American Univesity of Beirut

SMEs in Lebanon: An untapped force for recovery

​​​​​​​​​​Facing myriad economic, public health, humanitarian, and political challenges, Lebanon is in search of a savior, penned Director of OSB’s Business-in-Conflict Areas Research Group (BICAR) Dr. Jay Joseph

While foreign donors and the IMF provide hope for a solution, homegrown, long-term, and sustainable remedies are often overlooked. Despite Lebanon’s reputation for entrepreneurship, with small-to-medium enterprises (SMEs) representing 90% of businesses, employing 50% of the country, the sector is often left without a voice; a trend, which if not reversed, will severely inhibit one of the strongest forces that can lead to recovery in Lebanon. 

SMEs play an essential role during and after a crisis. Around the world, SMEs fill the gaps left by failing governments, offer basic incomes, and provide various goods, services, and philanthropic contributions, all of which reduce the impact of a crisis. Their activity spans ethnic, social, and sectarian lines, stabilizing divided societies. Most importantly, SMEs offer broad-ranging employment and economic growth that steers the recovery process, encouraging resilience against Lebanon’s structurally unstable economy. 

Lebanese entrepreneurs echo this view. According to Mazen Jradi, Founder and Managing Partner at B.hive Café, one of the only thriving café spots left in Beirut, SMEs are essential in addressing Lebanon’s short-term needs, “SMEs will generate money, offer job opportunities for people, and keep the city alive.” Similarly, SMEs can offer a path to recovery, as described by Ralph Khairallah, co-founder of Carpolo, a carpooling application developed in Lebanon, “They can attract fresh funds from investors, and generate fresh funds from clients and users.” 

Historically, SMEs in Lebanon face an endless list of challenges. According to to Dr. Alain Daou, assistant professor of entrepreneurship, they include, “[…] red tape, permits, getting credit, paying taxes, infrastructure, etc. […] Lebanon is ranked 151 out of 190 countries in starting a business in 2020.” Furthermore, the political upheaval following the 2019 uprising saw significant disruptions for SMEs, a resulting currency crash, and the illegal capital controls that followed–virtually eliminating the purchasing power and credit lines to operational capital, while drying up net demand across most sectors. Adding in the coronavirus pandemic, which resulted in Lebanese decision-makers, medical experts, and intellectuals advocating for a seesaw of lockdown measures–again, SMEs were left out of mainstream considerations–and the recent explosion, mounted further costs to the 90,000 properties damaged, predominantly in the Beirut area. 

What remains is an uninhabitable ecosystem for progressive SMEs. As Jradi depicts, “[The issue is] instability, be it in operations, electricity and supplies, security, and road blocks […] with no one to compensate for your losses.” Accordingly, entrepreneurial flight entails, “One cannot retain experienced talent. The moment that people get experience that could be useful for local startups, they get visa sponsorships and travel abroad,” notes Khairallah. 

Shifts in policy and public awareness about protecting and fostering SMEs are essential. Daou states, “In order to build sustainable solutions in times of crisis, like the one Lebanon is facing now, it is key to support small businesses as they play an important role in facing and getting out of the crisis.”

Drawing on prior research, Dr. Joseph notes that for Lebanon, a healthy SME sector can deliver the following:

  • Naturally, the sector includes a large proportion of those most vulnerable in society, who rely on daily wages to support themselves and their families. Growing the sector provides immediate humanitarian support, which the government and humanitarian sectors are failing to do to address the alarming rise in poverty rates.
  • SMEs are typically the first to respond to essential economic restructuring in a failing economy. For Lebanon, this means changing business models: moving away from services, reselling, and imports, and towards manufacturing, innovation, and exports, which the sector can do if they are empowered.
  • Agile SMEs can address essential supply gaps in local markets by finding avenues to provide goods and services that have vanished from Lebanon’s fleeting import-dependent market, and, in turn, energize local production and economic transition.
  • Amid ongoing sectarian tensions, the sector fosters economic interdependence and joint supply chains, providing opportunity for dialogue. Entrepreneurs can also act as a neutral party for conflict resolution, while building social cohesion at the community level. 

To generate these benefits, it is essential to have business-orientated policy that allows fair competition, access to capital, and provisions for basic services. As a rising number of agents in Lebanon call for political change and justice, equal emphasis should be given to creating a healthy, fair, and competitive environment for SMEs, which will prove critical for the long-term recovery of the Lebanese state. ​

About the Author

Dr. Jay Joseph is an Assistant Professor of Entrepreneurship and Peacebuilding at the American University of Beirut. He is the Director of the Business-in-Conflict Research Group, and works with UN Agencies and businesses in the region to understand ways in which entrepreneurship can be utilized to reduce poverty and foster peace in conflict, and post conflict settings. 

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