Start-ups: the reasons behind the talent exodus from Lebanon

The search is alarming. It is even surprising if the Lebanese ecosystem of start-ups is breathing its last breath today.

Ranked 2nd in 2017 and 2018 in the MENA zone, in terms of the number of investments made in start-ups, just behind the United Arab Emirates, Lebanon has continued to decline since then. Fallen primarily under the weight of the economic and banking crises triggered in 2019 and the Covid-19 pandemic, the country now ranks only 14th out of 18 countries selected in this ranking made of the firm Arabnet. Of the total 56 operations worth $ 54 million in 2017, investments made in Lebanon in 2021 only reached $ 16 million, collected over 12 operations.

Formerly considered a heavyweight and a reference model in the regional digital scene, Lebanon has rapidly lost stature over the past three years, ranking 6th in 2019 and 8th in 2020 and only managing to outsmart Sudan (15th), Libya (16th), Yemen (17th) and Syria (18th) in 2021.

It aims to take a closer look at the various effects of the many crises on the Lebanese ecosystem of start-ups commissioned by the German foundation Konrad-Adenauer-Stiftung (KAS) from the Arabnet of studies in this sector, its results were presented yesterday in the Antwork coworking space. Entitled “Braving the Storm: Safeguarding the Lebanese Innovation Economy,” the report is available on their respective websites.

Talent drain

The study was based on the same data collected during a “focus group” consisting of 5 start-ups, on the results of a questionnaire to which 46 Lebanese start-ups responded and, second, on the information collected in individual interviews with 15 local investors, incubators and other key players in the ecosystem. In addition to establishing the state of play, the report’s authors also highlight the opportunities that exist today and present to those responsible for some recommendations that will stimulate the ecosystem. Regarding the impact of the crisis, they specified that the observed effects can be divided into five categories.

First, fallout was felt in terms of talent drain. According to the aggregated data, there is a lack of availability in Lebanon of certain qualifications, especially in the case of technological skills. Thus, nearly two-thirds of the entrepreneurs surveyed complain that they cannot hire and retain qualified people in terms of coding and development. The three most frequently cited reasons for leaving employees were related to searching abroad for more security (63%), a better standard of living (60.9%) and better opportunities in finance (58.7%).

Second, the report raises the lack of access to investments and funds, caused by successive crises. A situation that represents the “most compromised challenge” for companies according to the data collected, before the complications associated with the transfer of money abroad and the flight of talent.

Collapse of the local market

Chosen the third impact, access to foreign markets: an important point which, in this case, has allowed a large number of Lebanese start-ups to survive, even grow, while the country is in crisis and the purchasing power of the Lebanese government has been dramatically reduced since 2019. For some of these companies, going to foreign markets to export their products and services is “the only conceivable life line. ”

In this context, the report’s authors defined that “exporting and finding overseas customers is an important priority” for Lebanese start-ups today, while sales in the local market are not. interested in them. To illustrate this situation, the study reports the words of an investor stating that “before the crisis, 70 to 80% of revenue was generated by local operations”, while today, “60% is income comes from abroad.At the same time, the report identified that young start-ups are the most affected, as they are the most dependent on the local market and therefore the most affected by the collapse of local demand.

Fourth, Arabnet noted in its report the negative impact of the crisis on the country’s infrastructure, whose deterioration has affected the performance of local start-ups. According to the data, 91.3% of start-ups say that the deterioration of infrastructure quality has a negative impact on their productivity, while 37% report that they are even forced to miss their goals. At this level, it is primarily a question of banking restrictions imposed since 2019 with regard to withdrawal and transfer limits abroad, which adds to the slowdown in the level of access quality. internet and power supply.

Relocation

There were so many problems that pushed start-ups to move. More than half of those surveyed (54.3%) confirmed that they had moved at least part of their activities abroad, with Cyprus being the most adopted option. A solution that, in addition to allowing them to resolve their payment and fund transfer problems, also allows them to reduce their risk exposure in the Lebanon -related country and increase their chances of raising funds. funds from foreign investors.

Finally, the fifth point raised in this study relates to the Lebanese government and to the regulatory framework to which start-ups are subject. It thus noted that all participants complained about the “shy reaction”, even of “absenteeism”, of the executive in the face of the many crises in which Lebanon has collapsed and the restrictions imposed on them in framework of the mechanism established. by Circular No. 331 of the Banque du Liban.

Founded in 2013 with the aim of encouraging commercial banks to invest in Lebanese start-ups, by guaranteeing these investments up to 75%, this circular is now far from cohesive within the ‘ecosystem. While some entities interviewed believe its implementation has been successful, others still have a bitter taste. Half of those who questioned and benefited from its mechanism stressed that the conditions imposed by Circular No. 331 should be relaxed, especially those preventing them from moving and working from abroad. A condition that was then aimed at developing the sector in Lebanon, but now only hinders the growth of those present.

Forward

Beyond all the problems raised and despite all the effects of the crisis, however the authors ensure that all is not lost and the current situation can allow start-ups to thrive in the right direction. The increasingly urgent need to cover new markets is driving them to innovate further and develop their offer further. The fact that the reduction of the Lebanese pound has reduced some costs makes them more competitive abroad. Finally, the crisis has contributed to creating favorable conditions to make Lebanon an attractive digital outsourcing center, due to the overall capability level of the local workforce which has also become cheaper.

Finally, KAS and Arabnet have made some recommendations or methods that they believe will allow Lebanon to take advantage of this situation and respond to many challenges. Among those stated, “expand understanding of what constitutes the local ecosystem” to support Lebanese entrepreneurs based abroad and ensure that their success is reflected in creating opportunities and jobs in Lebanon. . A point that therefore requires a revision of the regulatory framework to allow start-ups to move freely, either partially or completely. It should also allow Lebanese expatriates to play an important role in accessing financing and opening up new markets.

To alleviate the infrastructure problems faced by start-ups, the report suggests creating special zones dedicated to them, where the power supply is adequate and internet access is assured. Finally, and given the comparative advantage of the local labor force in terms of costs and skills, the authors suggest that Lebanon still has the potential to position itself as a digital center of change.

The search is alarming. It is even surprising if the Lebanese ecosystem of start-ups is breathing its last breath today. Ranked 2nd in 2017 and 2018 in the MENA zone, in terms of the number of investments made in start-ups, just behind the United Arab Emirates, Lebanon has continued to decline since then. Falling especially under the weight of crises …

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