Lebanon lags behind much of the world when it comes to a favorable business environment, ranking 111th out of 189 economies in the International Finance Corporation’s (IFC) 2014 ‘Doing Business’ report.
Political deadlock and a worsening security situation are the most recent drags on the economy, but these only exacerbate a more pressing problem, which is the lack of a far-reaching governmental vision for its business environment.
The public sector has taken some initiatives to remedy the situation. Internet speed is slightly faster than it was several years ago, the government-led initiative Investment Development Authority of Lebanon (IDAL) is working to secure foreign investments and improve regulations, and the Ministry of Telecommunications has joined with the private sector to set up the Beirut Digital District, a business hub in Bachoura. But this is still far from an all-encompassing strategy. Lebanon has yet to come up with a larger plan to target areas where it is lagging behind. “The problem is there isn’t one cohesive strategy for SMEs [small and medium enterprises] that the government has endorsed,” says Yasmina el-Khoury Raphael, head of the Improving the Business Environment in Lebanon program at the Grand Serail.
Oman and Jordan have managed to foster some programs that have had a wide reach. Both countries, like Lebanon, have also struggled with constraints facing their business environments. Since a cabinet was just formed, Lebanon has the opportunity to put forward something that will work in one direction toward concrete goals.
Data and Planning
Lebanon lacks the data essential for the planning of a sector-specific strategy. “We don’t know exactly where our competitive advantage is,” says Raphael. “We need to study what exactly we should be investing in.” Increasing data would help the country develop a coherent policy for its business ecosystem.
IDAL has been working on some projects to examine Lebanon’s SME landscape, but it is still unclear where the competitive advantage lies within each sector.
The Beirut Commercial Registry has thus far been disorganized. A pilot project to convert paper documents into an online database of companies was recently completed for Beirut, according to Raphael. This could be a stepping stone for more information on the sector, which could ultimately lead to a cohesive strategy for the industry.
Oman has managed to create a constructive policy for improving its business environment by targeting SMEs in its information and communications technology (ICT) sector. Despite ranking 47th on the Doing Business report, SMEs make up only 16 percent of the sultanate’s economy, owing to a dependence on government jobs. In fact, Oman has the lowest number of SMEs per capita compared to other countries in the Gulf Cooperation Council.
In a move to privatize and liberalize the economy, the Information Technology Authority of Oman was assigned to oversee the development of an ICT infrastructure strategy for a digital Oman. In 2013 they prepared an ICT-related SME database. It is designed to give them insight into the sector, help diagnose its strengths and weaknesses, and facilitate awarding 10 percent of public and private contracts to SMEs. This knowledge of the sector should also allow them to get feedback from SMEs. The most recent project is Sas (meaning ‘foundation’ in Omani dialect), an ICT business development initiative launched in 2013 to promote SMEs in Oman and develop a competitive ICT sector. Sas offers workshops and seminars to entrepreneurs in every aspect of business management at the Knowledge Oasis Muscat technology park. By 2013 they were already incubating nine projects, with three more in the pre-incubation phase.
These programs are new, and it is difficult to measure their impact. “I think it’s too early to judge,” says Sharifa al-Barami, founder of Al Jazeera Technical Solutions and Training, and active player in Oman’s startup ecosystem. “I think it would be unfair to try to measure it now. In my opinion, any initiative in support of SMEs cannot be measured until three to five years have passed to see if it was successful or not.” Barami has been leading grassroots initiatives in the Omani ecosystem for the past three years. She was recently approached by the government and is now working with them to improve the ecosystem. The Sas program plans to replicate its model by opening incubators on university campuses outside of Muscat.
Overcoming the obstacles
The business environment in Lebanon faces many infrastructural and legal barriers, but it is not alone in combatting a difficult commerical terrain. Jordan has also struggled with this, actually ranking lower than Lebanon at 119th on the Doing Business report in 2014.
Although its rankings indicate that there are many obstacles to be overcome in starting a business in Jordan, this has not stopped the country from investing heavily into a startup ecosystem — and seeing results. The Jordanian government and the royal court have played a key role in promoting entrepreneurship from the outset. In 2003, through its Higher Council for Science and Technology, Jordan’s government established iPark — the country’s first ICT incubator — after being approached by Omar Hamarneh, who ended up founding the project. They also helped to fund two incubators, one in Jordan University and another in the Royal Scientific Society. According to Hamarneh, iPark’s success rate is 85 to 90 percent. Jordan’s entrepreneurship scene has since garnered international attention. The Jordanian company Maktoob was bought by Yahoo! in 2009. It additionally led to further investments in the entrepreneurship sector to replicate the success of Maktoob. Startup accelerator Oasis500 came out of the economic office at the royal court in 2010.
According to Hamarneh, since 2000, the business environment in Jordan has “evolved dramatically, in the sense that entrepreneurship was seen as a career path.” In 2012 alone, the ICT sector grew by 25 percent and, moreover, accounted for 14 percent of the country’s gross domestic product according to the ICT Association of Jordan.
According to the regional director at the World Bank, Lebanon would need to create 23,000 jobs per year over the next decade to absorb those entering the job market. A more focused policy targeting the business environment — specifically SMEs — would make the process of starting a business more straightforward and would increase the number of much-needed jobs. While no country in the region is quite like Lebanon, it is worth considering replicating the initiatives that governments in other countries have taken, and in whose footsteps the Lebanese government could be following.
Source: Executive Magazine