economic diversification across member states of the Gulf Cooperation Council.

Fintech regulatory regimes started emerging in the region in 2017.  The Middle East has since become a hotbed of regulatory development, with several jurisdictions competing to establish themselves as the leading Fintech hub. 

 Fintechs were initially associated with payment and lending solutions and a vast majority of MENA Fintechs are concentrated in the digital payments, transfers and remittance sub-sectors.  But as the ecosystem develops, we see startups increasingly incorporate more advanced technologies like blockchain, machine learning, AI and big data into their services.  These newer technologies allow Fintechs to mitigate risk and offer a more personalized approach to customers.  

And Open Banking adoption in the region is just kicking off; this regulatory framework accelerates collaboration between traditional banks and Fintechs and has significant potential to transform MENA’s financial landscape.

 COVID-19 has served as a catalyst for digital transformation across a range of sectors, and this is particularly true for financial services and Fintech in the GCC. But it is worth noting that while the pandemic has served as a catalyst, this was a revolution that was already taking place. Between 2017 and 2019, the value of global Fintech transactions increased at a rate of over 18% each year, reaching over $20 billion in 2019.

MENA fintech regulations  

A changing regulatory landscape is the main catalyst for fintech growth in the MENA region. Almost all the countries in the Gulf region are trying to diversify their economies, moving towards knowledge-based economies where research and development, and innovation, are main drivers of growth.

Over the past few years, we have seen substantial efforts to design more diverse, competitive, and innovative economies. Government driven initiatives in several Arab countries have been taken to set up tech incubators, accelerator programs and regulatory sandboxes to support the growth of Fintechs. The central banks/ financial governing bodies in the UAE, Bahrain, Egypt, Oman, Lebanon, Jordan and Saudi Arabia have introduced Fintech related regulations and licensing frameworks in a variety of areas such as crowd funding and digital payment services.  We’re also seeing regulators launching initiatives around digital currencies and cryptocurrency. 

Even though all countries in the region have a commonality in objectives, the approach towards regulatory initiatives and enforcement varies. In some countries, the central banks have taken it upon themselves to do it while in others, economic free zones and different regulatory authorities have played the main role.

The governments across the region are also setting up sandboxes, meaning controlled environments of somewhat relaxed regulations to make it easy for Fintechs to test their services. Some governments and regulatory bodies in the region have also teamed up with different regional and international players to launch Fintech accelerators and incubators. 

Both established players and entrepreneurs are seizing opportunities and filling market gaps across a multitude of sub-sectors. 

As governments continue to implement favorable incentives and regulatory initiatives, opportunities will continue to develop, giving the region’s Fintech industry the potential to elevate overall welfare of participating countries. We are also seeing government action and investment in this space (eg. Saudi, Bahrain, Egypt, UAE) intent on creating job opportunities, as well as greater financial independence. Investment varies greatly across MENA, but I think we’ll start to see this trend expand across the region as there still are many pain-points along the journeys of Fintech startups.

Mirna Sleiman is the founder and chief executive of UAE based communication and integration platform Fintech Galaxy. 

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BusinessEntrepreneurshipSpecial Report

Gaming in Lebanon seriously hit

by Nabil Makari
written by Nabil Makari

Despite the Central Bank’s (BDL) circular 331, which allows venture capital firms and banks to finance startups with less risks by guaranteeing investments up to 75 percent, Lebanese tech firms are casualties of the country’s economic woes. Between capital controls that restrict payment capacities abroad; the exile of talent fleeing Lebanon; and the sorry state of the electrical and internet infrastructures, Lebanon’s application, or “app”, creating firms are facing harsh difficulties. 

Existing gaming developers in Lebanon have targeted a worldwide audience, with the bulk of their downloads in North America and in Arab countries with developed gaming culture like Jordan, Egypt, Saudi Arabia and the Emirates, according to Lebnan Nader, CEO and co-founder of Game Cooks.

MENA gaming app developers have created popular content, with apps such as Tarneeb Masters (4.5 rating on Google Play Store with over 10,000 reviews), Domino Hit, Conqueror of the Realms and others. In 2020, gaming startup Yayy’s games, a Beirut-Based gaming publisher and developer that has developed games such as Conqueror of The Realm, Domino Hit and Mess It Up, have had over 100,000 monthly active users. The gaming industry, once seen as promising in Lebanon, has seen the recent shutdown of Arab Arcade, an initiative that had launched to support the development of gaming apps in Lebanon.

 From a business-model perspective, the gaming industry is divided into two primary segments: one, developers who create the gaming application, and two, publishers who promote the application on various outlets. Due to the current economic crisis, developers in Lebanon are facing a set of difficulties that are not only related to the crises of 2020, but also to Lebanon’s infrastructure as a whole.

For instance, GameCooks managed to establish an office in San Francisco in two days, online. “It took us 30 days to create a company in Lebanon,’’ reminisces Nader, lamenting the state of the regulatory framework.

Ziad Talge, founder and CEO of Yayy, is clear on the difficulties that app developers face due to high electricity costs and unreliable internet. 

Ironically, the Covid-19 pandemic did provide a small boost for the gaming industry, with many people working from home and in need of distraction. As a result, according to Talge, gaming applications have been heavily downloaded ever since the start of the pandemic. According to Gamesindustry.biz, the first three months of this year marked the largest quarter for mobile game downloads ever, with more than 13 billion installs across the App Store and Google Play. 

“We saw a huge boost in entertainment business, streaming, gaming etc.” says Hussein Hajo, Chief Operating Officer at YallaPlay, a Beirut-based gaming developer that has developed games such as Tarneed Masters. According to him, the boost in gaming applications downloaded, including his main application, Tarneeb Masters, is equal or slightly less than the growth in downloading of work applications developed worldwide as a whole. 

In some cases, the covid pandemic actually hurt game developers’ business. Game Cooks, for example, has developed a niche in virtual reality (VR), which unlike other games, requires going to a virtual reality arcade to wear a VR mask – unless you have your own equipment. GameCooks’ games are linked to arcades around the world, and they obtain a percentage fee on every game played that is developed by their company. As a result of the Covid-19 pandemic, virtual reality arcades worldwide have been hit hard and many forced to shut down, slashing GameCooks’ profits.

Capital control strikes again

Capital control laws have made it difficult for venture capital firms to invest in developers due to the economic insecurity of Lebanon. Additionally, funding would primarily be used for international payments, payments that are no longer possible. This spending would typically cover marketing, software services, and staff and talents abroad, according to Hussein. “This affected us in executing our plans,” Hussein says, “Especially in marketing as you have to spend real dollars abroad”.  

The Lebanese regulatory framework is also not seen as VC-friendly. “We live in the ice age with regards to regulation,” says Hussein. “We start paying taxes on our first day.” Gaming developers need time to register profits, and the lack of adequate subsidies does not encourage the development of applications in Lebanon.

To add, the internet in Lebanon is among the slowest in the Middle East. According to Speedtest, Lebanon ranks 159th out of 177 countries for internet broadband speeds. “We need a stable internet connection,” says Hussein, “We try to overcome that issue with our house algorithms and coding, but it is definitely an issue”. The work-from-home model also means that there is less bandwidth available for gaming per household.

While access to funding had been encouraged by BDL Circular 331 in 2013, the circular did not address shortcomings outside of the purview of the Central Bank such as the regulatory framework, the legal structures, and the ease of doing business. According to Doingbusiness.org, Lebanon’s worldwide rank is 143 with regards to how easy it is to do business, with 15 days to start a business and the average number of procedures needed at 22. Also, Circular 331 facilitated funding via banks, which are cautious by nature and less willing to take risks than venture capitalists, for example.

 A once-promising venture built on Lebanese talents is facing threats. With the impossibility to pay for servers, publishers, or talent, while obtaining little to no funding, the gaming industry in Lebanon might possibly be contemplating its twilight.

  • “We saw a huge boost in the entertainment business, streaming, gaming, etc.”
  • Lebanon ranks 159th out of 177 countries for internet broadband speeds; a major hurdle for internet-dependent sectors.
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BusinessEntrepreneurshipSpecial Report

Startups actually

by Thomas Schellen
written by Thomas Schellen

Success is a perfect measure of life. Yet this perfect measure is never in itself perfect. Money, knowledge, passion, experience of gain, learning from failure… All can be successes and each can be a tremendous hurt that changes life’s trajectory. It depends on our objectives and circumstances.

Success of entrepreneurial startups and young tech enterprises in the 2020 setting of abysmal politics and their economic havoc, can be as wide as learning from failure and keeping the Lebanese entrepreneurial spirit despite everything, to a new idea that has become viable exactly because of the major changes 2020 has presented.

The yeas has been a pivot-point worldwide, changing the conditions that shape digital and tech entrepreneurship. E-commerce and gaming are teeming with market potential, boosted by new limitations of physical mobility that have seamlessly translated into increased digital mobility, shopping, and social interaction. 

The changes reverberated into retail – as brick and mortar vendors were rattled by the realization that they need full digital presence to compete. This may well have sparked a sudden demand for digital services and construction of e-commerce shopping platforms that qualifies as demand shock. 

Such a shock will quite predictably have upward distorting effects on formation of tech startups with aspirations to tackle this market for building and managing the digital real estate that is now under development – but it nonetheless is a boon for tech ventures, which already have experience in this realm and a hope and opportunity for new startups in a tech entrepreneurship ecosystem such as the Lebanese one.  

Change drivers on the meta level of financial markets globally are continued disruption of traditional banking and credit; the emerging acceptance of digital currencies by central banks (at least in conceptual terms and as far as they themselves can create those central bank digital currencies, or CBDCs); consumer acceptance of cash-free and card-less smartphone payment solutions (exemplified in the huge demand to buy into China’s Ant Financial / Alipay original initial IPO proposition of a $34 billion flotation that was halted in November); and last but not least the diversification of the regional fintech startup scene and rise of Middle Eastern fintechs (see comment by Mirna Sleiman). 

In medicine, apps in telemedicine are thriving worldwide, far beyond the spike of Covid tracking; and in education, the digital transformation of the classroom has also been flying high internationally.  From early in the lockdown days, investor and user interest alike has naturally zoomed in on communication and connectivity providers. All in all, it seems that the year 2020 could go down in history as the year when digital living acquired its virtual wings.  

Challenges and advantages of covid induced global changes

Set against the background of global economic uncertainty and local economic misery, the Lebanese environment for tech entrepreneurship is first of all that what it always was – a small ecosystem, equipped with a laboratory-sized native market and enticing regional opportunities, but nowhere near able to emulate the market mass that startups would find themselves surrounded by in Europe, the United States, or the Far East. 

However, players in this ecosystem can latch onto the global opportunities of this entirely atypical period in the global economy and thus transcend not only the traditional restraints of the small local market (as has been every successful startup’s vision since the conception of the entrepreneurship ecosystem in the early 2010s), but also the heavy chains of the country’s confounded economic crises that are ongoing and must be expected to last for years. 

The mounting risks for entrepreneurs are impossible to ignore. Fintech startups in particular, while needed and in principle better positioned than ever in the distressed Lebanese context of finance and banking, seem to not only – like everyone in the entrepreneurial landscape – have to fight the exchange rate and local ecosystem’s funding problems, but moreover still face uphill mentality battles and regulatory cliffs of restrictive public thinking when they even want to incorporate advisory services. 

This all means that global and regional markets are today the saving hope for the entrepreneurs of Lebanon. To cite one example from the cluster of new export-oriented ventures in the organic cosmetics realm, the past few months of Covid-related challenges appear to have actually enlarged market opportunities in the Gulf. 

As Neelam Keswani, co-founder and managing director of Dubai-based online fashion and beauty online store Glambizle.com, tells Executive, she saw her customers shift from purchases of appearance-enhancing makeup to spending their money on organic cosmetics such as hair, nail, and skin care products from indie and clean beauty brands. 

Her 2015 e-commerce startup, which experienced the typical trajectory of fast initial monthly growth followed by a plateau phase after three years, saw a serious growth spurt in 2020 – because customers focused on pampering themselves with organic cosmetics.  “In 2019 we took a flight up and 2020 was exuberant. People had a lot more time for developing a skin care and clean beauty routine,” Keswani says, attributing her venture’s exceeding of sales targets by double-digit percentages all throughout this year to the changes of lifestyles that were triggered by the corona virus crisis. 

Hard-earned business success

 Also Ayman Demachkieh, chief commercial officer of digital agency Webneoo in Lebanon (a maturing startup, see profile below) tells us that the company witnessed its results and its turnover go up by double-digit percentages over the course of the past 12 months. “Focusing on our e-commerce projects and not digital projects in general, there has been an increase of at least 15 to 20 percent comparing 2020 to last year. Covid-19 played in my opinion a huge role in raising awareness with every business owner of the importance of their digital presence,” he tells Executive. 

The  2020 cohort of new Lebanese startup successes is certainly not large in number (it never really has been and is even smaller than average this year) but large in entrepreneurial spirit nonetheless. Among them, Executive’s entrepreneurship radar picked up hopeful pings from two enterprises that are engaged with the ecosystem – Potion Kitchen just graduated from the SMART ESA accelerator and Cloud Sale recently signed on with the Nucleus Ventures startup support – and two standalone startup enterprises that this year have not directly been involved with the ecosystem, Webneoo and The Good Thymes.

For this snapshot at the end of the year, we bring you these four examples of entrepreneurial spirit that succeed against depression, capitalize on local products, monetize new solutions and regional opportunities, or are embarking with unbridled determination on finding the new opportunities hidden in crises.  

  • The cohort of new start-up successes in not large in number, but large in entrepreneurial spirit nonetheless.

THE GOOD THYMES

THE GOOD THYMES

Year of incorporation: 2018

Activity brief: Production, marketing, local sales and direct e-commerce sales of own niche brand products based on thyme and sumac, two spices native to Lebanon. Supply chain entails local sumac and thyme, plus importation of ingredients such as fruits and nuts used in proprietary product mixes.

Current markets: Lebanon, limited US presence, Kuwait and Dubai 

Founder(s): Fady Aziz

Team size: 7

Economic targets and markets of expansion:  

US, Saudi Arabia, Qatar, and European markets

Business model: B2C with some B2B

Funding stage: Bootstrapping

Current funding target: Not applicable

The Good Thymes is the 2017 brainchild of entrepreneur and designer Fady Aziz. The 2018-incorporated company has carved out a niche with its stylish products, which enabled it to have a year that begun hard, but then turned to be “not very good, but good,” as Aziz tells Executive. Exports are happening, to Kuwait, the United Arab Emirates and the heavily Lebanon-affine state of Michigan in the United States. 

Export incomes are allowing the firm to currently operate under a strategy of selling at or occasionally below cost in the Lebanese market. 

Locally, the company relies on select presence at 80 points of sales, third-party online retail platforms and seasonal stands to enhance its brand awareness. 

Fortuitously, Thymes was e-commerce ready with its own platform when the crisis hit and sales via this channel in the past quarter reached an estimated 30 percent of total sales.  

“It was in small quantities but we started exporting our products; this helps us to have balance from a financial perspective,” says Aziz. 

The existing narrow but logical export niche in the US state of Michigan is by the company’s strategy slated for expansion into the wider American market. Regional targets are Saudi Arabia and Qatar.  

POTION KITCHEN

Year of incorporation: 2018

Activity brief: Research and development, production and marketing of natural skin care and slow products in clean beauty niche. Patents for formulas are under preparation. Supply chain is composed of own production of essential oils and hydrosols, in addition to imported materials.

Current markets: Lebanon via e-commerce and resellers, expanding sales through proprietary e-commerce platform

Founder(s): Rafa Hojeij 

Team size: 4

Economic targets and markets of expansion: 

Near-term growth through exporting to West African markets beginning with Ivory Coast and Senegal

Business model: B2C

Funding stage: Looking for angel investors

Current funding sought: $65,000 to develop exports 

Establishing Potion Kitchen was Rafa Hojeij’s life-long dream. “Since I was a child I used to draw up skin care products, design labels and formulate them in our kitchen.” 

Raja has been changing her lifestyle to be as natural and healthy as possible. “I switched to a vegetarian [diet] and started to slow down my habits of consumerism,” she explains. This need to slow down and be more mindful fed her brand, leading Hojeij to create a slow beauty brand that cares about the environment and is opposed to mass production and consumerism. 

The strategy of Potion Kitchen is to be a clean beauty indie brand that is affordable to the middle class consumer in Lebanon and export markets, beginning with West Africa, where Hojeij can rely on family networks. 

“I wanted to create something affordable for people who are aware and have consciousness about their health, but don’t have such options available to them amongst imported brands that are very high in price.” 

The venture sources some of its essential oils and hydrosols by extracting them under own supervision in her home village but imports other ingredients. 

Sales channels are functioning well and include re=sellers as well as a proprietary e-commerce platform that became operational at the end of 2019. 

Having been accelerated at Smart ESA as part of the 2020 startup cohort, Potion Kitchen is looking for an angel investor.

CLOUD SALE

Year of incorporation: 2018

Activity brief: Online wholesale platform and e-commerce enabler. Digital services include four pillars: content development, branding, digital marketing strategy, and technology. 

Current markets: Pilot operation in Lebanon

Founder(s): Mohamad and Hani el-Hoss 

Team size: Two founders plus three part-timers 

Economic targets and expansion markets: Francophone and anglophone countries in Europe

Business model: B2B

Funding stage: Obtained seed funding 

Current funding target: To be determined

Cloud Sale graduated from the acceleration program of Flat6 Labs in Beirut, and pitched for investments at the second Flat6 demo day in fall of 2018. Commencing operations in January of 2019, the marketplace according to founder Mohamad El-Hoss, achieved turnover of more than $260,000 over the course of the year – up to the month of October. 

With heavy concentration of its hospitality sector client base in the trendy Gemmayzeh district of Beirut, the startup encountered a first wave of difficulties when the combination of social protests in the thawra and the mounting inability to set prices for imported supplies due to the sudden fluctuations in the exchange rate impaired the rising business. 

In response, the startup pivoted away from its B2B marketplace business model to a B2C model in the hospitality sector. Financing and operations were already becoming increasingly challenging throughout the first half of 2020. The ultimate blow came with the physical destruction of most restaurants and pubs in Gemmayzeh on August 4. 

The startup decided to reinvent itself from running marketplaces with a hospitality sector focus, to become an e-commerce enabler. Cloud sale enrolled in the Nucleus Ventures program, obtaining perspectives of seed funding and potential matching funds via the Nucleus network and its Lebanon Enterprise and Employment Programme (LEEP) partner program from the UK. 

Cloud Sale has just designed its manifesto of the digital services that it is going to offer. The new main target market is Europe rather than the GCC, which according to Hoss are crowded with competitors from the Indian subcontinent and the Far East. “We will position ourselves for the European market,” Hoss tells Executive.  

Webneoo

Year of incorporation: 2012

Activity brief: Software company, provision of e-commerce advisory and platform building

Current markets: Clients in Europe and Lebanon 

Founder(s): Michel Achkar and Nour Fakhoury 

Team size: 8

Economic targets and expansion markets: Be a global player in facilitating communication between digital services providers and their clients 

Business model: B2B

Funding stage: Bootstrapping 

Current funding target: To be determined

Webneoo is the most mature tech venture in our list of interesting startups at the end of 2020. The company has achieved business growth in terms of turnover and results this year and used the virus factor to its favor, chief commercial officer Ayman Demachkieh tells Executive. The coming years in his view will see continued growth in the demand for building of e-commerce platforms, advisory on digital strategy, and provision of digital management of social media. 

“All businesses that have physical shops and cannot sell online discovered that they have inventory that they could not move under the crisis. They realized the importance of having digital presence and online market action,” explains Demachkieh who says he joined Webneoo because he found it to be a digital agency that combines a startup culture with a highly professional way of doing things. 

He was not authorized to disclose revenue or profit information but volunteered to say that “the company is doing well, especially this year.” 

Having launched a new line in 2019 that is in the domain of digital applications, the company is strategizing for further expansion and ultimately global presence by offering “a custom designed application to make communication and work easier between any digital agency and their client. We actually target international clients, the whole world. However, we are currently focusing on building our portfolio in the GCC,” Demachkieh adds. 

 Webneoo is not currently engaged with fundraising but is contemplating to launch a new round of equity seeking in the second or third quarter of 2021.

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EntrepreneurshipQ&ASpecial Report

Finding scarcity

by Nabil Makari
written by Nabil Makari

Executive visited with Naji Boutros, a Lebanese economic mind whose expertise and passion spans from investment banking and identification of opportunities in venture capital (VC) and private equity, to nurturing entrepreneurship in Lebanese agro-industry, viticulture, and hospitality. 

You have been involved in a wide spectrum of local entrepreneurship in non tech-dependent ventures, which as you tell me range from cultivation of high-end cuisine and restaurants, to the facilitation of micro-entrepreneurs who use local recipes and ingredients in baking very tasty Lebanese cookies. A few months ago, you tackled entrepreneurship in tech as the chair of Nucleus Ventures, the early-stage seed program and entrepreneurship support enterprise that evolved out of the UK Lebanon Tech Hub. In light of seeking an economically sustainable future, how do you describe the situation after Nucleus Ventures has been in operation for a few months?

One thing that these guys [at Nucleus Ventures] are focusing on now is education, making technological education accessible to all, because the best way to get somebody out of poverty is to teach them in the most efficient way the skills [they need]. We are involved with Steve Wozniak (co-founder of Apple), in education in Lebanon and that is what Nucleus will roll out now, [an education program]. Another subject that they are working on and that we see a lot more of is e-commerce, assisting Lebanese companies sell overseas. In today’s environment, this makes so much sense.

How much do you trust the infrastructure for doing such things out of Lebanon, especially when looking at uncertainty of electricity supply or internet stability, etcetera?

I don’t think that it is anymore a big problem [with regard to electricity and the internet]. The Lebanese have adapted and are making do with the infrastructure that they have, [such as] payment gateways, internet speed, etcetera, They know when to turn the generator off, what window has a better reception, [and] who to talk to regarding global payment gateways. The percentage of [entrepreneurial] energy that they have used to adapt to this environment could have been better used elsewhere, but they have adapted to [infrastructure shortcomings by] mainly relying on networks and family connections and community support. 

Without talking politics, how do you evaluate 2020 economically from the experience of a Lebanese investor and an individual passionate about this country?

It is the year of perfect storms. I am involved in many sectors in Lebanon, in logistics, in food production, in technology, in wine-making and hospitality. Lebanon got hit with so much and I don’t need to enumerate it, because you lived through the [blast], through the revolution, [and through] the banking crisis which cost tremendous liquidity. I believe that the winners [will be] those who have a marathon attitude, those who are able to go through this period of uncertainty and adapt to it. Almost every company that I am involved with has opened bank accounts outside, lines outside. [Many a company] has [been successful in] obtaining financing of accounts receivables from non-Lebanese entities, so this is in a way really good for them because their business model has become much more resilient. So when you look at the Lebanese sector overall, [companies] have gone outside of Lebanon, so their business models have become more resilient. That is very good because it will help them weather the next storm. 

Can Lebanon still become a hub for startup listings and be a conduit for financing of knowledge economy ventures? 

I think that the financial industry has been dealt a very hard blow and will not recover from it for a very long time. As you know, the foundation of business, especially when it comes to custodianship of money, is trust. Trust has been shattered. So if I were running a Lebanese bank and would have benefited from years and years of profitability and high interest rates, I would have brought the money – or at least a big chunk of the money – back to Lebanon and reinjected it in the Lebanese banks. This is a long-winded way of saying that the main support base of Lebanese financial institutions and trust has been shattered. I do not believe that anything reliant on them will succeed any more. It will be a long time before you see that. On the other hand, reestablishing a parallel platform with new players, preferably with some kind of European sponsorship, could go a long way to reestablish this capital markets platform. 

When it comes to the startup scene, you have two parts. You have the human element, [such as entrepreneurialism], creativity etcetera. This [human element] until now has been reliant on Lebanese institutions – academic institutions – and I think the Lebanese will continue succeeding in this. Because of their DNA. But one thing was taken away from them, and this is the finance at the seed level and VC level. This will need to be reinvented. What we need to think of very seriously is some kind of a tokenization of the remittances and funds inflows from Lebanese expatriates [and] take it “over the counter” to a level where every Lebanese expat [can be involved]. Lebanon has always survived because of the [expats], through their remittances.We need to rethink or re-engineer their remittances to make them reconnect with the products in Lebanon, whether these products are something they eat, something they consume intellectually, or startup financing. 

Would you mean doing something like a diaspora cryptocurrency? Or perhaps a digital currency that is not organized and managed by the central bank? 

I don’t know if I would use the term cryptocurrency. The term needs to be a bit romantic, because [what] appeals first and foremost to the Lebanese about their home country is romance. It is nostalgia. But I absolutely feel that [there should be such an electronic tokenization system] – and definitely not run by the central bank. I fault the central bank – and I don’t want to get into the politics – in a major way. Two major problems of Lebanon today are that we are occupied – let’s face it – and [that] our allegiances are not for the benefit of Lebanon. 

Tokenization might not be the most sexy term for such a project but is what you are talking about basically a digital layer of financial communication? 

I think we need to have a trusted global marketplace, one that brings everybody together, all the Lebanese expats with the Lebanese users that share the need [for a tokenized marketplace]. 

Would that be run by the World Bank or a multilateral agency of that global sort or an entity like an NGO, or a Lebanese bank? 

Perhaps it will be several NGOs but certainly not Lebanese financial institutions or the central bank. 

With the future of Lebanese entrepreneurship in mind, what is your view on the utilization of national assets through a public asset management company, as envisioned in the government’s proposal, a fund such as the Government Debt Defeasance Fund concept of ABL (Association of Banks in Lebanon), or comparable designs proposed by several economists? 

I am tempted to say the best asset of Lebanon is the diversity of the Lebanese and their intelligence. I think that is certainly something that Lebanon can bank on, because at a time of shifting global allegiances Lebanon can be friends with everybody. That is certainly something [of great value] but that is unfortunately also a movable asset, because you can take the Lebanese out of Lebanon – and then Lebanon will be left without them. So when we think of Lebanon we must not think of a place but we must think of a nation. It is almost a state of mind. But the one immovable asset that Lebanon has – and that I firmly believe and have invested a lot of money in – is the Lebanese nature. It is [the diverse natural environment] with 24 climatic zones. 

This means we can be almost self-sufficient when it comes to the most important staple foods and exotic foods. You can have the bananas on the coast, the apples on the mountains. This is also very important because this is the foundation of eco-tourism. We need to pay attention to this. But when you think of the Lebanese food industry, whether it is the wine that we are making at Chateau Bellevue or the chickpeas and hummus that we are making… or the jams – everything can come from Lebanon. The benefit of [producing locally] is to take [food] out of the commodity scene. So when we talk about digitization, we need to get what is called in this industry traceability of the product, identifying a product that comes from Bikfaya as a unique peach or a karaze from Hammana as a unique cherry. That is what people pay a premium for. Lebanese expats will pay a premium for a Lebanese product.  

Would something like the Mckinsey plan – Lebanon Economic Vision (LEV) – have been adequate to address these opportunities if implementation of this plan had ever been achieved?

I remember, [from discussions related to the LEV], thinking: “What is this?” People talked about the benefits of medical Cannabis – [although] I am all for this. Then [they were talking] about gas and oil – I am not really for that because I think the perception of the wealth created by gas and oil is bad for the work ethics of our people. For me gas and oil will have almost no economic benefit going forward; the only real economic benefit of it being our own usage of gas and oil so that we reduce our import bill. For me the groovy thing is around the next corner, meaning the plot of land where you can plant olives or grapes or bananas or chickpeas or whatever for your local production. 

It sounds like your approach to the use of productive land would imply a lot of entrepreneurship. Am I correct to assume that, if done right, such an entrepreneurial use would not be only farming? 

It is value-added farming.  

This reminds me of an interview where you spoke about the principle of scarcity, at that time referring to real estate on the island of Sardinia. The concept of scarcity referring to anything of high value and limited in number, be it real estate or nature. Do you think the concept of scarcity has been internalized and capitalized on in Lebanon?

Not yet. Exactly, Lebanon has not internalized this yet. The most expensive hams come from Parma, or [Spain, as] jamon de Serrano. People still talk about Iranian caviar although the quotas are so limited now. Or Balik salmon, which is made at a specific [location] in Switzerland and based on an old Russian recipe that [was used in the smokehouses of] Czar Nikolas [II]. Lebanon can do the same. We need a big marketing vision for the country, and I think this [vision] has to be based on the scarcity [principle]. There needs to be a major study about scarcity. [We have to study] what is unique about Lebanon and market the heck out of it. But polish it. None of the guys that have run [consulting studies on] Lebanon have thought about this. All they have been wanting to do is import a model made outside of Lebanon, into Lebanon. That is wrong. It is not adapted to our country. [We need to be] digging deep and polish the diamond that is called Lebanon. That is what the Italians did with Sardinia. 

So sitting here in Bhamdoun on a very sunny afternoon in late 2020, are you depressed about the Lebanese short-term outlook? 

No. I am depressed that there is a [harsh] short-term outlook because people have lost so much – especially when I see old men at the banks. It breaks my heart to see this. But I am extremely hopeful for Lebanon because the puss has been brought out of the wound – the shit has hit the fan as they say in colloquial English. The Lebanese now understand that it is not all groovy and dandy as they have been told before, and that this [collapse] is here – and kudos to economist Toufic Gaspard who I, 20 years ago, heard talking about this collapsing Ponzi scheme. We must go back to the original Lebanese hard-work ethics, respect for each other, care, and faith. Because if you don’t believe that you are going to get out of it, that is very depressing. 

Talking in the short term, and especially with regard to entrepreneurial finance, it seems that a few companies in the knowledge economy have been able to mobilize international investments, but compared to what Lebanon would need, this does not seem to be enough for mobilizing new economic growth. What are the chances that any entrepreneurship project or startup would gain investor support and access to finance in the intermediate term, let’s say between now and mid-2021?

The foundation [of investments in the knowledge economy] has to be the judicial system. At this current moment, nobody trusts the judicial system. I do not expect money coming to Lebanon to finance projects, whether from donor agencies and governments or individual Lebanese [in the diaspora]. That is not going to happen until you get rid of the mafia ruling over Lebanon. Nevertheless, there is a lot of money trapped in banks in Lebanon, and that money is looking for a home outside of banks. To the extent that you can get a project financed with lollars, or local lebanese dollars, or Lebanese pounds, I think you can find a lot of money. 

If I name a few sectors of entrepreneurial activity, would you give me very brief yay or nay evaluations if investing in these sectors would be interesting? 

Okay. 

Let’s start with Fintech. Would this sector have potential E  in Lebanon? 

Yes. By the way, on Fintech, one of our iSME (the entrepreneurship fund associated with the Lebanese Kafalat loan guarantee corporation) entities was just sold to a Hong-Kong based player. Fintech is definitely interesting. 

Even Fintech made in Lebanon? 

Yes, because the Lebanese are working globally in financial institutions. It is not the archaic Lebanese system that taught them this way. 

How about networking or social media startups, like TikTok? Would you invest?

No. 

Home office operations, remote work organization etcetera. Do you think Lebanon has an edge in developing any solutions? 

Yes. I do, [when considering] hardware plus software. We are doing well in this and [cloud computing infrastructure company]. Multilane is one example. 

Gaming industry?

Absolutely. 

Online media and content of high journalistic quality? 

I am tempted to say yes but you would know more about this than I do. But along perhaps the same line I definitely think that online education and adaptability of foreign curriculums to the Arab world is huge and keeps growing [as opportunity].

Any specialty in e-commerce? Online shopping malls, direct from producer to consumer, intermediary platforms and marketplaces? 

I think we definitely can be leaders in e-commerce. For example if you think of luxury fashion, that is something that we are good at. Taking that regionally and perhaps even globally, you need a mart, some kind of a mall. Lebanese food, taking Lebanese cuisine globally. It could have the same impact as pizza had in America after World War II, when GIs came back after tasting Italian pizza. Lebanese food will become a big hit in the US, and in Europe too, I believe. 

Corona awareness apps? 

No, we don’t take it that seriously. 

Any other sector where you would feel that Lebanese startups will have a natural edge or would be attracting you immediately? 

I think we covered most of it. 

“The foundation of business, especially when it comes to custodianship of money, is trust. Trust has been shattered.” 
“[We have to study] what is unique abut Lebanon and market the heck out of it…. [We need to be] digging deep and polish the diamond that is called Lebanon.”

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BusinessOverview

Banking sector 2020 overview

by Nabil Makari
written by Nabil Makari

Where does one even begin? From the inability to withdraw deposits, to the depreciation of the Lebanese currency, and the default on the  Lebanese Sovereign Debt (held in big part by the banking sector), Lebanese banks’ balance sheets have suffered a blow, in addition to self-imposed capital controls on withdrawals.

 The future of the Lebanese banking sector is puzzling: mandated or voluntary mergers of commercial banks, bankruptcies, restructuring, haircuts on deposits… All of these proposals have been put on the table in 2020, though discussions with the International Monetary Fund have been halted on the side of the Lebanese Government. What appears as a financial crisis has a strict political component: it is difficult to separate economics from politics in Lebanon.

Capital controls and bank runs

As soon as the October revolution began, panic hit Lebanon. The Lebanese rushed to banks to retrieve their deposits. The October revolution shook whatever remaining confidence people had in the Lebanese economy. The turning point can be said to be August 2019. A Fitch report downgraded the rating of the Lebanese sovereign debt to CCC, a term signaling that the country is currently vulnerable and dependent on favorable business, financial, and economic conditions to meet its financial commitments. During this time, the US State Department’s Office of Foreign Assets Control (OFAC) also listed Jammal Trust Bank, a Lebanese bank, on the US Sanctions list – signaling that the bank was sanctioned by the State Department for allegedly providing support to Hezbollah. These events helped erode confidence in the Lebanese banking sector. In fact, since early 2019, Lebanese commercial banks had recorded a higher than usual series of outflows, highlighting a lack of depositor confidence.

 Due to Lebanese banks’ lack of available liquidity, supplying the Lebanese with their money held as deposits proved impossible. Deposits are held as loans, investments and deposits at the Central Bank of Lebanon (BDL). Immediately then, banks had to impose controls on withdrawals, and depositors could only retrieve a portion of their savings.

The situation is close to bank runs occurring in different countries over the years (such as Iceland and Cyprus), and reminiscent of the bank run that had hit Intra Bank (the largest Lebanese Bank in the early 1960s) in 1966. This has cast doubts as to the amount of liquidity available in the banking sector as a whole.  Depositors since then have been wondering whether they will ever see their money again. 

Under the Basel III requirements set up by the Basel Committee On Banking Supervision, banks must maintain a certain liquidity ratio, calculated as sufficient high-liquid ratios over total net liquidity outflows occurring during 30 days. According to Nassib Ghobril, Chief Economist at the Bank Byblos Group, liquidity ratios vary according to banks, with some having a higher level of liquidity than others prior to the crisis, and it is therefore misleading to not look at individual instances in the sector. With 80% of deposits being in foreign currencies, mostly dollars, the dollarization rate of the Lebanese economy is extremely high. “It’s a psychological result of the experience of the 1980s,” says Ghobril, referring to the rapid depreciation of the Lebanese Pound in the 1980s and the beginning of the daily use of US dollars for transactions (as the Lebanese Pound was depreciated in the 1980s, the Lebanese started to transact in dollars, deemed a safer currency).

 In most bank runs, the sense of panic is such that there is not enough liquidity to cover a higher than average withdrawal demand. A typical solution in this situation is for governmental authorities to impose temporary limits on withdrawals: capital controls. Such a measure has until now, not been taken by the government and had added to pressure on banks, to handle the crisis on their own. 

“Definitely there is a need for official capital controls, since September 2019,” says Ghobril. “We are not the first country to have a bank run, and not the last”. In 1966, within a week of the liquidity crisis of Intra Bank, capital controls had been imposed, only to be lifted about one month later which helped banks resume normal operations and restore confidence. For Ghobril, the lack of trust in the financial sector can be blamed in part on inaction on the part of the government. Had a capital control law been enacted at the start of the crisis, he argues, accusations regarding the flight of capital since October 2019 would not have occurred.

 The need for a capital controls law has been a key demand of economists and various politicians. Lack of such law could result in various lawsuits from depositors, and this has been happening lately as many Lebanese alpha banks (top Lebanese banks with more than $2 billion dollars in deposits) have been sued by foreign depositors unable to withdraw deposits. 

As a result, trust in the banking system has been severely hit, with many fearing that their deposits are mere accounting entries. Depositors have been channeling money into real estate since November 2019 and for most of 2020, but also into consumer goods such as cars, watches, paintings, statues, and others, due to the fear of a haircut, especially after the government defaulted on its foreign obligations and issued its financial plan. Very little of this money, according to Ghobril, was channeled into investments such as agriculture and industry. With regards to pre-crisis deposits in USD, these dollars can only be withdrawn at an e-board rate (currently of LBP 3,900 to one USD) and in limited quantities.

 Some banks have prioritized liquidity and asset quality over the expansion of their balance sheet over the years  according to Ghobril, who stressed the need not to generalize with regards to the health and outlook on the banking sector. Overall, the real health of the banking sector will be better assessed in February 2021, as it would have reached a milestone: compliance with BDL circulars regarding the need to recapitalize banks at 20 percent, and the need to insure a minimum of 3 percent of liquidity to equity. At this moment, banks that would have been able to recapitalize would be known as those that are safer, while others will probably not reach that milestone, and will have to face the possibility of halting operations.

Non-performing loans

The issue of non-performing loans has also been at the forefront. With a depreciation of the Lebanese Pound and the poor economic climate, many activities do not reward investors with high or even any yields, and many companies facing severe difficulties, threatening the health of banks’ loan portfolio. 

According to a World Bank report dated December 1, 2020, there is a sharp deterioration of credit performance at Lebanese banks, reflected as a measure of non-performing loans (NPLs). These NPLs are estimated at 30 percent of total loans, of which 50 percent of NPLs to total loans are related to contracting and construction. If true, this would be a heavy drag on the banking sector, as banks are required to take provisions equal to the value of these NPLs. 

For Ghobril, there are many question marks, as the World Bank report has a distinct anti-banking flavor, and, in his opinion, is indifferent to the plight of the banking sector. Since October 2019, the fear of a haircut on deposits has resulted in a rush to buy real estate and land, which in turn, has resulted in benefits for companies in the construction and real estate sector. Consequently, many have settled their loans before maturity, and the level of NPLs has been brought down in these sectors. The report, on the other hand, mentions a spike in the NPL ratio between October 2019 to June 2020, from 13.3 percent to 28.3 percent – hence Ghobril’s doubt as to the validity of the report.

Eurobonds cross-default 

On May 8, 2020, Lebanon cross-defaulted on its Eurobond obligations (sovereign debt labeled in US dollars), a first in its history. This default resulted in a complete stop in payments by the Lebanese Government to debt holders, and it massively affected banks’ liquidity, as $11 billion worth of Eurobonds are held by local banks. As these payments were made to banks, the default highly affected the latters’ liquidity, adding pressure on the sector.

 The decision to default in itself was controversial. Lebanon defaulted on a $1.2 billion issuance due March 16, 2020, but the government could have avoided a default had it agreed on restructuring terms with coupon holders prior to the non-payment. This would have required the approval by vote of 75 percent of holders of each Eurobonds series.

In principle, Lebanon could have requested such a negotiated default by entering into negotiations with the holders of this issuance to reschedule and/or restructure it without affecting the other payments of issuances. In this case, failure to act in time resulted in a cross-default that affected all Eurobonds issues. 

As a result, Eurobonds are currently trading on average at 15 cents per dollar, in default mode, and have heavily hit the balance sheet of banks: according to International Financial Reporting Standards (IFRS-9) published by the International Accounting Standards Board, banks have to take provisions on such issuances according to their market value. Also, these payments of Eurobonds were a main source of liquidity for banks, and such default resulted in limiting liquidity available for banks. 

According to Khalil Toubia, a political consultant and activist, the decision was premeditated. “The whole scenario is premeditated, and it is the same as the vacuum from 2014 to 2016,” related to the election of current President Michel Aoun, which was the result of the Free Patriotic Movement and Hezbollah willingly boycotting the presidential election session in parliament and avoiding a quorum to be held, therefore making it impossible for an election to take place. 

Eurobonds do not constitute the whole of sovereign debt, as T-Bills (sovereign debt labeled in Lebanese Pounds) are also auctioned and held by banks and qualified investors. Unlike Eurobonds, T-Bills are labeled in Lebanese Pounds and therefore less potentially subject to a default, as the BDL can print the currency and reimburse creditors (at the risk of greater inflation). 

Many accusations have surfaced on the consequences of the Eurobond default, with many considering that this has resulted in cutting Lebanon from access to financial markets. On the other hand, prior to this cross default, Lebanese Eurobonds were trading at 40 cents to the dollar. This was already a signal that Lebanon may default due to its worsening credit rating and fears in regards to its ability to service its debt.

To date, negotiations with the IMF have been halted since August. According to Ghobril, the government’s disorderly default on its foreign obligations has been “a historical mistake, as the entire economy has been suffering from it”. In addition, according to him, “the executive branch has not taken a single decision since the start of the crisis to restore confidence or to stop the deterioration of socio-economic and financial conditions”, signaling paralysis on the level of government and the lack of political will among major political parties.

How would Lebanon be able to access international markets again and repay Eurobonds Holders? It would be feasible to restart negotiations with the IMF and to agree to restructure the dollar-denominated sovereign debt: at this stage, BDL Circular 567 requested banks to set aside amounts equal to 45 percent of provisions on the Eurobonds. According to IFRS-9 auditing standards, provisions should be relative to the trading price of such debt: eurobonds are as of December 21st, 2020, trading 15 cents to the dollar, and so in principle provisions should reach an 85 percent level. 

Certificates of Deposits

The main issue that might affect banks in the long run is the treatment of certificates of deposits  (CDs) held at the Central Bank. The accounting for certificates of deposits is in itself complicated: they are mentioned as assets on the balance sheets of banks, and have not matured yet, with first maturities starting in 2022. The BDL in fact, in its Intermediate Circular 567, dated August 26, 2020, has asked banks to take provisions on certificates of deposits at a much lower rate than for eurobonds, and does not consider them to be in default. Nevertheless, from October 2019 to August 2020, BDL lowered interest rates offered on banks’ LBP and USD deposits by 556 and 553 basis points (5.56 percent and 5.53 percent) respectively, signaling a lack of liquidity.

Starting in 2016, there was an increased desire by banks to deposit money at the BDL, in part due to attractive interests offered by the BDL, and BDL’s balance sheet accounts for $108 billion of financial sector deposits ($72 billion and the rest in Lebanese pounds). Then again, each bank had its own strategy, according to Ghobril, with some having chosen a more conservative approach and maintaining higher levels of liquidity. CDs also have long maturities (6-8-10 years) and it is therefore difficult to assess their financial soundness. 

This rush to deposits at the central bank was also a consequence of changes at the regional level: starting in 2013, with Hezbollah’s entry in the Syrian civil war, inflows from the Gulf countries started dropping, and from 2011 until now, with the exception of 2016, Lebanon’s balance of payment has been negative. A negative balance of payment usually results in depreciation of a country’s currency. In order to defend the peg and attract dollars to Lebanon, the BDL launched its financial engineering in 2016, by which banks were lured into depositing their money held abroad in correspondent banks to the BDL in exchange for attractive interest. This resulted in a bigger concentration of deposits held at the BDL in general; not taking into account certain banks that had been more skeptical of the move. 

The balance sheet of the BDL as of December 15, 2020, reports $108 billion as financial sector deposits (in USD and LBP), of which 72 billion are estimated to be in dollars. On the assets side of the balance sheet, the BDL reports $17.5 billion as reserves. Overall, this results in a net negative financial position of around $54 billion. This negative position reflects badly on the financial soundness of the CDs. Though the BDL does not publish income statements, it is difficult to assess how this negative position came to be, and it has been estimated that a lot of this money has been used to defend the peg of 1,507 LBP to the dollar, for example on transfers to Electricite du Liban (averaging $1.5 billion per year in the past 15 years to import fuel for electricity plants).

 At this stage, it is difficult to assess how, with such a negative financial position, BDL would be able to repay the CDs to banks. One way would be to reimburse them in LBP, but with the depreciation of the latter, even if CDs were to be reimbursed at market rate, this could result in more inflation and therefore a haircut on deposits. 

Restoring confidence could, in theory, help attract foreign deposits and investments to Lebanon. Such attraction was the norm before Hezbollah’s interference in both the Syrian and the Yemeni civil wars. As a result, a political decision was taken by Gulf countries authorities, amongst others, to restrain from such investments in a show of non-confidence towards Lebanese authorities. Such an attraction of investments and remittances from the Gulf amounted in billions annually, and such inflows to the Lebanese banking sectors in the form of deposits could help bolster bank liquidity, according to Toubia. 

IMF Negotiation and Politics

According to the December 1st, 2020, World Bank report, net losses for the banking sector are estimated at $44 billion. Inflation, cross- default on dollar-labeled sovereign debt, bankruptcies, and other factors, make it necessary to reach out to the IMF for financial support to put Lebanon on the path to economic recovery. In the case of the banking sector, February will be an important milestone, as it will be known which banks have been able to recapitalize and which have not.

 Consolidation of banks will be necessary and has been mentioned in a report by the World Bank. Though many banks will avoid being merged, having already limited their exposure to the Central Bank, sold foreign assets (for example, Bank Audi is in the process of selling its Egyptian operation for a reporterted $600 million) and/or recapitalized. Nevertheless, the fact is many banks might not be able to reach the necessary milestones. In this scenario, many banks might consider merging to strengthen their equity and reduce operating costs (by closing down certain agencies and reducing their workforce). Many banks are currently in the process of closing down regional agencies and reducing their workforce. However, there is a lot of uncertainty and it is not clear which banks have been able to strengthen their equity.

This restructuring of the banking sector cannot occur outside of clear macroeconomic solutions. The situation of the banking sector cannot be separated from the cross-default on sovereign debt, its exposure to BDL, but also from the much-needed negotiation with the IMF. Negotiating with the latter would help provide much-needed foreign liquidity that could help stabilize the LBP and unlock a series of reforms that would bring Lebanon back on the road to economic growth.

 The situation with the IMF is nevertheless not so much economic as it is political. According to Toubia, the government’s decision to default was part of Hezbollah’s plan, as any reform engaged with the IMF would result in reforms aimed at ameliorating transparency, fighting corruption and downsizing the state of the public sector, objectives that are not necessarily in Hezbollah’s interests. 

Any reform package agreed on with the IMF would include reforms of governance of ports, the airport and customs, taking into account that Hezbollah has been accused of profiting from smuggling into Syria. In Toubia’s view, President Aoun and the current government are protecting Hezbollah’s interests, a view that  has been echoed in diplomatic circles and foreign media. Hezbollah spokespersons have mentioned in the past that Hezbollah was open to negotiations, but under certain conditions, as long as it would not harm “national interest”, according to Hezbollah Secretary General Hassan Nasrallah, in a televised speech on March 10, 2020. 

Hezbollah is not the only party accused of helping stall the negotiations, as civil society activists are more prone to consider that reforms are not welcome by most of the political class, which they deem corrupt. French President Emmanuel Macron even mentioned being “ashamed” of the Lebanese political class, accusing Lebanese politicians of “collective betrayal”. In addition, any IMF negotiation package would entail an application of four United Nations Security Council resolutions (resolutions 1559, 1595,1680 and 1701) related to the dissolution of all militias and border controls, according to Toubia. 

In conclusion, the banking sector’s future rests on foreign aid that would allow for economic reforms in Lebanon, but also on a much-needed restructuring that could include mergers and even a possible haircut on deposits (akin to the case of Cyprus), or even a possible bail-in (an exchange of depositors’ money for shares in their bank). 

Lebanon as a whole cannot exist without a well-functioning and effective banking sector, where trust is an important element. Restoring the banking sector from an economic standpoint may appear the easiest, but trust will need to be rebuilt. 

Such trust is cross-sectorial and depends on much-needed reforms related to governance and integrity on the part of the political establishment. 

On May 8, 2020, Lebanon cross-defaulted on its Eurobond obligations, a first in its history. It massively affected banks’ liquidity, as $11 billion worth of Eurobonds are held by local banks. 
Restoring confidence could help attract foreign deposits and investments to Lebanon. This was the norm before Hezbollah’s interference in both the Syrian and Yemeni civil wars.

Many banks might consider merging to strengthen their equity and reduce operating costs.

In conclusion, the banking sector’s future rests on foreign aid that would allow for economic reforms in Lebanon. This could include mergers, a haircut on deposits, and/or a bail-in.

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AnalysisEnergyOverview

How long will the lights stay on?

by Nabil Makari
written by Nabil Makari

The current state of the energy sector in Lebanon is worrying. Daily power cuts coupled with Electricite du Liban (EDL)’s chronic budget deficit, which has contributed to more than half of Lebanon’s public debt, makes it clear why reforming the sector is a top priority for the international community, and why it cannot be separated from the macro-economic  reform package being negotiated with the International Monetary Fund (IMF).

The reform of the electricity sector rests on two pillars: improved governance and the transition to sustainable, efficient and clean power production. Given the central bank’s dwindling hard currency reserves that make the long-standing subsidies of electricity impossible to maintain , the main challenge for the current government is keeping the lights on.

Energy production

Annual transfers from the government to EDL have averaged 3.8 percent of Lebanon’s gross domestic product over the last ten years, amounting to half of the annual fiscal deficit. Over the last 10 years, the annual subsidy from the government to EDL to support fuel purchases has averaged $1.5 billion. Despite these heavy subsidies, which aim to lower the price of electricity for the Lebanese population as a whole, the combined average cost of electricity for consumers is estimated to be approximately 18.8 cents, USD, per kW (kilowatt) – compared to 22 cents per kW in France, and 11.1 cents per kW in Jordan, due to the fact that electricity needs are largely being met by private diesel generators. Indeed, EDL has until now only managed to supply between 55 and 64 percent of Lebanon’s electricity needs according to a recent World Bank report published on December 1, 2020. 

According to the “Electricity Sector Reform Notes” published by Bank Audi on June 27, 2019, energy supply is currently insufficient to meet demand, with a shortage of 1.5 Gigawatts (GW), with peak demand in 2018 reaching 3.45 GW, and power generation only reaching 2 GW. This gap is filled with diesel-fired private generators charging on average 30 cents per kW according to the World Bank report. The total cost of electricity is estimated at 21cents/kW per hour for every kW sold, while the tariff remains unchanged at EDL since 1994 at 9.5 cents/kW.

 Lebanon only produces around 2GW, of which approximately 390MW are being supplied by rented barges owned by Turkish company Karadeniz, 850MW by the two power plants in Zahrani and Deir El Ammar, 220 MW by the new Zouk and Jieh power plants, around 800MW by old and obsolete plants in Zouk, Jieh, Tyre, Baalbeck, and 200 MW split between some hydro plants and purchases from Syria. In 2018, the average cost of production to EDL stood at around 14 cents per kW. When administrative costs and maintenance costs and losses on the grid, EDL’s cost of electricity exceeds 21 cents/kW; explaining the huge loss on electricity supply incurred on a yearly basis. 

EDL sells each kW at a loss. The high cost of production is a combination of high fuel costs due to the usage of heavy fuel oil (HFO) and diesel to power its fleet, and to high network losses in theft and technical losses on the grid. With peak demand at 3,450 Megawatts (MW), the gap on average is between 1,400 and 1,500 MW, resulting in significant daily electricity cuts being filled by costly and polluting private generators. 

By 2030, electricity demand is forecast to increase to 4,700 MW, taking into account yearly growth of 4 to 5 percent with population growth; and up to date, no plan has been put in motion to meet this demand. The situation has been aggravated due to the devaluation of the Lebanese Pound (LBP) and the lack of dollars for fuel imports, which may threaten to plunge Lebanon into darkness.

Missed Payments and Devaluation

The LBP having fluctuated at rates exceeding 7,000 lira to the dollar in late 2020 (as of December 17, it depreciated to 8,400 LBP per USD)  devalued to 8,400 to the dollar at black market rates on December 17th, EDL has to rely on the support of the Central Bank to meet its dollar commitments – mostly for imports. These include: 1) purchase of fuel oil; 2) payment to the rented barges (Karadeniz); 3) payment to the maintenance contracts of the power plants; 4) payment to the Distribution Service Providers (DSPs), the last two relying on imported equipment to maintain the generation and distribution assets. While the Central Bank has been procuring the necessary funds from its thinning reserves for fuel oil, it has stopped payments towards other obligations (see list numbers 2, 3 and 4). The unpaid amounts exceed $300 million to date.

EDL owes around $175 million to Turkish company Karadeniz, which is refusing to be paid in Lebanese pounds, while the Lebanese government is not able to access dollars without great cost. For the moment, the Turkish company is still providing electricity according to the contract, which covers around 11 percent of Lebanese’s current energy usage, but with no extension being discussed for the latter, Lebanon may very well, before the end of their contract in 2021, lose around 390 Megawatts of electricity – losing around 3 hours of electricity per day in Lebanon as a whole.

 In addition, EDL owes around $110 million to the electricity sector distribution service providers, due to the latter having to import spare parts and cables. Due to the devaluation of the currency, providers are threatening to shut down their activities. Lebanon as a result could fall victim to more power cuts.

 The government in 2017 had managed to cap the billing by private generators at 30 cents per kW. Private generators rely on imported diesel which is currently subsidized, but a small part of the billing is related to spare parts that have to be imported and are not subsidized. Prices for the consumer have gone up due to the devaluation, as private generators have to obtain dollars on the black market in order to import said parts. 

EDL’s deficit is already growing: with a fixed average tariff  of 9.5 cents per kW, the devaluation has hit EDL’s budget as it charges its prices to consumers at a rate of LBP 1,500 to the dollar, and so by taking into account the devaluation, EDL is effectively billing consumers less than 2 cents per kW, for a total cost of electricity exceeding 21 cents per kW. Though most of its costs (a large part being fuel) is at the moment subsidized by central bank reserves, the lifting of subsidies is approaching every day and may threaten the continuation of EDL’s operation.

  According to Carol Ayat, head of Energy Finance at Bank Audi, the solution is not limited to the sector itself, but to the economy as a whole, and dependent on macro-economic reforms. “You need to rebuild trust and confidence and stabilize the economy to attract the needed investments in the sector.” 

The creditworthiness of the Lebanese government following the default on its Eurobonds, as well as the convertibility and transferability of the currency have become real impediments to any new investments in the country. These impediments can be overhauled with the negotiation of an IMF package, which comes with a list of prerequisites and reforms at the government level, and second with the appointment of the Electricity Regulatory Authority (ERA), which has become a key prerequisite of the international community. Law 462 envisioned the creation of an independent and autonomous Electricity Regulatory Authority to provide regulation and oversight over the electricity sector in Lebanon. 

The IMF deal would also ensure that government finances are placed on a sustainable path forward. Once confidence is restored, this would unlock the funding from the international community and CEDRE donors to the sector. This also includes the rebuilding of the damaged EDL assets such as the National Control Center, the Achrafieh substation and the EDL building following the August 4 blast.

Energy Sector Governance

The Ministry of Energy and Water (MEW) proposed amendments last year to law 462 for the formation of an independent regulator. Said amendments, according to the World Bank, would limit the regulator’s independence by requiring them to be part of the ministry. This, according the World Bank report, “raises questions as to the regulator’s ability to maintain its administrative independence”. The same report highlighted the need to appoint the members of the ERA in a transparent manner that would send a signal as to the independence and transparency with regards to energy sector regulation. 

Tariff reform and increased generation

The other necessary reform is to restore EDL’s financial stability. With electricity tariffs at an average of 9.5 cents per kW, unchanged since they were set in 1994, compared to a cost of electricity exceeding 21 cents per every kW sold by EDL, the electricity sector is in clear deficit. Indeed, according to the Bank Audi report dated June 27, 2019, when added, the losses from the uncollected bills, the tariffs barely cover a third of EDL’s operating costs. 

In order to ensure the financial viability of EDL, it is imperative that the tariff structure is revised, and becomes cost effective. This tariff revision would need to be paired with the reduction of the cost of electricity supply with the switch to natural gas. In addition, it is necessary to reduce network losses, and provide for a social safety net to protect the most vulnerable population from price hikes. According to the MEW electricity reform plan in 2019, the average tariff was forecast to increase to 14.4 cents/kW in line with the increase in generation to rebalance EDL’s financial viability. This would come with the elimination of the private generator bill, resulting in a decreased cost to the consumer.

 Analysis also indicates, according to the World Bank, that at least 1500-2000 MW of additional capacity is needed just to eliminate or at least minimize Lebanon’s reliance on diesel-fueled private generators. 

Increasing generation capacity is by no means easy. It is therefore necessary to immediately launch  tenders (the procedure by which offers by private contractors are evaluated) for thermal power plants to produce 1800 to 2000 MW, to bridge the gap in electricity generation, taking into account that the barges will be disconnected in the near future. The size and choice of plants, according to Ayat, need to be based on a “least-cost generation plan,” which would ensure the plants are built in the most cost-effective manner. At this stage, the government owns available land in Deir El Ammar and Zahrani to host new power plants. 

A third power plant in Selaata may be needed, especially if it is in replacement of the old and obsolete plants like the old Zouk and Jieh (costly from financial and environmental perspectives). The choice of this site would need to adhere by the least cost generation plan. These plants are also critical to provide the base load power required to manage the additional stress on the grid from the increased share of renewable energy.

 High losses in transmission and distribution are also a drag on the financial soundness of EDL, amounting to 34 percent in 2018, which are split between technical losses of 17 percent and non-technical losses of 21 percent. 

Technical losses are standard in electricity generation and therefore cannot be completely eliminated. According to Ayat, reaching a level of around 10-12 percent of technical losses would be in line with international benchmarks. On the other hand, non-technical losses are mostly due to theft and uncollected bills, and can be reduced with the installation of smart meters coupled with a strong political decision and support to disconnect the contraveners. 

The original government plan, which had been reviewed last in 2019, mentioned the installation of 1 million units of smart meters by 2021 by the DSPs to facilitate better collection, but for the moment, this has been put on hold. According to the World Bank report, to date, billing lags approximately 12 months in some areas, and cash receipts for 2016 and 2017 reflect a collection rate of 74 and 66 per cent respectively.

Switching to natural gas

In light of cost and environmental concerns, Lebanon would have to reduce its fuel cost by using natural gas. According to the World Bank, it is estimated that switching from liquid fuels to natural gas would save the electricity sector up to $200 million a year, given the significance of fuel to EDL’s operating costs. At the moment, Lebanon imports diesel and heavy fuel oil to power its generation plants. “Gas is less polluting” says Ayat. “It’s more efficient in terms of cost and the environment”.

 The transition from fuel and diesel-powered stations to gas-powered is not without hurdles, but is very feasible if a plan is put in place. 60 percent of EDL existing power generation assets can be switched immediately to natural gas.

 Such gas procurement can be obtained via a Floating Storage Regasification Unit (FSRU), which is a Liquid Natural Gas (LNG) storage stationary marine vessel that has an onboard regasification plant capable of returning LNG back into a gaseous state and then supplying it directly into the power plants. 

 According to Mona Sukkarieh, a political risk consultant and co-founder of Middle East Strategic Perspectives, there are two main ways to import gas: via pipeline or in liquified form as LNG.  “Lebanon is connected to neighboring countries via one pipeline, the Arab Gas Pipeline (AGP),” Sukkarieh explains. “But there are obstacles that stand in the way of importing gas via the AGP to Lebanon.” This is because the AGP passes through Syria, and the Lebanese Government has had difficulties until now dealing with the Syrian regime. 

Egypt has expressed the desire to export gas to Lebanon, which could either be in liquefied (LNG) form, which would require special facilities such as an FSRU, or via the AGP, which is sensitive due to the difficult relationship with the Syrian regime. Overall, according to Sukkarieh, reaching a decision with Syria is a political issue, which will depend on the policy a Lebanese government would adopt towards Syria. In addition, to import LNG, Lebanon would need special terminals, the FSRUs, which it does not have at this stage.

 Another possibility would be to import natural Gas in a compressed form directly from Egypt via ships, a solution defended lately by member of Parliament Neemat Frem after a meeting on July 20, 2019 with the former Minister of Water and Energy, Nada Boustany. Nevertheless, there are questions with regards to the feasibility of this option according to Sukkarieh. As to date there is only one project using this technology, in Indonesia, according to a World Bank report.  

 Questions arise regarding the possibility to use Lebanese gas, should any be discovered. At this stage, Lebanon has not made any gas discoveries, and it would be difficult to assess when and if a commercial discovery will be made, according to Sukkarieh.  

Renewables

 “There is no more denying that the future of energy is green, and we need to invest in the future.  Lebanon is blessed with strong solar, wind and hydro resources,” affirms Ayat, head of Energy Finance at Bank Audi SAL. “Prices of solar panels have dropped by more than 90% in the last 10 years, so much that solar is today more competitive than thermal power in many parts of the world.” 

Once perceived as an environmentally friendly initiative, today, renewables provide undeniable benefits. The first round of wind farms in Lebanon were priced at 9.6 cents/kW and the first round of solar farms in the Bekaa at 5.7 cents/kW. Both tariffs are well below the average cost of production of EDL at 14 cents/kW in 2018. 

In addition, these electricity generation costs are fixed, and do not fluctuate with the price of oil, offering clear advantages in terms of price stability and security to the country. 

The wind farms project, which would procure about an additional one hour of clean electricity to Lebanon per day, had received financial approval by the European Investment Bank “EIB” on November 14, 2019, but the disbursement of the loans was halted following the crash of the Lebanese economy. The funding is still pending, its disbursement resting on the same conditions highlighted above: improved governance and the transition to sustainable, efficient and clean power production. 

Renewables are also environment-friendly, capital intensive, bring developmental benefits and create more jobs than thermal energy. Once Lebanon adopts a least cost generation plan, the share of renewable energy in the energy mix will have to be substantial. Lebanon has already committed to the Paris Agreement to generate 30 percent of our energy production from renewable energy by 2030.

 To help the government reach such a target, the private sector can play a significant role. Due to the high cost of electricity supply in Lebanon stemming from the reliance on expensive private generators, the private sector is highly incentivized to invest in decentralized solar power. Such solutions provide a cheaper, cleaner and more efficient source of electricity. This however would require the enactment of certain regulations and laws to allow for peer-to-peer trading of electricity and net metering with EDL.  

  Overall, Lebanon is at risk of plunging into the dark as early as February 2021, should the government fail to initiate macroeconomic reforms, electricity reforms and negotiations with the IMF. Such reforms primarily need political will to be put in place, and one can only hope that they are initiated imminently due to the urgency of the situation.

Lebanon may lose 3 hours of electricity per day if EDL fails to pay the $175 million it owes to the Turkish company, Karadeniz; the contract covers around 11% of Lebanon’s current energy usage.
EDL owes around $110 million to the electricity sector distribution service providers, due to the latter having to import spare parts and cables.
The IMF deal would also ensure that government finances are placed on a sustainable path forward. 
According to the World Bank, at least 1,500 – 2,000 MW of additional capacity is needed just to eliminate or at least minimize Lebanon’s reliance on diesel-fueled private generators. 
“There is no more denying that the future of energy is green, and we need to invest in the future.”

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