BEIRUT: We saw Wednesday that in 2018, nearly half of Lebanese adults report that they are starting or running a new or established business. We also saw that levels of entrepreneurial activity in Lebanon have been at internationally high levels for at least the last four years. This should have meant the flowering of new job opportunities and new incomes in Lebanon. However, you do not need to be a Professor of Economics to observe that this has yet to happen.
So what is going on? The Global Entrepreneurship Monitor (GEM) project, in which Lebanon has participated for the past four years, may offer some clues. The GEM project requires a survey of at least 2,000 adults, representative in terms of age, gender and location. These interviews, conducted face to face in Lebanon, ask a series of questions, including about the job expectations of those starting or running a new business, as well as enquiring in which sector that business is based. Recall that Total early stage Entrepreneurial Activity (TEA) is the proportion of adults starting or running a new business. Results for job expectations are set out in Figure 1, including the proportion of TEA expecting the business to employ no one but themselves in five years time, as well as the proportion expecting to employ six or more over the same timescale, for the eight MENA countries participating in GEM in 2018.
In Morocco, Egypt and Lebanon, well over half of those starting or running a new business in 2018 expected to employ no one but themselves in five years time, compared to less than a third in Saudi Arabia or Turkey. At the other end of the employment scale, almost a half of those starting or running a new business in Turkey, and more than a half in the UAE, expected to employ six or more people in five years time, compared to less than 4 percent one in 25, of those starting or running a new business in Lebanon.
Why are these job expectations in Lebanon so low? One answer may be found in the sector distribution of those businesses. Figure 2 sets out results from the GEM Adult Population Survey in these MENA countries in 2018.
In Saudi Arabia, Morocco, Egypt and Lebanon in 2018, roughly six out of ten of those starting or running a new business were in the Wholesale/Retail sector. Add in Consumer Services and this rises to seven in ten (Egypt), three out of four (Morocco and Lebanon), and more than four out of five (Saudi Arabia). In some respects this is understandable: Retail and Consumer Services can be relatively low cost easy-entry, but the inevitable consequence of this is that they are typically low margin/low growth sectors, where new businesses have to compete for shares of existing spending rather than creating new markets. Less than one in twenty Lebanese start-ups were in the Business Services sector, compared to one in five in Qatar and one in four or more in Iran and the UAE.
However, while this sector distribution no doubt contributes to the low job expectations in Lebanon, it cannot be the full story. After all, Morocco, Saudi Arabia and Egypt have similar sector distributions, but, respectively, two, three and five times greater proportion of start-ups expecting to employ 6 or more people in five years time than Lebanon.
The second part of our explanation is subtler. The GEM Adult Population Survey focuses on individuals, not businesses. Those being interviewed with the GEM questionnaire know that the survey is completely anonymous. This is very important to encourage respondents to give accurate answers.
In one part of the survey, separate to questions about whether they are starting or running a business, respondents are asked if they are employed by someone else, either full or part time, or if they are self employed. If they say employed by someone else, the next question asks whether in the private, public or non-profit sectors. Table 1 summarises results for Lebanon in 2018.
The table shows that less than three in ten adults in Lebanon are employed full time by someone else, rising to just over one in three if part-time work is added. Meanwhile more than four in ten (43 percent) consider themselves to be self-employed. So self-employment is significantly higher than employment. Of those employed by others, the vast majority are in the private sector. This 43% self-employment in Lebanon in 2018 is corroborated by the proportions starting or running new or established businesses, outlined yesterday. This is good news – or is it?
Our contention is that, in Lebanon being self-employed does not necessarily mean running a business. Many of these self employed, assumed to be running a business by GEM, may be working informally, rather than running a registered business. This may reflect the complexity of registering a business in Lebanon, not to mention the fees and taxes associated with on-going operation as a registered business. In consequence Lebanon, perhaps uniquely, has the twin characteristics of high levels of entrepreneurial activity and low job growth.
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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