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Rebuilding the knowledge economy

How a strengthened Telecommunication sector can boost the local ICT, startup, and tech scene in Lebanon

by Rudy Shoushany

In Lebanon, the under-provisioning of infrastructure has created gaps in services delivery, hence exacerbating productivity, and putting the country on a lower growth trajectory. Lebanon does lag behind in providing vital basic services, among them telecommunication.

While other middle-income countries are evolving, Lebanon is falling behind them when it comes to its telecommunication sector. In this country, the telecom sector is heavily set back by low service quality, high cost to consumers, and weak regulatory governance.

According to the World Economic Forum, Lebanon ranked 95 out of 141 countries in ICT adoption in 2019. Whereas it was ranked 161 out of 177 countries in terms of broadband connection speed for the year 2020, according to the Speedtest Global Index – which ranks countries according to their internet speeds monthly.

Lebanon’s Great Depression

Amid its worst economic crisis to date, Lebanon is facing dangerous depletion of its resources, including human capital with brain drain, hence creating – among others – an economic loss for the country. Despite this depression, one could identify that very limited policy responses had been taken by governmental authorities to reverse the further sinking of the country.

Since the uprising and the revolution in 2019, Lebanon has faced a multi-tiered, MEGA economic/financial crisis, COVID-19 pandemic challenges, and a devastating explosion of Beirut Port. These compounded crises are severe and long-lasting and led to the halting of any development in the country and an estimated drop in real GDP by more than 30-40 percent.

In addition to the recent burden on Lebanese communities and businesses, we emphasize that this started from a weak and disadvantageous national infrastructure. Even if Lebanon had been the first Arab country to introduce the internet, unfortunately, it is considered among the last, to provide High-speed Digital Subscriber Lines (DSL) and fiber-optic services. It is only in 2017, that the Ministry of Telecom signed a memorandum of understanding with the Cyprus Telecommunications Authority (CYTA) to increase Lebanon’s share of the submarine cable Alexandros from 310 to 1,920 gigabytes per second (GB/s). By boosting the telecom cable’s capacity, the local users had been provided access to international servers at high speed.

Was this initiative enough to strengthen the national telecom sector? Did this initiative or any other related project prove to be a sustainable backbone for this sector? Was it fulfilled completely as per the adopted plans? Was it implemented appropriately, transparently, and upon international standards?

It is time, at this stage, to look forward and seek opportunities and compounded elements to regain macro-financial stability for Lebanon.        

Telecommunications: An Economic Trigger

While there is a consensus among key stakeholders on the importance of the telecommunication sector and its relevance to the financial sector’s recovery, this sector is still not thoroughly considered a key economic trigger for initial investments and contributions to job creation and recovery.

Immediate transparency initiatives and policy and regulatory changes are required allowing the telecom sector to improve the performance of the various economic sectors while curbing expenditures in the long run. Lebanon needs urgent investment in this sector, hence minimizing or even preventing additional immigration of human capital, and creating new job opportunities.

The startup ecosystem in Lebanon is one of the essential bridging elements, which would support the telecom sector to rise. But this ecosystem had been facing a tremendous burden in an aftermath of the economic crisis. According to Middle East Venture Partners MEVP, the number of Lebanese operational startups before the crisis began in 2019 was 25. This number has fallen to 15, while 7 of those are struggling to remain afloat.

A Digital Golden Ticket

Lebanon has a golden ticket and chance to bounce back its economy by reinforcing and strengthening its telecommunication sector and incorporating it into the digital economy. Thus, boosting the creation of opportunities and jobs for the local ICT, startups, and tech freelancers to position Lebanon as a Tech Hub in today’s Gig Economy and contribute around 20-30 percent to the local GDP, hence reaching 7-10 billion USD by 2025 and possibly more. The creativity that exists in the Lebanese startup community, is a foundation stone to achieving the above-aimed growth.

One of the major advantages of the COVID-19 pandemic is the push of the digital world and remote working in precise. The foundation of any remote work for local and international markets requires a robust and sustainable telecommunication sector. Therefore, we are to explore options and exhaust all efforts to ensure services for the local, regional, and international markets.

Stable and fast internet could bring heavy savings and enable quicker productivity growth towards becoming a real tech hub that could employ tens of thousands of employees and freelancers while pumping new foreign investments into the local economy.

Missed Opportunities to boost the local ICT, startup, and tech scene

As per Imad Kreidiye, Ogero Chairman “revenues were on the rise before the country’s financial crisis broke out in 2019, earning $450 million per year since 2017, with a 70 percent profit margin.” Whereas in 2021, revenues lost more than 90 percent of their value in two years.

While Lebanon had been diving deeper into its economic crisis, we did not see a national comprehensive and credible stabilization strategy which includes the telecom sector that would prevent a worse financial crisis and mitigate the survival of local businesses and startups.

We did not see that there is a strategy looking at the reliance on the telecom sector to empower Lebanese startups and tech companies which will surely play a big role in rebuilding the economy. For instance, let’s look at Anghami as an example of a unicorn in Lebanon that went out to public listing from the UAE, that could have potentially contributed to the reform of the economy.

If we look at other Arab states, there is no doubt that the UAE Government realized that any vision for the future would be meaningless without the integration of the fifth generation of mobile network, or 5G, because, in the future, there would be a great need for rapid transfer of data, artificial intelligence, machine learning, and other emerging technologies. As of time of writing this article, China, namely it’s largest telecoms vendor, Huawei, has begun deploying heavy R&D efforts into 6G technology.

For instance, in April 2021, Etisalat deployed a 5G network with Nokia as a key partner, providing an enhanced mobile broadband service and expanding 5G coverage and revenue opportunities. The 5G capabilities enable innovative applications, such as Virtual Reality (VR) and Augmented Reality (AR). It also addresses Industry 4.0 opportunities to benefit enterprises from various Internet of Things (IoT) use cases in energy, healthcare, education, transportation, and entertainment, thus, generating new revenue and aiding the growth of the market.

Telecommunication and Economic Reform

We cannot claim that the path to reforms path will be easy, quick, and even straightforward, but we should push the current and upcoming government toward including the telecommunication sector in the package of the reform agenda and lobby for faster, accessible, and cheaper telecommunication. Accordingly, if Lebanon truly paves the way toward more a sustainable sector then some key and advantageous interventions which could empower current national businesses and inspire new startups will be needed:

  • Empowering the Telecommunications Regulatory Authority TRA of Lebanon law 431 by Implementing reforms toward Privatization or Liberation of the mobile operators’ market with a clear policy thus allowing domestic and/or foreign private investors that could drive growth and lower prices. To provide Emergence of value-added services and call centers as new niche sub-sectors.
  • Establishing governorates/cazas internet hubs (PPP model) public co-working spaces with sustainable electricity (solar panels) to become an inspiration and innovation hub. For instance, the Lebanese National Library and Rashid Karami Stadium could be used as hubs, providing, internet/electricity stability helping innovation, productivity increase, and aiding in creating remote/Nomad jobs and leaving no one behind.

  • Approving IDAL’s new proposal (2020) for Lebanon Tech National Brand or Tech-Hub and new companies’ formation with tax and other incentives could boost Lebanese startups and entrepreneurs in creating new companies and possibly the next unicorn in the region.

  • Advertising Lebanon as a support and international call center especially since it is heavily based on the internet. Highlighting that Lebanese people are known for having bright minds and trilingual advantages, helping achieve the job creation revolution that is needed in the sector-specific and the economy.

  • Localizing the national data center, rather than building a new one as proposed in CEDRE Conference i.e., empower and commercialize Ogero as a national Cloud provider that is currently available, to open the possibility for more innovations for the private/public sector by being the infrastructure needed and help kick off the national digital transformation strategy.

  • Empowering the new emerging technologies IoT, Artificial intelligence, and blockchain that has big financial returns over one trillion-dollar worldwide industry that could be tapped on.

  • Encouraging and exploring additional incentives on currently successful digital opportunities such as EDTECH, health tech, and InsurTech to cater to the region, especially the Arabic language.

  • Approving and implementing the developed national digital transformation and cybersecurity strategy to provide more trust and transparency that could transform Lebanon and drive innovation in the public sector.

The upcoming government’s priorities are to integrate a digital mindset into their action plan, hence approving and issuing a set of regulatory texts which had been prepared, consulted, and ready.

Getting Lebanon out of its current economic crisis while relying only on IMF is not enough. The telecom sector powered by a digital economy could be the biggest supporter of GDP, subsequently helping the country recover at a much faster rate and be positioned on the global map for technology similar to what Cyprus has done in recent years while utilizing many of the Lebanese Resources and bright minds.

This sector remains the most promising engine and hope for national economic growth and sustainable development.

The PCA Perspective
-Thomas Schellen

In the perspective of Lebanon’s Professional Computer Association (PCA), the industry’s two main subsectors of hardware and software companies are moderately upbeat after having delivered stable or slightly growing performances in the crisis years of 2020 and 2021. “Hardware companies achieved some growth because of demand for tablets and computers used in home office work. Software companies retained their level but did not achieve growth,” PCA President Camille Moukarzel tells Executive. Sector firms applying the outsourcing destination Lebanon philosophy, companies specializing in the provision of remote IT services to client companies abroad, benefited from the boom in remote working that coincided with the growing cost competitiveness of Lebanon-based remote professionals. For 2022 to date, software and hardware companies both have recorded “moderate growth,” Moukarzel adds, attributing impulses of business optimism in the ICT sector to the currency-depreciation-based boost in competitiveness and the fact that client companies in the Arab countries entertain a positive cultural bias vis-à-vis the tri-lingual Lebanese software vendors. 

The Lebanese information technology industry, and its extended tribe, the ICT industry (IT with the added moniker of communication), has since the mid-1990s constituted a high-profile building block of the country’s digital footprint and a promise of growing digital fortunes. With an abundance of new formations of software development companies in the post-conflict reconstruction years and up to the Y2K crisis and the burst of the New Economy bubble, Lebanese ICT vendors produced software suites such as enterprise resource planning (ERP), marketing, and customer relations management (CRM), and banking and accounting ledgers that on the one hand were aligned with Arab business cultures and on the other hand benefited from the rise in regional computing needs. 

Over the course of the 2000s, the Lebanese ICT sector could draw on the increasing local supply of computer engineering and software design graduates while further diversifying and specializing. Beirut-staged ICT-centric trade shows proliferated in numbers. While no global giant by a long shot and also having to deal with the vagaries of rapidly changing regional IT markets, the local IT industry stood out in adding economic value, thereby contributing nicely to the country’s GPD growth spurt in the late 2000s. 

However, by 2016, the ICT industry as a building block of the local knowledge economy contributed no more than 3 percent to GDP, the second-lowest percentage among the Lebanon Economic Vision, or McKinsey plan, listed as 14 “productive sectors.” 

When compared to OECD averages of 6 percent ICT value-added in the early 2010s, or the up to 10-15 percent increases of employment and total factor productivity in the early 2000s by globally leading ICT growth countries, including one neighboring Lebanon, this latter-day GDP contribution of Lebanon’s ICT industry – slightly less than the sectors of agriculture and hospitality and only a third of the manufacturing industry (which the LEV authors McKinsey had decided to focus on) – appeared to indicate a loss of the sector’s economic luster. 

Specifically, the Lebanese ICT industry’s compounded annual growth rate (CAGR), which had been 12 percent between 2005 and 2010, was shown as minus 3 percent, having, according to the LEV, reversed into a contraction for the “2010 (sic) to 2016” years. This swing into negative growth was in the same direction as the swing in Lebanon’s total nominal GDP CAGR that reversed from 8 percent to a 2 percent contraction for the two periods. Still, the reversal of growth was the largest among all cited productive sectors and extremely severe by comparison to the total.  

Whether it was in an upswing or recession, the domestic IT market rarely sufficed as the mainstay of Lebanese software developers; they instead nurtured their organic development potential in the Arabic-speaking world. Notably, this location advantage of Lebanese software houses does not broadly extend to hardware companies, which according to the PCA’s Moukarzel and the industry organization’s senior advisor Hussein Ayoub, today means local, sub-regional, or in some cases regional, distributors and resellers rather than the assemblers that one could see setting up in Beirut in earlier years. 

Hardware distributors with a regional focus can still operate from Lebanon, albeit without fanfare and the blowing of PR trumpets. Still, this segment of the ICT industry appears to be impacted primarily by global industry factors such as upside and downside supply shocks. One Beirut-based distributor, for example, described, in an informal conversation with Executive, the closure of the Russian market as a shock that created oversupply and thus downward price pressure in the Middle East. 

An international market intelligence report recently seems to agree that ICT budgets in Russia and Ukraine are poised for “a steep decline and slow recovery for ICT spending” (International Data Corporation in a commercial report dated March 2022). However, according to IDC and others, there are also signals of counter pressures in ICT markets, such as pressures related to defense spending in Europe, further supply chain bottlenecks in chip production because of a shortage of rare gases used in chip making, migration of experts, and currency issues. 

On the domestic scale, the economic challenges of the past two years are juxtaposed with new opportunities. On the side of disruptions, the PCA has seen a shift from the standard business practice of software developers to having high shares of staff in Lebanon – administration and development – and partial workforces or smaller customer-facing teams in their target markets. 

Research into this company migration was scheduled for completion this spring but was stopped abruptly by the tragic death of its conductor, PCA board member Gabriel Deek, leaving the PCA saying that numbers are significant but not precisely known. Moukarzel and Ayoub tell Executive that lately, in addition to long-standing location attractions, Dubai and Paris, Cyprus, being seen as gates to European markets, and Egypt, with a population of more than 100 million and large IT projects, have been locales to which some IT developers have relocated much of their teams.

Other challenges include scavenging of Lebanese talent by international companies, the desire of frustrated professionals to work anywhere but in a capital of corruption and waste under the absence of power and water, and basic difficulties to earn a living wage without taking on remote side jobs have not eased in the slightest. Moreover, avalanches of poorly researched media stories and sensationalist rumors have continued to generate image concerns over Lebanon’s corporate ICT sector as a reliable partner for international clients. Still, the outpouring of one-sided and often incorrect narratives “has affected the reputation of the Lebanese [ICT companies] but not the Lebanese talents,” says Ayoub.

On the side of new domestic opportunities, hardware, software, and app-focused Lebanese IT companies – the latter two also on regional levels – presently have their best opportunities in education due to schools and universities’ high demand for online learning solutions. According to Moukarzel and Ayoub, the education technology subsector is the most active among several subsectors where PCA member companies are plying their business. 

Since the start of the Covid-19 pandemic, the market for education solutions has seen edtech companies close the gaps created by the inability to attend classes in person, Ayoub says, adding that the field of Lebanese ed-tech startup success stories includes eFlow Education, a two-year young startup (https://www.executive-magazine.com/special-report/pure-education) that has this spring been named among the winners of a World Summit Award (WSA) for digital innovation, in the category of “quality education” (Ayoub is an investor in eFlow Education). “In other subsectors, such as e-commerce and CRM solutions, where PCA members are active, we have some startups that are branding and positioning solutions for the Middle East region and using Dubai as the hub for their activity,” he goes on to say. 

Moukarzel elaborates that the PCA promotes the endeavors of all member companies through international exposure as well as collaborations with trade attaches at several Lebanese embassies. In the arena of international trade shows, the PCA provides support to Lebanese IT companies in various subsectors of the digital economy by organizing pavilions and industry delegations, business matchings, and workshops about hardware, software, as well as consulting and services. 

The most recent PCA trade promotion activity, which Moukarzel describes as a modest success, occurred at the recently concluded Dubai 2020 World Expo. “Expo 2020 was average, not so good, and not so bad,” he acknowledges. “We kept fighting to support all the Lebanese companies by recommending their solutions and connecting them with prospective partners and clients so that they can sell their solutions in the international market through our network,” he says. 

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Rudy Shoushany

Senior Digital Transformation Expert

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