Entrepreneurship

Why successful entrepreneurs give back

by Endeavor
written by Endeavor

As the technological entrepreneurial ecosystem in Lebanon continues to grow with the support of the public and private institutions, non-governmental organizations (NGOs) and the central bank of Lebanon’s Circular 331, a significant driving force comes from the entrepreneurs themselves who, beyond scaling their own businesses, commit to supporting the next generation of entrepreneurs.

When founders of companies begin to invest in other businesses, an ecosystem is born. A crucial support system in entrepreneurial ecosystems often overlooked is the network of entrepreneurs supporting each other through mentorship, investment and inspiration. A firm believer and catalyzer of this system is Endeavor, an international non-for-profit organization. Endeavor has been building a culture that encourages successful entrepreneurs to reinvest in their local networks in order to multiply the impact of entrepreneurs and foster a spirit of contribution to the local economy. Endeavor is committed to supporting high-impact entrepreneurs who can scale up, are innovative and showcase the drive to mentor and invest in earlier-stage startups and the future generation of entrepreneurs. There is a firm belief that successful founders can channel their knowledge across the entrepreneurial ecosystem to ultimately grow economies.

“There is a sense of purpose that is shared by successful entrepreneurs revolving around giving back, supporting and paying it forward to the communities in which they live and operate,” explains Christina Chehade, Managing Director of Endeavor Lebanon. “In Lebanon, we have been identifying high-impact entrepreneurs and equipping them with skills to scale up, stimulate and give-back to the entrepreneurial ecosystem, having a direct impact on economic prosperity” she adds.

This tangible impact of giving back and knowledge sharing is demonstrated on the Multiplier Map, a result of a yearlong study conducted in 2017 by Endeavor Lebanon, in collaboration with Endeavor Insight and the World Bank. The Multiplier Map, being the first of its kind, seeks to gauge the contribution and impact of local tech founders and their companies. The study sought to map the tech ecosystem literally; with each time a founder is cited as an influencer their circle grows—whether through inspiration, employment ties, mentoring or investing.

Data from 85 Lebanese tech entrepreneurs was gathered (out of 120 surveyed), and their companies landed on the Multiplier Map showing connections with other companies. Within the ecosystem, connections and links were drawn based on who inspired them to become entrepreneurs, where they were employed before becoming entrepreneurs, who invested in their companies and who mentored them as they built their businesses. As responses were analyzed, patterns indicated that when founders of companies support each other, a remarkable impact on the ecosystem flourishes.

An example is the growing circle of influence of Diwanee founder and Endeavor entrepreneur Hervé Cuviliez. After establishing and scaling up Diwanee, Cuviliez co-founded Leap Ventures, a tech-focused entrepreneur-led venture capital firm, which streamlined his give-back to the entrepreneurial ecosystem.

“What lies at the core of the entrepreneurship spirit is the valuable support that passes from entrepreneur to entrepreneur in the shape of investment and mentorship,” says Cuviliez. “Who better to inspire an entrepreneur than a peer with common challenges and advice for best practices to scale up and overcome shared challenges,” he adds.

Endeavor Lebanon found that when successful entrepreneurs give back to the ecosystem, their impact multiplies. Ninety-percent of Endeavor Lebanon Entrepreneurs are active promoters of high-impact entrepreneurship. They go on to serve as angel investors or venture capitalists with $33 million invested and countless hours of mentorship donated since 2011. Additionally, Endeavor Insight research shows that Endeavor entrepreneurs are four times more likely to inspire others, eight times more likely to serve as a mentor and four times more likely to invest.

Chehade concludes: “If we help bridge the gap between entrepreneurs and allow them to exchange best practices, the entire economy will reap the benefits—where more jobs will be created, stimulating the economy and supporting dynamic minds to achieve more.”  

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Economics & PolicyOil and gas

Don’t get caught up in the hype

by Mona Sukkarieh
written by Mona Sukkarieh

It is tempting for resource-poor countries to overestimate the promise of newly discovered hydrocarbon resources, particularly in times of need. Cyprus’ experience after the discovery of the Aphrodite gas field in late 2011 is revealing. Back then, during a time of economic crisis, many placed unrealistic expectations on this potential offshore wealth, hoping  it would save the country from financial collapse. The Cypriots also exaggerated the geopolitical stakes involved, which led them to the wrong conclusions. The Cypriot experience illustrates a series of missteps that we are all too familiar with here in Lebanon, and offers precious lessons as the country embarks on oil and gas exploration.

In 2013, Cyprus’ finances were in disarray. In March, Michalis Sarris, the Cypriot finance minister, flew to Moscow in a last-ditch attempt to seal a deal that would secure Russia a stake in Cyprus’ offshore gas resources in return for financial support to spare the country the need to seek a bailout—the dreaded word that evokes the painful Greek experience and comes with harsh conditions attached.

Hopes were high. Just over a year earlier, the country detected significant gas resources offshore, with expectations of more to come. This new resource wealth, it was thought, would turn Cyprus into a gas exporter and provide Europe with a much-needed source of energy that would ease its reliance on Russian exports. A boon for Europe. And certainly, a boon for Russia, if it were to secure a share in these resources to offset Europe’s move away from Russian gas. The geopolitical stakes were high, and all the big players were competing to get a share.

So the prevailing wisdom claimed at the time. But Russia could not be tempted. “Their proposals were to set up a state company with the transfer of assets of gas fields and to offer Russian investors the chance to join and purchase bonds that will be changed over into shares later. Our investors looked into that and did not show interest,” Anton Siluanov, the Russian finance minister, was quoted as saying at the time.

The delegation flew home empty-handed. Days later, a 10 billion euro international bailout was announced, imposing capital controls and the restructuring of two local banks, with substantial losses to bondholders and depositors.

Sober judgements

If the scenario makes you feel uncomfortable as you look at Lebanon’s finances, it should. That was Cyprus in March 2013. The outlook for Lebanon today is equally grim.

Misplaced expectations and a distorted reading of the situation are sure to skew conclusions. Cyprus was tempted to misinterpret the facts. Officials hoped, until the last minute, that Russia would provide help because it was supposedly in their interest to spare Cyprus a bailout program that would also threaten Russian citizens’ bank accounts in Cyprus—Russian nationals were estimated to hold around 30 percent of the 68 billion euros deposited in Cypriot banks at the time.

Cyprus failed to pick up on Russian reservations. A source at the Russian finance ministry, speaking to the RIA Novosty news agency in March 2013, said that the Cypriot delegation’s energy proposals in Moscow failed to generate interest from Russian companies. “They invited us to take part in a tender for fields in which the seismic survey work has not been completed,” he said.

It is common for resource-poor countries to get caught up in the hype following the discovery or anticipated discovery of hydrocarbon resources. But a good tip is to assume that international interlocutors, whether big producers or financial institutions, have the necessary experience to put things in perspective where your enthusiasm might be affecting your judgement.

Lebanese authorities have so far struggled to manage expectations. The trend started in 2013, just before the launch of the first oil and gas offshore licensing round, with a massive billboard campaign by the Ministry of Energy and Water telling citizens that Lebanon now has an oil wealth that can be used to develop transportation networks, support the armed forces, and finance the healthcare and education sectors. It continued with officials giving unrealistic estimates of the size of hydrocarbon resources, with one minister even claiming in front of Lebanese University students that “we have more gas than Qatar.” You would expect financial institutions to be more pragmatic, yet Lebanese banks have, one after the other, released oil and gas reports filled with inaccurate data that grossly overestimates the value of an oil and gas wealth that has not yet been discovered. The trend continued with the awarding of exploration and production agreements to a consortium made up of France’s Total, Italy’s Eni, and Russia’s Novatek. It was an occasion to launch a new slogan: “Lebanon is a petroleum country,” repeated by almost everybody, from the prime minister, the cabinet, and MPs, to stories splashed across Lebanese media. Even landowners are now advertising their assets by pointing to the promises of oil and gas, promoting certain lands expected to “overlook future petroleum activity.” It is as if the entire country has joined in a collective frenzy.

No quick fixes

With a public debt of around $80 billion, a total cash deficit of $3.7 billion in 2017, a stagnant economy, and rising youth unemployment and poverty rates, it is no surprise that Lebanese citizens and the political class are looking for a silver bullet. With few real economic prospects on the horizon, authorities are banking on two opportunities to retain confidence and keep hope alive: offshore oil and gas exploration and postwar reconstruction in Syria. But these are both entirely out of the government’s control. When the Syrian war will end is anybody’s guess. The time it will take until Lebanon’s first commercial discovery is similarly indeterminable.   If our stars happen to align, these are, at best, medium-term prospects.

In addition, the presence of over a million Syrian refugees is seen by the political class as a guarantee that outside actors will not permit the country’s collapse. After all, it would not be in their interest to transform the millions of Lebanese and non-Lebanese residing in Lebanon into potential refugees banging on Europe’s doors. Europe cannot afford that, the reasoning goes, echoing the belief in 2013 that Russia would save Cyprus to preserve its own interests in the country. This is exactly how Lebanon  interprets the international mobilization that resulted in the organization of three conferences this year: Rome II to support the armed forces, CEDRE to support the economy, and Brussels II to help Lebanon manage the impact of the Syrian refugee crisis on the country. On these occasions, Lebanese discourse directed at our international partners has been much more measured. Concerning oil and gas, the government’s Vision for Stabilization, Growth, and Employment, and its Capital Investment Plan, prepared ahead of the CEDRE conference, stayed clear from brandishing the kind of opportunities that cannot materialize in a reasonable period of time.

It is not unusual to resort to a double discourse, one addressing international partners, and another for local consumption. But we are not doing citizens any favors by inflating their expectations. Nor are we doing our country any good by presenting potential offshore resources as a panacea for Lebanon’s economic woes or ruling out a possible collapse simply because it would supposedly not be in the interest of outside actors. Be realistic when assessing your strong points. Do not invoke shaky arguments to rule out risks, prepare for them. And above anything else, keep expectations in line with reality.

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Economics & PolicyElectoral law

The illusion of change

by Zeina Ammar
written by Zeina Ammar

Lebanon is set to elect 128 Members of Parliament (MPs) on May 6, based on a long-awaited proportional system. Proportionality, in theory, ensures better representation of the population by allocating for each list a number of seats that is proportional to the number of votes it received. This is a clear step up from the majoritarian rule whereby all seats within an electoral district are allocated to the list with a simple majority of votes, which can leave more than half of voters unrepresented. However, the picture is not as straightforward in Lebanon, where the representativeness is called into question by several factors inherent to the law itself.

An elimination threshold

Elimination thresholds are not uncommon in elections around the world. Unlike here, however, they are usually set at a low and fixed percentage. The Lebanese law introduces a district-specific threshold (the total number of valid votes in a district divided by the number of seats in the same district) that determines whether lists qualify in the electoral count. Any list with a number of votes lower than the threshold is eliminated from the race and the votes it received are discarded. The allocation of seats then happens based on a second calculation similar to the first threshold but with a new total number of votes after subtracting the votes of the eliminated list(s). Dividing by a smaller total raises the overall proportion of votes for the lists that were not eliminated. This two-step calculation is not a technical necessity. It is designed to raise the required number of votes necessary to secure one seat on the one hand, and inflate the proportion allocated to the qualifying lists on the other.

Electoral districts, large and small

One of the hailed changes brought about by the new law is the enlarging of the electoral districts by reducing their total number from 26 to 15. Generally speaking, larger districts equal fairer representation and fewer disenfranchised voters and this indeed is a step forward. Yet the new law offers a peculiarity in this regard: some of the 15 large districts are divided into two, three, or four smaller districts and voters can only cast a preferential vote for a candidate running in their sub-district. This greatly limits voter choice and their ability to influence the ranking of candidates within their chosen list.

Sectarian variable

True to the terms of the Taif Accord, the new electoral law allocates a set number of seats per religious sect. This is meant to ensure fair representation of all 18 religious communities in the country. However, the number of seats allocated per sect does not correspond to the current demography. Setting aside this flawed premise of fair sectarian representation, the sectarian variable greatly reduces representativeness of voters’ will. It effectively means that the candidates who make it to Parliament are not the candidates who received the most votes within a given district but the candidates who received the most votes within their sect, within their district.

A unique take on preferential votes

While preferential votes are usually used to determine the order of candidates within a list, this law uses them to determine the order of the candidates across all the winning lists. In order to determine which candidates will fill the seats secured by each list, the candidates of all the winning lists are ranked in one combined list according to their overall percentage of preferential votes by sub-district. This gives priority to major parties in filling the allocated seats and to preferential vote-getters in districts or sub-districts with lower overall vote totals. The fairer alternative would be to rank candidates based on preferential votes within each list, order the lists from right to left based on popularity, and proceed in filling the seats by going through the lists horizontally, taking one candidate per list every time.

Coupled with the sectarian variable, this translates into major parties securing the seats of the major sects of each district, leaving only minority seats to be potentially taken up by minor lists. This arrangement ensures that there is no threat to the major zu’ama’s claim to parliamentary seats in their home district.

While the new law allows for a greater possibility that minor coalitions will gain representation, the shift in that direction is marginal. All in all, it would take years of political organizing for any new players to effectively work around it and be represented.

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Economics & PolicyFiscal policy

Mapping the money

by Jeremy Arbid
written by Jeremy Arbid

At the end of March, Lebanon passed the 2018 state budget, the second budget passed in a six-month period after almost 12 years wihout any budget at all.

The 2018 state budget features a 0.06 percent decrease in total spending compared against the 2017 state budget, with current expenditures declining 4 percent and capital expenditures reduced by 12.6 percent.

For fiscal year 2018, the state’s total spending allocations declined about $9 million from 2017’s budget to around $15.8 billion (LL23.9 trillion).

In 2018 almost 46 percent of public spending—$7.3 billion (LL11 trillion)—will go toward common expenses, such as paying for interest on public debt, salaries and pension payments, and to subsidize the failing electricity utility Electricité du Liban (although the government claims this subsidy was not written into the 2018 budget). The budget’s common expenses declined about 4 percent when compared to 2017 allocations.

The Ministry of National Defense, responsible for the finances of the Lebanese Armed Forces, will receive about $2.1 billion (LL3.2 trillion) in allocations, a near 14 percent increase over its 2017 allocation. The Ministry of Education and Higher Education, overseeing the budgets of Lebanon’s public schools and public university system, will be allocated almost $1.4 billion (LL2.1 trillion), an increase of 22 percent over 2017. This year, the Ministry of Interior and Municipalities, responsible for domestic security forces, Lebanon’s prison system, and for organizing parliamentary elections, will receive $1.1 billion (LL1.6 trillion), an allocation increase of 10 percent. Allocations to the Presidency of the Council of Ministers—responsible for such agencies as the Court of Accounts, the Council for Reconstruction and Development, the Central Administration of Statistics, funds such as the council of the south and the higher relief council, as well as the recently reactivated Economic and Social Council—declined by just over 1 percent to about $1 billion (LL1.5 trillion). The next largest spending priority was health, with the Ministry of Public Health at $483 million (LL729 billion), an allocation increase of 3 percent. The Ministry of Finance will be allocated $482 million (LL727 billion), a 15 percent increase over its 2017 allocation.

[media-credit name=”Ahmad Barclay & Jeremy Arbid” align=”alignright” width=”590″][/media-credit]

[media-credit name=”Ahmad Barclay & Jeremy Arbid” align=”alignright” width=”590″][/media-credit]

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Economics & PolicyFiscal policy

Budgeting for the future

by Jeremy Arbid
written by Jeremy Arbid

Lebanon passed its second state budget in less than six months at the end of March, after being without one for almost 12 years. The 2018 state budget was hastily pushed through cabinet and Parliament ahead of early April’s CEDRE infrastructure investment conference in Paris, and it mandated spending cuts meant to please international donors. The government’s concluding statement at CEDRE promised to reduce Lebanon’s deficit by 5 percentage points of GDP over five years. The cuts to spending may be an indication that local politicians want to do something about the deficit, but not much can actually be done to lower state spending without solving some of Lebanon’s more pressing structural fiscal problems, or by increasing revenues to the state treasury.

At the time of writing, Article 49 of the 2018 budget law was suspended by the Constitutional Council, following an appeal of several articles of the law by the Kataeb Party, the council is expected to appoint a rapporteur to produce a report on the appeal after which the council will issue its final decision. Before the challenge, Executive had received the budget’s high-level spending allocations from the Ministry of Finance, which outlines an overall reduction of about $9 million to $15.85 billion (LL23.89 trillion), a reduction of 0.06 percent from the previous fiscal year. In 2017, total allocations reached $15.86 billion (LL23.91 trillion).

Budget reductions included a 4 percent cut in current spending allocations from $15 billion (LL22.65 trillion) to $14.4 billion (LL21.72 trillion), while capital expenditure allocations were reduced by 12.6 percent from $1.6 billion (LL2.48 trillion) to $1.4 billion (LL2.17 trillion). Increases to the budgets of the Ministry of National Defense (14 percent), Ministry of Education and Higher Education (22 percent), and the Ministry of Interior and Municipalities (10 percent) offset much of the savings.

The numbers that Executive received from the Ministry of Finance, however, are too high-level to discern where exactly the cuts occur (see budget expenditure infographic). According to Mounir Rached, public financial management advisor at the Ministry of Finance, the reductions, in general, include material spending cuts across state institutions, such as stationary and utility bills, and a reduction of allocations to capital expenditures, such as roadwork maintenance around the country. Overall cuts to current spending are probably not significant, Rached says.

Ironically, capital expenditures in the 2018 budget were reduced. At the beginning of April, Lebanese officials had pitched an infrastructure investment plan to donors and multilaterals (see post-CEDRE story). The plan would raise debt to implement the projects, and pledges totaled around $11 billion, mostly in the form of concessional financing. Rached indicates the reduction of capital investment spending in the 2018 budget was cosmetic as most years allocations are not usually fully disbursed. From 2010 through 2016 total capital investment spending averaged just less than $600 million annually, according to the Ministry of Finance’s Public Finance Monitor (PFM) issued at the end of 2016.

Can these reductions impact the deficit? About 46 percent of 2018 allocations—$7.3 billion (LL11 trillion)—will go toward common expenses, such as paying interest on public debt, and salaries and pension payments.The budget’s common expenses declined roughly 4 percent when compared to 2017 allocations, while the government claims that subsidies to the failing public utility Electricité du Liban (EDL) were not written into the 2018 budget.

In 2016, the last full year figures were published in the PMF, public spending reached nearly $14.9 billion (LL22.4 trillion) in spending. According to fiscal sheets also published by the Ministry of Finance last year Lebanon had a primary surplus of nearly $1.5 billion (LL2.2 trillion), however due to debt obligations the bottom line was a total cash deficit of $3.7 billion (LL5.6 trillion).

Target the waste

The efficiency of public spending and revenue collection is not well documented. No audit of public finances has been conducted since 2003. Because no audit was conducted before the passage of both the 2017 and 2018 state budgets, public finance rules and articles of the constitution may have been violated. A clause in the 2017 budget law provided a sort of workaround, postponing an audit for a period of up to 12 months. Because the budget law was not available at end of April, it is unclear whether this 12-month period was extended or whether an audit will be conducted before the end of this year. It is also unclear what time period such an audit might cover, for example dating back until the last audit or further, or only covering last year’s spending.

There are areas where wasteful public spending can be targeted for reduction. Rached advises a deficit reduction and a balanced budget be implemented as soon as possible, which he projects can be completed in less than five years. How? First, by limiting subsidies to EDL. Depending on fuel oil prices, the treasury subsidizes EDL to the tune of around $1.4 billion each year, or 2.5 percent of Lebanon’s GDP. This drain on the state treasury can be lowered significantly by filling much of the gap in unsupplied electricity. The government’s plan in the near term is to fill that gap by renting electricity barges, but the tender has been on hold for nearly a year. Once the electricity gap has been closed, EDL could raise the electricity subscription rates at which it charges its customers. The International Monetary Fund also recommends a return to gasoline excise tax levels of pre-2012, which would mean higher prices at the pump for motorists. Between electricity and gasoline these would be two major changes.

Jean Tawile, economic advisor to MP Samy Gemayel, says the path to lowering the deficit is to increase revenues by curbing tax and customs evasion. He points to a 2017 Bank Audi study that calculated tax evasion and other types of fraud at $4.2 billion annually, and figures customs revenue evasion at between $800 million to $1 billion per year. Added together, he says the state is missing out on revenues of about $5 billion every year. Tawile also says that  capturing these lost revenues would improve the business environment and make markets more competitive. But he argues that amnesty proposals for evaders would reward bad behavior at the expense of those that comply, adding that an amnesty would not be constitutional, and that it has already been tried twice since the end of the civil war, in 1999 and 2001.

Rached says if the state can achieve a deficit reduction of one percentage point of GDP per year, while implementing the Capital Investment Plan (CIP) presented at CEDRE, the deficit would remain high at 9 percent of GDP. A larger deficit, he says, implies Lebanon’s sovereign credit rating may go down, which would imply a hike to interest rates. A high deficit coupled with high debt and high interest rates indicates low growth rates for the economy because of the size of interest payments on state debt and the high cost of credit to private businesses and consumers.

While the numbers are not yet publicly available, the International Monetary Fund projects Lebanon’s public debt to reach 180 percent of GDP by 2023 if the CIP is implemented and no fiscal adjustments are made.

All in all the 2018 budget did succeed in slightly lowering total allocations but the Lebanese state has a poor record of sticking to its spending promises. Between 2005 and 2017 Parliament did not authorize the government to spend or collect money in the form of a state budget. Though it could continue spending at 2005 budget levels, due to inflation and changing needs that amount quickly became chump change. To keep the government open, the state treasury advanced more than $22 billion (LL33.4 trillion) over 472 treasury advance decrees examined by Executive from that 12 year period.

It seems obvious then that Lebanon will need to radically change how it manages public money or else risk CEDRE becoming known as the fourth failed Paris-orchestrated rescue plan.

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CEDREEconomics & Policy

Signed in pencil

by Jeremy Arbid
written by Jeremy Arbid

Officials went to Paris in early April to pitch an infrastructure investment plan for Lebanon to the international community at the CEDRE conference. The pitch was generally well received by donor countries and multilateral institutions, who pledged $11.3 billion in low-interest loans for infrastructure projects on the condition that Lebanon check reform boxes on the loan application.

The Capital Investment Plan (CIP) is a multiyear investment strategy aimed at rehabilitating Lebanon’s dilapidated infrastructure. The CIP is valued at $17 billion over the next seven years and includes some 250 projects—in water, wastewater, solid waste, transport, electricity, telecommunications, and infrastructure for tourism and industry.

A statement from the International Monetary Fund at CEDRE said CIP would raise $1.6 billion annually over the next decade, mostly from the loans provided by the international community. More money—about $5 billion according to the CIP—could come in the form of private financing via public-private partnerships. The CIP also says the Lebanese state would contribute about $2.3 billion over the next seven years, despite a reduction of 12.6 percent in capital expenditures in the 2018 budget (see budget story and infographic).

A joint concluding statement by Lebanon and France at the conference said that donors and multilaterals had promised $10.2 billion in loans and $860 million in grants. The prime minister’s office did not respond to a request for a list of the pledges made at CEDRE, and a spokesperson told Executive in mid-April that the office had not received the official terms and conditions attached to the pledges. At a news conference on April 11, Prime Minister Saad Hariri said: “Most of these loans are very soft loans with interest of 1.5 percent maximum, with a grace period of seven to 10 years, and a maturity period that exceeds 25 years.”

Total pledge figures compiled by Executive from media reports and available donor statements were a little different from what the government stated. The CIP projections were drawn from reading a version of the plan published on the website of the Presidency of the Council of Ministers.

International commitments

The loan money pledged—the $11.3 billion—could be unlocked if the Lebanese state follows through on reforms including a reduction of the deficit by five percentage points of GDP over five years, primarily by improving tax collection and reducing government subsidies to the failing public utility, Electricité du Liban. Another $384 million was promised by donor countries as grants.

Multilateral agencies together pledged Lebanon loans that could be worth up to $8.3 billion, while donor countries promised another $3 billion.

The World Bank Group offered the largest loan at $4 billion over five years, according to a statement made at the conference. The International Bank for Reconstruction and Development said it would provide $500 million per year over the same period, with a similar amount for the same duration coming jointly from the International Finance Corporation and Multilateral Investment Guarantee Agency. The statement promised to raise another $200 million per year in loans to support Lebanon’s host communities and refugees.

The European Bank for Reconstruction and Development (EBRD) promised the next largest loan valued at almost $1.4 billion, while the European Investment Bank (EIB) pledged around $1 billion. EBRD gave no statement describing the contents of its loan while EIB’s statement did not detail conditions or disbursement.

The Islamic Development Bank promised $750 million in loans; the Kuwait Fund for Arab Economic Development, up to $500 million; and the Arab Fund for Economic and Social Development, also up to $500 million, though Al Akhbar newspaper reported that this loan could increase to $1 billion. None of the funds published statements.

As for donor countries, Saudi Arabia said it would reinstate a $1 billion credit line that Reuters reported in 2014 was intended to support the Lebanese Armed Forces. At CEDRE, several countries promised loans, including Qatar ($500 million), France ($492 million), the Netherlands ($369 million), Turkey ($200 million), as well as the European Union ($185 million). In addition to the loans pledged, France said it would give Lebanon $185 million. The United States and the United Kingdom offered no loans but promised $115 million and $85 million in grants, respectively.

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LeadersOpinion

Behind the talk

by Executive Editors
written by Executive Editors

April was a milestone month, not one of celebration but of remembrance. Forty-three years ago last month is considered the start of the country’s civil war that drove many Lebanese to emigrate, displaced others, and killed many more, in addition to the 17,000 who cannot be accounted for. Beside the human toll, the civil war destroyed the country and ruined the economy. From our point of view, and it is not an uncommon one, Lebanon has still not recovered nearly three decades after militia leaders agreed to end the fighting and share the spoils of peace among themselves.

Lebanon’s situation is dire as the economy is nearing a breaking point. The prospects for the next few years, which have recently been put by the World Bank at 2 percent real annual growth, cannot alleviate the fears of the Lebanese people. As the World Bank’s MENA Economic Monitor indicates, our country’s prospects for real GDP growth, and the fiscal and current account balances in 2019 and 2020 are the worst in the entire Middle East and North Africa region, resulting in an assessment that puts Lebanon in an “unsustainable” situation.

The Lebanese people do not need to be told by international experts that their country is in trouble.  Over the past six or seven years, they have had dismal experiences on all economic fronts. The people know that the Syrian refugee crisis has brought with it worsening of living conditions for both refugees and host communities. It would thus be surprising if anyone in Beirut—economist, business leader, civil society activist, or private citizen—were to disagree with what Prime Minister Saad Hariri had to say at the Brussels II refugee donor conference on April 25. He lamented that if one asks if host communities, displaced Syrian people, and Lebanon overall are better off today when compared with one year ago, the “answer is simply no.”

The gathering storm

These two Lebanese experiences, of a gathering economic storm and a continuous inability to solve the refugee crisis, put into context what happened in April in Rome, Paris, and Brussels, as far as financial pledges and official rhetoric. Brussels, the last event in this lineup, was—when read or seen from Beirut—an indigestible banquet of speeches and communiques flavored with false pathos and self-congratulatory noise. At this conference—critical not only for determining the humanitarian assistance for the estimated 12 million displaced Syrian people, but also for assuring the minimal existential security of millions in host countries—underwhelming financial commitments in the evening of April 25 juxtaposed the morning’s odiously upbeat messages by hosts of the event.

It is too early to gauge the precise implications of the pledged $4.4 billion (€3.5 billion) for 2018, as well as multi-year pledges of $3.4 billion (€2.7 billion) for 2019-2020, as stated in the co-chairs’ closing declaration in Brussels. But when compared with the amounts in the $9 billion range that had been circulated as targets for the event—more than twice of what came in pledges—the message unequivocally is one of insufficiency. Refugees and host communities in Lebanon are well advised to tighten their belts, if they even have any such fashion accessories left in their wardrobes.

Also when viewed against the painful discrepancies between the pledges made in recent years and the humanitarian and development aid actually delivered—Human Rights Watch claimed that of appeals for humanitarian aid for Syrian refugees in Lebanon for 2017, only 54 percent had been funded by December of last year—the Syria crisis of the last seven years shows the helplessness and limitations of the international community. The world’s strongest institutions and nations have so far failed in their professed best attempts to protect human dignity or control and reverse human evil in the 21st century.

Helplessness in the face of political and imperial evils is no passing occurence in this region. Let us not forget that the spring month of April sees not only the anniversary of the outbreak of the Lebanese Civil War, but of the Armenian Genocide as well. A whole epoch of instability and conflict was ignited when the UN over 70 years ago adopted its Resolution 181 for the partition of Palestine, the human cost of which is once again playing out in front of the world.

In this litany of political forcefulness and human agony, all that happened in the Middle East since the Arab Spring—and most painfully, the war in Syria—is just more proof of human existence in constant precariousness. Add to this highly combustible situation the economic misery and delayed moral bankruptcy of the Lebanese state, which has been creeping through this country’s political entities for the better part of the last 25 years, and disappointment and cynicism are indeed the most easily comprehensible responses to our living reality.     

Many of our political leaders today are the same people that tore this country apart. They are the same leaders that failed to address obvious economic perils and managed to bungle every previous lifeline offered by the international community. They are the same leaders who got an F in reforms and governance but A+ in filling their pockets. Yet now, with elections at the beginning of May, it seems likely that the Lebanese voters will send many of them back to Parliament. Go figure.

Our future in our hands

But cynicism is not going to solve the problem. That is why it is time to remember essential lessons of being human, as symbolized in the May cover of Executive. The future is as fragile as any baby at birth, and Mariam—which we call the female icon of Lebanon—is struggling to break free from her chains. Those who had killed our past futures with impunity, those who are eager to thwart every future attempt at existing in political dignity and a sustainable economy—may be those who do the bidding of their sponsors.

Wherever and whoever it might be, the Lebanese people know that no overlord has anything but their self-interest in mind, and every clear mind also knows that the old political allegiances cannot but again kill the future, however much these stooges of foreign interests may call for the Lebanese people to trust them in elections. Lebanon’s future must be the people’s baby and the human experience is that people, in particular parents, will go to any length to nurture their future. For the 2018 elections, sustaining this baby means to vote against all odds, and vote conscientiously. 

Equal to its commitment to nurture, successful parenting needs communication. In context of what will come after the May 2018 elections, this means for civil society and the business community to pursue persistent debate with political stakeholders. In this permanent monitoring mechanism, whether it is about reforms, infrastructure investments, economic vision, or accountability of Lebanese institutions, local beats foreign. Let’s not entrust the monitoring of restoring Lebanese sustainability to international financial or political nannies.

And, as conventional wisdom has it, there is no fiercer lioness than one who defends her cubs. Lebanon must not deteriorate into the mindset where everyone just waits for a chance to escape and migrate somewhere else. The cubs of Lebanon’s future are accountability, good governance, and civic responsibility, just to name some in the litter of the upcoming elections. They deserve to be protected and defended against all predators and prowlers, however strong they may appear.

This, if anything, is Mariam’s mission. As things look today, there will be new faces from some of the established political parties, a chance for some candidates from civil movements to break through, and hopefully there will be more than four women represented in the legislator. So even as the light at the end of the tunnel is yet growing neither larger nor nearer, Executive calls on the Lebanese to hold high their hope.

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EditorialOpinion

Break the chains

by Yasser Akkaoui
written by Yasser Akkaoui

Watching the fifth masquerade of national elections since my return to Lebanon, I cannot help but recall Amin Maalouf’s masterpiece, “The Rock of Tanios.” In Maalouf’s tale there is an Ottoman sheikh of a mountain village who collects taxes and recruits the able to fight the empire’s wars. In return for his allegiance to the empire, he has his privileges. While the young men of the village go off to die in battle, the sheikh stays behind, keeping part of the tax wealth for himself and feeling entitled to pursue the parish’s women. He robs what few possessions a man owns: wealth, life, honor, and dignity. The most astonishing plot twist is when Roukos, the self-exiled, virtuous, and decent man, returns to his native village to dethrone the sheikh, return the stolen wealth, and protect the villagers’ dignity, only to find the villagers upset over their sheikh’s humiliation and crying out for his return.

Nothing illustrates our reality as much as this scene. Similar to feudal life, our politicians continue to insult our dignity, steal our wealth, send us to fight foreign wars, or push us to into self-exile through emigration. Faced with such indignities, some choose clientelism and become dependent on the offered crumbs, while others choose to work indefatigably to safekeep their integrity. Yet come what may, every election we cry out for the return of our feudal lords.

What is bewildering is the predictability of fate, and how easily history repeats itself. Today, we still live on handouts from foreign nations who sponsor a failed state that has never managed to grasp the idea of sovereignty or understand the concept of sustainability.

As much as we want to believe that the required reforms are the condition to deploying CEDRE funds, at the end of the day it does not take half a brain to realize that these agendas are not aligned. The creditors’ release of the funds—which is bound to happen—is tied to when it serves their interests and not our government’s commitment to reform. The $4.4 billion pledged at the Brussels II refugee donor conference uncovers the rationale behind the $11 billion in Paris. By pegging the CEDRE loans to the Syrian crisis Lebanon is left solely responsible for the over 1 million Syrian refugees in the country, something the international community is happy to allow. There is nothing humanitarian about it.

Elections are a week from when this magazine goes to print. We remain ever hopeful that the Lebanese will break free from their hereditary bad habits and realize what they are trading: their wealth, life, honor, and dignity. Only then can we break free of our chains and change the fate of coming generations.

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Last wordOpinion

Taxes 101

by Karim Daher
written by Karim Daher

As evidenced by recent surveys and public polls, Lebanese are disenchanted with their overall tax system and consider their obligation to pay taxes a burden. But they are decrying the many defects of their tax system without even understanding it. According to a national survey conducted in 2012 by the Institut des Finances Basil Fuleihan in cooperation with the World Bank, 70 percent of Lebanese people believed that taxes are used directly by politicians to fund their political agendas. This deficiency in the tax consciousness and the knowledge of Lebanese shows the need for a better financial literacy through a suitable educational and public approach.

To some extent, citizens try not to pay taxes—or avoid or deliberately fail to report income—because they do not understand tax law. Moreover, those who cannot understand tax rules may question the fairness of the tax system and feel that others are reaping more benefits. This, in turn, may make them more likely to evade taxes.

Informing the public

Clarifying and simplifying tax rules can help people better understand the tax law; however, simplification alone would not make it easier to enforce the law or to strengthen tax consciousness and fiscal citizenship.  Public authorities must disseminate information about the tax system to the public, simplify tax regulations and procedures, promote transparency and accountability in the national budget and accounts, and change popular perceptions regarding the fairness of taxation.    

One way to do this would be to adopt a charter for the taxpayer that summarizes in a clear manner their rights and obligations toward public authorities with a set of principles that strike a fair and equal balance between public service and the role of the tax administration on the one hand and the expectations of the legitimate taxpayers on the other.

The charter would include a very simplistic listing of tax principles and the most prominent rights and obligations of the state and of the taxpayer. It would be relied on and used as a reference by both the legislator and the administrative courts, without discrimination or favoritism, while enacting laws or rendering judgments.

Follow the money

There is no better way to encourage citizens to develop an understanding of the social contract around taxation than to make them an obvious part of the tax-paying system. In the book “Learning to Love Form 1040,” Lawrence Zelenak, a tax policy expert at the Duke University School of Law, writes that by making the filing of tax returns and connected payment of taxes painful for individuals, the return-filing process compels taxpayers to confront the extent of their total financial contributions to the government. This ought to make taxpayers more cognizant of how public officials are raising revenue and spending tax dollars.  In short, the pain of paying taxes should propel taxpayers to be more politically and civically engaged and make them better citizens, as well as make politicians much more accountable to the public for their acts and decisions.

With this purpose in mind, the Lebanese Association for Taxpayer’s Rights (ALDIC) have drafted this charter and submitted it to the president with the hope that it will be discussed and adopted by the new Parliament. Our charter aims to encompass all tax principles and guidelines and act as the base from which taxpayers and tax collectors interact. With this, it is the hope of ALDIC that the image of taxes and the objectives of taxation will be improved and valued as a prerequisite to restoring confidence in institutions, expanding the taxpayer base, and meeting the objectives of a productive economy and sustainable development.

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CommentEntrepreneurship

Beyond start-ups

by Bettina Bastian
written by Bettina Bastian

Lebanon has followed other countries in the region and abroad in promoting entrepreneurship to achieve economic growth and to generate future job opportunities. Entrepreneurship is considered a valid tool to help lead the country into a knowledge economy, where the role of information and technological change are the main drivers.

In this context, education can help to foster entrepreneurial behavior, but there is a recurrent debate in blog posts, at panels, and during conferences about the utility of teaching entrepreneurship. Critics say that entrepreneurship education is ineffective because it lacks action orientation, and it cannot teach the essential lessons that entrepreneurs learn simply by failing in the real world. Some even claim that entrepreneurship classes are dispensable, pointing to the likes of Steve Jobs and Jeff Bezos, who never took any formal entrepreneurship education before starting their businesses. Peter Thiel, a PayPal co-founder and Facebook investor, even offers $100,000 grants to students ages 20 and below who are willing to completely drop out of school to pursue their entrepreneurial ambitions through learning by doing.

Beyond the practical

Such comments relate mainly to the technê part of entrepreneurship. According to the Greek philosopher Aristotle, technê denotes technical know-how—in this case, the knowledge of how to manage a business. Most people associate entrepreneurship with the creation of venture-backed high growth firms, like the companies that make up Silicon Valley. Entrepreneurship classes are therefore focused on acquiring business skills. Syllabi include such topics as business plan writing, how to prepare financial projections, entrepreneurial communication (how to deliver compelling pitches to investors), risk mitigation strategies for startups, entrepreneurial marketing, and other practical skills. A common way to measure educational effectiveness is through the number of new startups and entrepreneurs a program generates. This may be an imperfect measure, however, as it has led to universities, business schools, and incubator and accelerator programs resembling each other more and more, as they focus on pushing students toward starting new ventures and entering entrepreneurship competitions—often prematurely. Currently, the strongest emphasis in entrepreneurship education is placed on technê, or on learning how to manage a company. Yet, entrepreneurship (and innovation) are not about managing what is there already; entrepreneurship is a problem-solving process that is based on a different mindset than management.

Entrepreneurial thinking

This mindset proactively seeks out new opportunities and solutions and questions conventional assumptions on how to do things. Entrepreneurally-minded people seize opportunities and act upon them. They are willing to take risks, and focus on adaptive execution, which involves collaboration with others—often even competitors. The entrepreneurial mindset revolves around identifying problems and solving them.

In Lebanon, entrepreneurial learning has implications that go beyond churning out business startups. Samir Kassir once coined the term “Arab malaise” to describe “the very widespread and deeply seated feeling that Arabs have no future, no way of improving their condition.” In the Middle East and North Africa, Kassir argued, there was a prevailing feeling of powerlessness: the powerlessness of being a lowly pawn on the geopolitical chessboard, the powerlessness of underdevelopment, the powerlessness of living under authoritarian politics. Widespread corruption, weak state institutions, and, in many countries, excessive state control have long dominated societies and drained their people’s energy and initiatives.

In his book “Startup Rising,” Christopher Schroeder studies the entrepreneurial possibilities and challenges of the Middle East and North Africa and he comes to the conclusion that entrepreneurship represents a bottom-up movement that allows people to get involved and engaged in societal problem-solving—a grassroots approach that counteracts the prevailing and ineffective top-down government strategy. Entrepreneurship education that teaches a problem-solving mindset could play an important role in developing civic engagement since it introduces young people to a different way of thinking than the prevailing Arab malaise, encouraging a mindset that is relevant far beyond simply starting a business.

Teaching an entrepreneurial mindset, then, is a form of citizen empowerment. For this to be a viable possibility, however, we have to treat entrepreneurship teaching more holistically than we do now, with objectives larger than the creation of new firms. We also have to engage all levels of society in the development of an entrepreneurial mindset, but especially the youngest generation. Teaching entrepreneurship should encourage questioning the status quo and thinking large and wide beyond societal constraints. From entrepreneurship, students can learn to develop and defend their opinions, and they can receive the tools to engage with and change the world.

A good example of this is the initiative run by the Asher Center for Innovation and Entrepreneurship at the Holy Spirit University of Kaslik, where student-entrepreneurs connect with and coach high school students from College Central Jounieh. The students help their younger peers identify community problems, for which they then develop viable solutions for change. School students are exposed to entrepreneurial thinking, cultivate leadership skills, and learn to take ownership of community problems—a prerequisite for engaged  and proactive citizens.

Entrepreneurial thinking is as important for business development as it is important for an engaged civil society. Not every student aspires to have their own business. But the lessons we can learn from entrepreneurship help develop people who are self-directed and proactive, and who have the mindset to engage in purposeful projects that matter for society. 

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