Beirut, Lebanon; 31 March 2022: A new report commissioned by the Konrad Adenauer Foundation and developed by Arabnet offers a comprehensive assessment of the impact of the Lebanese crisis on the local startup ecosystem, highlights opportunities, as well as potential solutions and policy recommendations.
Titled ‘Braving the Storm: Safeguarding the Lebanese Innovation Economy’, the report uses data collected across three methods – a startup focus group, a quantitative survey targeting 46 local startups; and one-on-one interviews with 15 decision makers in key support units.
Arabnet and KAS presented the findings from the report during a live event on March 31st, that included live commentary by local industry leaders – featuring the Chairman – Director General of OGERO Telecom, Managing Director of Flat6Labs Lebanon, Chairman and CEO of IM FNDNG, Board Member of LAU Innovate, and the Head of Investment Banking and Deputy CEO at Blominvest Bank. The event also included a panel discussion on cross-border collaboration to support the startup ecosystem – featuring the Managing Director of DEEP Ecosystems, COO of Berytech, and the Counselor for Economic Affairs, Culture and Press at the German Embassy in Beirut.
Since October 2019, Lebanon’s economy has entered a prolonged economic downturn, marked by a severe financial crisis, a collapse of infrastructure services, and a crippling political deadlock. In 2020 alone, Lebanon’s real GDP shrunk by 20.3%, while inflation averaged 84.3% in the same year.
The Lebanese innovation ecosystem, much like the wider economy, has also been severely affected — between 2017 and 2021, yearly total investments in local startups shrunk by more than 70%. This report offers a critical assessment of the impact of the crises across 5 key dimensions: talent, access to capital, access to markets, infrastructure and operations, government and regulation.
“In light of the economic crisis, Lebanese authorities, the Lebanese diaspora, and the international community must join forces to preserve what remains of the once vibrant entrepreneurial sector and the startup ecosystem in the country. Only then can startups and SMEs become the drivers of the economic recovery and reconstruction that Lebanon would urgently need.” Michael Bauer, KAS Representative to Lebanon
Key Highlights:
The crisis has accelerated talent exodus, leading to a considerable shortage of technology-related skills as well as the creation of an experience gap: a depletion of trained workers who are replaced by inexperienced new entrants.
The degradation of the Lebanese infrastructure has had an overwhelming effect on local startups: A vast majority of the surveyed startups (91.3%) confirmed that the decline in the quality of infrastructure had in fact affected their productivity; 37% of the startups reported missing targets
Uncertainty around startups’ ability to overcome infrastructure challenges and meet demand has created an extremely risky investment environment, particularly for foreign investors.
The political deadlock is crippling the recovery of the banking system. The failure to officially determine the size and distribution of the losses of the financial sector is keeping banks from attempting to resume operations, particularly lending.
“The crisis in Lebanon has debilitated the startup ecosystem through the flight of talent and capital from the country, in addition to the massive operational challenges facing startups. Arabnet’s insights — gathered from startups, investors, and public and private sector stakeholders — hone in on the key challenges and bottlenecks, and, more importantly, help guide the way forward by identifying emerging opportunities and proposing actionable solutions.” Omar Christidis, Founder & CEO, Arabnet
The report is able to formulate recommendations that address emerging challenges and common bottlenecks in the ecosystem, including:
Broadening the view of what constitutes the Lebanese innovation ecosystem. Supporting foreign-based Lebanese startups and entrepreneurs, and working to ensure that their success is funneled back to create economic and job opportunities in Lebanon. Accordingly, revising rules and policies that restrict Lebanese startups from freely relocating, either partially or fully, operations outside of Lebanon becomes paramount. Efforts must also be directed at facilitating exporting.
The international community and the Lebanese diaspora can play an essential role in supporting Lebanese startups to access new sources of financing as well as opening up new markets.
To mitigate the infrastructure crisis in Lebanon and ensure that startups function effectively, productivity zones could be established where energy supply and internet connection are ensured.
Given the comparative advantage of employing the local workforce, there is an opportunity for country-level marketing that positions Lebanon as a hub for digital or innovation activities.