Chapter 10. Lebanon
The foundations of SME policy: definitions, statistics and institutions
Lebanon has yet to develop a full-fledged SME and entrepreneurship policy. Although the Ministry of Economy and Trade have developed an SME Strategy, the document lacks details about implementation and resources and several, if not all, of its stipulations appear to be proposals instead of guidelines. Although an SME definition is proposed (not set) in the Strategy, it has so far been adopted only by the Ministry of Economy (Table 10.1).
A draft SME Law has also been developed and is pending approval by parliament. The draft SME Law’s Articles 2 and 3, put forward slightly different definitions of SMEs than the one shown on Table 10.1. The definitions in the SME Law also differentiate between commercial and service enterprises, industrial enterprises and agricultural firms. The definition included in the SME Law is the one expected to be adopted once it is enacted.
On SME and entrepreneurship statistics, Lebanon is one of few MED economies without an official source of data. The Central Administration for Statistics does not undertake establishment or business censuses and there are no initiatives to exploit administrative sources of information such as business registries or tax information. The Ministry of Industry has launched the Permanent Industrial Statistical System, an annual statistic form to be filled by industrial SMEs applying for an industrial certificate (around 2000 factories) in order to collect general information about factories as well as financial information. The aim is to create an industrial database system within the ministry of industry to undertake an annual survey.1 The Ministry of Industry is also conducting a census covering 8 200 factories (95% of them SMEs), of which 4 700 are registered at the Ministry of Industry and the rest obtained their license before the establishment of the Ministry of Industry or are unlicensed. This census will help regulate the sector in Lebanon.2
Along these lines, the draft SME Law that is pending parliamentary approval also stipulates that the SME Unit within the Ministry of Economy and Trade shall establish a database of enterprises and undertake an inventory and a classification of micro, small and medium-sized enterprises. The SME Strategy also calls for the establishment of an SME Observatory which should be tasked to regularly conduct and publish research, statistical and impact analysis on SMEs and support entities, and maintain a comprehensive database to ensure continuous and effective monitoring of support to SMEs. The Ministry of Economy and Trade is working with the World Bank to establish such an SME Observatory as part of the National Job Creation Program.
In terms of the wider economic agenda, Lebanon has been significantly affected by refugee inflows from Syria and Iraq. In this context, an international conference (CEDRE) was held in April 2018 to support Lebanon in facing the important challenges and burden of the negative spillovers of regional conflict. At the conference, the international community pledged USD 11 billion in loans and grants to support Lebanon’s investment and reforms programme.3 The government also unveiled a Vision for Stabilisation, Growth and Employment, which includes a number of structural reforms such as revising the Code of Commerce, developing the regulatory framework for e-government and e-banking, and other reforms to improve access to finance and the judicial system. This reform agenda could improve the business climate and have a positive impact for SME and entrepreneurship development.4
Concerning the institutional framework and co-ordination for SME development, the Ministry of Economy and Trade continues to play the leading role in policy development and co-ordination while the Ministry of Industry focuses on industrial development, including co-operation in the context of the Euro-Med network of industrial policy experts.
The draft SME Law, which is yet to be approved by parliament, stipulates that one of its objectives is ensuring co-ordination among all bodies and institutions working in the field of enterprise development to achieve the objectives of the relevant Lebanese national strategy. The SME Law also specifies that the SME Unit of the Ministry of Economy and Trade will be in charge of developing and implementing a national strategic plan relating to enterprises, updating it on a permanent and continuous basis, and setting the necessary rules and regulations to co-ordinate with the concerned parties in the public and private sectors. According to the consultations for this interim assessment, a concrete action plan to operationalise the SME Strategy will be developed once the SME Law is published (although there are no details of when this will happen).
On public-private dialogue (PPD), at the time of the SME Policy Index 2014 the main initiative promoting PPD was the multipartite platform Improving the Business Environment in Lebanon (IBEL). However, IBEL is no longer operational and did not reach its goals of improving several aspects of the business environment. Furthermore, there are no published documents on the IBEL’s achievements and several of the government and private sector officials consulted for this interim assessment were not aware of its existence.
The Ministry of Industry is developing an action plan in collaboration with national and international experts and as a product of seminars conducted under the EU-supported Enhancement of the Business Environment in the Southern Mediterranean (EBESM) project. The aim is to institutionalise PPD in the SME policy-making process through a ministerial decree. Furthermore, the SME Strategy to 2020 and its action plan include provisions to foster PPD through regular roundtables,5 establish a web portal,6 and a mobile application to facilitate SME engagement, and hold a yearly SME stakeholder forum.
For further action: Lebanon could significantly increase its efforts to establish a full-fledged SME policy by approving the draft SME Law and implementing a detailed, action-oriented SME strategy that identifies concrete goals, targets, responsible parties and budgets – elements the SME Strategy lacks in its current form. Furthermore, the SME Law and the SME Strategy could be better aligned by addressing divergences such as the proposed SME definitions. Lebanon has also plenty of space to improve official SME statistics, which are mostly absent. The Central Administration for Statistics could for instance launch an economic census that could be eventually substituted by the use of administrative sources of enterprise information such as tax records, social security, and the business registry. Administrative data could be complemented with surveys to cover the informal economy. Along these lines, Lebanon could establish the planned SME Observatory to disseminate data on SMEs and useful information for entrepreneurs and business managers. The authorities should empower the SME unit in the Ministry of Economy and Trade or consider the creation of an official SME agency with policy co-ordination and policy implementation responsibilities, following the models of other MED and OECD economies. The SME unit or agency could also act as secretariat for the implementation of an SME strategy. In terms of public-private dialogue, Lebanon could reactivate the IBEL initiative to foster multipartite co-operation in areas such as improving the business environment and enhancing targeted SME policies. Laying the building blocks of a complete SME policy could prove costly at the beginning and would require significant capacity building; the donor and international communities could support Lebanon in this important endeavour, always keeping in mind the sustainability and scalability of efforts in the medium-to-long term.
Improving business environments for SMEs and entrepreneurs
Since the publication of the SME Policy Index 2014 there appear to be no comprehensive efforts for regulatory reform and administrative simplification. First, as mentioned above, the IBEL is no longer operational. Furthermore, there is no evidence of concrete efforts towards the development and implementation of regulatory impact analysis (RIA) and the introduction of an SME test.
According to the consultations for this interim assessment some of the 40 initiatives to improve the business environment put forward by the SME Strategy are being implemented by an EU-supported project under the co-ordination of the Office of the Minister of State for Administrative Reform (OMSAR) and in co-operation with relevant ministries involved in business regulations. Yet the information provided refers to an e-government initiative aimed at facilitating business procedures (the OMSAR e-government programme) and not to the establishment of a mechanism for regulatory impact analysis.7
Concerning the facilitation of procedures for the creation of new enterprises, the Ministry of Economy has created an electronic platform to register online for several services.8 Yet there is no online registration for new enterprises. Business registry is done through the Commercial Registry and the Chambers of Commerce and is paper-based. There has been no progress with regards to one-stop shops for company registration, although according to the consultation the OMSAR project is to be staged in two phases: 1) the simplification of regulations and 2) the creation of one-stop shops.
In terms of bankruptcy, according to the SME Policy Index 2014 the government was revising the legal framework for insolvency and drafting a modern bankruptcy law through the IBEL initiative. There have been no changes in this regard since then.
For further action: There is plenty of space for action to establish initiatives to improve the business environment for SMEs and entrepreneurs. OMSAR could spearhead an initiative to introduce regulatory impact analysis and an SME test in Lebanon, in co-operation with relevant ministries and government agencies. Such an initiative could be accompanied with the re-activation of a platform for public-private dialogue, as seen in the previous section. The establishment of a single identification number for enterprises (of which there is no evidence) could also facilitate these efforts by making it easier for firms to deal with different public agencies. A single identification number could also have the advantage of helping to improve data collection, as noted in the previous section. Much greater effort could also be made to modernise the bankruptcy system, which is one of the most difficult in the MED region.
Fostering access to finance
In terms of the legal and regulatory framework for access to finance, the SME Policy Index 2014 noted that a credit registry was operational at the Central Bank. The registry back then was covering nearly 20% of the adult population (the figure now is 22.9%), higher than the OECD average. The consultations for this interim assessment noted that a public announcement issued by Central Bank (BDL) mandated that both legal and physical persons will be now allowed to request a credit information report from any BDL branch and not only from the headquarters. This initiative aims at making the provision of credit information decentralised and faster. In contrast, this interim assessment finds no progress or plans for the establishment of a credit bureau.
The SME Policy Index 2014 also pointed to ongoing work with the International Finance Corporation (IFC) towards establishing a legal framework for a registry of moveable assets. A draft law has been approved by the Council of Ministers on 27 March 2018 to allow the use of movable assets as collateral, and, once enacted, should be followed by the creation of a collateral registry.
In contrast, some progress has been made in terms of the availability of sources of finance for SMEs. In 2016 the Central Bank amended the regulatory framework to increase the margin of funds that banks can dedicate to financing firms in the knowledge economy sector, by authorising them to invest, with a BDL guarantee of 75%, up to 4% of their own capital, compared to 3% previously. The measure would raise the funds available for this purpose from USD 400 million to more than USD 600 million. In addition, about eight venture capital funds were created following this reform and thanks to the funds made available in the change of legislation.
In terms of access to credit, the BDL has also given incentives for banks to finance enterprises in different sectors and give them loans at very low interest rates (1% from the BDL to banks and up to 3% from banks to firms). This measure, first launched as a USD 1.47 billion stimulus package in 2013, has been renewed for the fourth consecutive year, with an average of USD 1 billion per year. The stimulus package targets, among other things, SMEs, although there is no evidence on its impact. This measure is intended to fund loans for investments and not for working capital (unless the loan is accompanied by a guarantee from Kafalat, the main credit guarantee scheme).
There have also been new initiatives by Kafalat introduced since 2014, notably the Kafalat iSME programme, a USD 30 million fund borrowed by the Republic of Lebanon from the World Bank and entrusted to Kafalat SAL to manage. The programme provides Concept Development Grants (of up to USD 15 000) for innovative projects and equity co-investments (between USD 100 000 and 1.2 million) provided alongside other capital investments by venture capital funds, holding companies, formal business angel groups and investment banks. To date the programme has given 70 grants and four equity investments.9
Another new initiative to provide equity investments and support to start-ups is IM Capital, supported by the United States Agency for International Development (USAID) through the Middle East Investment Initiative and managed by Berytech, a business incubator and provider of services to start-ups.10 IM Capital is a USD 15 million investment fund and provides matching capital, equity guarantees and support programmes to a broad range of qualified early-stage businesses and investors in Lebanon. In addition, IM Capital established the Seeders Masterclass for Business Angels, a year-long programme to form individual angel investors through a “learn & earn” methodology consisting of an education and investment track in SMEs.11 The aim of the programme is to create an informed community of investors. As a result, a community of business angel investors has been created and invested in four start-ups.
For further action: Lebanon has seen impressive progress in the introduction of new sources of access to finance in recent years, especially in initiatives aimed at equity investments and innovative start-ups. The initiatives appear to be well-aligned and consider synergies and they seem to be well-monitored. To advance even further in this area, Lebanon could work on the establishment of a credit bureau and registry of moveable assets in order to also facilitate access to credit.
Nurturing entrepreneurship and SME growth
The SME Policy Index 2014 noted already a vibrant market for business development services (BDS) in Lebanon, with several governmental, private and non-governmental players across the country providing a diversity of support schemes. Three business development centres (Berytech, BIAT and SouthBIC) were the main entities supporting SMEs. A number of co-working spaces and accelerators had been established (Cloud 5, ALTCITY and Co-working 961). The Euro-Lebanese Centre for Industrial Modernisation (ELCIM) offered more advanced services such as assessing business strategies and assisting businesses in improving production technology and production planning. And the SME Support Unit/Enterprise Team at the Ministry of Economy and Trade was developing a new support strategy for SMEs to provide a strategic framework (see the first section in this chapter).
Apart from these initiatives, most of which are still active,12 the World Bank provided in 2016 a grant facility, the Lebanon MSME TA Facility, to promote business development service providers. The facility was disbursed within one year and provided a 50/50 matching grant to established and registered BDS providers in order for them to enhance their capacity in specific institutional areas including product innovation, monitoring and evaluation of services. This grant of USD 400 000 was managed by Kafalat and aimed to support very specific projects (i.e. not for general support and not for new BDS providers). The grant benefited eight business development services providers including the Business Angels Masterclass and the Tripoli Entrepreneurs Club Programme aimed at enabling the employability of computer programmers. According to the consultations for this interim assessment, the facility was meant as a pilot programme that could be replicated in other countries and continued in Lebanon, although there were no further actions.
In addition, to facilitate SME access to information on the many services available, the Ministry of Economy published the guidebook What’s in Lebanon for SMEs 2017.13 Apart from information on business development services, the guidebook includes descriptions of support programmes on innovation, finance and market access. This guidebook could represent a good practice for the dissemination of information at a reasonable cost.
The SME Policy Index 2014 indicated that the public procurement system in Lebanon was relatively open to the participation of SMEs. Information on public procurement was centralised at the national level and made available online and in newspapers. However, further efforts were needed to mainstream e-procurement. A law to regulate late payments existed but the penalty was not effectively enforced. This interim assessment finds no significant progress yet in this area. However, the Vision for Stabilisation, Growth and Employment presented by the Lebanese Prime Minister at the CEDRE conference in Paris in April 2018 notes that there are draft laws presented to parliament for the modernisation of the procurement system.14 The laws aim at enhancing the transparency and efficiency of public procurement, which becomes even more important in view of the sharp increase in procurement activity that would result from the implementation of the Capital Investment Programme (CIP). The CIP is a long-term scheme to make use of the loans and pledges made at the CEDRE conference (see first section in this chapter).
Concerning measures to promote SME access to international markets, the SME Policy Index 2014 mentioned the existence of ad hoc initiatives (as opposed to strategic measures) such as trade missions and trade fairs. The Investment Development Agency (IDAL) assisted the promotion and marketing of Lebanese products, in particular agricultural products and materials used in the agro-industry. A draft law for the establishment of an export promotion agency was being discussed in parliament but there was no evidence of the development of a clear export promotion strategy.
This interim assessment finds little progress in these areas. A number of initiatives for SME internationalisation have been introduced over the past few years, although without a clear holistic or coherent framework. The export promotion agency has not been established and there is no export promotion strategy. IDAL continues to play a role in the promotion of Lebanese products in foreign markets; however, no published results are available on the impact of the agency’s activities. Furthermore, although IDAL publishes online valuable information on investment opportunities and incentives in key tradable industries (agribusiness, information technology, etc.), the booklets available are not organised in a user-friendly manner (e.g. by topic).15 In terms of the strategic promotion of exports, the Integrated Vision for the Lebanese Industrial Sector 2025 includes a section on increasing industrial exports with a series of actions in this area and responsible parties.16 The more recent Vision for Stabilisation, Growth and Employment presented in the CEDRE conference includes a specific pillar for the diversification of Lebanon’s productive and services sectors and the realisation of the country’s export potential. To implement that pillar the Vision foresees the development of a strategy in this area based on an assessment by McKinsey consultancy.
For further action: There have been positive developments over the past few years in terms of the availability of business development services, but less so on SME internationalisation and even less on public procurement. New initiatives have been undertaken to strengthen the already mature BDS market in Lebanon and to facilitate SME access to information on the various support schemes available. The development and implementation of a full-fledged SME strategy could give even more coherence and impact to these efforts. The same is also true for support measures for SME internationalisation, which have increased in numbers but which still lack a strategic approach. Finally, Lebanon could increase its efforts for a greater participation of SMEs in public procurement, including by establishing an e-procurement platform.
Investing in entrepreneurial human capital
Since 2014, little progress has been made in the field of entrepreneurial learning in upper secondary education. There is a no national vision on lifelong entrepreneurial learning, which should be integrated within the ongoing discussions on the future national education plan. In fact, the Ministry of Education and Higher Education (MEHE) has recently reconfirmed it wants to integrate entrepreneurship as a key competence in the national education system, meaning there is the necessary political commitment.
A pilot project had been finalised in 2014 to develop entrepreneurial learning modules for general secondary schools and for technical and vocational education and training (TVET) schools, as well as training material for teachers.17 The Steering Committee established under the pilot project is currently revising the action plan on how to integrate entrepreneurship key competences into the national curriculum, together with a budget estimate.
There are a number of ad hoc examples of school-enterprise co-operation, mainly driven by INJAZ.18 However, more efforts should be made to increase school-enterprise co-operation in secondary general education with the aim to develop the entrepreneurial mindset of young people. In the case of TVET schools, school-enterprise co-operation is mainly addressed through the in-company training. However, it is important that besides learning professional skills there is room for entrepreneurship skills development, including the entrepreneurial mindset.
Significant progress has been made in the field of women’s entrepreneurship training. The National Strategy for Women in Lebanon (2011-2021), spearheaded by the National Commission for Lebanese Women (NCLW),19 aims to ensure gender equality and to empower women through the development of their business skills. In addition, the 2015-2020 SME Strategy promotes women’s entrepreneurship. Yet, according to the survey carried out in 2016 in the MENA region, Lebanese business women feel that they do not receive the same business support as men.
The Lebanese League for Women in Business (LLWB) is an active partner in promoting women’s entrepreneurship through providing a platform for networking, sharing experiences, developing their skills and accessing funds. The LLWB has a skills development committee that is responsible for training provision, including mentoring, and is planning to develop on-line trainings. The Cherie Blair Foundation for Women and the Lebanese Association for Development, Al Majmoua implemented in 2016 the Women’s Economic Empowerment in the Bekaa Region project, where more than 250 Lebanese women entrepreneurs gained confidence and built capacities to run a viable business. The Ministry of Agriculture has co-ordinated several projects to raise awareness of women’s entrepreneurship in the rural areas.
Despite Lebanon’s political commitment to support exporting firms, there is little emphasis on training for SME internationalisation. There is an ongoing policy dialogue on how to better prepare Lebanese businesses to improve the competitiveness of their products, and the 2015-2020 SME Strategy provides a good basis to enhance capacity building for SME’s in this respect. The SME Strategy foresees the creation of a Lebanese Export Promotion Agency, which could play an important role providing coherence and upgrading the training offer supporting SMEs’ internationalization, as well as collecting data and monitoring support services.
The Ministry of Economy and Trade (MOET) has published a guidebook for SME’s (MOET, 2017) that includes an overview of the different financial support schemes and provides a list of all institutions that deliver training for start-ups and for SMEs that are willing to grow (i.e. scale up) and export.
The more prominent agencies providing training are the Lebanese Training Centre (LTC) within the Chamber of Commerce, the Business Incubation Association in Tripoli (BIAT), the Lebanese Standards Institutions (LIBNOR), and several incubators and accelerators. IDAL, a national investment promotion agency, also assists Lebanese companies with growing their business in the international market. Several large projects that supported SME’s internationalisation through training have been finalised and have yet not been replaced by other projects. The next phase of the QUALEB project (Quality Programme funded by the EU) will support SME’s in the food sector through practical training, mentoring and coaching.
For further action: The government should introduce entrepreneurship learning within ongoing discussions about the national education plan in order to mainstream entrepreneurship as a key competence into the national curricula for general education and TVET. This would require the adoption of a new decree and the provision of sufficient financial and human resources for implementation, as well as a monitoring mechanism. In order to implement the National Strategy for Women in Lebanon, the next progress report of the National Action Plan should have a chapter dedicated to training for women entrepreneurs as well as data collection evaluate training programmes. A stronger emphasis should be put on training for SMEs (including mentoring and coaching) to help prepare them for international markets in different sectors such as agriculture, agro-food, ICT, and industry.
The way forward
Lebanon has seen the introduction of an important number of initiatives to promote the competitiveness and innovation of SMEs and start-ups, including the establishment and expansion of equity investment vehicles and the improvement of business development services. However, there is still plenty of room to improve the business environment for SMEs through RIA and an SME test, bankruptcy procedures, e-procurement and other areas. Furthermore, as it was the case already in 2014, Lebanon could make much greater efforts to strengthen multipartite co-ordination and dialogue. The recommendation put forward by the SME Policy Index 2014 on the introduction of a consultative committee on SME policy – a committee open to all stakeholders including independent experts, donors and private sector representatives – is still very much pertinent. In this view, the main actions put forward by this interim assessment are as follows:
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Approving the draft SME Law and implementing a detailed, action-oriented SME strategy identifying concrete goals, targets, responsible parties and budgets (elements lacking in the current form of the SME Strategy).
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Re-establishing a multipartite public-private dialogue platform to improve co-ordination and to obtain guidance on the design, implementation and evaluation of SME policies. The SME Unit at the Ministry of Economy could serve as secretariat for such platform. Eventually, Lebanon could consider the establishment of an SME agency building on existing models in OECD and MED economies.
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Improving the availability and dissemination of SME and entrepreneurship statistics, first through the establishment of a census or similar mechanism and eventually through the use of administrative sources of information (also building on international practice).
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Setting up a mechanism for regulatory impact analysis and the SME test.
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Creation of a “one-stop-shop” to simplify registration procedures and improve access to information.
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Establishing a credit bureau and a registry of moveable assets to facilitate access to credit.
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Approving the public procurement law, either by updating the existing draft or developing a new one.
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Establishing an e-procurement platform.
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Introducing entrepreneurship learning within ongoing discussions about the national education plan.
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Including training for women entrepreneurs in the next progress report of the action plan of the National Strategy for Women in Lebanon.
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Strengthening training for SMEs with a sectoral focus to help prepare them for international markets.
Notes
← 1. 2016 Industrial Statistics, www.industry.gov.lb/Arabic/Arabic/Documents/%D9%86%D9%85%D8%A7%D8%B0%D8%AC%20%D8%A7%D9%84%D8%B7%D9%84%D8%A8%D8%A7%D8%AA/Questionnaire%20Industrielle%202015.pdf.
← 2. http://www.industry.gov.lb/Arabic/Arabic/Pages/PublicationsAndStudies.aspx
← 3. Of the total pledged, USD 10.2 billion has been pledged for loans, including 9.9 billion in concessional terms, and USD 0.86 billion as grants (including grants to subsidize loans).
← 4. Joint Statement of the Economic Conference for Development through Reforms with the Private Sector (6 April 2018), www.diplomatie.gouv.fr/IMG/pdf/cedre_statement-en-_final_ang_cle8179fb.pdf.
← 5. http://www.economy.gov.lb/en/services/-support-to-smes-/roundtables
← 6. http://www.economy.gov.lb/en/what-we-provide/support-to-smes/
← 7. Lebanese e-Government website, www.e-gov.gov.lb/Cultures/en-us/aboutEgov/Pages/ListSubChannels.aspx, and Dawlati website, www.dawlati.gov.lb/.
← 8. Ministry of Economy and Trade Portal, “Applications List”, https://portal.economy.gov.lb/MOET/ApplicationTypes.
← 9. iSME Programme, www.kafalatisme.com.lb.
← 10. Insurance and Match Capital, www.im-capital.com.
← 11. Seeders, www.seeders.co.
← 12. SouthBIC is no longer active.
← 13. Ministry of Economy and Trade (2017), Guidebook: What’s in Lebanon for SMEs, http://www.economy.gov.lb/en/services/support-to-smes/whats-in-lebanon-for-smes.
← 14. Vision for Stabilization, Growth and Employment, www.pcm.gov.lb/arabic/ListingAndPDFWithDropdown.aspx?pageid=11224.
← 15. The Investment Development Authority of Lebanon, Publications, http://investinlebanon.gov.lb/en/InformationCenter?pageNumber=0.
← 16. Ministry of Industry, Publications and Studies, www.industry.gov.lb/Pages/Publicationsandstudies.aspx. Operational plan accessible at: http://www.industry.gov.lb/Pages/Publicationsandstudies.aspx.
← 17. Multi annual project (2010-2014) “Support to the development of a framework for Lifelong Entrepreneurial Learning in Lebanon” developed by the Ministry of Education and Higher Education with the support of the European Training Foundation (ETF), International Labour Organization (ILO), and the United Nations Educational, Scientific and Cultural Organization (UNESCO).
← 18. A youth-centered non-profit organisation established in Jordan in 1999 active in the European Union and worldwide, including in the Middle East, North-Africa and Pakistan.
← 19. The NCLW is an official institution affiliated to the Presidency of the Council of Ministers.