Lebanese venture capital firms face uncertain future as economy collapses

Lebanese venture capital firms face uncertain future as economy collapses
Lebanon's central bank has prevented all Lebanese startups from relocating abroad, thereby restricting their mobility and access to foreign funding. (AFP/file)
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Updated 23 July 2022

Lebanese venture capital firms face uncertain future as economy collapses

Lebanese venture capital firms face uncertain future as economy collapses
  • A number of startups have shut down their business in past 3 years, says CEO of Middle East Venture Partners

BEIRUT: With their money stuck in banks, the steep devaluation of the Lebanese lira, the de-facto suspension of Circular 331 and the rising inflation, investors and the Lebanese central bank Banque Du Liban have reached an impasse. 

“The first five years of Circular 331 initiative were great to the ecosystem, venture capitals included,” Walid Hanna, founder and CEO of Middle East Venture Partners, told Arab News. 

The circular released by BDL in late 2013 injected nearly $400 million into the entrepreneurial sector to build a Lebanese knowledge economy.

 “The initiative seamlessly empowered the ecosystem until the financial crisis occurred in 2019. Problems happened when venture capitals powered by the circular received capital calls from their banks and the BDL, either in Lebanese liras or US dollars,” said Hanna. 

A capital call is a legal right by which a fund manager asks the fund investors or shareholders to pay their pro-rata portion of their fund commitments. 

“The devaluation of the lira, which has lost more than 90 percent of its value, made the situation complicated and problematic,” added Hanna. 




Walid Hanna, founder and CEO of venture capital MEVP. (Supplied)

After local banks decided to withhold the savings of individuals and institutions at the onset of the financial crisis in October 2019, most VCs lost a significant amount of money. Still worse, the banks tethered their startups’ capital. 

Another problem was that the VCs received their capital calls — their due money from investors — in Lebanese dollars or “lollars.” 

A “lollar” is a US dollar stuck in the Lebanese banking system; in other words, a computer entry with no corresponding tangible currency.

The issue of the “lollar” made it impossible for startups to expand their businesses abroad. The fact that BDL required startups and VCs to not spend any “circular 331 money” outside of Lebanon didn’t help matters, explained Hanna.

“Therefore, it is a triple problem for the banks, the startups and BDL. This is where the decline started,” Hanna concluded. 

Stashed sums in the banks

When asked about how much money MEVP had stuck in local banks, Hanna replied that the Impact Fund, MEVP’s Lebanon-based fund, has $ 7 million in the banks. The company launched the fund in 2014 with an initial value of $70 million, most of which was invested in 29 Lebanese startups. 

“A number of these startups have already shut down their business in the past three years,” Hanna said dryly. 

HIGHLIGHTS

The circular released by Lebanese central bank in late 2013 injected nearly $400 million into the entrepreneurial sector to build a Lebanese knowledge economy.

Another problem was that the VCs received their capital calls — their due money from investors — in Lebanese dollars or ‘lollars.’

A ‘lollar’ is a US dollar stuck in the Lebanese banking system; in other words, a computer entry with no corresponding tangible currency.

While the VC relies on three other regional funds in the Middle East and North Africa to sustain itself and is doing quite well, the current situation in Lebanon has become a thorny problem for them, other investors and fund managers. 

“The primary thing that affected us was our lack of ability to disperse money to our startups, most of which are in their early stages,” Fawzi Rahal, managing director at Fla6Labs Beirut, told Arab News. “It also interrupted our capital call and fundraising process.”

Flat6Labs Beirut, which manages a $20 million fund, had plans to launch cycle 5 of its program, which involved investing in 8 to 10 startups. However, the bootcamp was interrupted when the crisis occurred in late 2019 and Rahal and his team could not complete the shortlisting of the startups into cycle 5. 

“Of course, later on, we realized that even had we done shortlisting, we wouldn’t have been able to continue with the investments because our capital call was delayed,” said Rahal.

BDL’s restrictions

BDL has prevented all Lebanese startups from relocating abroad, thereby restricting their mobility and access to foreign funding, which led many startups to go bankrupt and halt operations.

BDL also stated that it would not accept startup “exits” to be made in Lebanese liras or “lollars” but wants each startup to “exit” in fresh dollars i.e. to be bought by companies abroad with greenbacks.

“This is ridiculous,” Hanna says scathingly. “We have a country going backward with the GDP contracting in the past three years and reigning inflation, currency devaluation, brain drain and trauma from the Beirut port explosion. Why would anyone invest in Lebanon under such circumstances?”

However, according to a senior investment source who chose to stay anonymous, the central bank has a different point of view.  

As part of the then-functional Circular 331, BDL had given a lot of money to the banks, and the banks had invested this money as shareholders or limited partners in the VCs. More importantly, they plowed in the money when the exchange rate for $1 was 1,500 Lebanese liras. Today, it is 25,300 Lebanese liras.

This is one of the reasons why BDL is not accepting startup exits in “lollars” or Lebanese liras and demanding fresh dollars instead.

“Basically, the BDL is asking if we are cheating them of its share. Because that’s how it looks like [to them],” an informed source told Arab News. 




People walk past a money exchange company in the Lebanese capital Beirut. (AFP)

He added that to make matters worse, there is no legal difference today between a “lollar” and a dollar in Lebanon. 

The “lollar” stuck in banks is legally the same as a fresh dollar “therefore, you cannot take someone to court and ask them to pay your dues in fresh dollars,” the source said. 

“And because the law does not differentiate between the two, the law cannot protect you or BDL in this case.”

Breaking the impasse

 “I think it is about aligning our interests as fund managers, BDL, the banks and the portfolio companies,” another senior banking source said to Arab News. 

“The fund managers and the bank shareholders are aligned in that they both want the best price possible for their exits.”

The source continued to say that, in the absence of follow-on investments and with most funds reaching the end of their five-year investment period, a realistic approach is needed regarding the best exit under the current challenging circumstances. 

“The ecosystem requires an update to the current 331 regulatory framework that considers the new challenges, allowing us to escape this deadlock.”

Our source reminded us that “the positive impact of the 331 circular offsets by far the challenges we are facing today.” 

Arab News contacted other venture capitals for this piece, such as Berytech, BY Venture Partners and Cedar Mundi but received no response.


Qatar reviewing London investments after advert ban: Report

Qatar reviewing London investments after advert ban: Report
Updated 26 November 2022

Qatar reviewing London investments after advert ban: Report

Qatar reviewing London investments after advert ban: Report
  • City’s transport authority bans adverts by Gulf state reportedly due to human rights concerns
  • Decision ‘interpreted as message that Qatari business not welcome in London,’ source tells FT

LONDON: Qatar is reviewing its London investments following a decision by the city’s transport authority to ban Qatari adverts from its bus, taxi, train and underground network, the Financial Times reported.

Transport for London’s decision is reportedly due to concerns about the World Cup host’s human rights record.

A person involved with the review told the FT that the Gulf state is “reviewing current and future” London investments and “considering investment opportunities in other UK cities.”

The source added that the ban has been “interpreted as a message that Qatari business is not welcome in London.”

Through its sovereign wealth fund, Qatar is now one of the biggest investors in London, and owns nearly 2.1 million sq. meters of property in the UK.

Among its London assets are the Harrods department store; Britain’s tallest building, The Shard, built with £2 billion ($2.4 billion) of Qatari investment; the Savoy and Grosvenor House hotels; co-owning Canary Wharf; and a 20 percent stake in Heathrow Airport.

In May, Qatar pledged to invest £10 billion in the UK over the next five years, including in the technology, healthcare, infrastructure and clean energy sectors.


Saudi Arabia, Morocco sign deal to enhance cooperation in tourism

Saudi Arabia, Morocco sign deal to enhance cooperation in tourism
Updated 26 November 2022

Saudi Arabia, Morocco sign deal to enhance cooperation in tourism

Saudi Arabia, Morocco sign deal to enhance cooperation in tourism

RIYADH: Saudi Arabia and Morocco signed a memorandum of understanding on Friday to encourage and develop cooperation in tourism, and coordinate efforts to achieve the sustainable development of the industry in both countries, the Saudi Press Agency reported.

The memorandum was signed in the presence of Saudi Minister of Tourism Ahmed Al-Khateeb, and Fatima-Zahra Ammor, the Moroccan minister of tourism, handicrafts, and social and solidarity economy, on the sidelines of the 117th session of the executive council meeting of the UN World Tourism Organization.

Al-Khateeb said: “Saudi Arabia and Morocco enjoy a common commitment to protecting the rich heritage sites and natural marine, mountainous and desert areas in both countries, in addition to their keenness to give priority to youth in their development plans.

“The issue of sustainability occupies an important place in Saudi tourism ambitions, so cooperation with partners who have a similar vision, like Morocco, helps to strengthen the sector in our region and the world as a whole, and contributes to consolidating the sustainability, flexibility, and inclusiveness of the tourism sector for the benefit of people and societies.”

The Moroccan tourism minister said: “The memorandum reflects the strong relations between the two countries and the common vision toward strengthening partnership and raising prospects for cooperation in the tourism sector.

“It will lead to more joint initiatives and the exchange of experiences and best practices, allowing the two countries to develop their capabilities in tourism.”

The agreement will also help to support an increase in training and knowledge-sharing opportunities, and provide new openings for investment.

Saudi Arabia is currently one of Morocco’s largest trading partners in the Arab world. In 2020 the Kingdom invested $26.6 million in its real estate, tourism, and agricultural sectors.


Flurry of R&D cooperation deals signed as Sustainable Partnerships Conference ends

Flurry of R&D cooperation deals signed as Sustainable Partnerships Conference ends
Updated 25 November 2022

Flurry of R&D cooperation deals signed as Sustainable Partnerships Conference ends

Flurry of R&D cooperation deals signed as Sustainable Partnerships Conference ends

RIYADH: More than 50 cooperation and research partnership agreements were signed between universities and various sectors at the Sustainable Partnerships Conference held in Riyadh.

The two-day conference, held under the theme “Research and Innovation Towards A Prosperous Economy” was part of an initiative spearheaded by the Ministry of Education to foster ties between Saudi universities and the industrial and development sectors.

The event hosted 150 ministers, decision-makers, local and international leaders — of which 100 were from the industrial and development sector — and 40 Saudi universities and colleges.

Some 1,000 research products and industrial models for universities were presented, according to the Saudi Press Agency.

On the sidelines of the conference, 40 training workshops specialized in research and innovation were held, along with 25 dialogue sessions, in addition to a presentation of 220 scientific inventions through the “Promising Technologies and Innovations” exhibition for the country’s citizens and graduates of Saudi universities.

The conference also saw the Saudi Minister of Investment Khalid Al-Falih announce a new strategy for research and development would soon be launched in the Kingdom.

Saudi Arabia’s Minister of Industry and minimal resources Bandar Al-Khorayef also addressed the forum, revealing that a budget for research and development will be allocated soon. 

Al-Khorayef pointed out that the innovation strategy will enhance Saudi Arabia’s exports, and will contribute to national gross domestic production. 

According to SPA, the Ministry of Education sought to use the conference — the first of its kind in the Kingdom — to not only strengthen the links between the higher education sector and industry, but also to identify research and innovation needs of national priority and provide effective solutions to them.

The event was held with a growing focus on Saudi Arabia’s R&D sector, as the Kingdom seeks to diversify its economy away from oil in keeping with the Vision 2030 program.

Saudi Arabia is aiming to become one of the top 10 countries in the Global Competitive Index by the end of this decade, increasing from 24th in 2022.


Food delivery orders rise as MENA continues embracing digital economy: Report

Food delivery orders rise as MENA continues embracing digital economy: Report
Updated 25 November 2022

Food delivery orders rise as MENA continues embracing digital economy: Report

Food delivery orders rise as MENA continues embracing digital economy: Report

RIYADH: The appetite for food delivery in the Middle East and North Africa region has continued to grow in 2022 after the pandemic kick-started demand for the services in the region, according to a new report.

According to data in ‘Digital Transformation in MENA 2022’, produced by cloud-based payments platform Checkout.com, over half  — 53 percent — of MENA consumers purchased food online in the past year, with 42 percent consumers saying they are buying food online more frequently this year than in 2021. 

The online food ordering sector has numerous moving parts that need to come together in each transaction, from the restaurants to drivers and aggregators to payment providers. Close collaboration is therefore vital for the many stakeholders, noted Ramzi Alqrainy, chief technology officer at The Chefz, a leading Saudi-based food delivery app. 

“Collaboration allows us to innovate effectively and to reach and serve society in its most inclusive sense. These days, one provider doesn’t need to manage all aspects of a consumer experience from A to Z. We all need to work together. This is the death of ownership,” said Alqrainy. 

The findings fit the trend of the region increasingly embracing digital technology.

Data from the report shows that 91 percent of consumers across MENA bought products online in the past year, with fashion and clothing making up 46 percent of all online purchases in the region. A fifth of consumers across the region purchased retail products online more frequently than last year, with 33 percent shopping more often for fashion and clothing online.  

Paul Carey, executive vice president of Cards & Payments at Al-Futtaim Group said the figures point to a rapidly developing digital ecosystem that allows government agencies, established companies and start-ups to flourish.

“This is particularly evident in payments, where governments have set up regulatory sandbox infrastructure and made it easier for businesses in the region with more flexible visa options and commercial licensing,” he added. 

The survey shows that remittance apps remain the most widely utilized form of fintech in MENA, but as other products increase, so does adoption. 

The report found that 82 percent of consumers in MENA use some form of fintech app in 2022, up from 76 percent in 2021. 

Innovation has been underpinned by solutions such as Visa’s Account Funding Transactions which pull funds from an account and for use on a prepaid card, top up a wallet, or fund a person-to-person money transfer. 

“The secure, reliable, and fast movement of digital money between individuals, businesses and governments is the engine powering today’s global economy”, said Saeeda Jaffar, senior vice President and group country manager for the Gulf Cooperation Council region at Visa.

The findings come from the second phase of Checkout.com’s Digital Transformation in MENA 2022 report. 

Part one, which was released in October, included insights from 15,000 consumers in the region, while the latest publication contains interviews with business leaders in the digital economy.


ACWA Power expands Indonesian portfolio thanks to partnership with state electricity firm

ACWA Power expands Indonesian portfolio thanks to partnership with state electricity firm
Updated 25 November 2022

ACWA Power expands Indonesian portfolio thanks to partnership with state electricity firm

ACWA Power expands Indonesian portfolio thanks to partnership with state electricity firm

RIYADH: Saudi energy firm ACWA Power will work with Indonesia’s state-owned electricity provider to develop battery storage for renewable energy facilities and green hydrogen development in the Asian country.

The firm has announced it signed a Memorandum of Understanding with PT Perusahaan Listrik Negara — known as PLN — at the B20/G20 Summit in Bali and coincided with the state visit of thw Kingdom’s Crown Prince Mohammed Bin Salman to Indonesia.

According to the terms of the MoU, ACWA Power and PLN will jointly investigate several avenues of partnership, including a project study for pump storage for a 600-800MW hydroelectricity facility; investigating the possibility of a 4GW battery energy storage system and the development of a green hydrogen/ammonia facility that is powered by hydroelectricity.  

Paddy Padmanathan, CEO and vice chairman of ACWA Power, said: “As a nation that is fast tracking economic growth, Indonesia is focussed on advancing sustainable development through strategic partnerships. 

“With the signing of this extensive renewable energy and green hydrogen MoU with PT Perusahaan Listrik Negara, we are delighted to extend our collaboration and strengthen our presence in the country. 

“We look forward to partnering with the government in ensuring that its renewable energy goals are realized.”

Indonesia’s National General Energy Plan states that 23 percent of the country’s power should be generated via renewable energy sources by 2025. 

PLN is Indonesia’s sole buyer of electricity produced by independent power projects, including power produced from renewable energy projects. 

As of last year, the enterprise owns or operates nearly two-thirds of Indonesia’s power generation industry, which is approximately 65.5GW of electricity.

Darmawan Prasodjo, president director and CEO of PLN, said: “Dealing with climate change is not only a challenge to preserve the environment, but also a business opportunity. 

“In the future, there will be many PLN agendas in the energy transition that require the collaboration of all parties. ACWA Power and PLN have built a very strong, long-term and productive partnership.”

The agreement comes after ACWA Power and Indonesian energy firm Pertamina New & Renewable Energy signed a joint development agreement on core utilities supplies to Tuban Grass Root Refinery and Petrochemical Project in Java, eastern Indonesia.

This agreement was also signed on the sidelines of the G20 summit.