BEIRUT: We saw in Monday's article that Lebanon has a high level of entrepreneurial activity, with one in four adults starting or running a new business, while one in five operates an established business. Is this because of, or despite, the environment for enterprise in Lebanon? Today we will look in more detail at that environment, and how it supports or hinders those starting a new business.
What do we mean by the environment for enterprise? For the past four years, Lebanon has participated in the Global Entrepreneurship Monitor (GEM). This has involved undertaking two annual surveys: the Adult Population Survey of at least 2,000 adults, and the National Expert Survey (NES) of at least thirty-six individuals, selected for their expertise and experience of the Lebanese environment for enterprise.
GEM defines that environment for enterprise in terms of a number of conditions, chosen for their impact on starting or running a new business, set out in Figure 1. The National Experts were asked to rate each condition in Lebanon on a scale from 1 (highly insufficient) to 9 (highly sufficient). Average scores for Lebanon in 2018 are outlined in Figure 1, alongside the average for the 54 countries across the world taking part in GEM that year, as well as Lebanon’s rank across that 54.
Lots of numbers, but what does all this mean? Recall that each expert was asked to rate each condition from 1 (highly insufficient), to 9 (highly sufficient). Then any condition with an average score of 5 or more can be regarded as sufficient or more than sufficient, with less than 5 implying that that factor is insufficient to support starting and running a new business.
Viewed in this way, the Figure shows Lebanon’s environment for enterprise as insufficient in ten of the twelve conditions, with only the Commercial and Legal Infrastructure and Cultural and Social Norms being sufficient to support starting and running a new business. The least sufficient conditions in 2018 were Research and Development Transfers (the commercialisation of new ideas), the lack of government support in the form of the high burden of taxes and bureaucracy, and high barriers to entering new markets. Lebanon ranked last of 54 countries in terms of the cost or difficulty of entering existing markets or creating new ones.
What is clear is that, for the new startups in Lebanon, it is hard to access finance, to cope with the cost and availability of basic utilities, and that startups are unlikely to be able to rely on government for support. Under these circumstances, the high levels of entrepreneurship in Lebanon that we saw yesterday are despite, rather than because of, the difficult environment that entrepreneurs face in the country.
However, if the environment for enterprise in Lebanon faces difficulties, it may still be better than her neighbours. There could be regional, cultural or historical reasons why the environment for enterprise is weak in the Middle East and North Africa (MENA) region. Table 1 addresses this question by setting out average national expert scores for the eight MENA countries GEM in 2018.
Lebanon scores better than her neighbours for Cultural and Social Norms that support entrepreneurship, and relatively well for supportive Commercial and Legal Infrastructure, but relatively badly for government support, physical infrastructure and the cost and difficulty of entering existing markets or creating new ones.
The last row of Table 1 sums all this up into the National Entrepreneurship Context Index, with Lebanon ranked 35th of 54 countries, just behind Egypt and well above Saudi Arabia and Iran, but far behind the UAE and especially Qatar, which ranked first globally. Qatar was the only MENA country to rate sufficient or better in all conditions. However it is worth remembering that Lebanon, at 24 percent, scores much higher than either the UAE (11 percent) or Qatar (9 percent) in terms of the proportion of adults starting or running a new business.
This article was written by Professor Stephen Hill, GEM Expert and UK Lebanon Tech Hub Consultant. The GEM report has been published by the UK Lebanon Tech Hub with the support and funding of the British Embassy in Beirut.
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