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GLOBAL ENTREPRENEURSHIP MONITOR2016 NATIONAL REPORT: LEBANON

GLOBAL ENTREPRENEURSHIP MONITOR2016 NATIONAL REPORT: LEBANONThis is the second consecutive annual GEM National Report for Lebanon prepared by the UK Lebanon Tech Hub, and once more we thank the GEM Consortium for their help and guidance. In addition, we extend special thanks to Information International in Lebanon for their contribution to data collection. Special thanks also goes to the Lebanese national experts for their contributions to the National Experts Survey informing this report.

Lastly, we are grateful to our partners Banque du Liban and the British Embassy in Beirut for their continuing support on this initiative.

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GEM NATIONAL REPORT 20165

Professor Stephen HillMario RamadanElie AkhrassMarta Solorzano

AUTHORS

© 2017 by UK Lebanon Tech Hub and the Global Entrepreneurship Research Association (GERA)

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The UK Lebanon Tech Hub (UKLTH) is an international initiative by Banque du Liban and the British Government in Lebanon.

The UK Lebanon Tech Hub is a programme that aims to support the entrepreneurship and SME landscape in Lebanon, seeking to increase GDP and to create new jobs and wealth.

The UK Lebanon Tech Hub (www.uklebhub.com) took the initiative in becoming the Global Entrepreneurship Monitor (GEM) National Team for Lebanon in 2015. Following the success of the GEM 2015 National Report for Lebanon, and the new insights it provided about local entrepreneurship, the UK Lebanon Tech Hub has continued this initiative by managing the GEM project in Lebanon for 2016.

International acceleration and scaling support to Lebanon’s top tech companies, (both in and outside Lebanon), through London and other global markets. The UK Lebanon Tech Hub is the first Tech Hub in the region with a global footprint.

Building and retaining current and future IP breakthroughs by providing the appropriate R&D innovation and commercialisation support to achieve a globally recognised flagship for Lebanon.

Building and retaining the market- focused skilled labour force needed to enhance Lebanon’s competitiveness globally in niche areas.

An internationally-scoped communications platform aimed at developing favourable international and expat perceptions of Lebanon.

PROGRAMME STREAMS:

THE UK LEBANON TECH HUB

The UK Lebanon Tech Hub offers International expertise, experience and exposure to support the building of successful ventures that have the potential to grow globally.

MISSION & VIS ION


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SUMMARY & KEY FINDINGS

This Lebanon National Report for 2016 outlines the Global Entrepreneurship Monitor (GEM) results, and sets them in their local and global contexts.

As an international research programme, the GEM Consortium assesses levels of entrepreneurship in a consistent manner across different countries over time. The GEM Consortium in 2016 included national teams from 65 countries across the globe, which all conducted the same Adult Population Survey (APS), while the same 65 countries plus one more completed the 2016 National Expert Survey (NES). By setting and interpreting questions in the same way, comparisons can be made and trends established.

The GEM APS looks at individual attributes, activities and aspirations, and enables assessment of specific measures of early-stage entrepreneurship, including distinguishing between nascent entrepreneurship (those actively engaged in starting a new business), and new firm entrepreneurship (those paying wages for more than three months but less than forty-two). The sum of these, nascent entrepreneurship plus new firm entrepreneurship, gives the headline GEM measure of Total early-stage Entrepreneurial Activity (or TEA).

This survey of entrepreneurial aspirations, attitudes and activities, took place within the context of the contemporary Lebanese economy and society. Lebanon is a relatively small (10,452km2), but densely populated economy with a long history and tradition of trade and enterprise, inwards and outwards migration, and a recent past of internal and external conflicts. While the individual starting the new enterprise may be very competent and hard working, the success or failure of that enterprise will be influenced, and may even be determined, by factors beyond the efforts and capabilities of the individual concerned. Hence it is important to understand and assess the environmental framework conditions under which the act of starting and running a new enterprise takes place.

Then the large-scale survey of individual entrepreneurial attributes and activities is complemented by an in-depth survey of identified national experts (the National Expert Survey, NES), in order to assess the nature of the national entrepreneurial ecosystem, and how that system in Lebanon may support or constrain entrepreneurship. Because the questions are the same, some comparisons can be made across countries. In Lebanon in 2016, thirty-nine identified national experts completed the online NES questionnaire, outlining their views on GEM-defined entrepreneurial framework conditions (set out in full in Chapter 4 below), including the availability of start-up finance, social and cultural norms, enterprise education, government policies and the physical infrastructure in which enterprise takes place.


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→ Six out of ten of those interviewed saw good opportunities to start a business.

→ Less than one in four thought fear of failure would prevent them from starting a business.

→ Four out of ten, (of those not already doing so), intended to start their own business within the next three years.

→ Nearly one in ten had committed resources to starting a new business, (but had not yet paid wages for three months or more).

→ Nearly one in eight was already running a new business, and been paying wages for more than three months (but less than 42 months).

→ More than one in five was running an established business, (which had paid salaries for 42 months or more).

→ Taken together, in 2016 more than four in ten adults in Lebanon were active entrepreneurs, starting or running a new business, or running an established business.

→ Both male and female early stage entrepreneurship levels were lower in 2016 than in 2015 (men from 36% to 26%, women from 25% to 16%).

→ This fall in early stage entrepreneurship was largely because the proportion of early stage entrepreneurs amongst older age groups, (those aged 45+), had more than halved.

→ Almost seven out of ten considered themselves to have the capability to start and run their own business

→ While two in seven 25-44 year olds were starting or running a new business in Lebanon in 2016, only one in eight 55-64 year olds were doing the same.

→ Compared to 2015, there has been a sharp increase in the share of early stage entrepreneurs who say they started a new business because of necessity (i.e. the lack of income alternatives), rather than to seize a business opportunity.

→ In Lebanon in 2016, one in 25 adults had invested in a business owned by someone else (usually a close relative), in the previous twelve months.

→ Almost of two-thirds of early stage entrepreneurship in Lebanon in 2016 was in the Retail/Wholesale sector, with less than a quarter in Professional Services. By contrast, the European averages were less than one-third in Retail/Wholesale and almost a half in Professional Services.

→ Less than one in twelve early-stage entrepreneurs in Lebanon expected to employ six or more people in five years time.

→ Nearly six in ten early-stage entrepreneurs in Lebanon claimed to be offering goods or services that were new to their customers and had few competitors, the highest proportion of the 65 countries in the 2016 GEM APS.

→ Levels of early stage entrepreneurship were high across all levels of education and across all income ranges.

→ Levels of early-stage entrepreneurship varied a litlle across the country, from just one in five in Beirut/Mount Lebanon to two in seven in the South.

KEY FINDINGS: ADULT POPUL ATION SURVEY

2,600 adults, (aged 16-64), were interviewed across all parts of Lebanon:

SUMMARY & KEY FINDINGS


KEY FINDINGS: NATIONAL EXPERT SURVEY

Thirty-nine identified national experts in Lebanon completed the 2016 GEM National Expert Survey.

→ Cultural/social norms to support entrepreneurship scored highly in Lebanon, (5th highest of 66 countries completing the NES).

→ The sufficiency of physical infrastructure to support enterprise in Lebanon scored very low, (loWest of 66 countries).

→ Lebanon scored highly for entrepreneurial education at school stage and for the provision of finance for entrepreneurship, but low for government policies and internal market dynamics.

→ Experts saw the internet/physical infrastructure, political instability and corruption, and outdated business laws and regulations, as the major constraints on entrepreneurship.

→ Factors supporting entrepreneurship included the growth in entrepreneurial funding, an improving entrepreneurial support system, (including incubators, accelerators etc.) and an open, supportive culture.

→ Major recommendations to promote entrepreneurship included more enterprise training & education, faster/cheaper internet and updated business laws and regulations.

CONTENT

CHAPTER 1 : INTRODUC TION

1.1 Enterprise and the Global Entrepreneurship Monitor

1.2 The GEM conceptual framework

1.3 How GEM measures entrepreneurship – the dashboard of GEM indicators

1.4 The GEM Global Report 2016

CHAPTER 2: THE LEBANESE ECONOMY AND ITS ENVIRONMENT FOR ENTREPRISE

2.1 Introduction

2.2 The Lebanese Economy

2.3 The Lebanese Entrepreneurial Environment or Ecosystem

2.4 Conclusions

CHAPTER 5: CONCLUSIONS & RECOMMENDATIONS

REFERENCES

CHAPTER 4: ENTREPRENEURIAL FR AMEWORK CONDITIONS IN LEBANON – THE NATIONAL EXPERT SURVEY

4.1 Introduction and Global Results

4.2 Results for Lebanon

4.3 Constraints, Supports and Recomendations

4.4 Conclusions

CHAPTER 3: ENTREPRENEURIAL AC TIVIT Y IN LEBANON – THE ADULT POPUL ATION SURVEY

3.1 Introduction

3.2 Social Values

3.3 Self Perceptions and Individual Attributes, Lebanon 2016

3.4 Entrepreneurial Activity in Lebanon, 2016

3.5 Established Business Activity, Employee Entrepreneurship and Business Discontinuance, Lebanon 2016

3.6 The Motivation for Entrepreneurship in Lebanon

3.7 Investing in Someone Else’s Start-Up

3.8 Age, Gender and Entrepreneurship in Lebanon

3.9 The Distribution of Total early-stage Entrepreneurship by Sector

3.10 Job Creation Expectations and Innovation

3.11 The Export Orientation of Early-Stage Entrepreneurship

3.12 Educational Attainment and Early-Stage Enterprise In Lebanon

3.13 Household Income and Early-Stage Entrepreneurship

3.14 Location and Early-Stage Entrepreneurship

3.15 Conclusions


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CHAPTER 1INTRODUCTION

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Entrepreneurship, defined as the attempt at new business creation by an individual, group of individuals or an established business, is a crucial ingredient in the process of economic development, including job, income and wealth creation.

Until very recently, despite some significant enterprise initiatives, there was relatively little known about the level of entrepreneurship in Lebanon. This picture began to change with the publication of the 2015 GEM National Report for Lebanon, the product of UK Lebanon Tech Hub action in adding Lebanon to the international Global Entrepreneurship Monitor (GEM) Consortium. By following the established GEM methodology, including GEM definitions of entrepreneurship, data on enterprise in Lebanon was collected in a systematic and consistent manner that both allows comparisons to be made to other countries within the GEM Consortium, and establishes a benchmark for assessing the development of entrepreneurship in Lebanon over time.This 2016 National Report is the second consecutive GEM National Report, reporting new survey data to build a detailed contemporary picture of the level of individual entrepreneurship in Lebanon and how that picture is changing. Throughout this Report, comparisons will be made between survey responses in 2016 and 2015.GEM is a collaborative international research programme that provides a standard set of data on entrepreneurship across different countries over time. GEM started in 1997 in collaboration between London Business School and Babson College in Boston, USA, seeking to explore why some countries are more entrepreneurial than others. Since 1999, GEM has worked with national teams from different countries to collect nationally representative data on entrepreneurial activities, attitudes and aspirations.

Joining the GEM Consortium means committing to conduct two important surveys: the first is the Adult Population Survey (APS), which asks a representative sample of 2,000+ working age individuals about their entrepreneurial activities and aspirations. In Lebanon in 2016 (as in 2015), a sample of 2,600 individual questionnaires was completed as a result of face-to-face interviews. The second survey is the National Expert Survey (NES), which questions at lEast 36 identified national experts across a broad range of categories about their perceptions of the national entrepreneurial environment, or the eco-system that provides the context in which entrepreneurial activity takes place, and which may be conducive or constraining to those activities. Thirty-nine experts participated in the 2016 GEM NES. Both Surveys are reported in detail later in the Report.

GEM differs from most studies on entrepreneurship in that it does not just look at businesses; GEM looks at individuals, their attributes, aspirations, attitudes, perceptions and intentions. It then looks at the relationship between those intentions, perceptions of opportunities and entrepreneurial activities, as these play an important role in the entrepreneurial pipeline, as individuals move from aspiring or potential entrepreneurs, to intentional business creators, to those who actually start a business and those that become fully established and growing.There is increased appreciation for, and acknowledgement of, the role played by new and small businesses in an economy. GEM contributes to this recognition with longitudinal studies and cross-sectional analyses of entrepreneurial attitudes and activity across the globe. Since its inception, GEM has highlighted the relationships

INTRODUCTIONENTERPRISE AND THE GLOBAL ENTREPRENEURSHIP MONITOR (GEM) PROJEC T.

In 2016, the 18th consecutive year that GEM has tracked rates of entrepreneurship across the globe, national teams from 66 countries, at all income levels and stages of development, participated in GEM, encompassing almost 70% of the world population and 85% of global GDP.

CHAPTER 1


Table 1

between entrepreneurship and national development.In the 18 years since first reporting, GEM has measured entrepreneurship in economies covering all geographic regions and all economic levels, and has gained widespread recognition as the most informative and authoritative longitudinal study of entrepreneurship in the world. As noted earlier, in 2016, 66 economies participated in the GEM study, as listed in Table 1.GEM follows the World Economic Forum’s typology of countries, based on Michael Porter’s (Porter et al, 2002) definitions of three different economic development levels: factor-driven, efficiency-driven and innovation-

driven economies. Factor-driven economies are typically dependent on subsistence agriculture or extraction, with low paid and low skilled workers, while efficiency-driven economies have some industrialization and some reliance on scale economies. Innovation-driven economies are typically dependent on knowledge-intensive business services, and rely on innovation to increase competition and productivity. Each year these categories are re-assessed, and countries may change categories as a result.

PARTICIPATING ECONOMIES BY GEOGRAPHIC REGION AND STAGE OF ECONOMIC DEVELOPMENT, GEM 2016

LATIN AMERICA & CARIBBEAN

NORTH AMERICA

ArgentinaBelizeBrazilChile

ColombiaEcuador

El SalvadorGuatemala

JamaicaMexicoPanama

PeruUruguay

EFFICIENCY-DRIVEN ECONOMIES

AFRICA

Burkina FasoCameroonSenegal

EgyptMorocco

South Africa

FACTOR-DRIVEN ECONOMIES


United StatesCanada

Puerto Rico

INNOVATION-DRIVEN ECONOMIES


ASIA & OCEANIA

IndiaIran

Kazakhstan

ChinaGeorgia

IndonesiaJordan

LebanonMalaysia

Saudi ArabiaThailandTurkey



IndiaIran

Kazakhstan


EUROPE

Russian Federation

BulgariaCroatia

HungaryLatvia

MacedoniaPoland

Slovakia



AustriaCyprusEstoniaFinlandFrance

GermanyGreeceIreland

ItalyLuxembourgNetherlands

PortugalSlovenia

SpainSweden

SwitzerlandUnited Kingdom


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THE GEM CONCEPTUAL FR AMEWORK

Since its inception, the GEM survey was conceptualised to explore the interdependency between entrepreneurship and economic development.

During the last 18 years, this conceptual framework and basic definitions have evolved gradually without compromising the comparability of the collected information, but bringing more clarity to assumed relationships. This process was supported by the work of a number of researchers who, using GEM data, have contributed to building an entrepreneurship paradigm (Alvarez et al., 2014, Bosma, 2013, Levie and Autio, 2008, Reynolds et al, 2015).

The initial definition for entrepreneurship remains valid:

“Any attempt at new business or new venture creation, such as self-employment, a new business organisation, or the expansion of an existing business, by an individual, a team of individuals, or an established business” —(Reynolds, P. et al, 1999, p. 3).

The three (interrelated) questions that GEM sought to address were:

→ Does the level of entrepreneurial activity vary between countries, and if so, to what extent?

→ Does the level of entrepreneurial activity affect a country’s rate of economic growth and prosperity?

→ What makes a country entrepreneurial and what factors influence entrepreneurial activity?

In order to answer these questions, GEM had to develop a conceptual framework, focussed on enterprise creation, development and growth. This framework has evolved since its inception in 1999. Within this framework, economic growth is the result of the personal capabilities of individuals, wherever they are located (regardless of the size of businesses or if they are self-employed), to identify and seize opportunities, and that this process takes place in interaction with the environment, (social, cultural and political), in which these individuals are located. The current GEM conceptual framework is set out in Figure 1, showing how GEM divides the main components and

relationships within the entrepreneurial process.

The social, economic, cultural and political context is represented through the National Framework Conditions, reflecting the stages of economic development and progress between them, and the Entrepreneurial Framework Conditions related to the quality of the entrepreneurial ecosystem, including entrepreneurial finance, government programmemes, entrepreneurship education, research and development transfer, market dynamics and regulation, physical infrastructure and cultural and social norms.

Inside this framework, entrepreneurship is part of a complex feedback system, reflecting the relationships between social values, personal attributes and the entrepreneurial eco-system. Entrepreneurial activity is an output of the interaction of an individual’s perception of an opportunity, and the capacity (motivation and skills) to act upon this, AND the distinct conditions of the respective environment in which the individual is located. At the same time, entrepreneurial activity benefits this environment through social value and economic development.

The decision to start, (or not to start), an enterprise is then the product of a number of influences, including the extent to which society values entrepreneurship as a career choice, the social status of entrepreneurs, individual attributes including demographics such as age, gender and location, but also attitudes and perceptions, such as perceived opportunities and the perceived ability to realise them, as well as motivations and constraints.

At the heart of the GEM methodology is the Adult Population Survey (APS). This GEM survey of entrepreneurship provides unique primary data on at lEast 2,000 (2,600 in Lebanon), randomly selected working-age individuals (18-64), in terms of their attributes, values, and entrepreneurial activities, and their interaction with the environment in practicing entrepreneurial behaviour (pro-activeness, innovativeness and responsible choices). It is the APS, consistently applied across different countries and therefore different cultures, languages and socio-economic contexts, and in different years, that allows levels of entrepreneurial activity, perceptions and attitudes to be measured and assessed so that comparisons can be made, both across different economies at the same time and for the same economy at different times.

The National Expert Survey (NES), complements the APS by gathering in-depth opinions from selected national experts in order to assess the factors that influence the entrepreneurial eco-system in each economy. At lEast four experts from each of nine entrepreneurial framework condition categories are interviewed, providing a minimum of 36 expert views per economy. These selected experts are drawn from existing entrepreneurs, relevant government departments and from academic and other authorities.

CHAPTER 1


Figure 1: The GEM Conceptual FramworkSource: Global Entrepreneurship Monitor, 2016/17

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HOW GEM MEASURES ENTREPRENEURSHIP: THE DASHBOARD OF GEM INDIC ATORS.

The APS and NES Surveys allow GEM to define a series of key entrepreneurship indicators, which together provide a dashboard of entrepreneurial measures of attitudes, perceptions and activities. GEM measures individual participation across multiple phases of the entrepreneurial process, providing insights into the level of engagement in each stage. This is important because societies may have varying levels of participation at different points in this process; however, a healthy entrepreneurial society needs active people in all phases. For example, in order to have start-ups, there must be potential entrepreneurs. Later in the entrepreneurial process, people that have started businesses must have the ability and support to enable them to sustain their businesses into maturity.

THE DASHBOARD OF GEM INDIC ATORS

ENTREPRENEURIAL ACTIVITY INDICATORS

Total Early-stage Entrepreneurial Activity (TEA): percentage of the working age population who are in the process of starting a business (nascent entrepreneur) or owner-manager of a new business which is less than 42 months old (new business entrepreneur).

Established business ownership rate: percentage of working age population who are currently the owner-manager of an established business (i.e. owning and managing a running business that has paid wages, salaries or other payments to the owners for more than 42 months).

Business discontinuation rate: percentage of adult population (who are either a nascent entrepreneur or owner-manager of a new business) who have, in the past twelve months, discontinued a business, either by selling, shutting down or otherwise discontinuing an owner/manager relationship with the business.

ADDITIONAL TYPES OF ENTREPRENEURIAL ACTIVITY

Entrepreneurial Employee Activity (EEA): percentage of working age population who, as employees, have been involved in entrepreneurial activity, such as developing new goods or services or setting up a new business unit.

Social Entrepreneurial Activity (SEA): percentage of working age population who are engaged in early-stage entrepreneurial activity with a social goal.

PERCEIVED QUALITY OF THE ENTREPRENEURIAL ECOSYSTEM

Average value of experts perceptions using a Likert scale from 1 (highly insufficient) to 9 (highly sufficient) for the nine entrepreneurial framework components; entrepreneurial finance, government policy, government entrepreneurship programmemes, entrepreneurship education, R&D transfer, commercial and legal infrastructure, entry regulation, physical infrastructure and cultural and social norms.`

INDIVIDUAL ATTRIBUTES OF A POTENTIAL ENTREPRENEUR

Perceived Opportunities: percentage of working age population, (18-64), who see good opportunities to start a firm in the area in which they live.

Perceived Capabilities: percentage of working age population who believe they have the required skills and knowledge to start a business.

Entrepreneurial Intention: percentage of working age population who intend to start a business in next three years, (excluding those currently involved in entrepreneurial activity).

Fear of Failure: percentage of the working age population perceiving good opportunities who indicate that fear of failure would prevent them from setting up a business.

CHAPTER 1


Figure 2: The entrepreneurial process and GEM operational definitionsSource: GEM Global Report 2016

The individual level focus of GEM enables a more detailed account of entrepreneurial activity than firm-level measures, such as company or VAT registrations. In other words, GEM captures both informal and formal activity. This is important because in many societies, the majority of entrepreneurs operate in the informal sphere.

In addition, GEM’s emphasis on individuals provides some insight into who these entrepreneurs are: for example, their demographic profiles, their motivations for starting ventures, and the ambitions they have for their businesses. GEM also assesses broader societal attitudes about entrepreneurship, which can indicate the extent to which people are engaged with, or willing to participate in, entrepreneurial activity, and the level of societal support for their efforts. The GEM database allows for the exploration of individual or business characteristics, as well as the causes and consequences of new business creation. Figure 2 presents an overview of the entrepreneurial process and GEM operational definitions.

The headline measure of entrepreneurship used by GEM is the Total early-stage Entrepreneurial Activity (TEA) rate. TEA indicates the prevalence of individuals engaged in nascent entrepreneurship or new firm ownership in the working-age population. As such, it captures the level of dynamic early-stage entrepreneurial activity in a country. Every person engaged in any behaviour related to new business creation, no matter how modest, contributes to the national level of entrepreneurship. However, it is important to recognize that entrepreneurs differ in their profiles and impact. For this reason, GEM provides a range of indicators that describe the unique, multifaceted entrepreneurial pattern

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exhibited in each society. It is important to consider not just the number of entrepreneurs in an economy, but other aspects such as the level of employment they plan to create, their growth ambitions, and the extent to which groups such as young people and women are participating in entrepreneurial activity.Each year, after processing and standardising results from the National Surveys, (from 66 countries in 2016 – 65 countries completed the APS and 66 completed the NES), the GEM consortium produces the GEM Global Report. This section will briefly summarise global GEM results for 2016. Later chapters on the GEM results for Lebanon will include more detailed comparison of Lebanon to these global GEM results.

Table 2 shows the Total early-stage Entrepreneurial Activity rates (TEA), for countries surveyed in 2016, categorised by stage as development (as discussed earlier and set out in Table 1). The level of TEA typically declines with the level of economic development – for factor-driven economies, the average rate is 17%; for efficiency-driven it is 14%; and for innovation-driven economies the average rate is just 9%. A major reason for this is that necessity-driven early stage entrepreneurship may be more prevalent in countries without developed support systems for those with no job. Table 2 illustrates considerable variation around these averages, especially for those countries in lower stages of development. For example, in none of the innovation-driven economies does the level of early stage entrepreneurship match the average of the factor-driven economies. Note that Lebanon scores the sixth highest in terms of early-stage entrepreneurial activity of the countries categorised as efficiency-driven, and the eighth highest across all countries surveyed.

THE GEM GLOBAL REPORT 2016

While in 2016 high per GDP per capita countries tended to have low levels of total early stage entrepreneurial activity, and vice-versa for low GDP per capita countries, the relationship is neither linear nor necessarily inverse. Similarly, while levels of enterprise are both a cause and a consequence of economic development, the same may be said of economic development. Disentangling this relationship is a significant challenge.

Figure 3. The Relationship between TEA and GDP per capita, all GEM participating countries, 2016.

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Figure 3. The Relationship between TEA and GDP per capita, all GEM participating countries, 20161.

1 The line of best fit between the two is TEA = 62.506 – 4.9845 logn(GDP/cap) and R2 = 0.3094

0

5

10

15

20

25

30

35

40

0 50000 100000 150000

%TEA

GDP/cap $US

CHAPTER 1


TOTAL EARLY-STAGE ENTREPRENEURIAL ACTIVITY RATES, (TEA) , C ATEGORISED BY STAGE OF DEVELOPMENT, 2016 (GEM GLOBAL REPORT 2016/17)

Table 2

The GEM Global Report demonstrates that whilst there is a relationship between entrepreneurial activity and Gross Domestic Product, it is not necessarily a simple one, (see for e.g. Wennekers et al (2010)). For example, as noted earlier, in factor-driven economies starting a business may be more a response to necessity and the lack of alternatives, rather than taking advantage of opportunities. Figure 3 shows the association between TEA and GDP across the surveyed countries for 2016, using estimated GDP per capita data from the CIA Yearbook, together with the line of best fit.

Russia

Kazakhstan

India

Iran

Cameroon

Burkina Faso

Italy

Germany

Spain

France

UAE

Greece

Korea

Finland

Sweden

Qatar

Slovenia

Taiwan

Portugal

Switzerland

UK

Luxembourg

Hong Kong

Austria

Puerto Rico

Ireland

Netherlands

Israel

Cyprus

USA

Australia

Estonia

Canada

Malaysia

Bulgaria

Morocco

Macedonia

South Africa

Hungary

Jordan

Croatia

Georgia

Slovakia

Mexico

Jamaica

China

Poland

Saudi Arabia

Panama

Indonesia

Uruguay

Latvia

Egypt

El Salvador

Argentina

Turkey

Thailand

Brazil

Guatemala

Lebanon

Chile

Peru

Colombia

Belize

Ecuador

FACTOR-DRIVEN ECONOMIES EFFICIENCY-DRIVEN ECONOMIES

6.3

10.2

10.6

12.8

27.6

33.5

4.4

4.6

5.2

5.3

5.7

5.7

6.7

6.7

7.6

7.8

8.0

8.2

8.2

8.2

8.8

9.2

9.4

9.6

10.3

10.9

11.0

11.3

12.0

12.6

14.6

16.2

16.7

4.7

4.8

5.6

6.5

6.9

7.9

8.2

8.4

8.6

9.5

9.6

9.9

10.3

10.7

11.4

13.2

14.1

14.1

14.2

14.3

14.3

14.5

16.1

17.2

19.6

20.1

21.2

24.2

25.1

27.4

28.8

31.8

TEA % TEA %

INNOVATION-DRIVEN ECONOMIES TEA %


CHAPTER 2THE LEBANESE ECONOMY AND ITS ENVIRONMENT FOR ENTERPRISE

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The purpose of this Chapter is to describe the contemporary Lebanese economy, since this provides the stage on which individual decisions about starting an enterprise are played out. That economy may support, hinder or constrain entrepreneurial activity.

Because starting a business is always an exercise in overcoming uncertainty, changes in the level of enterprise within a particular economy may be closely related to other changes within that economy, such as in jobs and incomes, and, as noted earlier, will themselves induce change in that economy. As will become clear, the Lebanese economy in 2016 was, for most of the year, a difficult place in which to do business, with deepening political stagnation interacting with the continuing fallout from the war in Syria to undermine the business confidence so essential to early-stage entrepreneurship. However prospects brightened towards the end of the year, with the election of a new President and the formation of a new government.

This chapter will look briefly at the economy overall, before going on to examine in more detail the environment for enterprise, or the ecosystem in which the new business start-up may prosper or perish. Once more there is a close relationship between the two, since a supportive ecosystem enables new companies to access resources such as finance and mentoring, encouraging and enabling business development which in turn creates economic growth, reflected in increasing jobs and rising incomes. Of course an environment of growing incomes and jobs is fertile ground for new business creation – hence the mutual interaction between the economy and the entrepreneurial ecosystem.

Any economy is the product of its history, geography and culture. Lebanon has a rich history of previous civilisations, from the Phoenicians to the Ottoman Empire, and then rule by the French, from whom Lebanon gained independence as recently as 1943. Lebanon has a long tradition of trade and enterprise, including a maritime history and an important role as a gateway between East, West and Africa. It is an Arab country of religious

and ethnic diversity, where tolerance and mutual respect are dominant cultural norms, although this can lead the society to be interpreted as individualistic. Enterprise is highly valued and respected, and the act of starting a business has strong social and cultural support. Lebanon is a country with strong ties to the West, an Arabic-speaking nation where conversation can often switch just as easily into French or English. This linguistic diversity reflects a strong, largely private, educational system.

Lebanon is a small, (10,452 km2), Mediterranean country, bounded by the sea to the West, Occupied Territories to the South and war-torn Syria to the North and West. The period following independence was largely characterized by economic growth and prosperity, (with Beirut often described as the “Paris of the Middle East”), before this tranquillity was abruptly fractured by sustained sectarian civil war from 1975 to 1990.

The post-war period was marked by prolonged reconstruction, funded partially from outside donations but mostly by borrowing, usually from domestic banks. As a result the government continues to carry a high burden of indebtedness, paying high interest rates to a very profitable banking sector. Even in the difficult conditions of 2016, Lebanon’s fourteen largest banks saw profits rise by 12% to more than $2¼bn, a return on average common equity of more than 13%, (Daily Star, 10.3.17).

The denominational agreement that ended the civil war in 1990 turned yesterday’s warlords into today’s political elite. Lebanon continues to pay a high price for enshrining sectarian differences into public role allocations that stultify public administration, although the new government has at lEast established a working group to look at the potential transition to meritocracy in public office.

INTRODUC TION

“Whilst being a vibrant parliamentary democracy, as a result of its sectarian nature the Lebanese states entire structure is informed by the quest for inter-communitarian balance that results in endemic patronage and clientelism.” — Stel (2013).

THE LEBANESE ECONOMY AND ITS ENVIRONMENT FOR ENTERPRISE

CHAPTER 2


After years of political stalemate, during which Parliament repeatedly voted to extend in its own term, and the area around the Parliament Buildings was sealed off to protect Lebanon’s politicians from their own people, in October 2016 a new President was eventually elected by sufficient MP’s to take office, and a new government formed soon after. Significant political progress seems possible, leading to growing optimism and rising expectations.

However Lebanon continues to experience the outward migration of young, educated people and the inflow of low skilled foreign labour to work in agriculture and construction, a situation exacerbated since 2011 by the influx of refugees escaping civil war in Syria. According to UN data, by mid 2015 Lebanon had nearly 2m international migrants, more than a third of the population. Of these 1.2m were registered at refugees with UNHCR, although the true number may well be higher. Before the Syrian war, the Lebanese population already included more than 430,000 registered Palestinian refugees.

Figure 4 shows the recent trajectory of population in Lebanon. By 2016 this population had reached almost 6m, up nearly a third in just 5 years. This implies a population density of around 570 people per square kilometre, making Lebanon one of the most densely populated countries. Moreover this is a relatively young population, with a quarter under the age of 15 and more than 40% under 25. Only one in seven were aged 55 or over.

Figure 4: Lebanon’s Population Growth since 2005.Source: CIA World Fact Book, 2017

LEBANON’S POPULATION (000’S )

28

28

According to Jacoude (2015), writing for the European Training Foundation, (www.etf.europa.eu), Lebanon is a free market economy with government support for investment, though with limited public ownership in infrastructure and utilities.

However, “The investment climate suffers from red tape, corruption, arbitrary licensing decisions, complex customs procedures, high taxes, tariffs and fees, archaic legislation and weak intellectual property rights.” The same author sees the economy as dependent on inward remittances and the “royalties” generated by real estate and financial markets: “the booming real estate sector conflates the price of essential non-tradable goods and services and creates job opportunities for foreign unskilled workers”.

Data on the Lebanese economy remains scarce, with a heavy dependence on external bodies such as the World Bank and the World Economic Forum. Detailed national accounts are available from the Centre for Administration of Statistics, (CAS), but the latest available are for 2012. Interestingly, the CAS website notes that “In Lebanon, as in many countries, activities are carried out by the informal sector, or are otherwise unrecorded. Allowances amounting to around 30% of recorded outputs have been included in the estimates to cover the value of such activity, although the precise level remains uncertain.”(National Accounts, Data Sources and Compilation Methods, 2013, www.cas.gov.lb)

Figure 5 outlines data for Lebanon’s Gross Domestic Product per capita, using CAS data for 2005-13 and World Bank estimates for 2014-16 and forecasts for 2017-18. GDP/cap grow strongly at the turn of the decade, before growth rates fell back to a bit less than 3% p.a. since 2014. For 2016, the World Bank estimates GDP per capita in Lebanon at just under $14,000, and sees growth remaining low over the next two years.

The CIA World Factbook (2017) estimates that in Lebanon in 2016, Agriculture contributed just 6% to GDP, with Industry providing 25% and Services comprising the vast majority at nearly 70%. The unemployment rate is contested, with Jacoude reporting that a 2012 World Bank Report set it at 11%, while a CAS study of 2011 claimed 6%, although “other Government institutions (Ministry of Labour, National Employment Office) estimate it at 20-25%”. The same European Training Foundation Working Paper estimated public sector employment at around 110,000, or 30% of wage employees, although the Civil Service Board had formally recruited just 30,000 of these. The rest were on short-term, even day-to-day contracts. In addition, the female economic activity rate in Lebanon, at 25.6%, is one of the loWest in the world. As a small, open economy, Lebanon’s dependence on international trade is clear. This openness meant that by 2013 imports, at 59.3% of GDP, were 1.8 times higher than exports (33.5% of GDP), having risen steadily from 1.5 times higher in 2006. Lebanon’s major trading partners for exports in 2014 were Saudi Arabia (11%) and the UAE (10%), whilst

THE LEBANESE ECONOMY

CHAPTER 2


Figure 5: Lebanon’s Change in GDP per capita 2005-2018

6

Figure 5: Lebanon’s change in GDP per capita 2005 – 2018

Source: CAS, World Bank

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Lebanon % change GDP/cap 2005-18LEBANON’S CHANGE IN GDP PER CAPITA 2005-2018

imports came from China (12%) and Italy (8%) (figures from CAS). The continuing war in Syria is likely to have made the trade situation much worse since then, because trade by land is now virtually impossible. According to Executive Magazine, Lebanese exports of goods and services, worth $4.5bn in 2012, had fallen to less than $3bn in 2015, and just $2.3bn in the first nine months of 2016, (Executive, 29.12.16).

In response to the national economic environment, and in the absence, until recently, of active government, the central bank, (Banque du Liban, or BdL), has played a growing role in ensuring macroeconomic stability and aggregate demand management. The cumulative size of BdL’s stimulus to the economy reached $1.5bn in 2013, rising by around $1bn per year since then. Executive Magazine reports BdL estimates that this had made a sizeable contribution to GDP growth: “the stimulus packages of 2013 and 2014 proved to be successful, contributing around 50% of real domestic product growth”, although Executive also noted that the evidence underpinning these estimates was not forthcoming, and that around three-quarters loans subsidised by the stimulus packages had gone to the housing sector.

By the end of 2016, Executive identified four major contemporary challenges for the Lebanese economy:

→ the continuing disruption of regional trade,→ the burgeoning refugee crisis→ deteriorating public services (especially garbage and electricity)→ US financial sanctions targeting Hezbollah

Resolution of the first two is largely out of the hands of Lebanon, relying on mitigation of the Syrian conflict, although Lebanon continues to work hard to contain any spillovers and to minimise the impacts on existing sectarian divisions and domestic politics. The formation of the new government and moves towards an agreed budget may herald at lEast some stability in public services, whilst BdL has reassured the international financial community by its strict imposition of financial disclosure and management of selected accounts.

30

30

All the parts of the entrepreneurial ecosystem in which women and men act entrepreneurially, (or not), are mutually interdependent, from the ease of accessing start-up funding, to the bureaucracy involved in registering a new business, or from the nature of government support to enterprise to the quality of the local infrastructure.

A later chapter will report the survey of national experts views on these entrepreneurial framework conditions as part of the GEM methodology – the purpose of this section is to briefly outline the nature of the entrepreneurial ecosystem in Lebanon.

Contemporary wisdom (eg. Ahmed et al, 2004, Saleh, 2014) sees the Lebanese economy as dominated by small, family run businesses, where family loyalty may transcend business imperatives, and where the well-educated young may be under considerable pressure to follow the family footsteps. Not surprisingly, many talented young people choose to seek opportunities elsewhere. The patriarchal structure of Lebanese society, and its very low female activity rates, may restrain risk-taking and business creativity, as well as underutilising potentially productive resources. Similarly, the influence of family relationships in the provision of start-up finance may also limit risk-taking, since the failure to return family investment may not be seen as an option.

At the same time enterprise is held in high esteem in social and cultural norms, and much of the workforce is well-educated and well-qualified, with a regular inflow of new graduates across most disciplines. There are numerous Lebanese role models of successful entrepreneurs, including increasing numbers of women, and a sizable diaspora of rich Lebanese entrepreneurs abroad, many of whom are prepared to invest their time and money in Lebanon. There is strong social, cultural and political support for entrepreneurship.

The physical infrastructure remains poor, with low levels of public service provision, even for essentials such as wasted collection, electricity and water, and perceived high levels of bureaucracy with manifold opportunities for corruption. The unreliability of essential services means that expensive alternative provision must be made. Internet connection is often slow and expensive. Urban transportation in Beirut and its surrounding cities moves very slowly, and there is little public transport provision, with many people relying on an effective private network of shared taxi’s and minibuses. Meanwhile competition in product markets may be largely illusory, with a small group of family businesses controlling much of the product space, (Stel, 2013, page 3).

In the Global Competitiveness Report of 2016/17, Lebanon scored 3.8 out of 7, ranking it 101st of 138 countries surveyed, including rankings of 119th for Institutions, 117th for Infrastructure and 104th for Labour Market Efficiency, although it ranked rather better in Health and School Education (52nd), Higher Education (66th) and Innovation (58th). Corruption, Government Instability and Inadequate Infrastructure were cited as the three most pressing problems in daily business activity (World Economic Forum, 2016).

In the World Bank’s “Doing Business 2017 Report”, Lebanon scored 55.9/100, ranking 126th of 190 countries, including ranking 139th for ease of starting a business. In the overall rankings, Lebanon just about matched the average for Arab nations, although behind UAE (26th), Morocco (68th), and Jordan (118th), amongst others.

Despite these figures, there is a solid base of support for start-ups and small businesses in Lebanon, with an SME Support Programmeme (ISSP) to encourage access to non-financial services through business development centres, while Kafalat provides loan guarantees based on business plans to targeted SME’s and innovative start-ups in industry, agriculture, tourism, traditional crafts and in technology. Kafalat’s subsidised loans are intended to offset the effects of high interest rates as a result of the huge public sector debt.

More recently there has been an upsurge in support for technology start-ups, kick-started by the Central Bank (BdL):

“In the present day, fifteen years after Berytech (the first support institution focused on entrepreneurs) opened its doors in Mar Roukouz, Lebanon’s entrepreneurship ecosystem is teeming with growth and diversification, and the years to come promise more of the same”. —(Executive Magazine, January 2017, p105).

The catalyst for this change was Circular 331, issued by BdL in August 2013. The Lebanese Central Bank had long had in place a scheme to promote low cost lending to entrepreneurs by varying the mandatory reserve that commercial banks are required to keep at the Central Bank, the substantial stimulus noted earlier. However the majority of this lending was to industrial development, tourism projects and to agriculture. Circular 331 provided substantial incentives to banks to invest in technology start-ups, either directly or through a Venture Capital fund, by permitting the banks to then apply for a seven-year interest free loan invested in Lebanese Treasury Bonds. Approved start-up investments were guaranteed up to 75% by BdL, and 100% if invested in accelerators, incubators or enterprise boot-camps.

THE LEBANESE ENTREPRENEURIAL ECOSYSTEM

CHAPTER 2


The UK Lebanon Tech Hub has recently initiated a Research and Development Programme, to bring together international and local universities to work on applied research projects that have the potential for commercialisation. AltCity, with funding from UNICEF, intends to launch a social enterprise accelerator in Beirut in 2017, while the Innovation Factory is developing a “Makers” space to facilitate effective prototyping.

Victor Mulas, of the World Bank, poses four challenges to the sustainability of Lebanon’s entrepreneurial ecosystem, (Executive, January 2017).

In addition, Mulas notes that: “Beirut, and Lebanon as a whole, are not lacking in social and public challenges, but its start-up system is way behind on social innovation when compared to other regions in the world, forfeiting a large area of growth with significant network externalities for the country” (p107).

According to Executive Magazine, in Lebanon in the six years to 2013, three Venture Capital funds had raised $23.5m, of which $17m was deployed, including one Accelerator, and eight start-ups accelerated, with three receiving post-accelerator investment.

In the three years following 2013, nine Venture Capital funds raised around $384m, of which $116m was deployed, including three Accelerators and 123 start-ups accelerated, of which 28 received post-accelerator investment.(Executive, January 2017, p110)

ASSESSING THE EFFEC TS OF CIRCUL AR 331

MATURITY OF THE SUPPORT INFRASTRUCTURE:

Most emerging ecosystems create quantity, but not necessarily quality, in business start-ups.

HOME-GROWN ANGEL INVESTORS:

So far, very few successful start-up entrepreneurs in Lebanon have gone on to invest in, and mentor, the next generation of start-ups.

SUFFICIENT/DIVERSE TALENT PIPELINE:

Many of the early people start-ups attract then leave to start their own businesses.

CONNECTION WITH TRADITIONAL LOCAL INDUSTRY:

Beirut’s ecosystem appears largely insulated from surrounding businesses. Elsewhere, mature ecosystems have mutually beneficial relationships with local business, who then provide future talent and encourage the start-up to develop products and services to meet local needs.

32

32

2016 was a tough year to start a business in Lebanon.

Political stagnation, languid growth, high interest rates and a hostile external environment, with a consequent influx of refugees, meant for very difficult economic circumstances in which to engage in entrepreneurship. Add in inadequate physical infrastructure, expensive and unreliable public services, and political instability/corruption identified as the most pressing business problem, and starting a new business becomes almost an act of faith rather than economic opportunism.

Yet, as will be seen later, many people did start their own businesses, and the technology start-up landscape in Lebanon is blossoming, watered by an accommodating business-friendly culture and fertilized by Central Bank incentives to the banking sector.

CONCLUSION

CHAPTER 2



CHAPTER 3ENTREPRENEURIAL ACTIVITY IN LEBANON – THE ADULT POPULATION SURVEY

GEM NATIONAL REPORT 2016GEM NATIONAL REPORT 2016

36

Chapter 1 introduced the Global Entrepreneurship Monitor (GEM) as an international research project providing consistent survey data on levels of entrepreneurship across time and place. Chapter 2 provided a brief introduction to the Lebanese economy and its entrepreneurial ecosystem. Both of these were setting the scene for this chapter and the next, outlining, in turn, the Lebanon results of the GEM Adult Population Survey (APS - this chapter), and then the National Experts Survey (NES - next chapter). Taken together these surveys provide a contemporary and comprehensive description of the level of entrepreneurial activity in Lebanon. The consistent nature of the GEM methodology allows comparison between Lebanon and other countries, and hence some assessment of the relative level of entrepreneurship in Lebanon, while comparison to the equivalent survey in Lebanon last year will allow assessment of the evolution of entrepreneurship in the country.

This chapter will show that, while the level of total early stage entrepreneurship in Lebanon has fallen compared to last year, Lebanon remains amongst the world’s leading entrepreneurial economies, ranking fourth of 66 countries in terms of new firm enterprise, eighth in terms of total early-stage entrepreneurship, and third in terms of the ownership of established businesses. Within the Middle East, Lebanon’s relatively high level of entrepreneurship is even more marked. This chapter will go on to outline the relationship between that level of Lebanese early-stage entrepreneurship and a number of perceptual and demographic factors such as motivation, entrepreneurial intentions, age, gender, export and growth orientation, educational attainment, household income and location.

INTRODUC TION

At the heart of the GEM approach is the Adult Population Survey of individuals aged between 16 and 64. This requires completion of a very detailed questionnaire, looking at many dimensions of entrepreneurial activity as well as perceptions and demographics. In Lebanon in 2016, 2,600 face-to-face interviews were completed with working age adults from all income groups, educational attainment levels and parts of the country.

ENTREPRENEURIAL ACTIVITY IN LEBANON – EVIDENCE FROM THE 2016 GEM ADULT POPULATION SURVEY

CHAPTER 3


Whether to behave entrepreneurially or not may depend, in part, on social and cultural values. In the GEM methodology, three aspects of social values are assessed:

→ Is starting an enterprise seen as a desirable career choice?→ Are the individuals who start a business perceived as having high status and respect? And,→ Does media attention to enterprise contribute positively to developing an entrepreneurial culture?

Table 3 provides a summary of responses from the 2016 GEM Global Survey. Comparison to 2015 suggests rising global recognition of entrepreneurship as a good career choice, with more than two-thirds of adults surveyed across the world in 2016 believing that entrepreneurs are well-regarded and enjoy high status.

SOCIAL VALUES

Source: GEM Global Reports, 2015 and 2016

Table 3 also shows some variation by region, with entrepreneurship better regarded as a good career choice in Africa than in Europe, while entrepreneurs were more likely to be seen as high status in Africa, North America and Asia/Oceania than in Latin America or Europe

GLOBAL PERCEPTIONS OF THE SOCIAL VALUE OF ENTREPRENEURSHIP, 2015 AND 2016

Table 3

74.6

65.2

63.7

57.2

64.6

76.7

72.7

63.2

66.1

74.0

64.9

68.3

61.0

57.2

72.5

70.6

61.9

64.1

55.9

N/A

73.2

70.5

64.6

66.0

N/A

62.8

69.2

64.0

55.1

N/A

2016 2016 20162015 2015 2015

ENTREPRENEURSHIP IS A GOOD C AREER CHOICE %

AFRIC A

ASIA /OCEANIA

L ATIN AMERIC A

EUROPE

NORTH AMERIC A

ENTREPRENEURS HAVE HIGH STATUS %

MEDIA AT TENTION PROMOTES ENTERPRISE %

38

Table 4

The headline measure of entrepreneurial activity in GEM is the Total early stage Entrepreneurial Activity rate (TEA), or the proportion of those surveyed who are either actively engaged in starting a business (nascent entrepreneurs), or the owner/managers of a new business (new firm entrepreneurs). Nascent entrepreneurs are those who have committed resources to starting a business, but have not yet paid wages or salaries for more than three months, while new firm entrepreneurs have paid wages/salaries for more than three months but less than three and a half years. Those paying wages for more than three and a half years are classed as owners of an established business.

ENTREPRENEURIAL AC TIVIT Y IN LEBANON, 2016

TOTAL EARLY-STAGE ENTREPRENEURIAL ACTIVITY, (TEA) , LEBANON AND OTHER MIDDLE EASTERN COUNTRIES PLUS TURKEY, 2016

NB1 TEA is slightly less than Nascent plus New Firm because of overlap.NB2 Rank refers to position within the 65 countries surveyed globally.Source: GEM Global Report 2016

Comparison of the survey results for Lebanon in 2016 with 2015 saw the total early stage entrepreneurship rate fall from 30% to 21%, largely as a result in a reduction in new firm entrepreneurship from 20% to 12%. Nascent entrepreneurship rates fell slightly over the same period, from 10.8% to 9.5%.

Table 4 shows Lebanon as having the highest rate of early stage entrepreneurship of countries surveyed in the Middle East, and the eighth highest globally. Lebanon also had the highest rates of both nascent entrepreneurs and new firm entrepreneurs of any Middle East participating country, the latter by a considerable margin.

NEW FIRM ENTREPRENEURS


TOTAL EARLY-STAGE ENTREPRENEURIAL ACTIVITY (TEA)


LEBANON

QATAR

NASCENT ENTREPRENEURS


9.5%

4.3%

12.1%

3.6%

21.2%

7.8%

RANK 13

RANK 45

RANK 4

RANK 43

RANK 8

RANK 50





IRAN

SAUDI ARABIA



6.9%

3.7%

6.2%

7.7%

12.8%

11.4%

RANK 25

RANK 52

RANK 18

RANK 12

RANK 23

RANK 26





ISRAEL

TURKEY



7%

8.9%

4.5%

7.6%

11.3%

16.1%

RANK 23

RANK 14

RANK 32

RANK 13

RANK 27

RANK 14





JORDAN

UAE



4.1%

1.3%

4.6%

4.4%

8.2%

5.7%

RANK 47

RANK 64

RANK 31

RANK 34

RANK 44

RANK 57

CHAPTER 3


Alongside social values, self-perceptions and individual attributes weigh heavily on the decision to start a new business. Four key individual perceptions and attributes are investigated in the GEM adult population survey:

→ Perceived opportunities – does that person see good opportunities to start a business locally, (within the next six months)?

→ Perceived capabilities – does that person believe they have the required skills, knowledge and expertise to start a business?

→ Fear of failure – does that person see good opportunities to start a business, but the fear of failure would prevent them from doing so?

→ Entrepreneurial intentions – does that person expect to start a business in the next three years, (excluding those who are already entrepreneurially active)?

Despite the difficult trading conditions outlined in Chapter 2, Table 5 shows that in Lebanon in 2016, six out of ten adults saw good opportunities to start a new business, more than two-thirds considered themselves to have the required skills and capabilities to do so, and less than a quarter of those would be deterred by fear of failure. As a result, four out of ten intended to start a new business within the next three years. Of the 65 countries surveyed, Lebanon ranked seventh highest in terms of perceived opportunities, ninth in terms of perceived capabilities and entrepreneurial intentions, and fourth loWest in terms of being deterred by fear of failure.

SELF-PERCEPTIONS

PERCEPTIONS OF INDIVIDUAL ATTRIBUTES, LEBANON 2016

Table 5

Source: GEM Global Reports 2016Compared to the 2015 survey, the percentage of working age population in Lebanon who saw good opportunities to start a business increased substantially in 2016, (from 46% to 60%), while both perceived capabilities, (70% to 68%) and entrepreneurial intentions, (44% to 41%), fell slightly. However the proportion seeing good opportunities to start a business, but who were deterred by fear of failure, rose from 17% to 23%, probably reflecting the instability noted earlier.

PERCEIVED OPPORTUNITIES

PERCEIVED OPPORTUNITIES PERCEIVED OPPORTUNITIES



PERCEIVED OPPORTUNITIES51.8%

58.1% 46.2%

42.8%

36.2%

59.6%

58.6%

54.6% 62.6%

62.6%

43.5%

68.0%

26.5%

36.2% 27.5%

27.5%

40.1%

22.5%

41.6%

12.9% 31.9%

31.9%

11.9%

40.5%

PERCEIVED CAPABILITIES

PERCEIVED CAPABILITIES PERCEIVED CAPABILITIES




FEAR OF FAILURE

FEAR OF FAILURE FEAR OF FAILURE

FEAR OF FAILURE

FEAR OF FAILURE

FEAR OF FAILURE

ENTREPRENEURIALINTENTIONS






NORTH AMERICA

LATIN AMERICA & CARRIBEAN

ASIA & OCEANIA

LEBANONAFRICA

EUROPE

40

It was reported earlier that in the 2016 APS, 40% of respondents in Lebanon intended to start a new business in the next three years. Although high, this may be realistic, given that 10% were actively engaged in starting a new business and 12% were already running a new business. The drop-off between intentions and actions may then be relatively low.

Starting a business is one form of entrepreneurial activity. Established business owners, (defined by GEM as owning businesses paying salaries for more than three and a half

ESTABLISHED BUSINESS AC TIVIT Y, EMPLOYEE ENTREPRENEURSHIP AND BUSINESS DISCONTINUANCE, LEBANON 2016.

years), are also likely to see themselves as entrepreneurial. Meanwhile some employees, (rather than owners), may engage in entrepreneurial activities such as developing new products or new markets, setting up subsidiary businesses, etc. The proportion of survey respondents undertaking these forms of entrepreneurial activity for their employers is the Employee Entrepreneurial Activity rate or EEA.

In a market economy, not all new businesses will succeed. In Lebanon, 9% of individuals starting or running a new business also reported that they had discontinued a business in the past twelve months. More than four out of ten of these gave unprofitability as the main reason, although one in nine claimed to discontinue in order to pursue another opportunity. One in five attributed discontinuance to personal reasons, with one in ten citing some incident as the cause for discontinuance, the third highest rate in the global sample.

ESTABLISHED BUSINESS OWNERSHIP, EMPLOYEE ENTREPRENEURSHIP AND DISCONTINUANCE, LEBANON 2016.

Table 6

Source: GEM Global Report 2016

The rate of established business ownership was the third highest of the 65 countries in the sample. Added to the level of early stage entrepreneurship, this suggests that more than four out of ten of the working-age population in Lebanon were either actively starting a new business, running a new business or owned an established business. Of the 59 innovation or efficiency-driven economies participating in GEM in 2016, only Ecuador had a share of population actively engaged in entrepreneurship, (i.e. starting or running a new or established business), that was higher than Lebanon’s. This is strong evidence of Lebanon as one of the world’s most entrepreneurial nations.

For the 9% of those starting or running a new business who also discontinued a business in the past twelve months, Table 7 provides more detail of the main reasons given for discontinuation, compared to the Asia/Oceania average.

AFRICA

EMPLOYEE ENTREPRENEURIAL ACTIVITY (EEA)

DISCONTINUATION OF A BUSINESS

ESTABLISHED BUSINESS OWNERSHIP 11.9%

1%

12.7%





2.4%

9.6%

ASIA & OCEANIA




3.0%

4.6%

NORTH AMERICA




7.0%

4.3%

EUROPE




4.5%

2.6%

LEBANON



ESTABLISHED BUSINESS OWNERSHIP20.1%

2.6%

9.2%

RANK 3

RANK 32

RANK 30

CHAPTER 3


MAIN REASON FOR DISCONTINUANCE, LEBANON & ASIA/OCEANIA 2016, (%) .

Table 7

The main reasons for discontinuance matched the Asia averages fairly closely, though selling the business was less likely and finance less of a problem, while unprofitability and incident were a bit higher as reasons for discontinuation.

SOLD THE BUSINESS SOLD THE BUSINESS2.5% 9.3%

43.7% 35.6%

6.4% 12.2%

11.1% 10.7%

3.5% 2.9%

2.1% 3.5%

18.6% 18.0%

10.3% 3.9%

1.8% 2.9%

UNPROFITABLE UNPROFITABLE

FINANCE FINANCE

RETIREMENT RETIREMENT

PERSONAL PERSONAL

INCIDENT INCIDENT

BUREAUCRACY BUREAUCRACY

OTHER OPPORTUNITIES

OTHER OPPORTUNITIES

EXIT EXIT

LEBANON ASIA/OCEANIA


42

There are a wide variety of reasons for starting a business, from the desire for autonomy to a need for flexible working, or from the chance to develop a lifetime career to the opportunity to make some quick money.

These various reasons matter, because they can affect the long-term viability of the new business, as well as providing potential levers for those interested in promoting entrepreneurship. GEM recognizes the wide diversity of motives, and seeks to summarise these as necessity or opportunity entrepreneurship.

The necessity-driven individual starts a business because of the dearth of alternative sources of income, whereas the opportunity-driven individual tries to exploit an identified a business opportunity. Most people starting

THE MOTIVATION FOR ENTREPRENEURSHIP IN LEBANON

a business would report elements of each, but in the GEM survey respondents are asked to choose between them. Overall, three quarters of those surveyed globally said they started a business to grasp an opportunity. Not surprisingly, the proportion of necessity entrepreneurs was much higher for the factor-driven, and then the efficiency-driven, economies than for innovation-driven.

Opportunities can take a variety of forms – those identified as opportunity entrepreneurs were then asked whether they started the business in order to make more money, be more independent or for some other reason. Those answering yes were labelled as improvement-driven entrepreneurs, and improvement-driven entrepreneurs may be more likely to bring long-term ambitions to the business. To quantify this, GEM has developed a Motivational Index, measured as the ratio of improvement-driven to necessity-driven entrepreneurship.

THE MOTIVATION FOR ENTREPRENEURSHIP, LEBANON 2016

Table 8

Source: GEM Global Report 2016Compared to 2015, Lebanon in 2016 saw a sharp rise in the share of necessity-driven enterprise (from 27% to 39%), and a consequent fall in the level of opportunity enterprise (from 72% to 57%). This may not be surprising, given levels of unemployment, the continued influx of refugees and the limitations of the Lebanese social security system. Equally unsurprisingly, the level of improvement-driven entrepreneurship fell from 57% to 44%, meaning a substantial fall in the GEM Motivational Index, (ratio of improvement-driven to necessity entrepreneurship), from 2.1 in 2015 to 1.1 in 2016.

ASIA & OCEANIA

NORTH AMERICA

23.6%NECESSITY DRIVEN (AS% OF TEA)


73.0%OPPORTUNITY-DRIVEN (% OF TEA)


48.6%

61.1%

IMPROVEMENT-DRIVEN (% OF TEA)


2.5%

4.9%

MOTIVATIONAL INDEX

MOTIVATIONAL INDEX

11.0%TOTAL EARLY STAGE: ENTREPEUNARIAL ACTIVITY (TEA)

14.7%

EUROPE



51.1%IMPROVEMENT-DRIVEN (% OF TEA)

3.4%MOTIVATIONAL INDEX


TOTAL EARLY STAGE: ENTREPEUNARIAL ACTIVITY (TEA)

LEBANON21.2%


RANK 8


RANK 5

57.3%OPPORTUNITY-DRIVEN (% OF TEA)RANK 61

43.6%IMPROVEMENT-DRIVEN (% OF TEA)RANK 39

1.1%MOTIVATIONAL INDEXRANK 54

AFRICA



39.4%IMPROVEMENT-DRIVEN (% OF TEA)

1.4%MOTIVATIONAL INDEX


26.4%

70.9%

48.0%

2.5%

18.8%


NECESSITY DRIVEN (AS% OF TEA)

OPPORTUNITY-DRIVEN (% OF TEA)


MOTIVATIONAL INDEX


CHAPTER 3


Family is the traditional source of funds for starting a business, particularly in Lebanon. In the 2015 GEM APS, of those early-stage entrepreneurs seeking or receiving external funding, more than half saw family as a provider, with banks or other financial institutions seen as a provider of funds by just a quarter of early-stage entrepreneurs.

In 2016, GEM asked a different set of questions about finance for start-ups. Respondents were asked if, in the previous twelve months, they had provided any funds for a business start-up owned by someone else. Just 4.4% said yes.

For these investors, Figures 6 and 7 show the amount of funds invested, and the relationship to the owner of the start up. Close family is the dominant destination, accounting for 58% of investments, followed by friends and neighbours, (20%), and other relatives (14%). “Strangers with a good business idea” were less than 3% of investments. In terms of value, just over half of investments were between 1m and 5m Lebanese pounds, ($650 to $3,300), although nearly a fifth were of 20m Lebanese pounds ($13,300) or more. None exceeded 100m Lebanese pounds ($66,600).

INVESTING IN OTHER START-UPS

Figure 6: Investing in Someone Else’s Business: Relationship to Owner

Figure 7: Investing in Someone Else’s Business: Amount Invested

RELATIONSHIP TO STARTUPS AMOUNT IN LBP

OTHER4%

COLLEAGUE1%

OTHER RELATIVE14%

FAMILY OR NEIGHBOUR

20%

STRANGER WITH A GOOD IDEA

3%

0-1M2%50M-100M

6%

44

Table 9 shows that in Lebanon in 2016, 26% of surveyed men were early-stage entrepreneurs, compared to 16% of surveyed women. That men should outnumber women, in what was earlier described as a patriarchal society, may not be surprising, though the gender gap may be rather less than expected. In the 2015 survey, 36% of sampled working age males were early stage entrepreneurs, compared to 25% of females. Hence the absolute gender gap, (male minus female), increased slightly in 2016, while the male to female ratio, (relative gender gap), increased from 1.45 in 2015 to 1.63 in 2016.

More remarkable was the big increase, for both men and women, in the share of early stage entrepreneurs claiming to be motivated by necessity rather than opportunity.

AGE, GENDER AND ENTREPRENEURSHIP IN LEBANON

In 2015, 25% of male early stage entrepreneurs reported being motivated by necessity – by 2016 this had increased to 41%. For women the increase was from 31% to 37%.

In 2015, Lebanon’s males had ranked 23rd of 60 participating countries in terms of share of early stage entrepreneurs claiming to be driven by necessity – by 2016 the equivalent ranking was 3rd out of 65. This may be yet another indicator of how tough trading conditions were in Lebanon in 2016.

GENDER DISTRIBUTION OF TOTAL EARLY-STAGE ENTREPRENEURSHIP ACTIVITY (TEA,) OPPORTUNITY TEA AND NECESSITY TEA, LEBANON 2016

Table 9

N.B. R is rank out of 65 countries / Source: GEM Global Report 2016

NORTH AMERICALATIN AMERICA & CARRIBEAN

RANK 13

ASIA & OCEANIALEBANONMALE TEA MALE TEA

MALE TEA OPPORTUNITY MALE TEA OPPORTUNITY

MALE TEA NECESSITY MALE TEA NECESSITY

RANK 8

RANK 62

RANK 3

16.1% 8.7%

59.8% 73.3%

37.2% 23.9%

26.2% 13.3%

55.7% 72.8%

40.7% 23.6%

FEMALE TEA FEMALE TEA

FEMALE TEA OPPORTUNITY FEMALE TEA OPPORTUNITY

FEMALE TEA NECESSITY FEMALE TEA NECESSITY

RANK 10

RANK 52

EUROPE

MALE TEA

MALE TEA OPPORTUNITY

MALE TEA NECESSITY

14.9%

17.0%

65.9%

67.0%

30.1%

30.7%

20.4%

20.7%

69.3%

74.2%

27.1%

22.8%

FEMALE TEA

FEMALE TEA OPPORTUNITY

FEMALE TEA NECESSITY

AFRICA

FEMALE TEA



MALE TEA


MALE TEA NECESSITY

MALE TEA


MALE TEA NECESSITY

6.1%

72.9%

23.8%

10.7%

77.6%

19.2%

FEMALE TEA



MALE TEA


MALE TEA NECESSITY

11.9%

84.2%

13.1%

17.6%

83.4%

12.7%

FEMALE TEA



CHAPTER 3


The age distribution of entrepreneurship may be important. Internationally, the highest TEA rates are in the 25-34 and 35-44 age groups. It seems that young people are more likely to start a business after a period of work, perhaps when they have accumulated some experience, networks and other resources of value in starting a business, including confidence. They may also be early enough in their careers, particularly in the younger age group, not to have to give up a high salary as the opportunity cost of starting a business

AGE DISTRIBUTION OF TOTAL EARLY STAGE ENTREPRENEURIAL ACTIVITY, (% OF AGE GROUP ENGAGED IN TEA), LEBANON 2016 .

Table 10

Table 10 shows relatively high rates of early stage entrepreneurship across all age groups in Lebanon in international terms, although, in contrast to 2015, the entrepreneurship level tails off sharply with age. While entrepreneurship levels for all age groups in Lebanon were lower in 2016 than 2015, it has fallen fastest in the older groups. While for the three youngest age groups, the level of entrepreneurship in 2016 was 70% or more of the level in 2015, for the two oldest groups, the level in 2016 was less than half of the 2015 level. Indeed the fall in entrepreneurship levels in the over 45’s in Lebanon may account for much of the reduction in overall entrepreneurship levels in Lebanon between 2015 and 2016.

N.B. R is rank out of 65 countries Source: GEM Global Report 2016

EUROPE8.2%18-24 YEARS

11.3%25-34 YEARS

9.7%35-44 YEARS

7.6%45-54 YEARS

4.8%55-64 YEARS

16.3%18-24 YEARS

20.8%25-34 YEARS

18.9%35-44 YEARS

15.6%45-54 YEARS

11.4%55-64 YEARS

AFRICA

NORTH AMERICA12.7%18-24 YEARS

19.0%25-34 YEARS

18.1%35-44 YEARS

14%45-54 YEARS

9.0%55-64 YEARS

5.7%18-24 YEARS

22.4%25-34 YEARS

22.2%35-44 YEARS

17.6%45-54 YEARS

12.8%55-64 YEARS


ASIA & OCEANIA8.5%18-24 YEARS

13.6%25-34 YEARS

12.5%35-44 YEARS

10.5%45-54 YEARS

7.5%55-64 YEARS

LEBANON18.7%18-24 YEARS

RANK 12

27.6%25-34 YEARS

RANK 8

28.2%35-44 YEARS RANK 8

14.8%45-54 YEARSRANK 12

12.0%55-64 YEARSRANK 10

46

In factor-driven or efficiency-driven economies, one half or more of early-stage entrepreneurs start wholesale or retail businesses, while in innovation-driven economies, nearly half start businesses in information and communications technology, or in financial, professional, health, education or other services.

This is very clear from Table 11, with Europe and North America having roughly half the share of new businesses in Wholesale/Retail of the other regions, and roughly twice the share of start-ups in Professional Services than the other regions. Lebanon sits firmly in the other-regions category, with nearly two thirds of new entrepreneurs in Wholesale or Retail, although the share in Professional Services, (23%), was an increase in the equivalent share in 2015, (19%). In Lebanon in 2016, Health, Education, Government and Social Services made up one in seven of total early-stage entrepreneurs.

TOTAL EARLY-STAGE ENTREPRENEURSHIP AC TIVIT Y BY SEC TOR

THE DISTRIBUTION OF EARLY-STAGE ENTREPRENEURSHIP BY SECTOR, 2016

Table 11

One of the motivations for supporting new business start-ups is the anticipation that they will bring sorely needed new jobs to the economy. However, a substantial proportion of businesses in any economy employ only the owner. Early stage entrepreneurs were asked how many people they expected to employ in five years’ time, with the results for Lebanon and regional averages shown in Table 12. Of particular interest to policy makers are the “gazelles”, the potential medium to fast-growth early-stage

enterprises, defined here as those expecting to employ six or more people in five years’ time. In 2016 only one in twelve of Lebanese early stage entrepreneurs were in this category, ranking Lebanon 57th of the 65 countries, while more than half of Lebanese early stage entrepreneurs expected to have no employees (other than the owner) in five years’ time. Last year, 42% of Lebanon’s early stage entrepreneurs had anticipated no employees in five years time, with 11% expecting to employ six or more in the same time period.

N.B. Professional Services includes information/communication technology, finance, professional services, administrative services, health, education, government and social services and personal/consumer services.Source: GEM Global Report 2016

ASIA & OCEANIA

NORTH AMERICA

7.0%MANUFACTURING

2.8%TRANSPORT

53.8%WHOLESALE/RETAIL

26.1%PROFESSIONAL SERVICES

10.3%AGRICULTURE/EXTRACTION

EUROPE

8.2%12.0%

8.7%

5.0%

MANUFACTURINGMANUFACTURING

MANUFACTURING

MANUFACTURING

3.8%4.3%

3.0%

4.1%

TRANSPORTTRANSPORT

TRANSPORT

TRANSPORT

28.0%50.9%

57.6%

27.0%

WHOLESALE/RETAILWHOLESALE/RETAIL

WHOLESALE/RETAIL

WHOLESALE/RETAIL

46.1%15.7%

23.3%

53.5%

PROFESSIONAL SERVICESPROFESSIONAL SERVICES

PROFESSIONAL SERVICES

PROFESSIONAL SERVICES

13.9%17.1%

7.4%

10.4%

AGRICULTURE/EXTRACTIONAGRICULTURE/EXTRACTION

AGRICULTURE/EXTRACTION

AGRICULTURE/EXTRACTION

LEBANON

AFRICA

5.5%MANUFACTURING

1.2%TRANSPORT

64.9%WHOLESALE/RETAIL

23.0%PROFESSIONAL SERVICES

5.4%AGRICULTURE/EXTRACTION


JOB CREATION EXPEC TATIONS AND INNOVATION

CHAPTER 3


JOB CREATION EXPECTATIONS AND INNOVATION, LEBANON 2016.

Table 12

In order to assess the innovation-intensity of new start-ups, the GEM Adult Population Survey asks early stage entrepreneurs whether they would be offering products or services that are new to their customers, and whether they would have many competitors in their chosen market. Early stage entrepreneurs claiming to offer new products or services and with few competitors were categorised as innovation entrepreneurs, with results shown in the final column of Table 12.

Lebanon, with almost 60% of early stage entrepreneurs claiming to offer new products or services and anticipating few competitors, ranks highest of the 65 countries in the 2016 GEM Global Report. The top five surveyed countries for innovative new businesses were Lebanon (59%), Chile (57%), Belize (48%), Luxembourg (45%) and Canada (41%). The share of innovative new businesses in Lebanon in 2016 had increased substantially from 38% in 2015.


Source: GEM APS Lebanon 2015 & 2016

New firm entrepreneurs were asked about the share of sales revenue they anticipated coming from customers living outside Lebanon, (i.e. mainly exports, but could include sale to visitors to Lebanon for some consumer sectors).

Only one in six anticipated no revenues from customers living outside Lebanon, while six out of ten expected a quarter of sales or more from customers outside Lebanon. Nearly a fifth of new firm entrepreneurs expected more than half their sales to come from customers living outside Lebanon. Figure 8 shows that, on the whole, new firm entrepreneurs expected more of sales revenues to come from outside Lebanon than had their counterparts in 2015.

THE EXPORT ORIENTATION OF EARLY-STAGE ENTREPRENEURSHIP

Figure 8: Expected Sales to Customers outside Lebanon (% of Revenue)

EUROPEAFRICA

NORTH AMERICALATIN AMERICA &

CARRIBEAN

ASIA & OCEANIALEBANON

1-5 JOBS IN 5 YEARS 1-5 JOBS IN 5 YEARS

1-5 JOBS IN 5 YEARS

1-5 JOBS IN 5 YEARS

1-5 JOBS IN 5 YEARS

1-5 JOBS IN 5 YEARS

6+ JOBS IN 5 YEARS 6+ JOBS IN 5 YEARS

6+ JOBS IN 5 YEARS

6+ JOBS IN 5 YEARS

6+ JOBS IN 5 YEARS

6+ JOBS IN 5 YEARS

INNOVATION (NEW PRODUCT/FEW COMPETITORS)






30.3%

22.8%

24.8%

47.0%

31.0%

21.9%

28.3%

47.1%

34.0%

25.1%

39.0%

41.0%

44.3%

20.5%

19.5%

35.2%

40.5%

17.4%

25.5%

42.1%

0 JOBS IN 5 YEARS RANK 21

RANK 18

RANK 57

RANK 1

0 JOBS IN 5 YEARS

0 JOBS IN 5 YEARS

0 JOBS IN 5 YEARS

0 JOBS IN 5 YEARS

0 JOBS IN 5 YEARS

39.9%

7.7%

58.7%

52.4%

48

The GEM APS enquired about the level of educational attainment of respondents, which can then be related to those engaged in early stage entrepreneurship in order to calculate a rate of entrepreneurship for each attainment level, with results for 2016 shown in Table 13. More than half of sample respondents were educated to Intermediate or Secondary level.

Whilst there are early stage entrepreneurs at each level of attainment, the rate varies considerably by educational level. Almost a third of those with Technical or Vocational attainment were engaged in starting a new business, compared to less than one in five of those with Primary or Secondary educational attainment. Unlike in the 2015 Survey, in 2016 the Bachelor degree holder was less likely to be involved in early stage entrepreneurship than the survey average, although once more those with postgraduate attainment were much more likely to be engaged in starting a new business.

While there is likely to be a relationship between levels of entrepreneurship and levels of household income, that relationship may not be straightforward. For example, low income households may feel more necessity for entrepreneurship, while higher income households may perceive more opportunities to start a business and be better placed to access the necessary resources. The 2016 GEM APS asked respondents to locate their household income on a specified income scale. Table 14 sets out that scale alongside the proportion of households within each category reporting that they were engaged in early-stage entrepreneurial activity.

Table 14 shows relatively little variation in levels of early stage entrepreneurship by household income level. Indeed middle-income households were most likely to have members involved in starting a new business. However enterprise participation rates at all income levels were less than in 2015.

EDUC ATIONAL AT TAINMENT AND EARLY-STAGE ENTERPRISE IN LEBANON

HOUSEHOLD INCOME AND EARLY-STAGE ENTREPRENEURSHIP, 2016.

LEVEL OF EDUC ATION AND EARLY-STAGE

ENTREPRENEURSHIP, 2016

HOUSEHOLD INCOME AND EARLY-STAGE ENTREPRENEURIAL

ACTIVITY.

Table 13

Source: GEM APS Lebanon 2016

Source: GEM APS Lebanon 2016

Table 14

19.1%

23.3%

19.3%

32.5%

19.9%

30.7%

SECONDARY LEVEL

INTERMEDIATE

PRIMARY/ELEMENTARY LEVEL

TECHNICAL/VOCATIONAL

UNIVERSITY LEVEL (BS)

MASTERS OR DOCTORATE

LEVEL OF EDUCATION LEVEL OF EARLY-STAGE ENTREPRENEURSHIP (%)

18.1%

20.0%

22.4%

24.1%

20.3%

21.6%

21.3%

14.0-22.8

8.0-14.0

LESS THAN 8.0

22.8 -32.4

32.4-42.0

42.0-64.8

MORE THAN 64.8

HOUSEHOLD INCOME(L.L. MILLION PER YEAR) LEVEL OF EARLY-STAGE ENTREPRENEURSHIP (%)

CHAPTER 3


Although Lebanon is a small country, the physical and entrepreneurial environment varies considerably across the country, with suburban and cosmopolitan Beirut being a very different place, for example, to refugee-intensive and war zone proximate Bekaa. Variations in the level of entrepreneurship across Lebanon can then be anticipated. Table 15 shows the level of new business activity in each of these five regions for both 2016 and 2015. More than 40% of the Lebanese population resides within Beirut or Mount Lebanon, and while the 2015 GEM APS found 33% of these to be actively engaged in starting or running a new enterprise, by 2016 this level had fallen sharply, (to 19%). Similarly the level of enterprise in Nabatieh almost halved between 2015 and 2016 (falling from 43% to 22%), whilst in Bekaa it fell by more than a third (from 33% to 20%). The highest rates of early-stage entrepreneurship in 2016 were in the South, (28%), up slightly from 2015, (27%). Rates in the North in 2016, (20%), were also little changed from 2015, (21%). So the reduction in early stage entrepreneurial activity in Lebanon overall between 2015 and 2016 can largely be traced to the middle of the country, rather than to the North or South.

LOC ATION AND EARLY-STAGE ENTREPRENEURSHIP

EARLY-STAGE ENTREPRENEURSHIP BY REGION, 2016 AND 2015.

Table 15

2016

2015

Source: GEM APS Lebanon 2016 and GEM APS Lebanon 2015.

BEIRUT/MOUNT LEBANON

SOUTH

BEKAA

NABATIEH

NORTH

21 .4%

33.1%

27.3%

32.8%

43.3%

BEIRUT/MOUNT LEBANON

SOUTH

BEKAA

NABATIEH

NORTH

20.3%

18.7%

28.3%

20.4%

22.3%

50

Comprehensive and detailed survey evidence of the level of early-stage entrepreneurial activity in Lebanon in 2016 has been presented and considered in this chapter, including placing Lebanon in a global context to allow international comparisons, and assessing activity in Lebanon in 2016 in relation to comparable results for 2015.

Whilst Lebanon in 2016 was certainly a challenging place in which to start a business, the country remains at the forefront of global entrepreneurial activity, with an overall level of enterprise, (those starting or running a new or established business), only surpassed by Ecuador amongst efficiency or innovation-driven economies.

Although the level of early stage entrepreneurial activity in Lebanon fell sharply between 2015 and 2016, analysis reveals that this was largely the result of substantial reductions in the level of entrepreneurship in older age groups (those aged 45+), and in the more-urbanized centre of the country. Entrepreneurship levels in the younger age groups, and in the North and South of the country, appear to have been much more resilient.

The major success story of the 2016 APS in Lebanon, however, is that Lebanon leads the world, (at lEast as represented by the 65 countries involved in GEM in 2016), in innovative business start-ups, or the proportion of new businesses seeing themselves as introducing new products or services, with few competitors. This must be tempered with evidence that almost two-thirds of new businesses in Lebanon were in the Wholesale or Retail sectors.

CONCLUSION

CHAPTER 3


CHAPTER 4ENTREPRENEURIAL FRAMEWORK CONDITIONS IN LEBANON – THE NATIONAL EXPERT SURVEY

53 CHAPTER 1


54

The previous chapter identified the level of entrepreneurial activity in Lebanon via a large-scale population survey, (the APS), and set that level of activity in a global context. However, and a point emphasized throughout this Report, entrepreneurial activity does not take place in a vacuum.

The GEM methodology describes the national environment for enterprise through nine defined GEM Entrepreneurial Framework Conditions, as set out in Table 16 beside. To assess the nature of these conditions, the GEM approach requires that at lEast 36 national experts, (i.e. at lEast four for each condition), be consulted as to their views on the sufficiency, or insufficiency, of these conditions. This is the National Expert Survey (NES). By asking identical questions as were being asked of national experts at similar times in each of the 66 economies that participated in the 2016 NES, comparisons can be made between their responses. The chapter will show that for these experts in Lebanon in 2016, enterprise-supportive cultural and social norms, school level entrepreneurial education and the availability of entrepreneurial finance, were each highly regarded, while internal market dynamics, internal market burdens, and especially the physical infrastructure, were considered as poor.

The national experts to survey in Lebanon were carefully identified and selected for their skills and experience in relation to at lEast one of the framework conditions, and usually more than one. For example, for the second framework condition, government policy, experts could include senior civil servants, business school academics, economic correspondents etc. For each framework condition, at lEast one of the experts must be involved in some phase of the entrepreneurial process (as set out in the GEM Manual – Design, Data and Quality Control, 2012). After agreeing to participate, and following approval from the GEM international Consortium, each national expert was sent the standardized GEM National Expert Survey (NES) questionnaire and asked to complete it within the required timescale.

For each element, experts were asked to provide a rating on a Likert Scale from 1 (highly insufficient) to 9 (highly sufficient). From the national experts of the 66 participating countries, physical infrastructure received the highest average rating (6.5), with loWest ratings for school-level entrepreneurship education (3.1), research and development transfer (3.9) and internal market burdens (3.9). Not surprisingly, the entrepreneurial ecosystem was seen as strongest overall in the innovation-driven economies, and weakest in the factor-driven economies. In those factor-driven economies, entrepreneurial finance and internal market burdens were the major constraints on entrepreneurship, while in efficiency-driven economies R&D transfer, taxes and bureaucracy also featured.

INTRODUC TION AND GLOBAL RESULTS

ENTREPRENEURIAL FRAMEWORK CONDITIONS IN LEBANON- THE NATIONAL EXPERT SURVEY.

CHAPTER 4


Note that national experts were only asked to rate their own countries framework conditions – making comparisons between countries difficult. What a Canadian expert regards as sufficient physical infrastructure may be very different to what an Iranian expert considers sufficient. Nevertheless, on a regional level, North America was seen by their national experts as having the most supportive entrepreneurial ecosystem, with Africa and South America struggling with the lEast favorable conditions (GEM Global Report 2016).

1. ENTREPRENEURIAL FINANCE.

The availability of financial resources—equity and debt—for small and medium enterprises (SMEs) (including grants and subsidies).

2. GOVERNMENT POLICY.

The extent to which public policies support entrepreneurship. This has two components: 2a. Entrepreneurship as a relevant economic issue, and 2b. Taxes or regulations are either size-neutral or encourage new businesses and SMEs.

3. GOVERNMENT ENTREPRENEURSHIP PROGRAMMES.

The presence and quality of programmes directly assisting SMEs at all levels of government (national, regional, municipal).

4. ENTREPRENEURSHIP EDUCATION.

The extent to which training in creating or managing SMEs is incorporated within the education and training system at all levels. This has two components: 4a. Entrepreneurship Education at basic school (primary and secondary), and 4b. Entrepreneurship Education at post-secondary levels (higher education such as vocational, college, business schools, etc.).

5. R&D TRANSFER.

The extent to which national research and development will lead to new commercial opportunities and is available to SMEs.

6. COMMERCIAL AND LEGAL INFRASTRUCTURE.

The presence of property rights, commercial, accounting and other legal and assessment services and institutions that support or promote SMEs.

7. ENTRY REGULATION.

This has two components: 7a. Market Dynamics: the level of change in markets from year to year, and 7b. Market Openness: the extent to which new firms are free to enter existing markets.

8. PHYSICAL INFRASTRUCTURE.

Ease of access to physical resources—communication, utilities, transportation, land or space—at a price that does not discriminate against SMEs.

9. CULTURAL AND SOCIAL NORMS.

The extent to which social and cultural norms encourage or allow actions leading to new business methods or activities that can potentially increase personal wealth and income.

THE GEM ENTREPRENEURIAL FRAMEWORK CONDITIONS

Table 16

56

Thirty-nine Lebanese experts were identified, proposed and approved by GEM.

These provided a very mixed picture in their assessment of the entrepreneurial framework conditions. Cultural and social norms scored highest (average for Lebanon 6.24/9), ranking Lebanon fifth of the 66 participating economies. At the other end of the scale, Lebanon had the loWest expert-rated physical infrastructure (3.69) of all surveyed countries. In between, Lebanon was rated relatively highly for school-stage entrepreneurial education (4.34, 6th), and for entrepreneurial finance (5.01,9th), and less well for government policies, support and relevance (3.55, 48th), and for internal market dynamics (4.35, 53rd). These results are summarized in Figure 7, comparing Lebanon to the GEM average.

RESULTS FOR LEBANON

Source: GEM Global Report, 2016

Figure 9: Expert Ratings of the Entrepreneurial Ecosystem, 2016

10

Figure 9

CHAPTER 4


In addition to the standard closed questions, in 2016 the thirty-nine Lebanon national experts were also asked, in open-ended questions, to identify three factors that constrained entrepreneurial activity in Lebanon, three factors that supported entrepreneurial activity and to make three recommendations to enhance the entrepreneurial environment in Lebanon. Their responses were then, as far as possible, categorised.

Figure 10 shows the most frequent responses for factors constraining entrepreneurial activity for 2016, and for the same exercise in 2015, (i.e. the 2015 GEM NES). The three most common factors in 2016 were internet & infrastructure (identified by 64% of experts); political instability & corruption (44%); and the out of date laws and regulations, (31%). Note that responses can sum to more than 100%, since each expert could select up to three. Other constraints includes the shortage of early-stage funding, the lack of government support, and the small size of the local market.

CONSTR AINTS, SUPPORTS AND RECOMMENDATIONS

Source: GEM National Expert Surveys Lebanon, 2016 & 2015

Figure 10 : Factors Constraining Entrepreneurial Activity in Lebanon (%)

ENTREPRENEURSHIP FRAMEWORK CONDITION MAIN INDIC ATORS, LEBANON AND GLOBAL REGIONS.

Table 17

GLOBAL PERCEPTIONS OF THE SOCIAL VALUE OF ENTREPRENEURSHIP, 2015 AND 2016

3.6

4.6

3.4

4.4

5.1

4.2

5.0

1

4.4

4.7

3.8

4.0

4.4

4.2

3.6

2A

4.1

4.3

3.3

4.0

4.3

4.0

3.8

2B

AFRIC A

LEBANON

ASIA /OCEANIA

L ATIN AMERIC A

EUROPE

NORTH AMERIC A

GEM

4.0

4.4

4.0

4.5

4.6

4.3

3.9

3

2.2

3.4

2.7

3.3

3.3

3.1

4.3

4A

4.1

4.6

4.8

4.6

4.6

4.6

5.1

4B

2.9

4.0

3.4

4.1

4.2

3.8

3.9

5

4.8

4.8

4.5

5.2

5.6

4.9

5.4

6

4.5

5.5

4.4

4.9

5.1

4.9

4.4

7A

3.7

4.2

3.9

4.5

4.4

4.2

3.8

7B

6.2

6.5

6.2

6.8

6.8

6.5

3.7

8

4.2

5.2

4.9

4.3

6.1

4.7

6.2

9

58

Finally, the national experts were invited to make recommendations to improve the entrepreneurial ecosystem in Lebanon. Results for 2016 and 2015 are set out in Figure 12.

In 2016, the most frequent recommendation was more enterprise training and education throughout the educational system from schools to universities, and including vocational training (41%, doubled from 2015). Faster/cheaper internet had been the most popular recommendation in 2015, (at 31%), and increased in popularity in 2016 (to 39%). The other substantial change was the large increase in experts recommending updates to Lebanese laws and regulations, including bankruptcy laws, from 13% in 2015 to 33.3% in 2016. Recommendations for more government support for enterprise, and for more research/enterprise intensive universities, both declined in frequency over the period.

CHAPTER 4


Source: GEM National Expert Surveys, Lebanon 2016 & 2015

Figure 11: Factors Supporting Entrepreneurial Activity (%)

Source: GEM National Expert Surveys, Lebanon 2016 & 2015

Figure 12: Recommendations to Support Entrepreneurial Activity (%)

60

The views of thirty-nine national experts on the environmental ecosystem in Lebanon, from the 2016 GEM National Expert Survey, have been outlined and assessed in this chapter. Those national experts rated Lebanon highly for cultural and social norms that support enterprise, and for the ease of access to entrepreneurial finance, but poorly for general government policies to support enterprise, internal market dynamics and particularly for physical infrastructure. The Lebanon national experts collectively gave physical infrastructure in the country a lower score, as part of the environment for enterprise, than did any other collective of national experts in rating their own country’s physical infrastructure, placing Lebanon at bottom of the 66 countries surveyed.

The national experts were asked to identify up to three factors constraining enterprise in Lebanon and three factors supporting enterprise, as well as making up to three recommendations for improving the national entrepreneurial ecosystem. The most cited constraints were infrastructure/Internet, political instability/corruption and out of date laws and regulations. The most commonly mentioned supportive factors were an enterprise-friendly open and supportive culture and the entrepreneurial support system, including incubators and accelerators. The actions of the Central Bank, particularly Circular 331, were also highlighted. Most popular recommendations included more enterprise training and education, faster/cheaper Internet and bringing Lebanon’s business laws and regulations up to date.

CONCLUSION

CHAPTER 4


62

CHAPTER 5CONCLUSIONS& RECOMMENDATIONS

CHAPTER 1


64

Lebanon is a very entrepreneurial country, with high rates of entrepreneurial activity in starting a new business, or in running a new or established business.

There is strong social and financial support for enterprise, including a very effective central bank scheme to increase lending for new enterprise and a growing infrastructure of incubators and accelerators. However much of this new enterprise is concentrated in retail, and has low aspirations in terms of job creation. The physical infrastructure, political instability and small size of local markets are major constraints on enterprise. There remains much to do in encouraging entrepreneurs to look beyond Lebanon, and in helping new small businesses to develop and grow in new markets.

CONCLUSIONS

CHAPTER 5

65 GEM NATIONAL REPORT 2016

RECOMMENDATIONS

— Encourage entrepreneurs to look beyond Lebanon, and help new small businesses to develop and grow in new markets.

— Faster and cheaper internet

— More research and enterprise-intensive universities

— Further develop the knowledge economy by building on cultural, linguistic and religious diversity.

Right now the ecosystem for enterprise, especially technology start-ups, is blossoming in Lebanon, watered by a business friendly culture and fed by Central Bank incentives to invest.

This support must be sustained for start-ups to transform into new wealth and jobs.

66

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→ Bosma, N., Codwas, A., Litovsky Y & Seaman, J. (2012) Global Entrepreneurship Monitor, GEM Manual - Design, Data and Quality Control, version 2012:9, May www.gemconsortium.com

→ Bosma, N. (2013), “The Global Entrepreneurship Monitor (GEM) and Its Impact on Entrepreneurship Research.” Foundations and Trends in Entrepreneurship, 9(2), 143-248.

→ Central Intelligence Agency (2017), The World Factbook, www.cia.gov/publications

→ Daily Star (2017), “Alpha banks profits jumped by 12 percent in 2016”, 10.3.17

→ Executive Magazine (2016), Facts and Forecasts 2016-17, No. 209 December, Beirut

→ forbes.com

→ Kelly, D., Slinger, S. & Herrington, M. (2016), Global Entrepreneurship Monitor, 2015/16 Global Report, Global Entrepreneurship Research Association, (GERA), London.

→ Herrington M. and Kew P. (2017), Global Entrepreneurship Monitor, 2016/17 Global Report, Global Entrepreneurship Research Association (GERA), London.

→ Jacoude H. A. (2015), Labour Market and Employment Policy in Lebanon, Working Paper, European Training Foundation. www.etf.europa.eu

→ Levie J. & Autio E. (2008), “A theoretical grounding and test of the GEM model.” Small Business Economics, 31(3), 235-263.

→ National Accounts: Data Sources and Compilation Methods, (2013), Central Administration of Statistics, Lebanon, www.cas.gov.lb

→ Porter, M., Sachs, J., & McArthur, J. (2002), Executive summary: Competitiveness and stages of economic development. In M. Porter, J. Sachs, P. K. Cornelius, J. W. McArthur, & K. Schwab (Eds.), The global competitiveness report 2001–2002 (pp. 16–25). New York: Oxford University Press.

→ Cornelius, J. W. McArthur, & K. Schwab (Eds.), The global competitiveness report 2001–2002 (pp. 16–25). New York: Oxford University Press.

→ Reilly, C., Akhrass E., Solorzano M., Ramadan M. & Hill S. (2016), GEM 2015 National Report: Lebanon, UKLTH, Beirut.

→ Reynolds, P., Hay, M. & Camp, S.M. (1999), Global Entrepreneurship Monitor, 1999 Executive Report, Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation.

→ Saleh, H.A. (2014), The Perceptions of Lebanese Students of Choosing their Career in Entrepreneurship, Jordan Journal Of Business Administration, 10, 2.

→ Singer, S., Amoros J.E., & Moska, D. (2014), Global Entrepreneurship Monitor Global Report 2014, (GERA), London.

→ Stel, N. (2013), Diaspora versus Refugees: the Political Economy of Lebanese Entrepreneurial Regimes, MSM Working Paper 2013/16, Maastricht

→ Wennekers, S., Van Stel, A., Carree, M. & Thurik, A.R., (2010). “The relationship between entrepreneurship and economic development: Is it U-shaped?” Foundations and Trends in Entrepreneurship, 6(3), 167-237.

→ Global Competitiveness Report 2016-2017, Full Data Edition (2016), World Economic Forum (Klaus Schwab, editor and Xavier Sala-i-Martin).

→ World Bank (2017), Doing Business Report 2017: Going Beyond Efficiency.

→ World Bank (2016), Starting a Business Report, 2016.

→ World Economic Forum (2016), Global Competitiveness Index 2016. www.wef.com


© 2017 by UK Lebanon Tech Hub and the Global Entrepreneurship Research Association (GERA)

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