According to the United States Agency for International Development (USAID) Trade and Investment Facilitation (TIF) project report, related to the Information and Communications Technology (ICT) sector in Lebanon, around 500 companies are active in the technology sector in Lebanon, among them 300 ICT companies and 200 startups, with the ICT workforce being estimated at between 15,000 and 18,000 persons. The report mentions that “Lebanese ICT companies are highly export-oriented.” However, these numbers have likely been affected by the economic crisis.
The first problem, which was expanded on, was the lack of finance for technological companies in Lebanon. Nassib Chalhoub, partner at Credly Advisors, mentions that, “In terms of startups and the ecosystem, we are currently witnessing a significant downturn.” For him, after the “significant crowding out effect” due to high interest rates in banks on depositors’ accounts, the ecosystem in Lebanon is currently struggling, and many companies are migrating to regional hubs, to the United Arab Emirates in particular. Fares Kobeissy, chairman and chief executive officer at Bluering, mentions the fact that many companies are leaving Lebanon, and that the biggest challenge, in his view, is “still how to access capital and financing,” not only in the form of equity but also from banks. Summing up, for Kobeissy, the two biggest challenges are the access to finance and helping companies reach new markets. This was also confirmed by Gabriel Deek, president at ISOC, in his belief that Circular 331 of the Central Bank of Lebanon (BDL), which guaranteed partially banks’ investments in startups, was a good idea but “could have been much, much better.” In addition, for Deek, one of the main issues is to access capital. With regards to the same circular, Jihad Bitar, general manager at SmartESA, comments: “the good side of 331 is that it changed the culture,” but on the negative size “it brought some laziness ad a habit of not being very professional and of overspending money to a lot of the ecosystem.” For Bitar, with regards to startup financing, the main issue is at the seed stage land pre-seed where, according to him, it is extremely difficult to access capital: “You are going to get lollars, not dollars, if you move to angels.” For Bitar, the moment that Kafalat stopped giving grants was the moment “this started to slowly kill the ecosystem.”
For Bassel Aoun, program manager at Kafalat, “access to finance is a common major point,” and that venture capital funds are, like most businesses, suffering from lack of access to capital. For him, startups and funds, emboldened by Circular 331, are currently moving to other ecosystems, believing they can capitalize on their know-how and launch second funds in the region. According to him, historical players on the venture capital scene in Lebanon have managed to raise new funds but outside of Lebanon, due to their track record in the industry: “This is the situation today. Access to finance is a problem on the level of the startup and it is a problem on the level of intermediate players, people that bring the money into the ecosystem.” In addition, according to Aoun, the investment tools needed for the financial advisors (for example safe agreements and convertible notes) are not available due to Lebanon’s lagging legal infrastructure. This mention of the legal framework was echoed by Karl Naim, managing director at StartechEUS, for whom the legal framework is “completely inexistent in Lebanon” for the tech industry. According to him, Circular 331 “unfortunately did not help the Lebanese startups at the time.” Due to this lag in legal infrastructure, it would be very hard to compete with other ecosystems in the region, taking into account seed or series A funding in the UAE, funding is reaching between $5 million and $10 million, compared to hundreds of thousands three years ago. Nicolas Rouhanna, of IM Capital, confirmed this view by adding that venture capital (VC) and 331 funds are currently moving to Dubai, and that the lack of financing would hinder growth for companies.
The second issue mentioned by the guests of the roundtable has been the lack of support in accessing new markets. For Chalhoub, we are witnessing a migration and value deterioration for successful Lebanese companies, as most of them “established prototypes and validated their concepts” in Lebanese market and therefore still suffer from the local risk, while these companies are, for some, exportable, and others not. For him, there is a temporary decline in the local tech and entrepreneurship ecosystem, which would require access to finance in order to regain its previous strengths. For Kobeissy, Lebanon lacks institutions whose entire purpose is to help local companies access new markets, and this lack of export promotion is, in his opinion, a big deficiency. For Gaby Deek, this lack of access to markets is more important than lack of finance, and for Bitar one of the main impediments to this growth in Lebanon is a lack of talents and soft skills. Bitar, on the other hand, sees the crisis as an opportunity as “only the professional and serious people will continue” their activities in Lebanon, which would rout out those he deems as “not very serious.” Echoing Chalhoub and Kobeissy’s opinions, Michelle Mouracade, country director at Alfanar, laments this lack of technical assistance to entrepreneurs, deeming that such support tis given only in accelerator programs but lamenting that they are not, in her opinion, getting help at the business plan level and their cash flow projections.
This need to access new markets nevertheless, requires talents, which are leaving due to a brain drain. For Deek, though the human capital is present, “we are not competitive in terms of education as we should be,” and he adds that imperfect education in ICT is why “access to talent is a problem and an issue for startups.” This is echoed by Naim, for whom, though the Lebanese speak three languages, which he deems important, when it comes to “real skills today, digital skills, digital marketing, software development,” he sees Lebanese universities as uncompetitive in comparison to their counterparts in Dubai or in developed markets.
A first solution proposed by the roundtable participants is to focus, with regards to the technology and knowledge sectors in Lebanon, on premium outsourcing. This was first mentioned by Mouracade, deeming that Lebanon could be an outsourcing destination for the digital sector. For Wissam Youssef, CEO at CME Offshore, there are three models for the Information and Communications Sector (ICT): the Silicon valley model, which he deems impossible in Lebanon due to the current situation, the mass outsourcing, which he deems difficult due to the fact the Lebanon lacks economies of scale, and the premium outsourcing model.
A general opinion, shared by most panelists and first mentioned by Gabriel Deek, is the need for self-reliance and not to count on the Lebanese State to implement reforms: “Never rely on the government, never rely on the public sector.” For Rouhana, the Lebanese crisis cannot be solved by the technology sector, but stakeholders can work towards fixing and solving the SME and startup crises.
One measure to solve the access to finance, according to Mouracade, is “to encourage businesses in Lebanon to have a social impact, measure it and communicate on it,” as according to studies she mentions, consumers are more likely to spend on a product or service from a social enterprise versus a product or service from a regular enterprise. Mouracade, cited the example of BOT, an outsourcing social enterprise that Alfanar supports. In 2020, their income grew by 230 percent because of their focus on outsourcing digital services and because of a pool of 2000 freelancers on their platform: “this is a social impact because many young people will not have other opportunities if it weren’t for BOT.” According to her, such organizations, which have a social impact and are focused on supporting youth in the digital sector, are also strengthening the social impact sector of Lebanon and this could attract potential investors, adding the global market for impact investing is worth $715 billion, according to the Global Impact Investing Network. For her: “If a company is providing vulnerable communities and SMEs and MSMEs with access to affordable products and services, there is a huge potential as well. In her opinion, this would also help relieve the brain drain as it would attract potential talents and entrepreneurs if they believe their work would have a social impact.”
Amine Goraieb, consultant at Alfanar, mentioned that he would like to “encourage all companies in Lebanon that think that they have a genuine social impact.” This would, according to him, help mobilize the diaspora and to support local companies having a social impact “by either introducing them to people or by delegating some of its activities to Lebanon.” Indeed, for Gohrayeb, the first question is for those who are vulnerable communities that still have access to technology: how can they access services that are otherwise difficult to access? According to him: “Lebanon is a poor country and getting poorer by the day, and affordability is a key barrier to technology.”
Another solution mentioned is the need to leverage the Lebanese diaspora for better market access. For Youssef, it is necessary to build on the “emotional connection” between the Lebanese diaspora and the Lebanese community living in Lebanon, since Lebanon has what he deems to be “success stories” in order to “build on those success stories and then approach the Lebanese diaspora with a model that creates jobs in the Lebanese market.” In addition, due to lower cost of operations, he recommended cuing candidates “without having real concrete projects” as this would release these companies doing outsourcing from a turnover problem due to a brain drain. For Nassif Shalhoub, this need to reach the diaspora is important, citing quasi government bodies and others, such as the World Lebanese Cultural Union, to enable connectivity between members of the diaspora, thanks to an application called diaspora ID, which connects all the “national councils and continental councils and connections of the Lebanese diaspora in the world.”
Nassif Shalhoub, with regards to access to capital, has also highlighted what he sees as a need to change the local mentality: “We have been raised over the past 6,000 years on being traders, and traders are greedy.” For him, valuations made by Lebanese owners in the ICT sector are too high and well above market benchmarks in the rest of the world, and this needs to change. “Why seek immediate relief? Why do you want to be Elon Musk without going through Elon Musk’s journey?” Highlighting the fact that Lebanon is already a risky environment, he recommended building more deferred options for investors to come invest in Lebanon. For Bassel Aoun, access to markets requires access to finance, and this could be done by working on brand name, including working on impact investing.
For George Frenn, from USAID Lebanon, access to market requires first to stabilize, then to “explore and find niches of growth, particularity on exports, and support them on enterprise level and sector level.”
Thomas Schellen resumes what he sees as the potential for the solutions expressed during this roundtable, with regards to the potential of impact funding, cultural union, and the Lebanese entrepreneurial spirit. The roundtable then moved to final words with participants, with Goraieb encouraging all companies in Lebanon to think that they have a genuine social impact, in order to help mobilize the diaspora, as the MENA region is catching up on social impacting with the rest of the world. Rouhanna, on his part, hints that IM Capital is working on funds for startups, growth stage companies that have a potential to scale and weather the crisis. Kobeissy mentioned his wish to see the tech community collaborate more. Elie Abou Saad also proposes to use the platform v-expo for an event to enable all tech companies who export their services.
The final note belongs to Yasser Akkaoui who believes that in entrepreneurship, the value is “in the ideas, and so that the ideas continue to flow, we need to create for them an enabling environment.”