BEIRUT: More and more investors, both local and foreign, are shunning Lebanon as a place to establish or develop their businesses, and this is despite the country has some of the best educated people in the Middle East, a high standard of living, and has seen a period of relative stability.
Potential investors to Lebanon are faced with a bureaucratic government with outdated business laws, one of the slowest Internet connections in the world and ailing infrastructure – including an inadequate road infrastructure, minimal public transportation and daily power outages along with expensive and loud generators.
“Lebanon can attract many times more than what we have. That’s what’s frustrating,” says Nassib Ghobril, head of economic research and analysis development at Byblos Bank.
“If we don’t implement reform, we miss economic opportunities.”
Lebanon lags behind its MENA neighbors in almost every business, including country risk perception, living conditions, ease of doing business, enforcing contracts and starting a business, according to a study by the World Bank, Mercer and the World Economic Forum.
In addition, due to a lack of regulatory laws, the country’s 12-company stock market has fewer listings than any other in the region, including socialist systems such as Libya and Syria. As a result, many Lebanese companies opt to list on foreign bourses rather than on the Beirut Stock Exchange, Blom Bank and Audi Bank just to name a few.
On the other hand, the World Bank ranks Lebanon second in the region after the UAE for logistics, namely the flow of goods in and out of the country.
“This says that Lebanon is capable of reform, and the regulations can have world-class standards. The process just needs to be completed,” says Beirut-based business consultant Aiman Mackie.
The obstacles to doing business in Lebanon affect foreigners, who often hesitate to invest due to lack of knowledge on the country, and Lebanese who are often deterred by what they do know about the business environment of their homeland. As a result, over the years, potential investment in Lebanon has moved to the Gulf states, particularly the relatively new financial hubs of the UAE and Bahrain.
One local example is Uniceramic. The Bekaa Valley-based ceramic company founded in 1973 had to close down its local operations and declare bankruptcy in 2008, due a number of factors, including the high cost of local corruption and bureaucracy. Today, the company continues to operate and distributes products manufactured at its branch in Dubai.
A government official speaking on condition of anonymity, said corruption played a big role in turning off regional and international firms on establishing a base for businesses in Lebanon.
“Companies in Lebanon have to pay a lot of money to middle-men, on everything from customs to documents. It all adds up,” says the official, adding: “Any industrial enterprise is not operating comfortably in Lebanon.”
He adds: “They’re watching their bottom line and they’re barely breaking even.”
The official suggests that instead of leaving Lebanon’s industries up to market forces, instead the government should invest in research programs for the sector. “A vision needs to be established between the government and Lebanon’s private sector, and this should be supported with political backing and financial resources to make it a reality.”
John Akouri, head of the Lebanese-American Chamber of Commerce based in Washington, believes that sectarian and political connections discourage both locals and foreigners from doing business in Lebanon – something that is much less of an obstacle in the Gulf.
He says that in Lebanon “the rules change for certain individuals based on ‘connections.’” He suggests that “the government could create an environment that promotes new ideas and business ventures, ensuring the same process for everyone despite their political and ethnic background. In this manner, rules and regulations shall be collectively imposed within the same across-the-board business model on each and every company and investor.”
Habib Haddad, founder of the Arab search engine Yamli, which translates Latin script to Arabic, suggests that the government “set the right channels and then step back [and] let the entrepreneurs do what they do best.”
He said: “For that purpose, the first thing the government has to do is to fix the infrastructure, particularly broadband Internet … Governments can also put incentives and market guarantees for innovations in a particular industry, and I think Lebanon in particular has an amazing pool of creative talent that should be leveraged.”
Today, it’s rare for Lebanese IT entrepreneurs to invest in their home countries.
“I’m not going to stop my business because of my country. I came back because I love Lebanon,” says Mark Malkoun, who has recently developed a smart phone application called aimout.com, which allows people to take a picture, then distribute it to people within close proximity, mimicking the way news is spread by word of mouth.
Even though he’s been able to work around Lebanon’s slow Internet (usually through his mobile), and he’s been able to attract investors, he says it’s almost impossible to find experienced staff, and all his staff needs to be trained from scratch.
Similarly, Lebnan Nader, who also works in mobile applications development, says he has stayed out of love for his country, in spite of its inhospitable business environment – not because of it.
He said it had taken over six months “to actually start working,” citing excessive competition in the region and “the lack of honesty and professionalism that people have, which means delays in replying, promising a deal then never complying, maybe even getting someone instead that can help make what we call the ‘habibi business’ [which means we give business to who we know].”
In fact, in the end the obstacles he encountered led him to change his business plan.
“All this led me to give up on the business and start making apps for the end users instead of operators and B2B, so we shifted our focus to B2C segments,” he said.
Prior to the 15-year Civil War that ended in 1990, Lebanon was the business hub of the Middle East. This changed in the 1970s, as companies opted for the stable and oil-rich Gulf.
“We haven’t upgraded our legal framework and infrastructure since the Civil War,” said Marwan Barakat, head of research at Bank Audi.
But with the recent financial crisis, Lebanon made something of a comeback, being one of the very few countries in the world to avoid the financial crisis due to its conservative banking sector.
Today, with the ongoing unrest in the Gulf, Lebanon hasn’t taken advantage of the opportunity to attract businesses, points out Barakat.
“I see this turmoil as another opportunity lost. We could have attracted money from Bahrain, but we’re not in the position to attract inflows,” says Barakat.
“Lebanon is in a position to be a regional center, but not with its current political, legal and business environment, and legal infrastructure of the country,” he adds.