Lebanon’s Private Technology Sector Remains Resilient Amid Crises
“I discovered that the corrupt system is bigger than the State, and that the latter is constrained by this system and cannot confront it or get rid of it.”
The resignation speech of Prime Minister Hassan Diab sends a chilling message about the future of Lebanon.
The short-lived government resigned just days after the catastrophic explosion in the country’s capital Beirut on August 4th, leaving more than 200 dead and 5,000 injured.
The blast shook the core of Lebanon, a country that was already suffering from an economic disaster and COVID-19, and beneath these recent crises are chronic problems since the end of Lebanon’s civil war in 1990—a fragile sectarian government and rampant systematic corruption.
Amid these crises, Lebanon’s GDP saw a 6.7% drop in 2019, and the World Bank projected a whopping 19.2% decrease in 2020. Meanwhile, its debt-to-GDP ratio reached a historical high of 170%.
Yet, in a recent interview with Lebanon’s business magazine “Executive”, the minister of The Investment Development Authority of Lebanon (IDAL) Dr. Mazen Soueid spoke optimistically: “We are working to make IDAL in 2021…a hub of excellence that will remain after the tsunami recedes.”
Since IDAL works closely with the tech-oriented start-up scene, Dr. Soueid’s confidence isn’t unfounded—the private tech sector has shown promising growth and resilience.
Even before 2019, the technology sector had to deal with Lebanon’s weak infrastructure in energy and telecommunications.
Daily Power Cuts
Electricité Du Liban (EDL), Lebanon's state-owned electricity supplier, can only satisfy 63% of the demand. While a quarter of Lebanon's budget deficit goes to energy spending, EDL loses $4 billion annually due to waste and inefficiency.
Under constant rotational outages, urban middle-class families use generators equipped in their apartment buildings to cover the blackouts, while the poorer population relies on overpriced, illegal private generators--or "diesel mafias".
According to BBC, families paying private generators spend two seventh of their household income just to ensure 24/7 electricity.
Last July, daily outages that lasted 22 hours led to outcries in major cities across Lebanon, including Jounieh, where protestors stormed the office of EDL to voice their complains.
Insufficient Telecommunication Infrastructure
Lebanon enjoys an impressive 94% internet penetration rate--third highest in the region, but to embrace a digital society, Lebanon's internet infrastructure still has a way to go.
Compared to the global average 63.85 Mbps, Lebanon's average broadband download speed of just 10.88 Mbps shows serious lag.
"We work with different internet providers, and still it takes hours to upload a minute-long video," Layal Bahnam at the Beirut-based NGO Maharat Foundation complains.
Affordability, urban-rural divide, and the lack of government initiative are also present problems.
In a recent interview with "inside telecom", OGERO Chairman Imad Kreidieh says, "What is really hindering the process of the digital transformation is the lack of decisions being made at government… level."
Currently, OGERO has installed 5G service at the Rafic Hariri International Airport and owns two cloud platforms, but both services need government actions for further installation.
In contrast, the Lebanese government shows more initiative in fostering the tech-savvy start-up scene.
The Start-up Ecosystem
In August 2013, Lebanon's central bank Banque du Liban (BdL) issued Circular 331, a guarantee scheme that aimed to input more than $500 million to Lebanon's knowledge-based economy—mainly its start-ups—by 2015.
According to Circular 331, BdL would cover total or partial losses in investments to start-ups, incubators, Venture Capitals (VCs), accelerators, and other support programs.
The initiative incentivized the powerful but conservative banks to invest in the start-up ecosystem, effectively tripling its funds by 2016.
In 2019, before the economic downfall, the promising eco-system has even brought hopeful talks about Beirut being the next Silicon Valley of the Middle East.
"We have created a bubble of hope", says Mohammed Rabah, the CEO of the local incubator Beirut Digital District.
The financial downfall, however, has severely hit the ecosystem because of the banks’ capital controls. “It is hard to operate in a fast-paced industry through severely decrepit banking services,” says Nadim Zaazaa, the managing partner of Nucleus Ventures, a seed program for Lebanese start-ups.
Although the bubble of hope might have burst, the ecosystem remains resilient. Despite the challenges, Zaazaa speaks confidently about the ecosystem: “it is a battle-hardened and experienced ecosystem that will self-correct to become more sustainable and expand beyond geographic Lebanon.”
In addition, the ecosystem has a supply of brilliant talents, and 2020 alone has seen plenty award-winning ideas from Lebanon.
Notably, tech start-up Mrüna won the InfraChallenge with its onsite, eco-friendly wastewater solution BiomWeb. The start-up will collaborate with the MIT Solve and the competition’s host—the Global Infrastructure Hub—to take BiomWeb onto the global market.
Beyond the start-up ecosystem, technology sectors where Lebanon traditionally has an advantage also show adaptive innovations and resilience.
Lebanon has the third most competitive FinTech startup ecosystem in the MENA region. It hosts 14% of the region's fintech startups and receive services from 27% of them, trailing just behind Saudi Arabia.
Lebanon’s robust financial sector makes up 8% of the GDP in 2015 while its banks' assets amount to 4 times of its GDP. Yet, it has a low bank account penetration rate of 44.8%, leaving FinTech companies room to explore.
Today, Lebanon hosts 28 Fintech companies.
Among them, the first mobile payment app in Lebanon PinPay was launched in 2011, and it has since sparked growth of similar services like Simba and Tap2Pay.
Other leading companies include Murex, Areeba, and Foo, providing services ranging from Business-to-Business (B2B) solutions to integrated platforms for major banks worldwide.
Despite Lebanon's terrible credit rating, Beirut is still attracting investments—Gulf-based FinTech FlexxPay has opened its telesales center earlier this month, and aside from FinTech, electric car manufacturer Electra also plans to launch its factory in Beirut.
Ranked 4th worldwide for quality of math and science education, Lebanon is well-poised to foster the EdTech sector, and its existing 16 start-ups show potential.
Among "50 Startups to Watch in the Arab World" by Forbes, Lebanese startup كم كلمة (Kamkalima) holds the 20th place. Its educational e-platform that focuses on the Arabic language has reached over 19,000 students across 8 countries since its founding in 2014.
Another e-learning platform, Synkers, pairs students with tutors and supports major curriculums in Arabic, English, and French. Having raised $1.8 million funds last September, the start-up aims to enter new markets in Saudi Arabia, expanding its already wide customer base of 60,000 students and 1,000 tutors.
At a time of remote learning, these platforms have offered enormous relief to students and educators in Lebanon.
Tabshoura, a learning platform by Lebanon Alternative Learning (LAL), is taking a step further by registering 100,000 public school students on its platform, in a collaboration with the Ministry of Education and Higher Education.
A report by Cureus published a month after the explosion calls it "the final nail in the coffin of an already toppling healthcare system".
The blast directly destroyed several healthcare facilities while adding thousands of injured patients to hospitals. "The prominent tertiary medical hub has regressed into a primary care provider", says the report.
The HealthTech sector, however, showed great versatility in the face of crises.
In a report by IDAL, the authority lists a wide range of innovations. These include a new facial recognition & fever screening system designed by Fab Lab at the local accelerator BeryTech and an online platform with augmented reality for remote clinical collaboration by scale-up Proximie.
At the moment, Lebanon has arrived at a critical turning point.
As French President Macron has promised international aid upon the condition of “roadmap of reforms”, more than ever, Lebanon’s future depends on its government.
If Lebanon makes the right turn, its innovative, talented, and resilient technology sector will surely lend a helping hand to its recovery.
Written by Hantong Wu
Edited by Alexander Fleiss, Pavan Nagaraj & Jeremy Knopp