Lebanon’s innovation scene is fighting the brain-drain

Key Findings

— Beirut's tech start-up scene is growing
— But not all entrepreneurs in Lebanon are that lucky: journalistic and media start-ups in particular have a hard time
— Most of the innovations that come from Lebanon are related to software
— The government's Circular 331 has provided a much-needed boost to the start-up scene
— Lebanon is fighting the brain-drain

In the heart of Beirut, one building follows another on a slope - the Beirut Digital District. It's been six years since the BDD, as it's been nicknamed, was founded. "The vision was to build the hub for the digital creative community", says Stephanie Abi Adballah, spokeswoman for the BDD. There are currently ten buildings on 17,500 square meters for Beirut's innovation scene to spread out on, and expansion plans are already afoot, as the demand for space, especially for start-ups, is growing. There are also plans to rebuild an old destroyed church to create more office space for various companies.

Beirut's tech start-up scene is growing - and becoming more colorful and diverse. Even if banks and regulators do not make it easy for entrepreneurs, the entrepreneurial ecosystem is flourishing, with offerings for the Lebanese economy, especially in the areas of agri-tech, education technology and digital agencies.

But not all entrepreneurs in Lebanon are that lucky: journalistic and media start-ups in particular have a hard time getting a foot in the door of interested investors. Since the media in Lebanon is far from being independent, many potential sponsors are skeptical of the new models being presented. For that reason, only a few journalistic startups, such as Daraj and Raseef22 - have managed to survive. Both mainly keep themselves afloat with financing from foreign sources, as local advertising partners are difficult to find. Within the local entrepreneurship ecosystem, commercial organizations, digital agencies and media planners were however already successful prior to the emergence of the Beirut Digital District.

Beirut Digital District in the heart of Beirut

Berytech – the Incubator
Some of those Start-ups were sponsored by Berytech, a company founded in 2002 which now has 3 branches in and around Beirut. At first, Berytech was an incubator for the Information and Telecommunication (ICT) sector – but they expanded to three physical incubators. ICT is still a focus, but their outlook has expanded to include agri-tech, social innovation and the digital creative sector. "We tend to work on the business modelling of the idea – the validation of the idea and how to commercialize it. We work with partners on patenting and also on internationalization," says Ramy Boujawdeh, deputy general manager at Berytech.

Anyone with a business idea can contact Berytech, but the company also goes on the hunt for new projects. "We run idea funds. We run hackathons. We do sessions we do talks in entrepreneurship clubs." Events such as "Just meet-up," the "Fab Lab" or the "BDD Academy" have become well-known institutions in Beirut as places to look out for or promote new entrepreneurs.

Lebanon – second in the region

"So, if you compare the region, and look at the startup index in the region, Lebanon comes second after Dubai", says Boujawdeh. Although Beirut’s start-up scene is not yet comparable to Berlin or New York, the government is supporting it with the introduction of Circular 331. In 2013, the central bank decided to promote the "knowledge economy," because they recognized its enormous potential. "Lebanon has a good stem education - we are doing well in terms of science and math, and so they decided to create a mechanism to motivate commercial banks to invest in startups," Boujawdeh explains. "They created Circular 331 – which is a mechanism where they would guarantee up to 75 percent of the banks’ investments and allowed them to take up to four percent of their reserves in the central bank to invest this money in startups."

But since the banks did not know how start-ups work, the banks decided to "diversify their portfolio within Venture Capital (VC) funds." There are currently ten VCs in the Lebanese ecosystem and several incubators and accelerators. "Most of the innovations that come from Lebanon are related to software – for two reasons: Software is easy to develop, easy to scale internationally. Software doesn’t cost as much as hardware or science. It was a quick win. Now we're seeing more and more of the other innovations coming up but not as fast as the software sector."

Berytech - Ecosystem for Entrepreneurship

Circular 331 boosted the start-up scene

It's clear that Circular 331 has provided a much-needed boost to the start-up scene,but tech start-ups still face challenges if they really want to make it. Lebanon is a small country with a small market, so many well-educated people prefer to work abroad. "With the brain drain, we lose most of the talented people from Lebanon to the world: They don't stay here because it's easy for them to be attracted by a big company somewhere else." Those who stay behind are either not the top talents, or those who come from wealthy families and are already plugged into existing entrepreneurial networks.

That being said, Boujawdeh does not see the country's weak infrastructure, daily power outages, and expensive (and relatively slow) Internet as the biggest limiting factors for Lebanon's innovation sector. "The limiting factor is not knowing how to penetrate new markets." Considering the size of the country, this facet is of particular importance, "because when you're looking at a small population with limited digital transactions and interactions - you need to look at something bigger." For that reason, Berytech and other incubators enjoy working with entrepreneurs who have a global vision.

With his global vision, Boujawdeh has more than Western markets in mind: "I believe we have a lot of opportunities in developed and developing countries. I think we need to push more people to look at frugal innovations that could solve problems in the local context but are similar in other places." For example, they have recently developed a dating app for Saudi Arabia.

Some business transactions in Lebanon are now being handled via whatsapp - even across borders. Photos of products are sent to customers: Boujawdeh calls this "business interaction." "But when you look at Lebanon in terms of digital literacy and the digital use in the business sense, you will not find many people who do transactions online or fill out forms online." But Boujawdeh is also convinced that the younger generation is well on its way to transforming this reality.

What expert says:

Ramy Boujawdeh, deputy general manager at Berytech

Ramy Boujawdeh from Berytech: 
"If we're looking at the status quo in terms of the political situation in Lebanon, I'm not super optimistic because the economy is going backward. Opportunities to emigrate become more enticing. But if the current government is keeping its promise that they want to change they want to adjust the infrastructure, then I think we have the potential to still be a leader in the region. I don't think we would be a major player on the globe. But I am very optimistic for the young people that come to our program."
 

Grace Harb, program director of Initiation to ICT and Tech for Girls and Marginalized Youth

Grace Harb, program director of Initiation to ICT and Tech for Girls and Marginalized Youth:
"I think access to finance is one of the biggest challenges for women. They ask her to bring a guarantee, a warranty from a man."

Stephanie Abi Abdallah from Beirut Digital District

Stephanie Abi Abdallah from the Beirut Digital District:
"Usually, startups that want to make it, don't focus only on Lebanon because Lebanon is a very small market, so it's considered to be more of a test market. So, for them to actually make it and grow they have to access different markets."

Recommendation:

— New laws
Lebanon needs better commercial laws. "One of the major points in Lebanon is closing down a business in Lebanon. It is a nightmare", says Boujawdeh from Berytech. "You need to report five years of taxes before you can close down. The bankruptcy law is terrible." New laws must be passed and implemented. "I know that the government is preparing a lot of these reforms, so we're hoping that this will happen."

— Circular 331 still has money
The Circular 331 funds have not been all spent yet. "There were problems due to the economic situation, that led to actually freezing some of this and slowing it down.There is a question about its continuity," says Stephanie Abi Abdallah. In order to boost the startup economy even further, the government should continue to invest the Circular 331 money.

— More Media
Lebanon needs a more diverse media start-up scene with more innovative approaches to journalism, so that journalists can develop their own subject areas and, for example, report on innovation and start-ups. Berytech also advocates this approach.

The #speakup barometer is a DW Akademie project that examines the connection between digital participation, freedom of expression and access to information. Learn more at www.dw.com/barometer