Mixed fortunes for startups during the financial crisis in Lebanon

Special many residents lost their life savings after Lebanese banks decided to withhold the savings of individuals and organizations.( Reuters/File)
many residents lost their life savings after Lebanese banks decided to withhold the savings of individuals and organizations.( Reuters/File)
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Updated 16 January 2022

Mixed fortunes for startups during the financial crisis in Lebanon

Mixed fortunes for startups during the financial crisis in Lebanon
  • Some fledgling businesses were unable to weather the storm but others found a lifeline by shifting operations to other countries and are determined to survive

BEIRUT: Lebanon’s financial woes began with the protests in October 2019, when a series of peaceful sit-ins escalated and became a national revolution against the ruling class.

Soon, there was a steep decline in the value of the Lebanese pound against the dollar. The official rate is still 1,500 pounds to the dollar but the currency has lost more than 90 percent of its value and now trades at about 30,000.

Meanwhile, Lebanese banks decided to withhold the savings of individuals and organizations, a decision that resulted in many residents losing their life savings and the closure of numerous organizations, family businesses and startups.

“I lost $350,000 of my money because of the crisis,” Rana Chmaitelly, the founder of The Little Engineer, an educational startup for children, told Arab News. “I lost the product of my sweat, blood and tears — they took it all away. But I didn’t give up.”

In a stroke of good fortune amid the despair, toward the end of 2019 Chmaitelly was expecting a large transfer of money from a business partner. Having been denied access to the cash in her own bank account in Lebanon, her only solution was to swiftly establish an offshore, and later a freezone, company in the UAE, to which the money her partner owed her could be safely transferred.

“That transfer to the UAE saved me and my team, or else we would now be owing a lot of money to our partners,” Chmaitelly said.

Her story is not unique among Lebanese startups. The founders of Cherpa, another educational startup, which offers technology training courses to teenagers, also relocated in part to the UAE at the onset of the financial crisis. They were able to open a freezone company there and obtain residency.

“Having our money withheld by banks was awful; there was a lot of frustration,” cofounder Bassel Jalaleddine, told Arab News. “I used to waste my time queuing up in banks all day just to get $300.”

Online platforms Mint Basel Market, Kamkalima and Ounousa are just some of the other startups that relocated operations, at least partly, to the UAE.

Tech giant Arabnet has studied the effects of the multiple crises in Lebanon on the startup ecosystem, surveying 60 startups and 15 stakeholders. Its report, which has yet to be published, reveals that about half of the startups have moved their headquarters or parts of their businesses outside of Lebanon, Omar Christidis, Arabnet’s founder and CEO, told Arab News.

As if having their capital withheld by banks was not bad enough, startups had to deal with another devastating blow at the end of 2019: the suspension of Circular 331 by Banque du Liban, the country’s central bank.

Announced by BDL in late 2013, Circular 331 was a mechanism that injected more than $400 million into the Lebanese enterprise and tech markets. The limit was raised in 2016 to $650 million to foster even more innovation and encourage banks to invest more in startups. It was hailed as a “holy grail” for businesses in the country.

The benefits were felt for six years, said Elias Boustani, the former chief operating officer with startup consultant Wamda, despite concerns that a bubble had formed that was leading to ridiculously high valuations of startups, and affecting salaries in the tech sector.

“The circular is a BDL issue and this allowed the banks to use their own equity and to be subsidized by BDL in order to invest in startups or in funds investing in startups,” said Walid Hanna, the founder and CEO of Middle East Venture Partners in Beirut.

HIGHLIGHTS

Capital locked away in banks. Circular 331 put on hold. Brain drain and the August 4 blast. How have Lebanese startups survived?

Lebanese startups are feeling the pinch. Engulfed by multiple crises, they are facing a unique set of challenges they have never had to contend with before, and are desperately looking for solutions.

“The money they allocated to the funds and to the startups was 100 percent used and depleted; it was all spent or invested. And now BDL and the (commercial) banks have no intention to reinvest in startups according to Circular 331 because, obviously, they have other priorities.”

These other priorities include attempts to address a crippling economic crisis and adjust to the hyperinflation of the currency.

MEVP told Arab News that the number of Lebanese operational startups before the crisis began in 2019 was 25. This number has fallen to 15, with seven of those struggling to remain afloat.

“The financial and economic crisis in Lebanon has impacted the ability of startups to invest in markets outside Lebanon,” according to MEVP. “The Lebanese (pound) has lost more than 90 percent of its value, making it impossible for Lebanese startups to generate substantial revenues.

“Previous funds raised are frozen in banks; these ‘Lebanese dollars,’ dubbed ‘lollars,’ stand at 19 percent of their US dollar value, making it impossible for Lebanese companies to invest in their growth.”

Some sources of funding, such as regional accelerator Flat6Labs, have put financial support to their Lebanese branches on hold.

“I remember we were among the last batch to receive funding in 2019 before the (suspension of Circular 331),” Adnan Ammache, the founder and CEO of gifting platform Presentail, told Arab news. “We received funding that was worth a little bit over $100,000.”

Six other startups received funding that ranged from $30,000 to $100,000, according to Ammache. No representative of Flat6Lab was available for comment.

With no end in sight to the crises, Lebanon is experiencing its most severe brain drain in more than a century. The minimum wage still stands at 675,000 pounds a month, which is now worth a meager $24.This has led to a severe loss of talent in several sectors, including technology, leaving startups at a disadvantage.

Startups that want to try to retain their human resources must pay employees in dollars, which places additional strain on already tenuous finances, said MEVP’s Hanna.

Avo Manjerian, the cofounder and CEO of shift-scheduling startup Schedex, told Arab News: “Finding and retaining talent is hard and costly but the goal is not the money; it’s creating the incomparable, flexible and broad-minded culture in our small startup.”

Schedex soft-launched in October 2019, just as the economic crisis was beginning.




A woman wearing a face mask walks past a money exchange office in the Lebanese capital Beirut. (AFP/File)

“We pay our employees in fresh dollars from our investment because we want to be fair and we don’t want to take advantage of the situation,” Manjerian said.

Other startups such as Cherpa and Mint Basil Market said they also pay in dollars, in an effort to be “fair,” and having a bank account in another country, such as the UAE, helps with this.

Boustani said that some startups concerned about losing employees are also offering staff the chance to relocate to the UAE, Turkey or other countries and work remotely. Murex, for example, helped workers in Lebanon move to the company’s offices in France.

The devastating explosion at Beirut’s port on Aug. 4, 2020, delivered yet another blow to Lebanese startups. Buildings in the Beirut Digital District, the hub for Lebanese entrepreneurs, were badly damaged, including the offices of several startups including Schedex, Sympaticus and Moodfit.

Businesses in other parts of the city were also affected by the explosion, including Buildlink, FabricAID, Compost Baladi SAL and Basma, according to the Sharjah Entrepreneurship Center. The center launched an aid initiative that distributed $100,000 equally among 10 high-impact Lebanese startups affected by the blast.

Looking to the future, to say that the Lebanese are resilient is an understatement. They are a stubborn, determined people, and this is reflected in the determination startup founders to succeed at all costs.

“We have been operational since May 18,” said Hussein Sleiman, the founder of Find a Nurse, an award-winning online platform that supplies trusted caregivers.

“We have stopped at nothing. And while we of course aspire to expand to be a global startup, we plan to make our headquarters in Lebanon — where we can employ people residing in Lebanon and benefit our country.”


TASI begins higher despite market fears: Opening bell

TASI begins higher despite market fears: Opening bell
Updated 12 sec ago

TASI begins higher despite market fears: Opening bell

TASI begins higher despite market fears: Opening bell

RIYADH: Saudi stocks opened higher in the early morning trading session, despite ongoing market fears of higher interest rates weighing on investors' sentiment.

The main index, TASI, gained 0.11 percent to reach 11,477, while the parallel market, Nomu, started flat at 21,082, as of 10:08 a.m. Saudi time.

This was led by a rise in the banking sector, with Al Rajhi, the Kingdom’s largest valued bank, adding 0.25 percent, and Saudi National Bank adding 0.75 percent.

Among the biggest IT companies, Elm Co. gained 0.48 percent and Al Moammar Information Systems Co. gained 0.12 percent, respectively.

Shares of Saudi Aramco, the largest player on the Saudi oil market, opened 0.52 percent lower.

Fawaz Abdulaziz Alhokair Co. led the fallers with a 3.07 percent decline, followed by Abdulmohsen Alhokair Group for Tourism and Development which fell 2.48 percent.

In the energy sector, West Texas Intermediate crude was trading at $108.56 per barrel and Brent crude was trading at $111.74 per barrel as of 10:10 a.m. Saudi time.


SABB to pay $301m in dividends for H1

SABB to pay $301m in dividends for H1
Updated 46 min 23 sec ago

SABB to pay $301m in dividends for H1

SABB to pay $301m in dividends for H1

RIYADH: Saudi British Bank, also known as SABB, has proposed a dividend of SR1.13 billion ($301 million) for the first half of 2022.

The dividend payout per share has been set at SR0.55 for over 2 billion shares eligible for dividends which will be distributed on July 27, according to a bourse filing.

SABB, which was voted the best bank in 2022, recently appointed Yasser Ali Al-Barrak as its new CEO for corporate and institutional banking.

The bank has posted a 3 percent increase in net profit to SR1 billion in the first quarter of 2022, over SR974 in the year-ago quarter.


Here’s what you need to know before Tadawul trading on Monday

Here’s what you need to know before Tadawul trading on Monday
Updated 59 min 44 sec ago

Here’s what you need to know before Tadawul trading on Monday

Here’s what you need to know before Tadawul trading on Monday

RIYADH: Saudi stocks ended their first trading session of July in red, extending losses after an 11-percent decline in June due to fears over inflation and recession.

TASI, the main benchmark index, fell 0.5 percent to 11,464 on Sunday and the parallel market, Nomu, shed 2.3 percent to 21,082.

Oman’s stock exchange declined 0.3 percent in line with Saudi Arabia.

However, the Bahraini bourse led the gains in the region as it advanced by 1.4 percent, followed by Kuwait and Qatar, up 1 and 0.7 percent, respectively.

Outside the Gulf, Egypt’s blue-chip index EGX30 lost as much as 2.4 percent.

In the oil market, Brent crude futures rose slightly to $112.16 a barrel and US West Texas Intermediate reached $108.82 a barrel by 8:59 a.m. Saudi time on Monday.

Stock news

The Saudi British Bank, or SABB, appointed Yasser Ali Al-Barrak as its new CEO for corporate and institutional banking

SABB’s board of directors proposed a dividend distribution of SR1.13 billion ($301 million) in total, or SR0.55 per share, for the first half of 2022

Al-Khaleej Training and Education Co. entered into a non-binding agreement to potentially acquire 51 percent of Al-Minhaj Private Schools Co.

Ayyan Investment Co. named Faisal Al-Qahtani chairman of the board and Abdul Aziz Al Shaikh vice-chairman

Wafrah for Industry and Development Co.’s rights issue was 78 percent subscribed, generating SR120 million in proceeds

Jahez International Co. for Information System Technology appointed Lulua Bakr to replace audit committee chairman Abdulwahab Al-Butairi following his resignation

Saudi Basic Industries Corp.'s health insurance contract with Bupa Arabia was renewed for one year starting July 4

Calendar

July 4, 2022

Launch of single-stock futures trading on Tadawul

July 7, 2022

Saudi Exchange will close for the Eid Al Adha holidays and resume trading on July 13


Dubai fintech YAP raises $41m to expand footprint, eyes Saudi market among others

Dubai fintech YAP raises $41m to expand footprint, eyes Saudi market among others
Updated 04 July 2022

Dubai fintech YAP raises $41m to expand footprint, eyes Saudi market among others

Dubai fintech YAP raises $41m to expand footprint, eyes Saudi market among others

RIYADH: The UAE’s fintech YAP, a leading digital banking platform, has raised $41 million in a funding round led by Saudi Arabia’s Aljazira Capital, Abu Dawood Group, Astra Group and Audacia Capital.

The company plans to complete series A funding by the end of the year and use the funds to expand its regional footprint, it said in a statement.

It recently partnered with Bank AlJazira to launch its consumer and business banking platforms in Saudi Arabia.

“There is incredible demand for fintech products in the region, and we are well placed to be a market leader to address these needs,” said Marwan Hachem, co-founder and group CEO of YAP, in the statement.

Marwan Hachem, co-founder and group CEO of YAP (Supplied)

The company has also received regulatory approval in Pakistan and Ghana to offer similar services and plans to soon launch in Egypt.

YAP offers users a simple interface with a complete view of consumer spending analytics and easy ways to transfer money and pay bills.

With no minimum balance required, the app also provides customers with real-time notifications of purchases, withdrawals, and transfers.

YAP’s product development pipeline includes a new multicurrency offering, products for children and households, equity trading, loans and buy-now-pay-later options through the YAP Store, the YAP Financial Marketplace, and the YAP Hub.

“The momentum and growth we have seen since our launch validate the need for the YAP platform throughout the region. We look forward to expanding into new markets and enhancing our offering in the months ahead with these investments,” Anas Zaidan, co-founder and managing director of YAP, said in the statement.

Since its launch in 2021, the platform has provided over 130,000 users with an extensive database of resources at their fingertips to become expert money managers.


Oil Updates — Crude slips on recession fear; Algeria’s oil, gas earnings climb; Planned strike could cut Norwegian gas output

Oil Updates — Crude slips on recession fear; Algeria’s oil, gas earnings climb; Planned strike could cut Norwegian gas output
Updated 04 July 2022

Oil Updates — Crude slips on recession fear; Algeria’s oil, gas earnings climb; Planned strike could cut Norwegian gas output

Oil Updates — Crude slips on recession fear; Algeria’s oil, gas earnings climb; Planned strike could cut Norwegian gas output

RIYADH: Oil prices fell on Monday, paring gains from the previous session, as fears of a global recession weighed on the market even as supply remains tight amid lower OPEC output, unrest in Libya and sanctions on Russia.

Brent crude futures for September slipped 36 cents, or 0.3 percent, to $111.27 a barrel at 0300 GMT, having jumped 2.4 percent on Friday.

US West Texas Intermediate crude futures for August delivery dropped 34 cents, or 0.3 percent, to $108.09 a barrel, after climbing 2.5 percent on Friday.

Algeria’s oil, gas earnings up 70 percent in first five months of 2022

Algeria’s oil and gas earnings are up 70 percent and have reached $21.5 billion in the five first months of 2022, compared to $12.6 billion in the same period last year, an executive at state oil and gas producer Sonatrach told reporters on Sunday.

Meanwhile, Sonatrach’s CEO, Tewfik Hakkar told reporters on Sunday that the country is negotiating with all its clients to review gas prices. 

Hakkar added that the review of the prices is not targeting a single company or country.

Norway strike could cut gas output by 13 percent next week

A planned strike next week by Norwegian energy sector workers could cut the country’s gas output by 292,000 barrels of oil equivalent per day, or 13 percent of output, employers’ group the Norwegian Oil and Gas Association said on Sunday.

Oil output could be cut by 130,000 barrels per day, NOG added, corresponding to around 6.5 percent of Norway’s production, according to a Reuters calculation.

The strike, in which workers are demanding wage hikes to compensate for rising inflation, comes at a time of high oil and gas prices, with supplies of natural gas to Europe particularly tight after Russian export cutbacks.

Members of the Lederne labor union, who make up around 15 percent of the country’s offshore petroleum workers, on Thursday voted down a proposed wage agreement that had been negotiated by companies and union leaders.

As a result, they plan to begin a strike at three offshore fields on July 5, and to add three more fields the following day unless a solution is found.

A seventh field, Tyrihans, will have to shut down because its output is processed from the nearby Kristin field, which will shut down.

The parties have been talking, but no progress has been made.

(With inputs from Reuters)