By Tamara Pupic
A country in the MENA region where banks commonly invest in start-ups does not have to be a pipe dream of struggling entrepreneurs. Tamara Pupic analyses how Lebanon has set itself apart from other entrepreneurship-friendly countries in the region.
Most Lebanese will say that their cuisine, one of the most popular in the Middle East, rests on their specific spices, herbs, and fresh fruits and vegetables.
If you sit down to a Lebanese table, you will soon notice that presentation also plays a prominent part and that they rarely, if ever, eat alone.
Its start-up scene is broadly similar.
Mike Butcher, editor at large at TechCrunch, might have felt his mouth was on fire after “labelling a controversial government minister on a conference stage as an ‘idiot.”
He went on to describe the incident as not being “the wisest of moves” in an article he published after attending a tech start-up conference in Beirut.
Butcher was referring to a government official whose decisions caused the country’s average Internet speed to be much lower than in surrounding countries.
“A very low percentage of people in Lebanon shop online, whereas that percentage is much higher in the UAE,” says Karl Naim, co-founder of ChefXChange, an online private chef hiring service launched at the beginning of 2015.
In a short space of time, the online private chefs-foodies marketplace has grown rapidly with 500 chefs signing up on the platform to cook at the homes of the modern hosts in Washington, London, and Beirut, in addition to Dubai which has remained their primary market.
However, operating in Beirut has urged them to explore alternative applications of their business model, including taking bookings over the phone.
“What we discovered is that people in Lebanon ‘suffer’ from what a friend of mine calls ‘geographical amnesia,” Naim explains.
“For example, through a focus group, we asked how people bought movie tickets. Most of them buy them online when traveling abroad like the UK and the US. However, when in Lebanon, they buy them the traditional way, queue in line, despite online purchase being available. And this is because of the connectivity issue.”
Not deterred by this hurdle, Naim, who is of Lebanese descent, says is also the country’s young, educated and resourceful population.
“Beirut is second to none in the Middle East when it comes to human capital: access to the best universities in the Middle East, highly educated and skilled workforce, young and hungry talent eager to work at innovative companies and make a difference,” he says.
“These young driven graduates ultimately provide the lifeblood for our success in the city and the region.”
Lebanon has been ranked globally as the fifth best country for math and science education, and as the tenth best overall for quality of education by the World Economic Forum’s 2013 Global Information Technology Report.
Earlier this year, The American University of Beirut was placed second in The Times Higher Education Supplement’s ranking of the top 15 finest universities in the Arab world.
“When it comes to culture, we have now more success stories. They are starting to spread more and more that entrepreneurship is something you can do in life,” says Abdallah Absi, founder of Zoomaal, a Beirut-based crowdfunding platform.
“You don’t really need to be an engineer or a doctor anymore. It is still not as much as we want but it is much better than before.”
Dubbed by Arabian Business as an Arab version of Mark Zuckerberg, Absi is a college dropout who went on to start six companies, become a World Economic Forum ‘Global Shaper’ for the Beirut Hub, and a Middle East delegate of Stanford University’s AMENDS.
“People are now more easily able to convince their surroundings that they want to start a business. I remember when I was starting, I used to really struggle with that. That is for the region not just Lebanon,” he adds.
One of the country’s recent success stories is Diane, an online media company covering women and motherhood-related topics, which was bought by Paris-based Webedia. Another notable exit is the acquisition of Shahiya, a recipe website, by Japan’s Cookpad for $13.5 million.
Lebanon seems to nurture such success.
Many Lebanese who live abroad have also done well in their respective fields. One of the richest people in the world, Carlos Slim, founder of Mexico’s telecommunications company Telmex known as the ”Warren Buffett of Mexico,” is of Lebanese origin.
More often than not, the wealth of Lebanese diaspora flies back to the country.
“Another thing that Lebanon has and that is very strong is our diaspora. The Lebanese diaspora is very connected to the country. Their very strong linkages can be very helpful to Lebanese entrepreneurs as they grow regionally,” says Omar Christidis, founder and CEO of ArabNet, the region’s first online platform for tech entrepreneurs and investors scouting for ideas at their annual events in Dubai, Riyadh and Beirut.
Google search results for Lebanese entrepreneurs will show a number of adjectives ranging from ‘traders’, ‘deal-makers’ to ‘skilled business people.’ “I would say that a Lebanese entrepreneur has a marketing and PR mentality,” says Christidis.
“From day one he is not just focused on his product. He understands that how his product gets to market is as important, if not more important than what the product is.”
This talent, he says, has led to the country’s historic strength in the creative industries. “It is one of the most dynamic media hubs with some of the most liberal speech laws and most liberally applied. I would also say that Lebanon for its small size spends a lot of marketing dollars per capita.
“Also, the media and advertising hubs regionally have a strong Lebanese presence.”
Witnessing the rise of the region’s start-up scene since the first ArabNet Digital Summit in Beirut in 2010, Christidis says, has made him observe digital disruption becoming not only accepted but desirable by businesses. “The biggest difference that we have seen in the last seven years is the shift of the digital industry from being an arena of geeks or technicians to becoming a strategic priority in the boardroom,” he says.
“Today for companies across industries this [digital media] is no longer a topic for IT, but it is a topic that is crucial for every business looking at its business strategy.”
More recently, he has noticed Arab entrepreneurs opening back offices in their home countries, Lebanon included, due to the high costs of operations in the Gulf.
One of them is Naim, who explains that in Lebanon, more than elsewhere in the region, the banks and entrepreneurs forge an alliance to jointly change the country for the better. “For the past couple of years the start-up ecosystem in Beirut has been growing and evolving at a phenomenal pace, thanks to the 331 Circular initiative of the Central Bank and a few funds and entrepreneurs,” he says.
In August 2013 the Central Bank of Lebanon launched Circular 331 initiative to encourage commercial banks to invest in venture capital funds, accelerators, or start-ups directly.
Under the scheme, Lebanese banks dedicate up to 3 percent of their deposits to this cause while the central bank guarantees 75 percent of the invested amount in each particular case. Acting in this manner, the entities have jointly created a $400 million sovereign wealth fund to be injected into the country’s entrepreneurial ecosystem over the years.
“There’s a lot of activity that has been stimulated by the circular,” says Christidis. “We have more accelerators to help at a very early stage, more seed funds to give follow on funding, more venture capital funding to support the companies as they grow and we even have a growth fund.”
In addition to a number of incubators and accelerator programmes already active in the country, Leap Ventures, a $71m venture capital fund for high-growth Middle East technology businesses created under the Circular 331 of the Central Bank of Lebanon, completed the funding cycle available to local and regional entrepreneurs.
Obtaining investment was thus ranked as a lesser challenge in Lebanon when compared to other regional countries, according to a Wamda Research Lab report published in September 2015.
In celebration of the first anniversary of its Circular 331, the Central Bank of Lebanon launched Banque du Liban Accelerate, a disrupt-style tech conference to host the world’s top entrepreneurs, investors, and other stakeholders.
A year later, Banquet du Liban Accelerate 2015 – under the theme Emerging Startup Ecosystems – presented impressive figures with 7,000 attendees over two days, two stages, two hackathons, two start-up competitions, and two workshop spaces. The event featured over 100 speakers, 100 start-ups, and 100 exhibitors from 51 different countries across six continents.
ChefXChange was among 22 start-ups from around the world that took part in BDL Accelerate’s Early Stage Startup Competition and made it to the finals.
“We were not after the prize money but wanted to raise awareness and announce the successful closing of our Series A investment round,” explains. Naim. “We had a lot of start up passionate come up to us and apply for open positions for our Beirut office, and now have a team of seven people within a month of setting up shop here, which is great.”
Aware of the limited lifespan of the Circular 331, forward-looking Lebanese officials used the event to announce the establishment of an electronic stock exchange for SMEs. Further details still remain to be revealed.
However, Lebanon has not struck the right balance when it comes to the ease of starting a business. The World Economic Forum ranked Lebanon 113th globally out of 140 countries and 10th out of the Arab counties in its annual Global Competitiveness Index (GCI) 2015-2016 report.
Having set up their regional headquarters in Beirut recently, which has become the fourth city in which ChefXChange operates, Naim gained firsthand-experience of red tape holding Beirut-based entrepreneurs from starting and growing their businesses.
When asked to compare the processes of registering his platform in the four capitals, Naim explains that the region is far behind Europe (London) and the US (Washington) which both provide faster and cheaper business set up processes almost entirely done online.
“Neither Dubai nor Beirut are leaders in that regard, but Beirut was particularly challenging, especially if you are ill advised and not familiar with the landscape,” he says.
“For example, needing a bank account in order to have the company and needing the company in order to have a bank account, or needing to deposit tens of thousands of dollars in cash because it is not possible to make a wire transfer, or needing to identify and agree an auditor for the foreseeable life of the company in order to incorporate, were just a few of the challenges we faced in Beirut.
“In terms of cost, both Dubai are Beirut are horrendously expensive, and you end up paying thousands of dollars in fees to set up a company, not to mention future fees incurred every time you want to hire someone in the UAE.”
Christidis also considers Dubai not to be the most affordable city in the region to start or test a business idea, but an inevitable destination for growth-focused entrepreneurs. “There is a key thing that helps out which is that today Dubai is the capital of business in the Middle East,” says Christidis.
“I’m not saying that it is the biggest market. I think that people misperceive that. Saudi Arabia is the region’s biggest market, and if you have a consumer product that you want to pitch, you should go to Saudi Arabia.
“But if you have a B2B product, you need to be in Dubai. What we see today is that a lot of start-ups around the region see Dubai as their launch pad for the region or the globe.
“We see a lot of people starting their business in wherever their home market is and once they reach a certain amount of traction or customer base and they are looking to expand that’s when they start looking at being in Dubai.”
According to ArabNet’s statistics, the UAE has captured more than 25 percent of all the deals that took place in MENA in the last three years. Furthermore, the UAE has been leading in terms of the number of investment deals across every year in the last three years.
Christidis’s concluding words are likely to be music to the ears of those who target Dubai as their next business goal. “When we look at where are the billion dollar businesses in MENA are being built today, if we are talking about digital start-ups, they are based out of Dubai. Not all of them, but I would say that the majority of unicorns today are building their businesses out of the UAE.
“That’s a big statement to be said for the UAE.”