Lebanon 2017 | TELECOMS & IT | REVIEW

Though still relatively nascent, the ICT industry in Lebanon is developing into one of the country's most innovative spheres of activity.

As Lebanon continues to expand and diversify its economy, ICT is poised to become a much larger piece of the country's economic puzzle. The sector has already enjoyed impressive growth over the last few years, expanding by an impressive 7.9% a year since 2009. A decline in device costs, robust infrastructure expansion, and efforts to modernize technology in the public and private spheres have all worked to stimulate steady growth in the sector. Large-scale investment in larger broadband capacity, faster internet, and training for technologically literate entrepreneurs and consumers have also catalyzed development across the ICT landscape. With a thriving ICT sector and tech community, Lebanon is one of the region's most important sources of technological activity and innovation. Certain factors continue, however, to weigh on the sector, including persistent security issues—both physical and cyber.

According to the World Economic Forum's Global Competitiveness Report for 2016-2017, Lebanon has improved dramatically in core areas of technological readiness and potential in recent years. In availability of latest technologies, Lebanon is currently ranked 91st; 68th in firm-level technology absorption; 123rd in FDI and technology transfer; 38th in percentage of the population that are internet users; 40th in fixed broadband internet subscriptions; 82nd in internet bandwidth; and 67th in mobile-broadband subscriptions. Additionally, 74% of Lebanon's population are internet users, average bandwidth per user is 27.3kb/s/user, and there are 53.4 mobile broadband subscriptions per 100 people. According to the 2016 ICT Development Index, Lebanon is ranked seventh out of 18 Arab states and 61st globally. Recent efforts to improve e-government infrastructure have also been paying dividends in international rankings. According to the United Nations E-Government Development Index (EGDI), which is an indicator of a state's willingness and ability to offer public services online and through technology, Lebanon is ranked 73rd in the world with an overall score of 0.5646. In the online service component, telecommunications infrastructure component, and human capital component, each of the three main sub-categories of the index, Lebanon scored 0.5145, 0.4911, and 0.6882, respectively.

A number of hurdles and inefficiencies, including political favoritism, undue regulation, piracy, and obstructed privatization continue to drag on the ICT sector. The limitations of the existing infrastructure, including its limited coverage and poor quality, and the large costs of expanding it, have hampered the potential for extreme growth in the sector. According to Bankmed, an inefficient regulatory framework, lagging confidence, and power outages have also weighed on the sector. However, many industry leaders are optimistic about the new government's commitment to the sector and its promise to improve many key elements of the necessary infrastructure. In an exclusive interview with TBY, Hoda Younan, Country Manager of Microsoft, discussed her views on the government and the steps it is taking. “I have big hopes that the new administration will work to correct this situation," said Younan. “I believe the number-one challenge before costs are quality and accessibility to the communications infrastructure." Younan believes that if the government can develop the country's connectivity infrastructure then major multinational firms like Microsoft can set up shop in the country, creating jobs and spurring further development.

In the absence of many large multinationals, however, much of Lebanon's ICT sector is currently dominated by small and medium-sized companies, and these firms are active in a number of diverse areas, including software development, web solutions, e-services, software outsourcing, mobile applications, and systems solutions. More than 200 firms currently operate across the ICT space, and they can be broken into three general categories: computer hardware, IT services, and software development.

Computer hardware accounts for nearly 62% of the ICT market in Lebanon, though it has been losing market share to the other categories in recent years. According to Bankmed, the computer hardware sub-sector grew by 7% between 2009 and 2014 and is now worth in excess of USD250 million. Lebanon's young, technologically savvy population is credited with being the major driver in this sector, and computer sales accounted for nearly 83% of hardware sales in 2014. Tablet computer technology has recently taken a sizable lead over other traditional computing mediums like notebooks and desktops, and the proliferation of tablets is seen as somewhat of a threat to the traditional computing hardware sector.

IT services, which include such variable activities as support, implementation and integration maintenance, and training, is growing as a sub-sector, reaching USD112 million according to the most recently available statistics from Bankmed. Increased consumption and spending on e-services from actors in both the public and private sectors have been the catalyst behind this rise, according to Bankmed. Support and maintenance account for the single-largest share of the sub-sector, but new services like facilities management and value-added services are gaining traction and eating up a larger and larger share of the market. The shift in emphasis within the marketplace toward more complex services and products is also creating new opportunities for service companies to offer state-of-the-art services, like cloud computing, to telecoms and banking firms.
The software market in Lebanon is still small, but it is developing quickly and attracting some of the country's most creative and motivated entrepreneurs. According to the latest available statistics from Bankmed, the sector is worth approximately USD34 million and has grown by an outstanding 14% a year since 2009. Software is expected to remain the area with the fastest growth across the entire ICT industry in the near and mid term thanks to large and high-profile projects in the public and private sectors. One of the key hindrances to the sector has been the continual threat from piracy, which has remained widespread despite the government's effort to curtail such actives. In order to maintain such impressive growth figures, the software sector and broader ICT industry must implement piracy controls, build better infrastructure and cyber security, and enforce digital property rights.

Fixed-line growth has remained meager in recent years, growing below 2%, and the majority of this expansion has come on the back of ADSL-based broadband. Many consumers are switching from fixed line to mobile service options. As mobile and mobile broadband continue to expand, fixed line is only expected to decline further. The ease and versatility of mobile appeals to many Lebanese consumers, and, thanks to an expansion in these services, internet penetration is expected to achieve 77% by 2017, according to BMI. 3G mobile subscriptions have grown thanks to the proliferation of mobile devices and the growing demand from Lebanon's well-educated population.

Those operating in the software space can be further classified into three main categories: general software development, web-based application development, and mobile application development. Software development firms account for 48% of the firms operating in this space, web-based applications developers account for 38%, and mobile application developers account for 14%, according to the Investment Development Authority of Lebanon. The financial institution Kafalat has played a major role in the development of financing schemes for Lebanon's start-ups. According to Bankmed, Kafalat loans are the major source of lending for young entrepreneurs and start-ups in the ICT sector. Kafalat Innovative is a program with the sole focus of providing funds to high-tech firms, and it is the product of an agreement between the Ministry of Economy and Trade and the EU. Firms requiring less than USD200,000 can receive funding through this program, and thus far finance software firms, mobile application firms, web development firms, and hardware firms have received the majority of the aid. A second program is called Kafalat Start-ups, and it provides financing of USD440,000 for up to seven years for firms that are already up and running.

Due to the risky nature of technology start-ups and the typical lack of easily convertible collateral, it has been difficult for many ICT companies to receive financing from traditional lenders. This has led to an incentive program from the central bank (CBL) that offers interest-free BDL loans for banks willing to offer lines of credit and loans to ICT start-ups. In order to qualify for the program, banks are required to own shares in the start-up, and this has led to more loans and more creative loan and financing structures. Furthermore, loans directed at the ICT sector are subsidized by CBL to the tune of 4.5%, and there is no loan ceiling for many of the financing projects.

CBL has also developed an innovative partnership with the British Embassy called UK Lebanon Tech Hub. Founded in 2014, the partnership is an attempt to stimulate growth by facilitating relationships between tech firms in Lebanon in the UK. In an exclusive interview with TBY, Nicolas Sehnaoui, Chairman of UK Lebanon Tech Hub, explained the logic behind the organization and the astounding growth it has been able to catalyze. “[This partnership] was done to create a bridge between Lebanon and the UK, of Beirut and London, to allow Lebanese start-ups access to the work supply chain, the digital community abroad, as well as a provision of funds around the world," said Sehnaoui. “We have already conducted two cycles of acceleration." In the first cycle, 45 companies received support and 15 qualified for a second round of support, which included a session in London. The program has been able to more than quadruple the value of more than 70 firms, generate USD16 million in investment and create more than 800 direct and indirect jobs. “We focus on building the capacities around all sectors in the knowledge economy, not necessarily only the digital one," said Sehnaoui. Stakeholders in government and the private sector are confident that programs like UK Lebanon Tech Hub will continue to be an invaluable addition to the ICT ecosystem, helping to spur Lebanon to greater heights.