$400m for the startup scene in Lebanon raises more questions than it brings solutions

How to be innovative in a country where two decades of civil war and rather noisy neighbours such as Syria keep the focus of media on bombings, turmoil and refugees is a tall order. This is the task the Central Bank of Lebanon tries to answer with its circular 331, which put US$400-million on the table earlier this year, just for startups. This is one percent of the GDP and, as attractive as it may look, it doesn’t go without a lot of skepticism as well.

Let’s zoom back to know how such a big bet finds its place in the longer history of innovation in Lebanon. Back in the inter-war times (1920-1940), the French protectorate had, like other places in the African colonies, helped to train the ruling elite. The civil war years, from 1975 to 1990, has just accelerated the motion of an already highly mobile population.

There are in 2014 about 4.5 million inhabitants in Lebanon, with a huge diaspora of 12 to 14 million people. Among them, Mexican telecom bilionnaire Carlos Slim, Renault-Nissan CEO Carlos Ghosn, or pop-singer Shakira, but if you dig even more, you find presidents of South American countries where the biggest chunk of these emigrates are.

The startup scene was really kickstarted in 2010 with a lot of copycats, which have been providential as they allowed a first generation of local geeks to train themselves and then create the second wave of startups around 2012. Take Anghami, the Spotify for Arabic countries. They quickly developed their market out of Lebanon, and they now have a quasi monopoly on Arabic music labels, serving 3.4 million users, including Arabic immigrants in the western world where they didn’t have a streaming music service for their songs.

Instabeat is another Beirut-based global success, with their smart swimming goggles. The startup, founded by former swimmer Hind Hobeika, serves professional swimmers who want to track their motion and heartbeat while training.

In 2013, the pace of the startup scene accelerated already, with more funds appearing in the ecosystem, and bigger funding possibilities for the existing ones, their average capital growing from US$10-20 million to US$30-50 million. And suddenly, US$400 million from the Central Bank, which raises more questions than it brings actual solutions.

On stage of Arabnet, the main tech conference in the Middle-East, the spokeperson of the Central Bank was not able to bring more details on the criterias startups would need to fill to get part of these funding. Technically, the Central Bank is not investing itself, as they will handle these funds to local banks which, in turn, can decide to invest them in the knowledge economy.

Putting so much money in the hands of an industry not known for its innovation capability, with little criteria known, sounds a bit unprepared.

Money alone can’t build a successful innovation ecosystem. Lebanese infrastructure is notoriously bad. Internet speed reaches an average 2.4Mbps (vs. 26.8 Mbps for France, 17.6 Mbps for China and even 4.5 Mbps in Nigeria), and the prices of electricity and rent are among the more expensive in the Middle-East. In 2012, Beirut was the most unaffordable city in the region, beyond even Abu Dhabi and Dubai.

Neighbouring Israel is a recognized tech leader and Jordan is reputed in the Arab world for both its political stability and the support of Queen Rania with its Centre for Entrepreneurship.

Despite these doubts, Lebanon remains a fascinating hub with a strong capability to bounce back after years of turmoil. It’s a tiny strip of land but acts as a pivot between the Western world and the Middle-East and Africa, with a reputation for unrivalled commercial skills. The Arabnet conference now has satellites in Saudi Arabia and Dubai. The whole region is bound for growth with a population going from 380 millions in 2001 to 560 millions in 2025.

With a bit more stability politically, the combination of a multicultural country with significant means, a great diaspora and a small though successful ecosystem, Lebanon could well be a key player in innovation in the Middle-East.