GLOBAL ENTREPRENEURSHIP MONITOR 2015 NATIONAL REPORT: LEBANON

Transcription

1 GLOBAL ENTREPRENEURSHIP MONITOR 2015 NATIONAL REPORT: LEBANON 1

2 Global Entrepreneurship Monitor 2015 National Report: Lebanon The authors of the Lebanon GEM National report for 2015 would like to express their gratitude to the GEM Consortium for their help and guidance on this initiative. In addition, the UK Lebanon Tech Hub would like to extend special thanks to Information International in Lebanon for their contribution in the data collection procedures and data analysis. Special thanks also go to the Lebanese National Experts for their contributions to the National Experts Survey informing this report. Lastly, thank you to our sponsor Banque du Liban for giving birth to this initiative and to the British Embassy in Beirut for their endorsement by UK Lebanon Tech Hub and the Global Entrepreneurship Research Association (GERA) Authors Dr Colm Reilly UK Lebanon Tech Hub Elie Akhrass UK Lebanon Tech Hub Marta Solorzano UK Lebanon Tech Hub Mario Ramadan UK Lebanon Tech Hub Professor Stephen Hill 2

3 The UK Lebanon Tech Hub The UK Lebanon Tech Hub (UKLTH) is an international initiative by Banque du Liban and the UK Government through the British Embassy in Beirut. The UK Lebanon Tech Hub aims at supporting entrepreneurship and SME development in Lebanon with a view to increase GDP and create new jobs and wealth. The UK Lebanon Tech Hub ( has taken the initiative in becoming the Global Entrepreneurship Monitor (GEM) National Team for Lebanon in Mission & Vision UKLTH offers expertise and exposure to support the growth and development of Lebanon s promising knowledge economy, by fostering partnership between the UK and Lebanon, focussed on mutual learning, exchange and collaboration among companies and entrepreneurs in the UK and Lebanon. The UK Lebanon Tech Hub s main streams include: International acceleration and scaling support to Lebanon s top technology companies (both inside and outside Lebanon) through the United Kingdom and other global markets; Retaining and building the focused and market-ready skilled labour force needed to enhance Lebanon s competitiveness globally in niche areas, through an Academy built for the purpose; Supporting Lebanese and foreign companies to establish in Lebanon in order to access Middle East and North African (MENA) markets through an Incorporate and Operate package as well as connecting and matching tailored assistance to the companies need; Retaining and building both current and future IP breakthroughs by providing the right R&D innovation and commercialization support to achieve a globally recognized flagship for Lebanon; and An internationally focussed communications platform aimed at restoring a favourable international and expat perception of Lebanon. 3

4 Contents: Page Chapter 1: Introduction Entrepreneurship and the GEM project The GEM conceptual framework How GEM measures entrepreneurship 13 Chapter 2: The Lebanese Economy and its Environment for Enterprise Introduction The Lebanese Economy The Lebanese Entrepreneurial Environment Conclusion 23 Chapter 3: Entrepreneurial Activity in Lebanon the Annual Population Survey Introduction Social Values Individual Attributes, Lebanon Entrepreneurial Activity in Lebanon Established Business Activity, Employee Entrepreneurship and Business Discontinuance, Lebanon The Motivation for Entrepreneurship in Lebanon Sources of Finance for Early-Stage Entrepreneurship Age, Gender and Entrepreneurship in Lebanon The Distribution of Total early-stage Entrepreneurship by Industry Job Creation Expectations and Innovation The Export Orientation of Early-Stage Entrepreneurship Educational Attainment and Early-Stage Enterprise In Lebanon Household Income and Early-Stage Entrepreneurship Location and Early-Stage Entrepreneurship Conclusion 41 Chapter 4: Entrepreneurial Framework Conditions in Lebanon the National Expert Survey Introduction and Global Results Results for Lebanon Constraints, Supports and Recommendations Conclusion 49 Chapter 5: Summary and Findings Introduction Annual Population Survey: Key Findings National Expert Survey: Key Findings Conclusions 55 References 57 4

5 Tables and Figures Tables Page Table 1: GEM economies by geographic region and economic development level, Table 2: Social, cultural, political and economic context and economic development phases 12 Table 3. GDP Growth, , World Bank Estimates and Forecasts 20 Table 4 Perceptions of the Social Value of Entrepreneurship, Table 5: Perceptions of Individual Attributes, Lebanon Table 6: Total early-stage Entrepreneurial Activity, (TEA), Lebanon Table 7: Established business ownership, employee entrepreneurship and discontinuance, Lebanon Table 8: The Motivation for Entrepreneurship, Lebanon Table 9: Gender Distribution of TEA, Opportunity TEA and Necessity TEA, Lebanon Table 10: Age Distribution of TEA, Lebanon Table 11: The Distribution of early-stage entrepreneurship by sector, Lebanon Table 12: Job Creation Expectations and Innovation, Lebanon Table 13: Entrepreneurship framework conditions main indicators. Lebanon and Global. 46 Figures Figure 1: Porter s definitions of three different economic development levels 8 Figure 2: Model of entrepreneurial processes affecting national economy 10 Figure 3: The 2015 GEM Conceptual Framework 11 Figure 4: The entrepreneurial process and GEM operational definitions 13 Figure 5: Total early-stage Entrepreneurial Activity rates by country 15 Figure 6: Total early-stage Entrepreneurial Activity rates and GDP 16 Figure 7: GDP per capita , Lebanon and MENA 20 Figure 8: GEM four key individual perceptions 27 Figure 9: Main reason for Discontinuance, Lebanon and Asia/Oceania (%) 31 Figure 10: Expected Sources of Funding, % 33 Figure 11: Expected Sales to Customers outside Lebanon (% of Revenue) 38 Figure 12. Level of Education and Early-Stage Entrepreneurship 38 Figure 13. Household Income and Early-Stage Entrepreneurial Activity 39 Figure 14: The Regions of Lebanon 40 Figure 15: Early-stage Entrepreneurship by Region, Figure 16: The GEM Entrepreneurial Framework Conditions 44 Figure 17: Expert Ratings of the Entrepreneurial Eco-System 45 Figure 18: Factors Constraining Entrepreneurial Activity (%) 47 Figure 19: Factors Supporting Entrepreneurial Activity (%) 48 Figure 20: Recommendations to Support Entrepreneurial Activity (%) 48 5

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7 Chapter 1: Introduction 1.1 Entrepreneurship and the GEM project 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. Despite some significant enterprise initiatives, there is relatively limited knowledge about the level of entrepreneurship in Lebanon. This GEM National Report is the product of the UKLTH actions to add Lebanon to the established Global Enterprise Monitor (GEM) Consortium. By following the 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 future development of entrepreneurship in Lebanon. UKLTH worked with the GEM team of international experts to commission an internationally comparable, nationally representative survey of the Lebanese working-age population to assess the state of entrepreneurship in Lebanon in GEM is a collaborative international research programme that provides a standard set of data on entrepreneurship across different countries over time. GEM started in 1998 as 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 activity, attitudes and aspirations. By 2015, GEM had coordinated national teams from over 100 countries, at all income levels and stages of development, encompassing over 70% of the world population and 90% of global GDP. Joining the GEM Consortium means committing to conduct two important surveys: the first is the Annual Population Survey (APS), which asks a representative sample of 2,000+ working age individuals about their entrepreneurial activities and aspirations. The second 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 ecosystem that provides the context in which entrepreneurial activity takes place, and which may be conducive or constraining 7

8 to those activities. Both Surveys will be reported in detail later in the Report. In the 17 years since starting, 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. In 2015, 62 economies participated in the GEM study, shown 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. Factordriven 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. 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, moving 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 an 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 comprehensive analyses of entrepreneurial attitudes and activity across the globe. Since its inception, GEM has highlighted the relationships between entrepreneurship and national development. Figure: 1: Porter s definitions of three different economic development levels Efficiency-driven economies Factor-driven economies Innovation-driven economies 8

9 Table 1: GEM economies by geographic region and economic development level Factor-driven Economies Efficiency-driven Economies Africa Botswana Burkina Faso Cameroon Egypt Senegal Tunisia Morocco South Africa Asia & Oceania India Iran Philippines Vietnam China Indonesia Kazakhstan Lebanon Malaysia Thailand Latin America & Caribbean Argentina Barbados Brazil Chile Colombia Ecuador Guatemala Mexico Panama Peru Puerto Rico Uruguay Europe Bulgaria Croatia Estonia Hungary Latvia Poland Romania Macedonia North America GEM Global Report 2015/16 9 Innovation-driven Economies Australia Israel Japan Republic of Korea Taiwan Belgium Finland Germany Greece Ireland Italy Luxembourg The Netherlands Norway Portugal Slovakia Slovenia Spain Sweden Switzerland United Kingdom Canada United States

10 1.2: The GEM conceptual framework Since its inception, the GEM survey was conceptualized to explore the interdependency between entrepreneurship and economic development. During the last 17 years, this conceptual framework and its 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, being:...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: 1. Does the level of entrepreneurial activity vary between countries, and if so, to what extent? 2. Does the level of entrepreneurial activity affect a country s rate of economic growth and prosperity? 3. What makes a country entrepreneurial and what factors influence entrepreneurial activity? In order to answer these questions, GEM had to depart from the conventional approach to thinking about national economic growth, focussed on resources, big business and trade and looked instead to enterprise creation, development and growth. This led to the development of a new conceptual framework, which has been through a series of adjustments since its inception in The initial GEM conceptual framework (Figure 2) depicted the basic assumption that national 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. Figure 2: Model of entrepreneurial processes affecting national growth Entrepreneurial Opportunities Social Cultural Political Context Entrepreneurial Framework Conditions Business Dynamics National Economic Growth (GDP, Jobs) Entrepreneurial Capacity 10

11 This starting framework (Figure 2) subsequently incorporated the findings and insights derived from numerous GEM surveys and years of GEM research, evolving into the current GEM Conceptual Framework as presented in Figure 3. Figure 3: The 2015 GEM Conceptual Framework Social, cultural, political, economic context Outcome (socio-economic devleopment) National framework conditions Entrepreneurial framework conditions + - Entrpreneurial output (new jobs, new value added) Basic requirements Efficiency enhancers Innovation and business sophistication Social values about entrpreneurship Individual attributes (psycological, demographic, motivation) Entrepreneurial activity By phases Nascent, new established discontinuation By impact High Growth, innovatiive, internalisation By Type TEA, SEA, EEA + - Source: Global Entrepreneurship Monitor, 2015 In this conceptual framework, the basic assumptions remain that: 1. Entrepreneurial activity is not a heroic act of an individual, regardless of the environment in which the activity is performed, but rather that, 2. 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. The decision to start (or not start) an enterprise is then the product of a number of influences: Social, Cultural, Political and Economic Context: This is defined by using the World Economic Forum s twelve pillars for profiling economic development phases when surveying competitiveness and the nine components of the GEM National Entrepreneurial Conditions (see Table 2). It is important to emphasize that those components may be dispersed in different combinations in different economies, but the levels of economic development are determined by the dominant presence of the identified group of pillars. It should be noted that all components of the environment in which women and men act with an entrepreneurial mind-set (or perhaps cannot act proactively and innovatively), are mutually dependent. This dependence demands a holistic approach not only in research but also in designing appropriate policies to build a supportive environment in which people can adopt an entrepreneurial behaviour. 11

12 Table 2: Social, cultural, political and economic context and economic development phases Economic development phases Basic requirements key to resourcedriven economies Efficiency enhancers key to efficiency-driven economies Innovation and sophistication factors key for innovation-driven economies From other available sources National Framework Conditions, based on World Economic Forum pillars for profiling economic development phases Institutions Infrastructure Macroeconomic stability Health and primary education Higher education and training Goods market efficiency Labour market efficiency Financial market sophistication Technological readiness Market size Business sophistication Innovation From GEM National Expert Surveys (NES) Entrepreneurial Framework Conditions Entrepreneurial finance Government policy Government entrepreneurship programmes R&D transfer Internal market openness Physical infrastructure for entrepreneurship Commercial and legal infrastructure for entrepreneurship Cultural and social norms Social Values towards Entrepreneurship: including how society values entrepreneurship as a good career choice; if entrepreneurs have a high social status; and how media attention to entrepreneurship contributes (or not) to the development of a national entrepreneurial culture. Individual Attributes: including demographic factors (gender, age, and geographic location), psychological factors (perceived capabilities, perceived opportunities, fear of failure) and motivational aspects (necessitybased vs. opportunity-based venturing, improvement-driven venturing, etc.). Entrepreneurial Activity: defined according to the ventures life cycle phases (nascent, new venture, established venture, discontinuation), the types of activity (high growth, innovation, internationalization) and the sector of the activity. The GEM survey of entrepreneurship (based on individuals) provides unique information on individuals (attributes, values, activities) and their interaction with the environment in practicing entrepreneurial behaviour (pro-activeness, innovativeness and responsible choices). GEM continues to focus on contributing to global economic development through 12

13 surveying / researching entrepreneurship, which helps to improve researchbased education and research-based formulation of public policies in the field of entrepreneurship. In order to achieve this, GEM has three key objectives: 1. To determine the extent to which entrepreneurial activity influences economic growth within individual economies; 2. To identify factors which encourage and/or hinder entrepreneurial activity (especially the relationships between national entrepreneurship conditions, social values, personal attributes and entrepreneurial activity); and 3. To guide the formulation of effective and targeted policies aimed at enhancing entrepreneurial capacity within individual countries. 1.3 How GEM measures entrepreneurship 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 people active in all phases. For example, in order to have start-ups in a society, there must be potential entrepreneurs. Later in the process, people that have started businesses must have the ability and the support to enable them to sustain their businesses into maturity. Figure 4 presents an overview of the entrepreneurial process and the GEM operational definitions. Discontinuation of business Total Early-Stage Entrepreneurial Activity (TEA) Potential entreprenuer: opportunities, knowledge and skills Mascent entrepreneur: involved in setting up a business Owner- manager of a new business (up to 3.5 years old) Owner- manager of an established business (up to 3.5 years old) Conception Firm Birth Early-stage Entrepreneurship Profile Persistence Individual attributes Gender Age Motivation Industry Sector Impact Business Growth Innovation Information situation Figure 4: The entrepreneurial process and GEM operational definitions Source: GEM Global Report

14 GEM s multi-phase measures of entrepreneurship are: Potential entrepreneurs those that see opportunities in their environments, have the capabilities to start businesses and are undeterred by fear of failure. Intentional entrepreneurs those who intend to start a business in the near future (in the next three years). Nascent entrepreneurs those who have taken steps to start a new business, but have not yet paid salaries or wages for more than three months. New entrepreneurs those who are running new businesses that have been in operation for between 3 months and 42 months. Established business owners those who are running a mature business, in operation for more than 42 months. Discontinued entrepreneurs those who, for whatever reason, have exited from running a business in the past year. GEM s individual-level focus enables a more comprehensive account of business activity than firm-level measures of formally registered businesses. 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 an 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 in 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. The primary 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 and new firm ownership in the workingage (18-64 years) 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 can differ in their profiles and impact. For this reason, GEM provides a range of indicators that describe the unique, multifaceted pattern exhibited in each society. It is therefore important to consider not just the number of entrepreneurs in an economy, but other aspects such as the level of employment they create, their growth ambitions, and the extent to which groups such as youth and women are participating in entrepreneurial activity. 1.3 The GEM Global Report 2015 GEM produces the GEM Global Report centrally, after processing and standardising results from the National Surveys (from 62 countries in countries completed the APS and 62 completed the NES). This section will briefly summarise the global GEM results for The later chapter on the GEM results for Lebanon will include more detailed comparison of Lebanon to global GEM results. The following figure (Figure 5) shows the Total early-stage Entrepreneurial Activity rates (TEA) for the 60 countries surveyed in 2015, 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 21%; for efficiencydriven it is 15%; and for innovation-driven economies the average rate is just 8%. Figure 5 illustrates considerable variation around these averages. Note that Lebanon scores highest in terms of early-stage entrepreneurial activity of the countries categorised as efficiency-driven, and third highest across all countries surveyed. 14

15 Figure 5: Total early-stage Entrepreneurial Activity (TEA) rates by categorized country, 2015 NB:while all surveyed countries are included in the chart, for brevity not all are listed on the axis. Please see the GEM Global Report (2016) for the full listing.) Whilst there is a relationship between entrepreneurial activity and Gross Domestic Product, it is not necessarily simple one (e.g. Wennekers et al (2010)). For example in factor-driven economies, starting a business may be a response to necessity and the lack of alternatives, rather than a response to opportunities. This issue will be explored in more detail later in relation to Lebanon. Figure 6 shows the association between TEA and GDP across the surveyed countries for 2014, (since this is the latest year for which GDP figures are available note that Lebanon did not participate in GEM 2014). 15

16 Figure 6: Total early-stage Entrepreneurial Activity (TEA) rates and GDP Source: GEM Global Report, 2014 As noted earlier, the GDP/capita and TEA relationship is at best complex. Whilst very low GDP/capita economies tend to have high early stage entrepreneurship rates, and high GDP/capita tend to have low TEA rates, the relationship is neither linear nor necessarily inverse. Levels of enterprise are both a cause and a consequence of economic development, and vice-versa. Disentangling this relationship is a major challenge. 16

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19 Chapter 2 The Lebanese Economy and its Environment for Enterprise. 2.1 Introduction This chapter will summarise the Lebanese economy and its environment for entrepreneurship (the eco-system), together with a number of recent initiatives to encourage entrepreneurship in Lebanon, including measures taken by the Central Bank (BdL) to incentivize bank lending to start-ups. The Lebanese economy provides the context in which individual decisions about starting an enterprise are played out. That economy may support, hinder or constrain that enterprise. This chapter will look at the economy overall, and then in more detail at the environment for enterprise in Lebanon or the eco-system in which new enterprises flourish or flounder. Once again there is a close interrelationship between the two a supportive eco-system can provide tangible assets such as finance for start-ups, or intangible assets such as mentoring or the provision of role models. In return successful growth companies impact on incomes, jobs and wealth creation, delivering an environment of rising expectations, which in turn nurtures demand for new products and services and therefore growth prospects for new enterprises. Any economy or society is the product of its geography, its history and its culture. Lebanon, although a small (10,452 km2), and relatively new country, (independent from France since 1943), has a long tradition of trade and enterprise that has persisted through numerous dynasties and civilisations. Lebanon is an Arab country with strong ties to the West, an Arabicspeaking nation where many people are just as comfortable conversing in French or English. This linguistic diversity is mirrored in religious and ethnic diversity, with tolerance and mutual respect as the dominant cultural norms. The post independence period was largely characterized by economic growth and prosperity, abruptly fractured by the sustained civil war from 1975 to Post-war Lebanon was left with a devastated infrastructure, and a divided and scarred population that had lost many of its brightest young people to war or external migration. Slowly the economy and society have been rebuilt, although political, economic and social fractures are never far from the surface. Post-war Lebanon continues to pay a high price for the denominational agreement that ended the war, but has ensured virtual political stalemate ever since. According to Stel (2013), While being a vibrant parliamentary democracy, as a result of its sectarian nature the Lebanese state s entire structure is informed by a quest for intercommunitarian balance that results in endemic patronage and clientelism. The outward migration of talented Lebanese has continued, exacerbated since 2010 by the inflow of refugees escaping civil war in Syria. 2.2 The Lebanese Economy. There is a serious paucity of contemporary data on the Lebanese economy, with researchers having to place heavy reliance on data provided by external bodies such as the World Bank and the World Economic Forum. Figure 6 shows Lebanon s GDP per capita since 1990, compared to the MENA plus Pakistan average (data from the World Economic Forum, using Purchasing Power Parity). Since 2006, GDP per capita in Lebanon has grown faster than that average, although the WEF predicts relatively slow GDP growth for Lebanon for the next few years. 19

20 Figure 7: GDP per capita , Lebanon and MENA 20,000 15,000 10,000 5, Lebanon Middle East, North Africa and Pakistan Source: WEF, 2015 By 2014, the population of Lebanon was estimated at just over 4.5 million, with a Gross Domestic Product of $49.9 billion U.S., or a GDP per capita of $11,068. Table 3 shows GDP growth in the recent past, plus World Bank (2016) forecasts for the next few years. High growth at the turn of the decade gave way to much lower growth from 2011, with modest growth predicted for the near future. Table 3: GDP Growth, , World Bank Estimates and Forecasts In its summary, the Economist Intelligence Unit predicts that The service orientated economy will perform weakly, with the fiscal and current account deficits staying large. Economic reforms will be delayed by security concerns and political rivalry (EIU Summary, May 2016) Year GDP% Change The Lebanese Entrepreneurial Environment There are many dimensions to the entrepreneurial environment: from the availability (or shortage) of start-up funding, to the bureaucracy involved in registering a business, or from the size or competitiveness of local markets to the traditions of culture and social norms. Researchers (eg. Ahmed et al, 2004, Saleh, 2014)) depict the Lebanese economy as dominated by small businesses, often family-owned and run. Strict family loyalty may transcend business needs, with, for example, the commitment to employing members of the extended family beyond the strict needs of the business. The patriarchal structure of Lebanese society may restrain risk-taking and business creativity, with talented and well-qualified young people choosing to 20

21 seek opportunities elsewhere. Similarly, the dominance of family relationships in the provision of start-up finance may also limit risk-taking, since the failure to return investment may not be seem as an option. On the other hand, Lebanon has a welleducated and well-qualified workforce, with a steady stream of new graduates across most disciplines. Enterprise is well regarded and respected, building on long-standing traditions of commerce and trade. There are numerous role models of successful Lebanese entrepreneurs from both genders and all religious groups, including many who have established thriving businesses abroad. There is strong social support for entrepreneurship. However the physical infrastructure remains poor, with a high level of bureaucracy and perceived corruption in access to public and private services. The provision of essential services such as electricity and water supply, or garbage collection, cannot be taken for granted, so that expensive alternative provision must be budgeted for. While on the surface competitive......although Lebanon s economy is dominated by the private sector, it is not market-based. It is in fact highly oligopolistic.. more than fifty percent of some three hundred markets are in the hands of a few companies.. (Stel (2013) page 3). Traffic within Greater Beirut can move very slowly, with virtually no public transport, but a network of effective private provision, usually shared taxis or minibuses. The 2015 World Bank Doing Business index scored Lebanon with 56 out of 100, ranking it 123 rd out of 189 countries. Lebanon did a little better on the World Bank Starting a Business index, scoring 83/100 and ranking 114 th out of 189. Meanwhile the World Economic Forums Global Competitiveness Index scored Lebanon at 3.8/7.0, ranking IT 101 st of 140 countries. Within the components of the Global Competitiveness Index, Lebanon scored well for health and primary education (30th of 140 countries), but badly in terms of the macroeconomic environment (139 th of 140 countries). However, recent years have seen an upsurge in support for start-ups and business growth in Lebanon. Support comes from banks, venture capital and private equity funders, and through organisations such as Berytech, Bader, Kafalat and Lebanon for Entrepreneurs, each of which provides a different mix of funding, business development and mentoring support. Most recently, the emphasis, (and language) of entrepreneurial development has shifted away from incubators and clusters towards accelerators and tech hubs. One very important player is the Banque du Liban (BdL). The Lebanese Central Bank has had in place for ten years a scheme to promote subsidised lending to entrepreneurs by varying the mandatory reserve that commercial banks are required to keep at the Central Bank. In the two years to March 2013, the value of loans subsidized by BdL reached $1.75 billion. However of this funding, 11% went to agriculture, 37% to tourism projects and 52% to industrial projects. High technology businesses received relatively little. Even Kafalat, charged with providing loans to small business, found that the technology sector made up less than 4% of its portfolio over the same period. To address the lack of investment in technology start-up businesses, in August 2013 BdL issued Circular 331, incentivizing commercial and investment banks to invest in technology start-ups or their development, seeking to position Lebanon as the technology hub for the MENA region. This investment was to be in startups that rely on the Knowledge economy and support for creative intellectual skills (Intellectual Capital) (Executive, 2016). 21

22 Participating banks could apply for a seven-year interest free loan to invest in Lebanese Treasury Bonds if the bank invested in technology startups, either directly or through Venture Capital funds. The investment was to be validated and approved by BdL, and was guaranteed up to 75% by BdL, with a 100% guarantee for investments in boot camps, accelerators and incubators. In return, any profits from the investments was to be split equally between the bank and BdL. Up to $400 million was released by Circular 331 for the first two years, of which around $240 million was invested. BdL claims that circular 331 has led to a mushrooming of VC funds, book camps and accelerators, and has given life to a new generation of young entrepreneurs. At the forefront of these investments is the accelerator programme, designed to help early-stage technology start-ups to mature quickly. According to Forbes, an accelerator is a fixed-term, cohort based programme including educational and mentoring components, culminating in a public pitch event (forbes.com). In the U.S. the number of accelerator programmes is reported to have increased from 16 in 2008 to 170 by In Lebanon in 2016 there are two accelerator programmes to date: 1. speed@bdd, run by a consortium of investor institutions and enterprise support organisations, to help very early stage entrepreneurs (sometimes with just an idea) to start and grow their businesses focused on software, digital media, web and mobile. Speed provides support including a three- month executive programme, mentoring and office premises in Beirut Digital District, as well as $30,000 investment, in return for a 10% equity stake. Speed currently runs two programmes per year, with up to 10 companies on each. 2. UKLebTecHub (UKLTH) runs an accelerator programme for existing technology businesses, focused on international growth. UKLTH provides premises and mentoring in Lebanon for thirty companies for three months, with ten shortlisted companies subsequently sent to London or San Francisco for a further three months international programme. Companies must be located (or prepared to locate) in Lebanon, must have operated for at least one year and employ three or more people. Not surprisingly, there is to date little evidence of the effectiveness of accelerator programmes, although some academics (Cohen and Hochberg, 2014) claim that successful accelerators can provide a big boost to underserved areas, significantly increasing early stage capital in a region. 22

23 If you are a young entrepreneur wannabee, and you have no idea how to be one, and your region has no role model, you re going to work for Google or Microsoft. But if you can work with 30 other founders in a mentorship environment, you have a chance of starting something. Hochberg in The Best Start-Up Accelerators of 2015 at forbes.com. The Banque du Liban has, for the past two years, run an annual Accelerate Conference for the MENA region. The 2015 Conference attracted over 6,000 attendees to the Forum de Beyrouth, with 2 stages, 2 hackathons, 2 start-up competitions and over 100 speakers and 100 exhibitors from 51 different countries. In Lebanon, as in most economies, the proportion of business start-ups in the technology sector is likely to be low. The issue of innovation is addressed directly in the GEM Adult Population Survey by asking early-stage entrepreneurs whether their start-up is introducing products or services that are new to some or all of its customers, and that are offered by few or no competitors. This provides some indication of the innovativeness of those start-ups. This evidence will be considered in the next chapter. 2.4 Conclusions This Chapter has shown that Lebanon has a long history of trade and enterprise, characterized by cultural, linguistic and religious diversity. The Civil War ( ) interrupted progress towards prosperity, and the post-war period has been marked by some redevelopment, but also by continued political instability and a generally poor physical infrastructure. More recently the Central Bank (BdL) has led initiatives to encourage lending to new enterprises, and there are signs of a blossoming in entrepreneurial support through accelerators, incubators and bootcamps. The GEM National Expert Survey, outlined in Chapter 1 with results considered in Chapter 4, will provide a unique guide to how the entrepreneurial eco-system is seen in Lebanon by the very people who know it best. 23

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26 Chapter 3 Entrepreneurial Activity in Lebanon the Annual Population Survey 3.1 Introduction This chapter will outline survey evidence on the level of early-stage entrepreneurship in Lebanon, showing that Lebanon is amongst the world s leading entrepreneurial economies. The level of early stage entrepreneurship is the fourth highest of all the surveyed economies, and highest of all the economies assessed as efficiency or innovation-driven. This chapter will then outline the relationship between the level of early-stage entrepreneurship and a number of key attributes such as motivation, age, gender, export and growth orientation, educational attainment, household income and location. At the core of the GEM methodology is the Annual Population Survey (APS), the surveying of at least 2,000 randomly selected individuals within a given economy, using a standard questionnaire to allow comparisons between countries and over time. This chapter will outline the 2015 GEM Lebanon APS results, setting those results in the global context. The 2015 GEM Lebanon APS consisted of 2,600 face-to-face interviews with individuals aged between 16 and 64, from all parts of the country. The decision to start a new business is heavily influenced by the social, cultural, political and economic environment. This context includes basic requirements, (such as physical infrastructure, institutions), efficiency-enhancers (such as education and training, networks), and innovation factors such as intellectual property rights and advanced communications. Within the GEM framework, each has a measurable impact on the capacity of an economy to compete and grow. The Annual Population Survey has three key components: Social Values, Individual Attributes and Entrepreneurial Activity. Each will be discussed in turn. 3.2 Social Values Social values play an important role in influencing whether an individual is likely to behave entrepreneurially or not. In the GEM Survey, three dimensions of social values are assessed: 1. Is starting a business seen as a desirable career choice? 2. Do individuals who succeed in starting a business have high status and respect? and, 3. Does media attention to enterprise contribute to developing an entrepreneurial culture? Table 4 provides a summary of responses from the 2015 GEM Global Survey. Data for Lebanon or North America are not available. 26

27 Table 4: Perceptions of the Social Value of Entrepreneurship, 2015 Entrepreneurship a good career choice % Entrepreneurs have high status % Media attention promotes enterprise % Africa Asia/Oceania Latin America Europe Source: GEM Global Report 2015 Across the countries completing the GEM Annual Population Survey, 68% of working age adults perceive high status for entrepreneurs, and 61% believe enterprise receives positive media attention, although Table 4 shows some variation by region, with Africa and Asia/Oceania generally viewing entrepreneurs more positively than in Europe. 3.3 Individual Attributes, Lebanon Alongside social values, the decision to start a new business is also heavily influenced by individual attributes. The GEM Survey looks at individual attributes in terms of four key individual perceptions: Figure 8: GEM four key individual perceptions Perceived opportunities Entrepreneurial intentions Perceived capabilities Fear of Failure Perceived opportunities does the individual believe there are good opportunities to start a business locally (within the next six months)? Perceived capabilities does the individual believe they have the required skills, knowledge and expertise to start a business? Fear of failure does the individual see opportunities, but the fear of failure would prevent them from starting a business? Entrepreneurial intentions does the individual expect to start a business in the next six months, (excluding those who are already entrepreneurially active)? 27

28 Table 5: Perceptions of Individual Attributes, Lebanon % 69.8% 17.4% 44.0% Perceived opportunities Perceived Capabilities Fear of Failure Entreprenurial Intentions Perceived opportunities Perceived Capabilities Fear of Failure Entrepreneurial intentions Rank % Rank % Rank % Rank % Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report 2015 NB: In this table, and the ones that follow, results for Africa and Latin America have been excluded. This is only for brevity full results are available in the GEM Global Report. The proportion of individuals in Lebanon who see themselves as having the capabilities to start a business (69.8%) is significantly higher than either the regional or global averages. Lebanon ranked seventh out of sixty countries; both in terms of the proportion who saw themselves as having the capabilities to start a business, and in the proportion who expected to start a business in the next six months. 3.4 Entrepreneurial Activity in Lebanon The take-home measure of entrepreneurial activity in GEM is the Total early stage Entrepreneurial Activity rate (TEA), or the proportion of those questioned 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 but less than 42 months, (those paying wages for more than 42 months are classed as established business owners). 28

29 Table 6: Total early-stage Entrepreneurial Activity, (TEA), Lebanon % 20.4% Nascent Entrepreneurs New Firm Entrepreneurs 30.1% Total early-stage Entrepreneurial Activity (TEA) Nascent Entrepreneurs New Firm Entrepreneurs Total early-stage Entrepreneurial Activity (TEA) Rank % Rank % Rank % Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report 2015 NB: TEA is slightly less than Nascent plus New Firm because of overlap. Table 6 shows Lebanon as having the highest rate of new firm entrepreneurship of all sixty economies surveyed, and the fourth highest level of total early-stage entrepreneurial activity. Almost one in three working age people in Lebanon reported they were starting or running a new business. The Lebanese rate of Total early-stage Entrepreneurial Activity (TEA) ranks highest of all the innovation-driven or efficiency-driven economies, and was bettered by only three countries in the factor-driven categorization (see Table 1 earlier). Of course entrepreneurial activity is not solely the product of a countries stage of economic development individual attributes are also likely to be important. According to Table 5 earlier, many Lebanese saw good opportunities to start a business, saw themselves as capable of running a new business and were less likely to be deterred by the fear of failure. 3.5 Established Business Activity, Employee Entrepreneurship and Business Discontinuance, Lebanon It was noted earlier that 44% of Lebanese respondents intended to start a business in the next six months. This is a realistic figure, given that 11% were actively engaged in starting a new business and 20% were already running a new business. Hence the dropoff between intentions and actions appears relatively low. Of course, starting a business is not the only form of entrepreneurial activity. Established business owners may be categorized as entrepreneurial, while some employees may engage in entrepreneurial activities (such as developing new products or new markets, setting up a subsidiary business etc.). The Employee Entrepreneurial Activity rate (EEA) measures the proportion of respondents undertaking these forms of entrepreneurial activity for their employers. 29

30 Not all businesses succeed. There can be many reasons for discontinuing a business. In Lebanon, 10.6% of individuals reported that they had discontinued a business in the past twelve months. More than a third of these gave unprofitability as the main reason, although one in six claimed to discontinue in order to pursue another opportunity. Some 16% attributed discontinuance to personal reasons, with 11% citing some incident as the cause for discontinuance, the highest rate in the sample of countries. Table 7: Established business ownership, employee entrepreneurship and discontinuance, Lebanon % 3.3% Established Business Ownership Employee entrepreneurial activity (EEA) 10.6% Discontinuance Established Business Ownership Employee Entrepreneurial Activity Discontinuance Rank % Rank % Rank % Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report 2015 The rate of established business ownership was the sixth highest of all countries in the sample. Added to the TEA, this implies that almost half of the working-age population in Lebanon were either actively starting a new business, running a new business or own an established business. This is strong evidence to confirm Lebanon as one of the world s most entrepreneurial economies. The corollary of high rates of new and established business ownership is likely to be high levels of business discontinuance, and this is evidenced in Table 7. Lebanon had the fourth highest rate of discontinuance of the sixty economies. Figure 9 provides more detail of the main reasons given for discontinuation, compared to the Asia/Oceania average. 30

31 Figure 9: Main reason for Discontinuance, Lebanon and Asia/Oceania 2015 (%) Lebanon Asia/Oceania Sold business Unprofitable Finance Other opportunity Exit Retirement Personal Incident Bureaucracy Source: GEM APS Lebanon 2015, & GEM Global Report 2015 The main reasons for discontinuance matched the Asia averages fairly closely, though finance was less of a problem and other opportunities being a bit higher, as was retirement and incident. 3.6 The Motivation for Entrepreneurship in Lebanon There are many reasons for starting a business. These reasons are important, not only to the longer-term viability of the business but also to those concerned to promote entrepreneurship. GEM recognizes the diversity of motives, and seeks to categorise these as necessity or opportunity. A necessity-driven individual starts a business because of the lack of alternative ways to generate an income, whereas the opportunity-driven individual identifies a business opportunity and takes it. Of course most business start-ups would report elements of each, but were asked to choose between them. Opportunities can take many forms opportunity-driven entrepreneurs were further asked whether they started the business in order to be more independent, or to make more money. Those answering yes were labelled as improvement-driven entrepreneurs. Improvement-driven entrepreneurs may be likely to bring long-term ambitions and expectations to the business. Finally, to assess the relative importance of improvementdriven entrepreneurs, GEM has developed the Motivational Index, or the ratio of improvement-driven to necessity-driven entrepreneurship. 31

32 Table 8: The Motivation for Entrepreneurship, Lebanon % 27.4% 72.3% Early-stage Entrepreneurial Activity (TEA) Necessitydriven (as % of TEA) Opportunity- Driven (% of TEA) 57.3% Improvement- Driven (% of TEA) 2.1score Motivational Index Early-stage Entrepreneurial Activity (TEA) Necessitydriven (as % of TEA) Opportunitydriven (% of TEA) Improvementdriven (% of TEA) Motivational Index Rank % Rank % Rank % Rank % Rank Score Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report 2015 Given levels of unemployment, the influx of refugees and the limitations of a social security system, the levels of necessity-driven entrepreneurship in Lebanon may be seen as surprisingly low. Nearly three times as many Lebanese early-stage entrepreneurs cited opportunity rather than necessity as their motivation for starting a business, and more than three quarters of these said they were motivated by the desire for improvement, either through greater independence or more money. 3.7 Sources of Finance for Early-Stage Entrepreneurship Family is the traditional source of funds for starting a business, and this is still overwhelmingly the case in Lebanon. 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. Figure 10 shows that friends/neighbours remain important, with private investors/venture capitalists cited by just one in twenty of early stage entrepreneurs. 32

33 Figure 10: Expected Sources of Funding, % Family Friends Colleagues Banks Private venture Government Source: GEM APS, Lebanon 2015 It should be noted that the categories in Figure 7 are not mutually exclusive in other words early stage entrepreneurs may anticipate funding from multiple sources. For example, whilst 27% anticipated funding from banks or other financial institutions, twothirds of these also anticipated family funding as well. 3.8 Age, Gender and Entrepreneurship in Lebanon The tradition of Lebanon as a patriarchal society was noted earlier. Then it would not be surprising if men were the majority of business starters. Table 9 shows this to be the case, though the gender gap may be rather less than expected. In 2015 Lebanon, 35.7% of sampled working age males were early stage entrepreneurs, compared to 24.6% of females, ranking Lebanese males 3 rd in terms of early stage entrepreneurship across the 60 countries, whilst Lebanese females ranked 5 th. Having a quarter of women engaged in early-stage entrepreneurship is remarkable in an Arab country, although the gender gap shows there is still some room for growth in the share of women actively starting or running new businesses. Table 9 also shows that there was only a small difference in the share of women in Lebanon claiming to be motivated by necessity rather than opportunity, compared to the male share, although the rate motivated by necessity was substantially higher than the Asia/Oceania average for both males and females. 33

34 Table 9: Gender Distribution of TEA, Opportunity TEA and Necessity TEA, Lebanon % 24.6% 75.3% 68% 24.7% 31.2% Males TEA Female TEA Male TEA Opportunity Female TEA Opportunity Male TEA Necessity Female TEA Necessity Males TEA Females TEA Male TEA Opportunity Female TEA Opportunity Male TEA Necessity Female TEA Necessity R % R % R % R % R % R % Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015 & GEM Global Report 2015 NB: R is rank out of 60 countries The age distribution of entrepreneurship is also important. Globally, the highest TEA rates are in the and age groups. 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. They may also be early enough in their careers for giving up a high salary not to act as an obstacle to starting a business. Table 10 shows relatively high rates of early stage entrepreneurship across all age groups in Lebanon. Unlike in most countries, the rate of early-stage entrepreneurship does not fall below a quarter for any age group, and Lebanon s ranking across the sixty countries does not fall below fifth. Particularly impressive are the high rates of earlystage entrepreneurship at either end of the age scale, with 26.7% of year olds, and 25.6% of year olds actively engaged in starting or running a new business. 34

35 Table 10: Age Distribution of TEA, Lebanon % 31.9% 35.2% years years years 31.4% years 25.6% years years years years years years Rank % Rank % Rank % Rank % Rank Score Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report The Distribution of Total early-stage Entrepreneurship by Industry. In factor-driven or efficiency-driven economies, some half or more of early-stage entrepreneurs run wholesale or retail businesses, while in innovation-driven economies, nearly half run businesses in information and communications technology, or in financial, professional, health, education or other services. Table 11 shows Lebanon firmly within the former categories, with 64% of early-stage entrepreneurs in Lebanon describing their businesses as wholesale or retail, with just 19% in professional services (including information technology, finance, professional or administrative services, health, education or consumer services). 64% of early-stage entrepreneurs in Lebanon describing their businesses as wholesale or retail, with just 19% in professional services (including information technology, finance, professional or administrative services, health, education or consumer services). 35

36 Table 11: The Distribution of early-stage entrepreneurship by sector, Lebanon % 9.1% 1.5% Early stage entrepreneurship within Agriculture/Extraction Early stage entrepreneurship within Manufacturing Early stage entrepreneurship within Transport 64.3% Early stage entrepreneurship within Wholesale/Retail 19.1% Early stage entrepreneurship within Professional Services Agriculture/ Extraction Manufacturing Transport Wholesale/ Retail Professional Services % % % % % Lebanon Asia/Oceania Europe N. America NB: Professional services includes information/communication technology, finance, professional services, administrative services, health, education, government and social services and personal/consumer services. Source: GEM APS Lebanon 2015, & GEM Global Report 2015 Looking at the Services sector in Lebanon in more detail, Health, Education, Government and Social Services made up 12.5% of Total early-stage entrepreneurs, while Information/ Communications Technology and Finance together made up just less than 1% Job Creation Expectations and Innovation New businesses can be a crucial source of new jobs in an economy. Nonetheless, a substantial proportion of businesses in any economy employ only the owner. Early stage entrepreneurs in all countries were asked how many people they expected to employ in five years time, with the results for Lebanon and selected averages shown in Table 12. Of particular interest to policy makers are the potential medium to fast-growth early-stage enterprises, defined here as those expecting to employ six or more people in five years time. Only 11% of Lebanese early stage entrepreneurs were in this category, ranking Lebanon 45 th of the 60 countries, while 42% of Lebanese early stage entrepreneurs expected to have no employees, (other than the owner), in five years time. 36

37 Table 12: Job Creation Expectations and Innovation, Lebanon % 47.0% 11.2% 38.4% 0 jobs in 5 years 1-5 jobs in 5 years 6+ jobs in 5 years Innovation(new products /few competitors) 0 jobs in 5 years 1-5 jobs in 5 years 6+ jobs in 5 years Innovation (new product/ few competitors) Rank % Rank % Rank % Rank % Lebanon Asia/Oceania Europe N. America Source: GEM APS Lebanon 2015, & GEM Global Report 2015 Finally, the GEM Adult Population Survey asked early stage entrepreneurs whether they would be offering products or services that would be 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 categorized as innovation entrepreneurs, with results shown in the final column of Table 12. Lebanon scores relatively highly, with the eighth highest proportion of innovation entrepreneurs of the sixty economies, a remarkable achievement given that the prevalence of early stage entrepreneurs was already amongst the highest. The very highest rates of innovation enterprise (as a % of TEA) were in Chile (54.4), India (51.1), Luxembourg (48.5) and Ireland (44.8). Note that each of these had a Total early-stage Entrepreneurial Activity (TEA) rate that was substantially lower than that of Lebanon (25.9, 10.8, 10.2 and 9.3% respectively, compared to Lebanon s 30.1%) The Export Orientation of Early-Stage Entrepreneurship Early-stage entrepreneurs were asked about the proportion of their annual sales revenue expected to come from customers living outside of Lebanon (most of which can be expected to be exports, though with some sales to those visiting Lebanon). Results are shown in Figure

38 Figure 11: Expected Sales to Customers outside Lebanon (% of Revenue) None upto 10% 11-25% 26-50% 51-75% 76% Source: GEM APS Lebanon 2015 While a small minority expected most of their sales to come from customers outside Lebanon, less than a quarter of early-stage entrepreneurs anticipated no revenues from customers living outside Lebanon. Indeed nearly 47% of entrepreneurs expected between 11 and 50% of their revenues to come from customers outside Lebanon Educational Attainment and Early-Stage Enterprise in Lebanon Whilst Lebanon has a well-developed educational system, not all residents have been able to take full advantage of this. However, Figure 12 shows that high levels of entrepreneurial activity can be found across all levels of educational attainment. Whilst the proportion engaged in early-stage entrepreneurship does increase with educational attainment level, the differences are not substantial. Of those individuals with primary education, 27.6% were engaged in starting a new enterprise, rising to 34.4% of those with Supplementary level/complementary education and 30.6% of those with University (bachelor degree) education. Figure 12: Level of Education and Early-Stage Entrepreneurship Primary level: 27.6% Secondary level: 30.1% Supplementary/Complementary level: 34.4% Technical/Vocational: 30.2% University level (BS): 30.6% Masters of Doctorate: 33.8% Source: GEM APS Lebanon

39 % early-stage entrepreneirship 3.13 Household Income and Early-Stage Entrepreneurship The level of household income can be an important influence on the level of early-stage entrepreneurship, although the relationship between the two may not be simple. While low-income households may face more necessity for entrepreneurship, higher-income households may see more opportunities to start a business, as well as having easier access to resources. Respondents to the GEM APS survey were asked to locate their household income within a given income scale. Figure 13 shows that scale, and the proportion of households within each category reporting that they were engaged in earlystage entrepreneurial activity. Figure 13: Household Income and Early-Stage Entrepreneurial Activity Less than More than Household Income (L.L. Million per year) Source: GEM APS Lebanon 2015 While the lowest rates of early-stage entrepreneurship are found in the lowest income household, and the highest rates in the highest income households, the association is complex. Participation in early-stage entrepreneurship rises with household income up to middle income levels (with a blip in the m income group) and then falls as income increase, before rising quickly again for the highest income group, which however made up just 1.4% of the sample Location and Early-Stage Entrepreneurship Whilst a small country, the economic, physical and social environment varies considerably across Lebanon, from the financial district of downtown Beirut to the sprawling apartment blocks of Mount Lebanon, to the Cedar Mountains behind Tripoli and the olive trees of the South. Figure 14 shows the Districts of Lebanon aggregated into five regions. 39

40 Figure 14: The Regions of Lebanon The extent to which early-stage entrepreneurship varies by location is then an interesting one, with answers summarized within Figure 15. Some 43% of the Lebanese population resides within Beirut or Mount Lebanon, and the GEM APS found 33.1% of these to be actively engaged in starting or running a new enterprise. The highest rates of early-stage entrepreneurship were in Nabatieh in the south-east (43.3%) while the lowest were in the North (21.4%). Figure 15: Early-stage Entrepreneurship by Region, % North 32.8 Bekaa 33.1% Beirut/Mount Lebanon 43.3% Nabatieh 27.3% South Source: GEM APS Lebanon

41 3.15 Conclusion This chapter has presented and discussed detailed survey evidence on the level of earlystage entrepreneurship in Lebanon, and its relationship to key variables. Lebanon is amongst the most entrepreneurial countries worldwide, with more than 30% of surveyed adults actively engaged in starting or running a new business, including 36% of surveyed men and 25% of surveyed women. Levels of early-stage entrepreneurship were high across all age groups (from 26% of year olds to 35% of year olds), and across all parts of Lebanon (from 21% in North Lebanon to 43% in Nabatieh). However nearly two thirds of these early-stage entrepreneurs were in the retail/wholesale sector, and just 11% expected to employ six or more people in five years time. 41

42 Chapter 4

43 Chapter 4 Entrepreneurial Framework Conditions in Lebanonthe National Expert Survey. 4.1 Introduction and Global Results This chapter will present and discuss the GEM Survey of 36 identified national experts in Lebanon, each of whom was asked to express their view of the entrepreneurial framework conditions pertaining to Lebanon in By asking the same questions as were being asked of national experts in each of the 62 participating economies, comparisons can be made with their responses. The chapter will show that these experts regarded cultural and social norms (supporting entrepreneurship), school level entrepreneurial education and entrepreneurial finance highly, but regarded internal market dynamics, government policies and physical infrastructure as relatively poor. Chapter 2 discussed the environment for enterprise in Lebanon, including as seen by international bodies such as the World Bank and the World Economic Forum. This Chapter will discuss the context for entrepreneurship in Lebanon in terms of the GEM Entrepreneurial Framework Conditions, as seen through a Survey of thirty-six selected national experts in Lebanon. The nine elements of the GEM Entrepreneurial Framework Conditions, which shape the context in which entrepreneurial activities take place, are set out in Figure 16 overleaf. The surveyed national experts were carefully selected according to their skills and experience in a particular field, (four for each Framework Condition). For example, for the first framework condition, the entrepreneurial financing system, experts could include bankers, venture capitalists, private investors, business angels, public subsidy and other specialists. For each condition, at least one of the experts must be involved in some phase of the entrepreneurial process (GEM Manual Design, Data and Quality Control, 2011). After agreeing to participate, and following approval from the GEM Consortium, each national expert was sent the standardized GEM National Expert Survey (NES) questionnaire. Experts were asked to rate each element on a Likert Scale from 1 (highly insufficient) to 9 (highly sufficient). Globally, the physical infrastructure received the highest rating (average 6.3), with lowest ratings given to school-level entrepreneurship education (3.1), research and development transfer (3.8) and internal market burdens (4.1). Not surprisingly, the entrepreneurial ecosystem was seen as strongest overall in the innovation-driven economies, and weakest in the factor-driven economies. Physical infrastructure was given the highest average rating by innovation-driven economies (6.7), compared to an average rating of 5.7 in factor-driven economies. Government Entrepreneurial programmes saw similar differences, with an average rating of 4.7 in innovation-driven economies and 3.9 in factor-driven economies. Ratings for post school entrepreneurship education and internal market dynamics were much closer across economic development levels. The framework condition regarding/ pertaining to/ cultural and social norms, (supporting enterprise), saw high ratings in particular economies across all the development stages. 43

44 Figure 16: The GEM Entrepreneurial Framework Conditions 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. NB: adapted from GEM Global Report

45 4.2 Results for Lebanon Thirty-six 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 6.3), putting Lebanon third out of the 62 participating economies. At the other end of the scale, only Portugal (average 3.5) had a physical infrastructure rated lower than Lebanon (4.4). In between, Lebanon was rated relatively highly for entrepreneurial education at school stage, (6 th ), and for entrepreneurial finance (10 th ), and was rated lower in regards to government policies, support and relevance (53 rd ), and for internal market dynamics (44 th ). These results are summarized in Figure 17, comparing Lebanon to the GEM average. Figure 17: Expert Ratings of the Entrepreneurial Eco-System Source: GEM Global Report,

46 The strongest components of the Lebanese entrepreneurship ecosystem were cultural and social norms, entrepreneurial finance and the commercial and legal infrastructure, whilst the weakest components of entrepreneurship ecosystem were government policies: support and relevance, government entrepreneurship programmes and internal market dynamics. Table 13 compares the Lebanese national expert responses to the continental averages across the world. Lebanon scores better than the continental averages for finance, schools and post-secondary entrepreneurial education, and for cultural and social norms (except for North America), but worse than the continental averages for national policy and physical infrastructure. Table 13: Entrepreneurship framework conditions main indicators. Lebanon and Global. 1 Finance 2a National Policy General Policy 2b National Policy Regulations 3 Government Programmes 4a Education Primary & Secondary 4b Education Post-Secondary 5 R&D Transfer 6 Commercial Infrastructure 7a Internal Market Dynamics 7b Internal Market Openness 8 Physical Infrastructure 9 Cultural and Social Norms (see Table 20) 1 2a 2b 3 4a 4b 5 6 7a 7b 8 9 Lebanon Africa Asia and Oceania Latin America & Carribbean Europe N.America GEM Source: GEM Global Report,

47 4.3 Constraints, Supports and Recommendations The national experts were also asked 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. Openended responses were then, as far as possible, categorised. Figure 18 shows the most frequent responses for factors constraining entrepreneurial activity. The three most common factors were Internet & Infrastructure (identified by 54% of experts); Political instability & corruption (23%); and the Size of the local market (23%). Note that responses sum to more than 100%, since each expert could select up to three. Other constraints include the perceived (lack of) government support (18%), the shortage of early-stage funding (15%) and an out of date legal framework. Figure 18: Factors Constraining Entrepreneurial Activity (%) Source: GEM National Expert Survey, Lebanon 2015 Out of date laws (Lack of) early stage finance (Lack of) government support Size of market Political instability/corruption Infrastructure/Internet There was rather less consensus on the factors supporting entrepreneurial activity in Lebanon, (Figure 19). Top of the list was the growth in funding for entrepreneurial activity, including seed funding, funding for new firms and funding for growth (41%). The next highest factor was the entrepreneurial support system (including incubators, accelerators etc) (33.3%), closely followed by an open and supportive culture (30.8%) and the quality of education in Lebanon (23.2%). 47

48 Figure 19: Factors Supporting Entrepreneurial Activity (%) Talent pool Quality of education Open supportive culture Support system (incubators/accelerators etc) Growth of funding for entrepreneurial activity Source: GEM National Expert Survey, Lebanon 2015 Finally, recommendations to improve the entrepreneurial environment were requested from the national experts, with results given in Figure 20. The most common recommendation was faster/cheaper internet (30.7%), followed by more researchintensive, enterprising universities (28.2%). More government support for enterprise was cited by 23.1%, with 20.5% recommending more training/bootcamps for budding entrepreneurs. More seed-corn/early-stage funding was recommended by 15.4%, with 12.8% proposing that laws and regulations be updated. Figure 20: Recommendations to Support Entrepreneurial Activity (%) Updated laws and regulation More seed-corn/early-stage funding More training/bootcamps More government support Research/enterprise-intensive universities Faster/cheaper internet Source: GEM National Expert Survey, Lebanon

49 4.4 Conclusion This chapter has presented and discussed the GEM Survey of 36 national experts in Lebanon, seeking their views on the entrepreneurial framework conditions in the country. These Lebanese experts had high regard for cultural and social norms supporting entrepreneurship (rated 3rd highest of 62 participating countries), for school entrepreneurial programmes (6 th ), and for entrepreneurial finance (10 th ), but poor regard in terms of internal market dynamics (44 th ), government policies (53rd) and physical infrastructure (61 st ). These experts were also asked to identify factors constraining or supporting entrepreneurialism in Lebanon, and invited to make up to three recommendations to enhance entrepreneurship. The three most commonly cited constraints on entrepreneurship were the infrastructure/internet, perceived political instability and corruption, and the small size of the local market. The three most frequently cited supportive factors were the growth of entrepreneurial finance, the developing entrepreneurial support system (accelerators, incubators etc) and the open, supportive culture. Finally the three most common recommendations were faster/cheaper internet, more research or enterprise-intensive universities, and more government support for entrepreneurship. 49

50 Chapter 5

51 Chapter 5: Summary and Findings 5.1 Introduction This Lebanon National Report has outlined the Global Entrepreneurship Monitor (GEM) results for GEM is an international collaborative research programme to assess levels of entrepreneurship in a standard manner across different countries over time. In 2015 the GEM Consortium included teams from 60 countries across the globe. By asking and interpreting questions in the same way, comparisons can be made and trends established. The GEM standard questionnaire was used to interview 2,600 adults (aged 16-64) across all parts of Lebanon the Annual Population Survey (APS). This seeks to address three key issues: 1. What are individual attitudes to entrepreneurship in Lebanon? 2. What is the level of entrepreneurial activity in Lebanon? 3. How does that entrepreneurial activity vary by age, gender, income level, level of education, location etc? Hence the APS looks at individual attributes, activities and aspirations to enable assessment of carefully defined measures of early-stage entrepreneurship, including 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). Added together, nascent entrepreneurship plus new firm entrepreneurship gives the headline GEM measure of Total earlystage Entrepreneurial Activity (or TEA). This Annual Population Survey of entrepreneurial aspirations, attitudes and activities took place within the context of the contemporary Lebanese economy and society. Lebanon is a relatively small (less than 5 million people) developing economy with a long history and tradition of trade and enterprise, inwards and outwards migration and a recent past of internal and external conflicts. Starting a new enterprise is in essence an act of faith in the future, and 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 the importance of understanding and assessing the environmental framework within which the act of starting a new enterprise takes place. The Annual Population Survey is then complemented by an in-depth survey of identified experts (the National Expert Survey, NES) in order to assess the entrepreneurial ecosystem that may support or constrain entrepreneurial activity in Lebanon. Once more, because the questions are standardised, comparisons can be made with other countries. In Lebanon, thirty-six identified national experts completed the online NES questionnaire, expressing views on entrepreneurial framework conditions including the availability of finance, entrepreneurial education, physical infrastructure, government support for enterprise etc. 51

52 52GEM Annual Population Survey 2015 Together these figures show almost half of the adult population in Lebanon was either starting a new business, running a new business or running an established business. This is strong evidence of Lebanon as one of the world s most entrepreneurial economies.

53 5.2 Key Findings: Annual Population Survey 33% Taken together, almost adults were actively engaged in starting or running a new business, the fourth highest of the sixty countries surveyed. 20% of adults Just over were running an established business, (having been paying wages for 42 months or more). 2,600 Adults (aged 16-64) were interviewed across Lebanon 12.5% 10% Less than of earlystage entrepreneurs in Lebanon expected to employ six or more people in five years time, although More than had committed resources to starting a new business (but had not yet paid wages for three months or more). 40% nearly claimed to be offering goods or services that were new to their customers and had few competitors. 50% Nearly of interviewed individuals saw good opportunities to start a business. 62% 20% of early stage entrepreneurship was concentrated in the retail/wholesale sector had started a More than new business and been paying wages for more than three months, (but less than 42 months). 19% were in professional services. Early-stage entrepreneurship rates were high across all age-ranges in Lebanon, including the youngest and oldest. Levels of early-stage entrepreneurship varied across the country, From just 70% of those In 2015, nearly interviewed considered that they have the capability to start their own business 20%in the North region to 25% of year olds,and 33% 40% in Nabatieh. In Beirut/Mount of year olds, were starting or running a new business. Lebanon, one in three were engaged in early stage entrepreneurship. 20% thought fear Less than of failure would prevent them from starting a business. Levels of early stage entrepreneurship were high across all levels of education and across all income ranges. 53

54 36 identified national experts completed the National Expert Survey. GEM NATIONAL EXPERT Survey 2015 Cultural Social Norms Physical Infrastructure Mixed results Constraints on entrepreneurship Factors supporting entrepreneurship Major Recommendations 54

55 5.3 Key Findings: National Expert Survey Cultural/social norms to support entrepreneurship scored very highly (3 rd highest of 62 countries completing the NES). Physical infrastructure scored very low (61 st out of 62 countries). Lebanon scored highly for entrepreneurial education at school stage and for the provision of finance for entrepreneurship, but low for government support and internal market dynamics. Experts saw the internet/physical infrastructure, political instability and corruption, and the size of local markets 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 faster/ cheaper internet, more research and enterprise-intensive universities and more government support for start-ups. 5.4 Conclusions 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. 55

56 References GLOBAL ENTREPRENEURSHIP MONITOR 2015 NATIONAL REPORT: LEBANON