Four years ago, Lebanon’s central bank launched a $400m programme to support tech start-ups. Among the reasons for the initiative was a desire to create “an environment that is more resilient and instability-proof”, says Marianne Hoayek, the central bank director in charge. “In a security situation, the tech sector is one of the least affected,” she says. “A team of three people with laptops can still keep going, regardless of geopolitical trends.”
Ms Hoayek spoke to the FT at the Banque du Liban in Beirut on November 1. Three days later, prime minister Saad al-Hariri announced his resignation, posing a new test of the economy’s resilience. It is too early to predict the repercussions of Mr Hariri’s shock resignation, or their impact on the tech sector. But Lebanon’s fledgling tech companies have already demonstrated an ability not just to survive, but to thrive, in circumstances that overseas peers would find unsettling.
For more than half of the time since the central bank’s initiative was launched — known by all as 331, after the circular that announced it — Lebanon had no president. It has gone nine years without parliamentary elections and, until last month, 12 years without a budget. Yet, according to Ms Hoayek, since the inception of 331 the sector has grown 8 per cent a year, creating 9,000 jobs, and is on track to reach a target of 25,000 jobs by 2025.
At its heart, in a campus-like collection of buildings on and around a busy avenue at the edge of downtown Beirut, is the Beirut Digital District, home to incubators, accelerators and other services for entrepreneurs. Maroun Chammas, chief executive of Berytech, a Beirut Digital District company that has been supporting and investing in Lebanese tech start-ups since 2002, describes the programme as a “game changer”. A sense of confidence and excitement is palpable in the district. Mr Chammas talks enthusiastically about Lebanese companies Berytech has supported operating internationally.
They include Roadie Tuner, which makes a device that automatically tunes guitars and other stringed instruments, and Loop, an electric scooter sharing service that aims to have fleets of scooters in cities worldwide. However, 331 is too young to be assessed fully. Most start-up investments take at least five years to come to fruition. The 331 cycle is seven years. Many companies fail — about four out of every 10, estimates Sami Abou Saab, chief executive at Speed, an early-stage incubator based close to Berytech.
Nevertheless, Ms Hoayek argues the intervention is already delivering transformational change. Like other parts of the economy, the tech sector reaches out to Lebanon’s diaspora, estimated at between 8m and 20m people from Paris to São Paulo. “We have highly qualified human capital and we see our people succeeding in countries all over the world,” says Ms Hoayek. “The tech sector is part of a vision we have for our country, to reverse this brain drain, and we are doing it every day. People are quitting their jobs and coming back with their families to Lebanon.”
Such efforts are attracting international attention. In its 2016 national report on the country, the Global Entrepreneurship Monitor ranked Lebanon fourth among 66 countries surveyed worldwide in terms of new firm enterprise, and eighth worldwide in terms of total early-stage entrepreneurship, putting it in clear first place in the Middle East. Yet the 331 initiative is unlikely to be followed by other central banks. In launching it, the Banque du Liban was acting beyond the common remit of such an institution, and encouraging banks to behave in ways unusual for a banking regulator.
The move allowed banks to invest up to 3 per cent of their shareholder equity in start-up companies and in incubators and accelerators, with a maximum of 10 per cent of that equity going to any single company. At the time of its creation, 3 per cent of the banking sector’s capital was about $400m; the limit was raised last year to 4 per cent, or about $650m, according to Ms Hoayek. The central bank guarantees 75 per cent of every investment, in exchange for half of any profits.
Unused to venture capitalism, banks have tended to put money into funds rather than directly into start-ups: 331 allows both options. The central bank has approved investments of $368m so far, says Ms Hoayek, of which $203m have been executed. Investments worth a further $132m are awaiting approval.
The start-up ecosystem also includes international partnerships, such as with the UK government in the UK Lebanon Tech Hub — which has supported more than 500 companies since it was formed in 2015 — and with France-backed Beirut business school Ecole Supérieure des Affaires to form accelerator Smart ESA last year.
“The central bank saw the possibility of creating an economic sector that could be global as well as regional,” says Mr Abou Saab at Speed. “It has created an industry that previously did not exist.” The question is whether this fledgling industry is mature enough to withstand the latest shock.