Micro and small businesses in Lebanon: Between challenges and opportunities

Small businesses in Lebanon have always been the driving-force of job creation in Lebanon. According to the World Bank Enterprise Survey In 2019, Small and medium enterprises represent 95 percent of all registered companies in Lebanon contributing in 50 percent of national employment. However, small businesses in Lebanon started suffering long before the economic downturn. In may 2020, The ILO surveyed 363 small businesses to know more about their situation. The results were shocking. Even before the lockdowns were enforced, according to survey, only one-third of the surveyed enterprises were profitable, 40% reported breaking even, and more importantly 26% were operating at a loss. 

Main Challenges facing SMEs:

The main obstacle that has always been facing SMEs is the access to financing programs. The significant absent of subsidized loans for businesses, record high interest rates that undermined business activity, and the fact that the majority of SMEs are family-owned businesses that are very reluctant to equity financing. 

In the first place, access to recent data and statistics is extremely difficult in Lebanon. However, we will use some numbers from the beginning of the 2000s just to look at the general economic trend and business cycle. Short term T-bills offered a 16 per cent in return in the beginning of the century and have significantly increased prior to the crisis. In other terms, one of the challenges that faced startups on the finance side was the fact that short-term T-bills were highly profitable and associated with a low-risk strategy while to open a business is associated with high risks and high cost of borrowing. In addition to this, an inflated real estate sector absorbed a huge amount of credit and had almost been the only investment prior to the crisis and even in the beginning of the banking crisis. Therefore, the main obstacle that faced startups and still is challenging is the credit tightening and subsidized loans that focused on the housing problem and that contributed to the boom of the real estate sector in Lebanon. In addition to this, the nature of the SMEs in Lebanon represents a somehow challenge to various forms of financing. SMEs in Lebanon are mainly family-owned businesses. Usually, such type of SMEs is very reluctant to equity financing (77.6% of firms interviewed by MoET in 2007 found equity financing unattractive).

Another problem faces SMEs is that no significant governmental or public support is shown when talking about internationalization and access to foreign markets. SMEs in Lebanon are extremely disconnected from foreign markets due to the high costs associated with that and the absence of the public support. 

Moreover, currently SMEs are operating in a highly volatile market, especially when mentioning the Lebanese pound’s daily fluctuations. This environment is putting major pressure on SMEs that are already operating at high costs. The volatile market is pushing businesses to either close temporarily or to change their prices hourly. 

Market entry in Lebanon is very difficult nowadays with few to zero public support for SMEs.

The emerging opportunities for SMEs:

The banking crisis, the de facto capital control, and the high cost of importing goods give the opportunity for SMEs to increase their market reach and enhance their market position especially in the agri-food, pharmaceutical and touristic sector. Many products disappeared from the local market after the economic collapse and the devastating effect it had on income and consumption. Therefore, many SMEs can work on producing these goods and filling the market gap created by the crisis. Moreover, the increasing role of Social Media as marketing platforms can help SMEs reach the targeted audience with low cost. Social Media Marketing should be an essential tool for startups to enter the market and establish relationships and connections with their customers. 

The Role of NGOs:

NGOs can provide a significant support for small businesses. For instance, NGOs already support and establish support campaigns for Lebanese small businesses to help them sell their service/product without incurring many costs. Souk of Mar Mkhayil is a clear example. Every Sunday Souk Mar Mikhael takes place in Armenia street, Hamra, and Gemmayze. The main goal of the initiative is to help rural and small businesses sell their product in an open market and directly to their consumers. Every business can book a table where products can be sold directly to consumers and help the brand or the business get in contact with its clients. That’s an impressive example on how NGOs can help businesses increase their market reach and lower their costs. In addition to the fact that NGOs help small businesses connect with market forces directly, they can help them connect with international donors and markets as well. NGOs can also play an advising role with small businesses. Help them know on what grounds they should operate, give them access to detailed data about the market preferences. For example, the EBRD has supported more than 150 small enterprises in Lebanon with business advice through its Advice for Small Businesses program. The UNDP with the support of the Swedish International Development Agency (SIDA) are supporting 18 Lebanese small and medium sized businesses in gaining access to the United States Market, especially agri-food and artisanal cosmetic products. Within this framework, selected goods were loaded on 29 January, 2022, to be shipped to the U.S. as a first step towards offering SMEs with the needed support to diversify their export base.

Finally, as we mentioned, the SMEs sector is the most imperative sector when talking about national employment. However, this sector is suffering due to many factors: the economic crisis, difficulty when it comes to financing, the volatile market and so forth. Many campaigns and initiatives are trying to help SMEs grow and survive the crisis. Lebanese NGOs can be the driving force for the development of SMEs and can help them get access to funds and foreign markets and help them connect with their clients. The main emerging issue is SMEs’ access to proper financing. And with the absence of a healthy financial sector, NGOs are the only organizations that can help fund new small businesses and finance their operation.

Sari Zeineddine