LeadersOpinion

McKinsey’s uninspiring economic vision

by Executive Staff
written by Executive Staff

In January, Lebanon published McKinsey’s economic vision slides that were the result of government discussions in late 2017 on commission by the Ministry of Economy and Trade. The 1,274 slide show document was developed over the first half of 2018, and can be seen as an economic vision outsourced to the consulting firm with ownership by the government.

There is buy-in from three, top-level board members, but we do not have clarity of intermediate or upper management, and for that a new cabinet must be formed, hence there is no buy-in at the level of administration or state management. This report appears as if McKinsey is talking to the tiny owner-senior executive management layer of a family-owned corporation, or at best a family-owned rentier state cut from the same cloth found in some undemocratic state in the Middle East.

But that is not Lebanon. Despite all the weaknesses of our democracy, such as the disregard of the people’s sovereignty by the communal political bosses or the overloading of unchecked political elites with corruption, Lebanon is a democratic state. Albeit a democratic state where the public sector and society does not operate on functional democratic processes, where instead elected lawmakers negotiate workable solutions for social and economic disagreements between their electorates.

Lebanese democracy enters this period—crucial for not only its growth and future prosperity, but for its very survival—as a state battered by external pressures from foreign interests, with internal dysfunctionalities reflecting the collusion of politicos that appear to regard society as a band of horse thieves would regard a herd of mustangs, or, in the best (not currently vibrant) scenario where democracy is operated by consociational procedures whereby communities haggle with each other rather than in the interest of a greater national benefit.

The McKinsey document on an “Economic Vision” for Lebanon appears to be willfully oblivious to this reality. Even as a top-down document, its substructure of “Vision 2025” and “Vision 2035” comes across as a consulting product aimed at the owners of a fictitious state and society, replete with targets (for imponderables such as GDP, GDP volatility, and unemployment rates in 2025 and 2035) that strike observers as blatant figments of imagination. There is an obfuscation on the depths of stakeholder interaction because McKinsey writes in the opening slide that some 200 stakeholders across multiple economic sectors were interviewed, but there is no methodological attempt to indicate the width or depth or diversity of views or the intensity of the interaction. Instead, the stakeholders identified indicated an alignment with the original core owners that commissioned the report, showing a feedback loop and bias in interlocutors, so it is a very family centric incestuous inbreeding of insights. How can an economic vision be set when only 200 stakeholders are engaged and when three quarters of them are affiliated to the state?

The social contract of Lebanon has long been a topic discussed by Executive Magazine and McKinsey’s economic vision for the country appears totally oblivious to the question of what social contract might be desired by the Lebanese people and the different stakeholder groups in the country. Other than the board-level input on the plan there seems to be very little attention paid to what the employees of the corporation want, and in this case the employees are the citizens and residents of this nation—a corporation with more than four million people being totally ignored by the consultants. On that, Executive grades McKinsey a clear F.

There is no economic model that McKinsey has based its vision on, and what it is based on is a very feeble diagnostic. Some comments published already by news outlets have labeled McKinsey’s report as a “damning diagnosis.” No, it was not a damning diagnosis of our economic state of affairs, it was just a reiteration of known numbers accumulated in a way where people who had been free to ignore realities or who were focusing on just part of these diagnostics, now see it all together and claim it looks bad.

It is a disgrace for Lebanon, and it is a disgrace for McKinsey to produce an economic vision that claims to be the “first comprehensive study” utilizing a “fact-based scientific approach,” when in truth the 1274 page slide show is merely an aggregation of previously published studies by international and local institutions and uncited news reports and analysis (e.g. “Source: Press search).

The assumptions of the McKinsey report as far as vision 2025 and 2035 are very difficult to comprehend because we do not know their methodology, and so can only guess at how they calculated their predictions that Lebanese GDP per capita would rise from $12,000 in 2017 to $16,000 in 2025 and $22,000 in 2035 making Lebanon a high-income economic country, which would, at current comparison, rank us between 35 and 40 in the global list of economies. Predicting GDP on an annual cycle is haphazard and accuracy is rare, so predicting GDP on a 17-year cycle is better left to Leila Abdul Latif or Michel Hayek.

On the other hand, there seems to be only a single opportunity that could come out of this report and that is to have a reference point for further debates over what is necessary and what is needed. We can always say the Lebanese government by virtue of their unpreparedness for discussing and coming up with a strategic vision for the nation outsourced this to McKinsey and the consultants produced a long list that may be useless, but the fact that this was outsourced shows that it is needed. So there is an opportunity for more constructive discussion, and McKinsey’s economic vision, Minister of Economy Raed Khoury told Executive in a mid-January interview, is the product of accumulating failures over the last 30 years of inactivity or non-decision making by the state.

A positive aspect of the plan is that McKinsey attempts to incorporate the Capital Investment Plan (CIP) portfolio and prioritize its projects. On the CIP portfolio the impression nearly one year ago when it was first released to the public was that it was a total mess of holdover ideas and unstructured needs that were put together without even a level of cookbook coherence. Now the CIP evaluation by the McKinsey team says that 11 percent of CIP projects, worth $3.4 billion, are mission critical, another 15 percent are high importance, and 25 percent are marginal. McKinsey is attempting to structure the CIP portfolio into a more coherent work flow as far as order of priority. On the other hand, the priorities McKinsey identifies are exactly the same priorities that the government already had, so is that an independent evaluation or a contaminated adoption of the government’s point of view?

There were two projects that McKinsey added to the portfolio that were not exactly CIP projects but were included on the CIP slides: Smart Village Beirut and the construction industrial zone for reconstruction of Syria. The industrial zone seems pie in the sky because the political environment of Syria would require the Syrian state to welcome Lebanese companies with low customs barriers and low informal internal barriers to help them in rebuilding Syria.

There does not appear to be any indications whatsoever in January 2019 that this could be achieved without a tradeoff of sovereignty, i.e. if Lebanon agrees to become a province of Syria then maybe Bashar al-Assad would allow this. Any other solution of allowing Lebanese construction companies to basically take over the reconstruction of a large portion of Syrian housing needs is questionable. On the Beirut knowledge village, where the planned area extends from the border of Beirut Digital District to the Salim Salam highway in Bachoura, including most of Saifi Village, just looking at the land cost of that area, which happens to be amongst the most pricey real estate in Lebanon, and the fact that there is not a single university in the area, raises the questions of how much would Smart Village Beirut actually cost, and is it really a feasible idea?

Adding another layer on top of existing bureaucracy to execute and implement the ideas put forth in the McKinsey vision, in the form of the Performance Management and Delivery Unit (PMDU), is a bold attempt at coordination and implies overconfidence by the consultants about the ability of the state to fast-track reform or project implementation. A trip down memory lane to remember what happened with the empowerment of the Council for Development and Reconstruction (CDR) finds that it was constantly clashing with other entities in the ministerial bureaucracy and created a huge bottleneck in terms of decision making. How would the PMDU under the purview of the cabinet perform any better as a coordinator of already overburdened bureaucratic entities that exist today?

There are four existential design flaws in McKinsey’s economic vision and for its implementation. The first is that the plan is not based on verifiable data, and there is a slide that admits it is not an economic plan. But this economic vision where it refers to data, whether existing or target data for Lebanon, does not have any kind of fact-checkable veracity because the fundamental flaw of Lebanon is to not know what we are actually talking about.

McKinsey points this out, but ignores the fact that they do not have any numbers to base their vision on. If unemployment is identified at between 15 to 25 percent, one first needs to conduct a census to measure and understand the size and composition of Lebanon’s total working population so that one can measure this unemployment rate with some semblance of meaning and sectoral accuracy. If we do not know the total working population (as we do not) than what is 15 or 25 percent? Second grade math will inscribe even a mathematically disinterested pupil with the knowledge that one quarter of one hundred is different than one quarter of one thousand.

A second design flaw is that there is no understanding of the fundamental economic model and social model of Lebanon, which is actually what we want and need. This is fraudulent because we need to understand what society we want before we can say what economy we want, otherwise we have only an economy without a society. We do not have a socio-economic vision but an economic vision that is floating in the air.

A third design flaw is in the methodology and internal coherence of the plan that offers no degree of confidence that implementation of Recommendation A can be done without any other measure, or that Recommendation C must be implemented after Recommendation B. There is no level of timeliness in this plan that distinguishes measures that can be accomplished and no qualification of what that would be based upon.On every level of methodological enquiry McKinsey is obfuscating its real methodology.

The final design flaw of the McKinsey economic vision is that there is no skin in the game as far as accountability of the consulting firm in the level of assuredness that McKinsey can offer if Lebanon attempts to apply the methodology and recipe in the nation’s economy. The consultancy claims—in a well-hidden slide in the body of the 1274-slides long presentation—that its model “provides guidance on target-setting” and explains that it links its (individually mystifying) sector targets to their macroeconomic impacts through “simple linear regressions.” Even if that means that the plan might be appropriate for discussion in a profoundly disinterested 12th grade high-school setting or within a similarly inclined political class, can we really allow ourselves to be content with this?

Executive reckons that there is much, much more that has to be on the sovereign’s—meaning all the people’s—agenda for 2019. More understanding of our possible economic futures, more inclusion in our national economic vision, more joint decisions across communities and compromise between divergent interests, and, crucially, more intelligent—well informed—action.

0 comments
0 FacebookTwitterPinterestEmail
Reflection

Forever younger, forever on a quest

by Thomas Schellen
written by Thomas Schellen

“…it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not, of establishing good government from reflection and choice, or whether they are forever destined to depend, for their political constitutions, on accident and force.” First published 230 years ago in 1788, this sentence from the lead paragraph in a very early American op-ed still holds water today. Even, or especially, when looking at Lebanon in 2018.

A little over 20 years ago, a number of young enterprising Lebanese minds returned to their home country.  They came back with three mental assets: their advanced education from universities in Europe, the US, and Canada, the determination to work for the improvement of Lebanon toward a country that can deliver on its economic and societal potentials, and the awareness that Lebanon needed a top-flight serious economic and business publication in the English language, a publication that would aspire to reach first-world quality in its coverage of local businesses and offer a well-reasoned, authentic, and locally generated perspective on regional and global economic affairs. A publication that would not fall into the traps of prostituting its content for advertising money under regionally entrenched practices, like providing advertisers with mindless propaganda stories and kowtowing to powerful decision makers with hollow and sycophantic praises. A magazine that would not copy and paste content to sell cheap narratives as genuine journalism and call prefabricated content “exclusive.” A publication that would not be in the pocket of a political patron and bow to every wish of its funders. A publication that would not shut up in the presence of any big shot and stakeholder in the Lebanese economy and in economic policy making, but seek to criticize when needed, and praise when warranted.

This was the first step in the journey of Executive. From its “Zero” issue in November 1998 all the way to the publication of an economic plan in this year-end Facts and Forecasts issue of 2018, the road for us has been many things, but not routine. There have been moments of exasperation, searching, questioning ourselves, and longing for an easier, better governed economic environment, and a more rewarding journalistic life—in the senses of profitability as a media enterprise with all the positive implications that has for editorial budgets and remuneration packages of staff, but even more in the sense of finally seeing this magazine’s advocacy for a better economy and its diligent reporting bear fruit in Lebanon’s society.

But there have also been many moments of satisfaction over a job done at the best of our collective abilities in the editorial, production, photo-editing, layout, design, administrative, advertising, public relations, circulation, and, of late, social media departments. These have been the moments of putting the final period at the bottom of an analysis piece or interview write-up, of sending another issue to the printer, and of seeing another great cover and content being delivered from the print-shop to our office, and hearing from our readers, who trusted us with their constructive voices and comments.

It is therefore, in this issue’s current edition, which not only reviews 2018 but also seeks a positive way forward for this country at the beginning of 2019, that Executive presents you with its longest read ever: a 50-page elaboration of 16 economic priorities and about 150 suggested measures, which we think are in no way exhaustive or authoritative in themselves as much as they are our plea to invigorate the market of ideas in responsible Lebanese society. We request collaboration, from the consultative contributions to the plan made over the last two months, to the participatory involvement and submission of comments and suggestions over the coming weeks. We are inviting active and passionate, but well-reasoned participations, and calling for such comments to be communicated to Executive via any or all digital and conventional readership interaction channels in the hope of stimulating a Lebanese movement for a better future.

One note to be added in conjunction with developments of media over the past 20 years, not only in Lebanon, but around the world, concerns the increasing diversification of content access channels. When we started, print magazines were only that, print magazines. In the intervening years, when we witnessed the unfolding of two waves of online economic transformation rudely interrupted by the shock of a global recession and its aftermath with the regional addition of the eruption of the greatest hunger for freedom and dignity by Arab populations and then the largest refugee crisis in context of a globalizing economy right on Lebanon’s doorsteps, new concepts of media and consumption have abounded. These new concepts are not yet really mature, but they are progressing, and in this regard, we are also working on the development of our own future as Executive, and the expansion and technology adaptations that we should—urgently—achieve over the next few years. But whatever the changes and advances, Executive is dedicated to do its best, distinguishing this magazine by quality. Whether one calls it value-added or slow journalism or, as one US president did admiringly describe it in another era, muckraking, we will adhere to this tradition and not go for the cheap copy-and-paste, propagandizing, or sensationalist race for short-term returns.

Reporting on media and journalism by media organizations is always tricky, due to built-in conflict of interest issues, narrow personal expertise, and biases of writing about one’s own profession—in the sense of positive distortions, but even more so because of the prevalence for making fear-driven gloom forecasts that obfuscate existing opportunities. The challenge takes on an entire additional dimension when the aim is to report on content media startups and entrepreneurship for journalistic—data, unbiased reporting, customer centric—ventures in the Middle East and North Africa. Existing news media organizations—in online and mobile or print and audiovisual realms—have a hard time with reinventing themselves for the digital era, on/off being faced with regulatory and legal uncertainty, persisting bad business models of the attention merchant playbook, humongous journalistic quality assurance problems, and perception problems as partisan propaganda (political and commercial) apps.

The sentence cited at the top of this article is an example of the power of positive content. It stems from the lead of the first of 85 opinion pieces in the discussion of the proposed constitution of the US. Known today as The Federalist Papers, the op-eds in the collection measure from just under 1,000 to 5,000 words (or approximately between two and upward of 10 pages per article in terms of a magazine like Executive). While sensationalist pieces in the New York penny papers of the mid 1900s allowed papers to double street sales, their impact on society over time is not even worth a footnote in history. The impact of the long reads that Alexander Hamilton, John Jay, and James Madison wrote—well before they respectively became the first treasurer, first chief justice, and fourth president of the United States—is measured in national and global terms over centuries. Hurrah for value-added journalism!   

Sadly, the experience of this journalist’s exposure to Arab media is a harrowing trip into a past of encounters with incompetent, lazy, gullible, or uncaring journalism, superficial research, marketing-poisoned stories and frustrating reads from 20 years across English-language versions of online and offline publications in the Gulf region, Levant, and Anglophone North Africa. The rest is exposure to fluff or, at best, content that is not convincing, as it neither signals authenticity nor investigative rigor.

This is not to say that the journalism of other cultures is intrinsically better than Arab journalism, or that all of the journalists in this region are less competent than their international colleagues. Time Magazine’s recognition of “guardians” of the truth—journalists and media staff who became victims of violence and oppression—most prominently Arab journalist Jamal Khashoggi, but also colleagues in the US, Myanmar, and the Philippines, very well serves to highlight that journalists of all cultures and nations are crucial for the preservation of truth in and across societies. While the recognition of these journalists is a late breaking development for 2018 in context of the vital role that quality media content plays, the fact that journalists around the world take great and often unrewarded risks in their endeavors is highlighted every year by organizations such as the International Federation of Journalists (IFJ), or Journalists without Borders (RSF), which publish annual casualty counts of journalists (by early December 2018, IFJ records 77 victims for the year while RSF specifies its count as 63 journalists, 13 citizen journalists and four media assistants).

Although it should be noted that being a victim is not automatically proof of personal greatness and professionalism in any field of enterprise, the enduring risks involved in seeking the truth and unmasking corruption or crime make it clear beyond any question that the role of journalism in 21st century societies is as vital as it was in any century since the Age of Enlightenment when media started their slow rise to independence and toward actually earning the status of the “fourth estate” in modern societies. Their crucial role is important, not only in the fight for social justice and human rights, the protection of the weak and checking of the powerful, but also for the entire spectrum of building cultural and economic wealth. In this sense, Executive is today as committed as it was when it took the first step on the journey of a publication with the aspiration to offer its readers independent and as good as possible economic and business journalism in the Lebanese context.

0 comments
0 FacebookTwitterPinterestEmail
CommentEntrepreneurship

2018 has been a better year for startups

by Abdallah Yafi
written by Abdallah Yafi

Lebanon’s startup ecosystem is in much better shape today than 10 years ago, thanks in large part to Circular 331 from Banque du Liban (BDL), Lebanon’s central bank. We at B&Y Venture Partners have invested in some fantastic companies with exceptional founders and are very pleased with the quality of our portfolio to date. Most of our Lebanese portfolio companies are tackling global markets, and some of them have recently captured the interest of leading European and US venture capital funds. Circular 331 has made capital available across different stages of startup development (from seed to growth), which is key to developing a self-sustaining cycle of success. Entrepreneurs today also have access to a wider network of support with the recent growth in accelerators, incubators, matching funds, and angel groups. Having an active and engaged pool of angel investors is crucial to building a healthy ecosystem.

Going forward, it is important to deepen the level of support from the private sector. Local corporations across different industries often have major pain points that our startups can solve for them. For that reason, an increasing number of family offices and privately held companies are investing in our startups, and many are adopting and becoming customers of our local startups. This trend needs to continue.

The right legal reforms

Our government has shown willingness to play a bigger role in helping build our startup ecosystem. We are confident that the new government, when it comes, will soon pass new ecosystem friendly laws and update the country’s commercial code.

While there are always some workarounds, the legal infrastructure is too rigid for startups today. For example, there is no simple way of creating an employee stock option plan to attract top talent to Lebanese startups. Also convertible notes, which are allowed by Circular 331 and are one of the most commonly used instruments in startup financing across the globe, cannot be easily used today by Lebanese funds because of Ministry of Finance restrictions.

Along with improving broadband speeds, I believe that easing legal hurdles is one of the most important long-term investments our government should make in this sector. The right legal reforms can help Lebanon become the main hub for regional startups as well as an attractive incorporation destination.

1 comment
0 FacebookTwitterPinterestEmail
OverviewReal estate

Is there a real estate crisis?

by Jeremy Arbid
written by Jeremy Arbid

Since at least 2014, the country’s real estate developers have been warning of troubling times ahead. The sector slowdown had begun much earlier, as Executive reported in its October 2018 real estate special report, and sector stakeholders have, for several years now, expressed hope that the next year would be better—repeating this mantra, as if speaking the words out loud would bring about the positive change they have been seeking. By definition, real estate is always cyclical, so the question is: Where are we on the down leg of this cycle—still declining, at the nadir, or nearing an upward turn?

No to low confidence

Confidence to invest in Lebanese real estate reached a low point in 2018. The sector was negatively affected by political uncertainty and economic distortions due to monetary interventions by Banque du Liban (BDL), Lebanon’s central bank. But the formation of a new government has the potential to bring relief on both fronts.

After Lebanon forms a new cabinet, there will be a confidence boost, and a foundation for renewed economic growth can be set. This could come in the form of fiscal incentives, taxation changes, or legal changes that require government approval, such as regulating the rental market, alongside BDL’s monetary measures. There are many possibilities that could manifest, if, and only if, the new government adopts a clear vision for the real estate sector. One thing to watch for in 2019 is a housing policy—currently being prepared by the Economic and Social Council (an advisory body to the prime minister made up of academics, economic associations, civil society, political parties, and government entities) as part of its 22-point socioeconomic plan—which will require approval by cabinet before any measures can be implemented.

When it comes to asking whether or not real estate will experience pricing adjustments in 2019, the calculation should not only be considered in social or political terms, but also as a macroeconomic factor.

In 2013, there was macroeconomic worry at the central bank because of deflation, and the response was to target specific sectors that BDL at that time thought would be beneficial to the economy, through stimulus packages that cost roughly $1 billion each year. The central bank’s annual subsidy package helped drive up GDP growth, and also contributed to inflation, according to a public sector economist with whom Executive spoke.

On top of that, the 2017 public sector wage scale increase pushed inflation in general, but also property price inflation, as the wage hike increased the eligibility range for subsidized loans.

It was the absence of the housing subsidization scheme in 2018 that proved a pivotal factor, clearly demonstrating that without subsidies (i.e. monetary interventions by BDL) the sector was worse off. The freezing of BDL’s subsidization scheme was correlated to the central bank’s macroeconomic concerns, including the potential overheating of the economy as a result of rising inflation.

If inflation was to be mitigated at a time when the state was opening the money supply tap in terms of the salary scale, the central bank needed to be careful with its incentive packages.

When the public sector salary increase of $800 million was announced in late 2017, and later turned out to far exceed that amount, the central bank concluded that its measures, coupled with the wage increase, would have sent inflation soaring to 7 percent, or higher, in 2018. “Inflation, if you recall before this year, was in the realm of 3-4 percent, and this year it hit 6 percent. If we were to add to that [BDL’s incentive structure], inflation would’ve probably approached a double-digit level,” the public sector economist told Executive.

Unreliable data

The real estate numbers that make headlines are most likely not suggestive of any sort of trend, or whether there is an impending market crisis or not. In 2018, the number of real estate transactions and cement deliveries went down, but have fluctuations over the last two decades had any correlation with economic development? And if there is a correlation, is it a causation, or is it just coincidental?

Before concluding that a real estate crisis can pull the Lebanese economy down, one must first determine whether there actually is a crisis, and that is hard to ascertain. The degree to which real estate transactions contribute to GDP, somewhere in the range of $8-9 billion each year, or $45-50 billion over the last five years, does show that the sector is important, but it should also be noted that it is an inflation driver.

Subsidies for real estate can drive inflation higher, but the overall effect is very difficult to measure. There are more variables to consider when valuing the real estate component of the national economy than what are typically taken into account by analysts, who may have a bias toward thinking that everything is a threat to the sector and suggesting a larger crisis than may actually exist.

This is all to say that there is uncertainty in the straightforward reading of real estate indicators: For example, reading selective indicators that are not thoroughly collected data observations—such as the proxy indicator of cement deliveries—do not necessarily reveal as much as one might think. Survey data on real estate perceptions, which is soft data, combined with hard data that is proxy, can lead readers of real estate indicators to conclusions that may be more dramatic than they are sensible.

What Lebanon is lacking is reliable data, which is not at all unique to the real estate sector. We do not have an official price index to show price per square meter or transaction price increases in given areas. All the numbers we do have to work with are anecdotal—so when the sector says it believes there is $3-6 billion in unsold residential units in Beirut, or that some developers have gone bankrupt, the factors leading to the unsold apartments or bankruptcies are unknown. We say there is a real estate bubble and that there is a downturn, but we do not have reliable data to say which activities of the sector have imploded, which are underdeveloped, or which are in a bubble state at present.

Prognosis: uncertain

Whatever the real status of the sector is, and where we are on the down leg of the cycle, stakeholders may actually have a better year in 2019 than in 2018. This time around, that optimism is based on hope and the tangible measures expected following the formation of a new government, rather than on hope only, as was the case in past years.

Lebanon’s housing authority, the Public Corporation for Housing (PCH), is set to restart its subsidy in 2019 for lower-income, first-time homebuyers, thanks to a one-time allocation of $66 million by Parliament. The subsidy had been offered by the central bank but was discontinued at the end of 2017, leaving borrowers in limbo. In November 2018, Executive interviewed the head of the housing authority, Rony Lahoud, who at that time said the PCH was still negotiating with banks to adjust the financing mechanism for subsidized loans and, possibly, offer a new home loan product to qualifying beneficiaries.

As for developers and apartment owners, a new real estate fund could partly ease the oversupply of high-end unsold apartments in Beirut. In October, real estate developers Namir Cortas and Massaad Fares launched Legacy One, a real estate fund that hopes to raise at least $325 million to buy up housing units in the $500,000-$2 million price range in Beirut.

These developments, coupled with the formation of a new government and the implementation of a housing policy, could mark the beginning of a return of investor confidence to Lebanon’s real estate sector. In the context of the t-junction faced by the Lebanese economy, meaning the economic model has hit a wall and must change direction, the real estate sector in 2019 could very well experience a decisive directional move, either remaining static or moving forward.

0 comments
0 FacebookTwitterPinterestEmail
Economic roadmapFirst draft

Economic roadmap

by Executive Staff
written by Executive Staff

The Lebanese economy is on the verge of a meltdown. In an effort to trigger change, Executive has drafted an Economic Roadmap that will allow nation builders and stakeholders to contribute their ideas and expectations.

By joining our movement to #executechange, you become an owner of the roadmap and will be part of the campaign to get our country back on track.

Follow this link to share your feedback, improvements, and suggestions to the roadmap with your suggested policy targets, main challenges, and measures to be taken to ensure a better future.

 

 

 

1 comment
0 FacebookTwitterPinterestEmail
CommentEntrepreneurship

Lebanon’s entrepreneurship ecosystem

by Nicolas Rouhanna
written by Nicolas Rouhanna

Lebanon’s entrepreneurship landscape has “leapfrogged” since August 2013, when Banque du Liban (BDL), Lebanon’s central bank, released Circular 331 that authorized Lebanese banks to invest in new startups in the knowledge economy. This policy has spurred the development of new growth capital funds and the entry of commercial banks into the equity market, unleashing (theoretically) more than half a billion dollars into the Lebanese economy. This sudden abundant supply obviously generated demand and buzz around startup creation, from entrepreneurs lining up with business ideas, to support platforms such as accelerators and business support organizations, and facilitators such as entrepreneurial networks and universities that promote entrepreneurship. Though some of these organizations and resources are at a nascent stage of development, the primary elements of a complete entrepreneurial ecosystem are present, as can be seen in the diagram below.

Many of the above building blocks also come from non-Circular 331 initiatives, contributing even more funds to the ecosystem. (Disclaimer: The diagram is a recent snapshot representing major funding and active support actors—some may have disappeared, and others may have appeared since this diagram was created in 2018).

A few striking observations can be made by reflecting on the below diagram.

First, all are private sector-driven initiatives, with a complete absence of government involvement so far—despite the latter being one of the main pillars in the MIT Regional Entrepreneurship Acceleration Program (REAP) framework. This framework describes the five main interconnected elements for an innovation ecosystem stakeholder model: entrepreneur, risk capital, corporates, universities, and government. Obviously, the role of the government in this context is, at a minimum, to provide basic infrastructure. This includes physical infrastructure like the internet, communications, and electricity, and other support such as an adequate legal framework and a conducive business environment.

Second, there is almost a 10-fold difference in the availability of startup funding in the later downstream stage versus the early upstream stage, where funding is needed more. For a startup to receive substantial funding in Lebanon, it is required to initially thrive on a shoestring budget, in order to reach the later-stage, “jackpot.” An entrepreneur once said: “I feel like I am on a lifeboat in the middle of the sea with no water to drink.”

Third, there is currently more of a landscape than an ecosystem, but the building blocks are being put together slowly but surely. However, an overarching strategy needs to be put in place so that new initiatives complement each other, rather than compete in the same space. One example of overcrowding might be the numerous similar seed accelerator programs that have emerged over the last couple of years—the likes of Speed@BDD, TheNucleus, Flat6Labs, BootCamp by AltCity, SmartEsa, and HultPrize. All of these entities accelerate the creation of startups typically over a three-month period before graduating them at a Demo Day ceremony. However, most of these graduating startups are not yet investor-ready after the three-month period and require further guidance and assistance to develop their project or business model. Thus, the majority of these startups unfortunately disappear, indicating that perhaps more investment is needed in developing post-accelerator programs to fill this funding and equity gap to maximize the chances of increasing “graduated” startups. Such a program would offer them the opportunity to receive subsequent seed funding, keeping them on some kind of “life-support” system.

In other mature ecosystems, downstream VCs, which usually have the big bucks, consider themselves as having a mandate to contribute to the ecosystem in ways that transcend simple monetary investments. For example, Real Ventures, based in Montreal, contributes to their ecosystem in ways that can benefit others as much as they benefit themselves. In addition to their funds under management, they also run the Orbit seed fund, the FounderFuel accelerator, the Notman House co-working space, the Element AI network, Front Row Ventures for students, among other initiatives. This collaborative mindset allows them to lay, or build upon, the foundations of rapidly growing tech hubs in Canada.

Similarly, SOSV is a multi-stage venture capital investor that runs multiple world-class vertical accelerator programs, and provides seed, venture, and growth stage follow-on investment to superstar companies. SOSV has operations based in the US, Europe, and China’s Shenzhen, and runs intensive flexible three-, six-, and eight-month programs. They provide startups with seed capital, a specialized global staff of engineers, designers, scientists to accelerate product development, mentors with deep market and technical expertise, and a state-of-the-art infrastructure of fully outfitted laboratories and maker spaces.

In Lebanon, IM Capital, part of the Berytech group, is a program funded under the USAID MENA Investment Initiative and has had a mandate since 2015 to facilitate access to early-stage funding. As such, it has provided matching capital and equity guarantees for investors and has also contributed in launching several new initiatives (including the Speed@BDD accelerator), managing and building the capacity of four business angel groups (Seeders & LWAF), and creating and running a mentorship platform based on the MIT Venture Mentor Service model (Confideo), and a coaching program based on Stanford Seed methodology—contributing to filling gaps in the developing Lebanese ecosystem. Imagine the ripple effect if the local “big” VCs start engaging in further ecosystem building blocks. They could create more thematic funds and scale-up programs, tap into the diaspora, structure maker spaces into hardware accelerators, and more.

Ecosystems take years to build. We Lebanese are known for our resilience, but our impatience as well. Some fear that Circular 331 money might dry up— fine, we will find other solutions. I am optimistic. We are all here because we decided to apply the famous quote by the late American President John F. Kennedy, perhaps inspired by our own Gibran Khalil Gibran: “Ask not what your country can do for you, ask what you can do for your country.”

2 comments
0 FacebookTwitterPinterestEmail
CommentEntrepreneurship

Lebanese startups in need of investments

by Sami Abou Saab
written by Sami Abou Saab

Historically, Lebanon’s economy has in large part depended on services, including tourism, F&B, financial services, education, and design. In addition, Lebanon has a strong agriculture sector that constitutes another pillar of the economy. Still, these services and resources are limited in scale due to the scarce availability of local resources, whether natural or human. As a result, Banque du Liban (BDL), Lebanon’s central bank—in an effort to foster the digital economy—initiated Circular 331 in 2013 to subsidize investments in startups in the knowledge economy, including the fashion industry. The purpose and goal of Circular 331 was not to become the sole way to invest in startups, but to provide a significant amount of money that could fuel an ecosystem with local presence, talent, and the potential to attain worldwide reach and scale.

However, the local infrastructure (legal, internet, taxation, etc.) was not ready and did not incentivize entrepreneurs to start their companies in Lebanon. Still, the prime minister’s office and the government began working on a list of reforms and updates (based on the government’s capabilities and areas of influence) in order to accommodate for this digital age, and to make sure that the money invested by BDL grew and created real long-term value.

Initially, Circular 331 was a bit more flexible than it is today, due to the fact that BDL rightfully trusted the banks with the money and the private sector to do the right job. With a major initiative like this, it is normal that multiple players arise, some of them doing great professional and ethical work, while others not so much. In addition, given that this is a nascent ecosystem, there is a major learning curve that players have to undergo. For instance, Lebanon does not have serial entrepreneurs yet, those who have made major exits and who could become angel investors in the ecosystem. The ecosystem lacks seasoned VCs who are used to take big risks, some of them are satisfied with small returns, and most have no experience working in investment management for startups, usually coming from more conservative investment backgrounds, such as banking or consulting. We also do not have market makers, in the form of industry focused funds with the right expertise on board to bring the right level of strategic support to startups. Even though we do have risk-takers and strong talent, most of the time they have been dissuaded from pursuing their ambitions by the risk-averse mindset in the country—which is based on multiple risk factors that have traumatized people over time and made them turn away from entrepreneurial adventures. That said, this is not unheard of in an emerging economy and in a nascent ecosystem, and I believe that the market has to embrace these conditions, adjust to them, and most importantly, hold the players accountable for their actions when bad practices do take place.

Ultimately, Lebanon in 2018 is creating a startup ecosystem that other countries created 20, 30, or 40 years ago. That means we have to correctly calibrate our expectations, our patience, and the time-frame in which we expect to see major results. To set some expectations: I believe that a positive outcome of Circular 331 would be a $100 million exit seven to 10 years from the issuance date of the circular. It is too early to judge the initiative’s success or failure right now, but some outcomes can already be seen. Circular 331 has managed to attract a lot of talent from the diaspora, create many jobs, and put Lebanon on the international map for startups and innovation. Here are some examples from my personal experience at Speed@BDD.

Accelerating success

I was recruited all the way from the US, where I used to work for Skype. The opportunity to run a startup accelerator in Lebanon, with all the impact such an organization could have, made me come back to Lebanon.

Speed@BDD has accelerated 34 startups over its two and a half years of operation, out of which eight startups were co-founded by a diaspora member and three were international entrepreneurs who looked to Lebanon to be the go-to hub to build their startup.

At Speed@BDD, these 34 accelerated startups created a total of 500 jobs.

Eight out of the 34 startups raised early stage follow-on funding totaling around $3 million in early stage funding, and six of these investments came from non-Circular 331 sources, meaning that angel investors and others got on board, deciding to take the risk with their personal money—a major positive outcome of the Circular 331 investment in Speed@BDD.

Two out of the 34 startups have exited already at a good return, something that is not typically expected until five to seven years after initially investing in a startup.

Speed@BDD startups have won multiple local and regional competitions: One major highlight was the Global Supernova Challenge at GITEX 2018, in which the winner was a Speed@BDD Cycle V startup called Spike. The Spike team won a $100,000 grant, against competition from more than 200 startups from all over the world including much more advanced ecosystems, such as the US, UK, Canada, and Germany, putting Lebanon on the international map in a very concrete and positive way.

Failure is part of the game

The above are just a few examples of the positive outcomes of Circular 331’s support for the startups ecosystem, and they are, of course, limited to my personal experience and to the scope of work we do at Speed@BDD. I can only imagine the positive impact of Circular 331 on the whole country and economy, given the multitude of players out there and the initiative’s support for these startups and entrepreneurs.

Nevertheless, some of the circular’s outcomes might not have been as positive as the ones listed above, and that—again—is normal. Failure is part of the game and should be embraced and encouraged, since it’s the only way to grow the talent pool and to evolve and learn fast. Given that the BDL initiative is leveraging taxpayers’ money (allocated through Circular 331 and the banks’ capital), I believe it’s only normal for the ecosystem, the players, and the regulator to adjust their approach. It’s important that the regulator keeps the initiative going as needed, but it has to be within the right framework and context. BDL should evaluate what has been done so far, as well as what could be done to make the ecosystem even better, and adjust anything that needs adjusting moving forward.

Most funds have now deployed a large percentage of their initial Circular 331 finances, and many of them are at the stage where they are looking to raise more money. It is about time for private money to become more seriously involved in this ecosystem, and with that comes stronger support, more natural incentives, and more accountability. When someone decides to invest their own money, they only do so if they fully believe that this money will get manifold returns, if they are sure they can provide strategic support to the entrepreneurs, and if they can foresee a liquid exit for their investment. These points, on their own, are clear incentives for a stronger drive and more forward-looking thinking. Such motivation will also induce the right kind of behavior—that is, responsibility and accountability.

Today, we are reaching a tipping point. It is the responsibility of everyone involved in the startup ecosystem to start thinking this way and eventually diminish their reliance on the BDL initiative and bring the right type of investments and money on board. The ecosystem has strong momentum, and this is the right time to take it to the next level. I strongly believe that 2019-2020 will be transition years for the whole ecosystem, and this will require that those involved shift their mindset from a complacent reliance on BDL to a more self-sustainable approach, based on private money being introduced more heavily, slowly whittling away at the dependence on the central bank. That, in my opinion, would constitute the ultimate success of Circular 331, and it would be the point where we could say that we built a whole new economy—an economy that extends beyond the local Lebanese and regional MENA markets, to the worldwide economy with Lebanon as its launchpad. We can all be proud of taking part in such a humongous endeavor.

0 comments
0 FacebookTwitterPinterestEmail
EntrepreneurshipMedia & tech

Can Lebanon construct a multi-channel digital future for serious journalism?

by Thomas Schellen
written by Thomas Schellen

The tech entrepreneurship landscape in Lebanon is slowly producing more colorful and fragrant blossoms —more prosaically known as startup ventures. Also, the country’s entrepreneurship ecosystem, after some years of incremental progress by trial and error, appears to be heading in a direction where it can deliver on two important asset categorizations and ecosystem requirements: generating more diversity overall; and fostering more concepts with potentials for producing good value-added in the context of the national economy today and its needed digital transition, such as Fintech, Blockchain and AI/Big Data-related startups.

But this is not how the presence and future look for all entrepreneurs who seek to innovate and create Lebanese startups from which the economy could greatly benefit. Specifically, many media startups are looking like ships that have no wind in their sails. Even worse, it seems that serious journalistic projects in this country are embattled by digitization-obstructing tornados in comparison to which the headwinds encountered by Fintech startups feel like a gentle summer breeze.

Banking and media

Stakeholders in the society and economy of Lebanon might feel it is counterintuitive to examine financial and media services in Lebanon today, because the banking industry is the domestic superhero and the media looks rather like Clark Kent after an injection of kryptonite. However, there are elements that the two can be said to have in common: First, both draw their existential energy from the trust that people have in them. Secondly, both were pioneers of quality services, thriving on freedoms and a knack for adaptive innovation that helped Lebanon to gradually develop its competitive edge over other Arab countries after the territories in the Levant emerged from the suzerainty of the Ottoman Empire at the end of World War I.   

On the other hand, important differences between Fintech and media outlooks in Lebanon are the current standing of the banking sector, which by its strength towers head and shoulders above every section of the economy, and publishing industry companies, from venerated newspaper houses in the throes of economic death to some new online ventures that fail to impress either in terms of economic performance or even their fundamental approaches to authenticity and content distribution.   

When thinking of banking and media in Lebanon dialectically and not just digitally, however, both have an opportunity to leverage their inherent potentials for generating trust and delivering genuine quality in the emerging Arab digital environment today, even as the digital development and entrepreneurship trajectories of Fintech startups and serious journalism projects have been very different over the years.

Media actually can be seen as one of the earliest industries that were existentially challenged by proto-digitization when newspaper publishers in developed economies were faced with strikes and labor action in the 1960s and 70s because printers, typographers, photo-engravers, and newsroom staff feared job losses from emerging technologies for anything from newsroom work to the layout and pre-print processing of pages. For the five decades since the heydays of mass media in the middle of the 20th century, media have been battling with various waves of digitization. Notably, while commercial organizations on the advertising side of the media industry were in the avant-garde of digital adoption and exists today on basis of having integrated Ad tech into all its processes, the journalistic media and serious news organizations to this day have yet to succeed in the full transition to business models that include digital pillars in every segment of the content acquisition, refining, customer distribution, and satisfaction journey.      

Developing quite differently, the digitization of finance, as opposed to the earlier computerization of banking from the 1970s, has peaked in a short new economy rush of digital disruption before subsiding again in the 2000s. Local bankers with extensive experience recall how the international banking industry used to talk excessively about their eagerness to try online-only instead of operating just as brick and mortar lenders. But they are equally vocal in pointing out how this eager wave ebbed totally and reversed into a race to solidity and traditional banking virtues on safe grounds of high streets and conventional banking districts. However, the development started progressing at accelerating speed after the world was shaken into new financial alertness by the Great Recession of 2008/9, and today it is simply the future of banking.

Bankers in Lebanon, while usually not appearing to be at the forefront of digital thinking, are not at all oblivious to the changes that the digital transition might impose on them in the next two, five, or ten years. But conventional wisdom in the sector is that the transition will not be as radical and fast as some evangelists of the digital banking future are preaching today, such as British consultant and blogger Chris Skinner who enthused in a recent book that banks with “zero technology vision” will have “zero future” and that only those banks that within the next 10 years can embrace micro-service architectures and open market, digitally focused structures will thrive.

“The predominance of digital banking in the future will happen,” comments BLOM chief economist Ali Bolbol before specifying: “But this is a very long-run process. In the short to medium term, the process will be determined by contingent demand and supply factors.” Such factors reflect digital agility and trust in the non-personal aspects of digital banking in a bank’s client base on the demand side, while the factors on the supply side comprise the respective legal environment and central bank’s aptitude to provide effective regulation of digital finance in a given market, along with the willingness, or resistance, of banks to adopt open technological platforms.

Given the regulatory and cultural bulwarks standing in their way in Lebanon, new Fintech startups in the Lebanese ecosystem, such as Rumman, Juno, and Anachron (see November 2018 issue for profiles) have by no means an easy road to success in front of them, but their markets and methodologies have clear potentials, and their challenges, such as winning approval from the central bank of Lebanon, are also quite precise. The budding Fintech acceptance in Lebanon is furthermore proven by the fact that business propositions of Fintech startups have been able to attract interest from accelerators in the ecosystem.     

On the media side, commercial organizations in Beirut—digital agencies and media planners for example—have been thriving in the local entrepreneurship ecosystem even before the Beirut Digital District came into existence. But to say that in search of serious new entrepreneurs the pickings in the Lebanese ecosystem are slim would be a charming overstatement. Of course, there are new media platforms with enticing slogans and exciting concept ideas, and the good part is that there are increasing numbers of digital startups as well as more digitally mature enterprises that have found access to funding. This is observable internationally, but not locally, or even regionally.

Media startups

For a few examples from 2018, the Tortoise Media “slow news” venture in the United Kingdom–motto: ‘slow down, wise up’–succeeded in attracting more than GBP 539,000 ($677,000) from over 2,500 funders on Kickstarter in a month-long campaign in October/November of 2018. Five-year old Dutch member-funded media concept The Correspondent–motto: ‘unbreaking news’—at time of this writing had reached over $2 million (from nearly 35,000 founding members) of a $2.5 million crowdfunding goal sought by the organization in order to branch out into the United States (the campaign was to terminate on December 14, after Executive went to print). And in the more mature startup sphere, 11-year old Danish-founded platform ISSUU, which relocated its headquarters to Palo Alto, California, claims continuing growth after two successful Series A and B funding rounds in 2007 and 2014 which resulted in over $20 million in total investments.

Compared to such magical media stories, the state of journalism startups in the Lebanese media landscape is hardly impressive. However, one hopeful example is Daraj, the investigative journalism venture by three seasoned Arab-language journalists with experience in print and television. Daraj was established in November 2017, and co-founder Diana Moukalled tells Executive that the platform, which currently claims to publish four to six authentic and independent journalistic stories per day, has seen quarter-on-quarter increases of its audience by double digit percentages.

Speaking to Executive in November 2018, Moukalled says the figures are 230,000 unique visitors per month and 350,000 page views. She explains that the platform has established itself as a partner in global investigative journalism with the International Consortium of Investigative Journalists (the ICIJ of Paradise Papers’ fame). Today Daraj has today–including the three founders–human capital of 11 staff members covering operational needs from accounting to graphic design and social media, plus freelancers based in 21 cities. This, according to Moukalled, translates into a network strength of 80 quality contributors who are published on Daraj with different levels of frequency. 

While the startup had initial funding in form of grants by pro-media and pro-democracy entities in Europe and also managed to channel profits into their venture from a documentary that the founders produced at the time of Daraj’s formation, the first year of operations has been a slower than expected process toward a profit-making venture while maintaining independent views and high journalistic quality standards.

“We created a hybrid model where we launched with funding money until we would reach a point where we are solid enough so that we can move to advertisement [revenue models] and try to generate money through either subscriptions or other resources,” Moukalled explains. The startup explored options of getting investments from venture capital firms in the Arab world, and even outside of the region, but is still forced to operate on a tight monthly budget on basis of funding that, unless new revenue sources are activated, will overall last a few more years.

Meanwhile, the three founders of Daraj juggle exhausting, overlong workdays amidst aggregations of risk from commercial pressures, the imperfect state of digital and cybersecurity infrastructures, the experience of being possible targets for personal slander and online trolls, autocratic governments in some Arab countries that could be offended by serious and honest investigative pieces on the platform, and weak legal protection for journalists in Lebanon.

Promote the positive

Still, Daraj keeps going out of the conviction that serious journalistic ventures in Arab countries cannot continue to denigrate themselves as mouthpieces in service of special interests and moneyed powers. In Moukalled’s words: “We think there is room to do good journalism and have a profitable media platform to preserve editorial independence. When starting Daraj, we thought it is now or never. It is our challenge not to repeat the journalistic mistakes of the past two and a half decades, namely to not become mouthpieces or practice white-washing journalism.”

For Samer Shoueiry, the chief digital officer of Publicis Communications MEA—a unit of Paris-based Groupe Publicis, the third largest communications conglomorate worldwide—it is painful to witness how some time-honored Lebanese media organizations had to close their newspapers and also painful to see how poorly local organizations are faring in the digital space, even as the Lebanese cultural and technological prowess could be favorable for digital communication ventures and quality journalism.

That this is not happening–most startups and platforms in digital journalism are on the level of “experiments” to Shoueiry—is to the detriment of this country. In Shoueiry’s view, a key problem in the reporting, production, and dissemination of journalistic content resides in news organizations’ focus on the negative—something that by impressions at the end of 2018 in coverage of Lebanon is even more pronounced in foreign than in locally produced content.

“Lebanon is at a point where we need to promote the positive. A large threat consists in the fact that the reputation of Lebanon and the Lebanese has shifted from a country and a people that are achievers with their skills and talents, to the image of a people and country that are failing and unable to change, year after year. If you want to create a successful story from a media standpoint that starts from Lebanon, you have to focus on making Lebanon look good in order to make the Lebanese story look good,” Shoueiry exclaims.

Roula Mikhael, executive director of the Lebanon-based NGO Maharat Foundation that is dedicated to press freedom and journalism development, likewise sees the situation of digital media startups and Lebanese media in general as worrying to the point of being shamefully poor. “From recent media studies that we did this year, it seems that there are not many media startups in Lebanon while the existing media outlets are not really rethinking their business models, which have resulted in a crisis of content due to the way in which these outlets were earning money,” she tells Executive on the sidelines of a conference on internet governance.

“In the past, Lebanese media was a leader in Arab journalism, but today we cannot talk about a leading role for Lebanese media. It seems that journalists often want to do something different but they don’t know how to run a media outlet or a news website. You need a new business model,” Mikhael adds. She says that Maharat Foundation in 2017 began offering a media management course for publishers and journalists, and that the foundation hopes to incubate a digital media startup in the coming year.

If they attempt to embark on to developing their digital future, journalists and publishers in Lebanon are confronted by many barriers–from old mindsets and their own bad habits to knowledge barriers and cybersecurity issues —Mikhael confirms, before emphasizing how the pitiful state of media regulation and protection of journalists’ legal standings exacerbates the problems of Lebanese journalism. “The law on the freedom of expression must be revised and we as Maharat Foundation drafted a [proposal for a media] law. It has been with the parliament for eight years,” Mikhael says. She explains that the draft calls for more transparency and protection of journalistic work along with unambiguous definitions for defamation, libel, and similar.

The future is digital

Indeed, one can hardly deny the impression that in Lebanon’s present media landscape, an overwhelming number of journalists are given bits of financial incentives to behave not as the fourth estate, or watchdogs and muckrakers vis-a-vis the ministries, but mainly as note takers, yes people, propagandists, and spin doctors for the member of the political class that they are affiliated to.

The way forward to better Lebanese digital media would quite certainly have a better foundation if a modern legislative infrastructure for journalism and numerous important freedoms can be implemented alongside construction of better financial and technical avenues that would enable tech startups in media and digital journalism ventures to play their important role as guardians of trustworthy information. Trustworthy analysis and information is something that is getting both ever more important in the context of the emerging digitized knowledge economy that is the future of societies worldwide and, at the same time, there are ever increasing waves of fake news and propaganda that can very negatively disrupt entire nations and their economies.

Today it is still a wild dream to see the formation of integrated digital journalism institutions that produce non-zero-sum outcomes across their four core content processing layers of sourcing: high-quality journalistic content; editing, fact-checking, and refining this content into a value-added product; distributing it via platforms that offer good win-win-win monetization for journalists, publishers, and distributors; and achieving true digital customer-centricity.

However, there is no point in sitting around in newsrooms, or cafes and pubs—which journalists all over the world are so fond of frequenting—and wait for a better digital media world. There are steps that media organizations can take, suggests Publicis’ Shoueiry, such as “democratizing the way in which people can subscribe,” by offering multiple options to people for acquisition of media content through SMS, apps, coupons, or even loyalty points from merchants or frequent flyer points from airlines (as demonstrated for example by the partnership between Emirates Airlines and the Wall Street Journal that ran from November 2016 to November 2018).

International content partnerships with emphasis on co-creation of quality stories, dedication to improve the deployment of artificial intelligence and data analytics to achieve top-notch customer centricity, and customization of media content offerings are, according to Shoueiry, other approaches that Lebanese media could pursue. “The power of newspapers and magazines lies in the fact that they have meaningful stories but in a very condensed manner,” he says, adding: “People who might buy a book on the Lebanese economy over the past decade, but do not want to read all of the book or who do not need all the content of this book, could be target customers for buying a custom publication of the exact content they are interested in buying and willing to pay for. You have to really rethink custom content delivery without interruption and give value for money to people who want this content.”

Whatever roads media organizations in Lebanon—startups as well as existing players in online, audiovisual, and print—could pursue on the basis of their strong cultural adaptability and communication skills, there is no doubt that much more digital entrepreneurship in the Arab world is needed for value-added, serious and investigative journalism, and the more Lebanese that enter the startup journalism arena with serious principles, the better. The common headline for the future of banking and journalism, along with everything else, is digital.

0 comments
0 FacebookTwitterPinterestEmail
CommentIndustry & Agriculture

All Lebanese must do their part to help revive the agricultural sector

by Ramy Boujawdeh
written by Ramy Boujawdeh

Agriculture in Lebanon needs a revolution, and we should all be part of it. The sector is facing major challenges: Land is less farmed, younger generations are increasingly uninterested in farming, and national support for the sector is limited mainly to international donors’ programs, with little coordination with the Ministry of Agriculture to develop a national strategy. We’ve all heard about the apple crisis, precipitated by the 2015 closure of the land trade route via Syria for product exports to the Gulf. In addition, issues related to poor traceability practices, irrigation challenges—given the country’s contaminated waterways—and inefficient practices in most small and medium farms are ravaging our environment. 

It takes a village to raise a child, and it takes a country to revive a sector. Agriculture is a national matter, and Lebanon can play a role in the food security of the region, given the microclimates it has, as well as its human capital and entrepreneurship mindset. As we see around the globe, agriculture is no longer half science-half art; it is half science and half engineering. Precision agriculture is what will take the sector to new heights.

Lebanon has the human capital to combine science with engineering to save and grow the agriculture sector. What we currently need, as an investment in research and development, is a group of engineers and computer scientists, agricultural engineers, scientists, and business professionals working together under a national strategy to revive the country’s faltering farming industry.

Urgent solutions are required for Lebanon to improve agriculture and feed its growing population. We need to apply sustainable practices, following the water, energy, and food (WEF) nexus; meaning that the three sectors—water security, energy security, and food security—are inextricably linked and that actions in one area more often than not have impacts in one or both of the others. Some of the most crucial reforms required are solutions to optimize the use of water in irrigation, to implement renewable energies to energize the sector, and to employ science to breed crops that are resistant to drought and disease.

Adapt to survive

Innovation in the sector is needed, whether it is implemented using science and technology, or through innovative business models. We also need to look at the entire value chain, from the supply of seeds, to farming, harvesting, and post-harvesting practices. Much of the innovation in developed countries is focused on large-scale farming practices. However, in Lebanon, it would be more feasible to adopt solutions found in many developing South Asian, African, and South American markets, where the challenges are similar to the Lebanese context, in terms of bottlenecks, fragmented value and supply chains, and low educational levels of farmers.

We also need to look at developing a national strategy for innovation in the sector. This plan would involve multidisciplinary academic faculties, researchers, and the private sector working with regional and Mediterranean partners to develop innovative ways to accelerate growth in the sector. Many programs already in place, including PRIMA, an initiative by the EU, partially fund such research initiatives. Agrytech, a program by Berytech funded partially by the Netherlands, is supporting the creation of startups in this field and the creation of an agri-food innovation cluster to strengthen and accelerate the sector.

In addition, Lebanon possesses many microclimates, and is therefore capable of producing different varieties of fruits and vegetables. This advantage should be fully utilized using innovative business models, which could identify specific produce that could be channeled into the export market, particularly during the off season. We have seen the high potential of this approach in avocado production as part of the LIVCD program funded by USAID, the potato export plan supported by the Netherlands, and the production of new varieties of table grapes and stone fruits supported by the EU. These opportunities should be complemented by helping producers adopt the best farming practices to ensure quality, high yield, and efficient production with proper traceability.

The agriculture sector and agri-food innovation in Lebanon have the potential to increase exports from Lebanon to the world. However, this will only be realized through a concerted effort bringing together academia and the public and private sectors. Agriculture is no longer a nostalgic connection to the country’s rural roots—it is an economic driver, an opportunity to innovate, and a crucial sector for the survival and sustainability of future generations.

Let us all take part in this agri-food revolution.

1 comment
0 FacebookTwitterPinterestEmail
CommentIndustry & Agriculture

The UNIDO view on Lebanon’s industrial sector

by Cristiano Pasini
written by Cristiano Pasini

History shows that roughly all developed countries, which currently benefit from a high standard of living, have gone through a period of successful industrialization—during which the industrial sector, benefiting from high levels of technological advancement and innovation, was the driving force behind national economic growth.

A close look at Lebanon’s development pattern tells a different story. Local and regional circumstances have favored the services sector at the expense of the productive sectors of the economy. As a result, Lebanon has not fully benefited from the economic development that industrialization can offer. In the last decades, the contribution of the industrial sector to the national GDP was low compared to industrialized countries in East Asia and the Pacific. Based on statistics by the United Nations Industrial Development Organization (UNIDO), the contribution of the industrial sector to the country’s GDP now stands at 8.3 percent.

Weak investment and growth in productive sectors can also contribute to poor job creation, a volatile GDP, and low levels of competitiveness internationally. This view is supported by the World Bank’s Lebanon Economic Monitor published this year, which partly attributed Lebanon’s “defective” growth model to the high reliance on services (real estate, construction, finance, and tourism) characterized by low productivity and a low capacity to generate high-skilled jobs.

UNIDO has been working in Lebanon since 1989, with a strong belief that a healthy and successful industrial sector has the potential to create jobs for men, women, and youth in different areas across Lebanon. A strong industrial sector promotes exports, reduces the trade deficit, and improves economic resilience against shocks and stresses. The industrial sector also supports development outside greater Beirut, thus promoting the sustainable and inclusive economic growth that Lebanon urgently needs.

Industrial zones

UNIDO signed a Country Programme Framework with Lebanese government in 2015. In alignment with the Ministry of Industry’s MoI 2025 vision for the industrial sector, UNIDO’s framework covers the following areas: supporting the development of Industrial parks, improving the competi­tiveness of small- and medium-sized enterprises (SMEs) in the agro-industrial sector, promoting environmental sustainability and energy effi­ciency, and supporting host communities in rural areas affected by the Syrian refugee crisis.

Working in close partnership with the MoI and the international community, many achievements have been realized. Thanks to a grant contribution from Italy, feasibility studies and master plans have been developed for three new sustainable industrial areas. These zones are featured in the government’s Capital Investment Plan and are expected to create approximately 31,000 jobs and impact 200 enterprises across Lebanon. Thus far the zones have attracted financial commitments of 7 million euros ($7.9 million) from the Italian government and 52 million euros ($59.3 million) from the European Investment Bank (EIB) for their construction and development. The European Bank for Reconstruction and Development (EBRD) is also considering a loan of 42 million euros ($47.9 million) for investments in the development of these zones.

Moreover, thanks to the support of Italy, Austria, and Japan, UNIDO is promoting innovation in key value chains in the agro-food and the furniture sectors. Approximately 2,000 people were trained and new equipment or other technical support was supplied to more than 15 cooperatives (900 members), 10 agriculture associations, 80 SMEs, and handicraft initiatives.

Supporting green growth

An important component of UNIDO’s work is environmental sustainability. Through the regional MEDTEST project funded by the European Union and implemented together with the Industrial Research Institute, UNIDO has been working on greening Lebanese industries by supporting them in identifying potential energy savings and providing training to industrialists on cleaner production practices.

UNIDO continues to support the MoI in overcoming challenges that are hindering growth in the industrial sector in Lebanon. Weak infrastructure and the high cost of production make industries less competitive compared to their regional counterparts. High interest rates—resulting  from the monetary policy adopted by Banque du Liban (BDL), Lebanon’s central bank to sustain the fixed exchange rate—has impacted private sector investment. This limits growth in both traditional and emerging industrial sectors. Moreover, the Syrian crisis had an important impact on the industrial sector, mainly through the closure of regional export markets and the added pressures resulting from the increase in the labor force.

Despite the above-mentioned challenges, Lebanon’s industrial sector holds promising prospects. The level of manufacturing value added per capita has more than doubled between 1990 and 2015. By moving from $268 to $703 over this period—in constant US dollars per capita—Lebanon surpassed comparator countries such as Jordan and Georgia. Also since 1990, Lebanon’s ranking on the competitive industrial performance (CIP) index has mildly improved from ranking 97 (out of 148 countries) to 90. A promising indicator is also the share of sophisticated manufactured products (medium and medium-high technology, as per UNIDO definition) in total manufactured exports, which in Lebanon is 40 percent—indicating promising technological capabilities in the sector.

The outcomes of CEDRE—especially the preparation of the government’s plan for supporting the growth of productive sectors—suggest an increasing recognition that achieving inclusive and sustainable long-term economic growth is contingent upon supporting productive sectors. UNIDO welcomes these efforts in the hope that they materialize in policies and investments that will allow the industrial sector to achieve its potential and positively contribute to the long-term growth of the Lebanese economy.

Through its mandate and with the generous support of the donor community, UNIDO will continue playing its part in supporting inclusive and sustainable industrial development in Lebanon.  This is underpinned by joint working and building partnerships with public and private sector partners, in order to ensure the successful implementation of projects and programs, and to positively contribute to the achievement of the UN’s Sustainable Development Goals.

0 comments
0 FacebookTwitterPinterestEmail