Spotlight: Lebanon's SMEs face great challenges: experts

Source: Xinhua| 2018-11-19 23:53:18|Editor: yan
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by Dana Halawi

BEIRUT, Nov. 19 (Xinhua) -- A study of the Lebanese Economy Ministry showed that nearly 97 percent of local businesses in Lebanon are startups or small and medium-sized enterprises (SMEs), which employ around half of the population.

Such entities are the pillar of Lebanese economy, the ministry said. However, the enterprises are now facing challenges in Lebanon.

One of the challenges is funding, according to Karim Nasrallah, general manager of the Lebanese Credit Insurer.

Although the Economy Ministry and the United Nations Development Program have provided the SMEs with funding, there is still a lot to be done in this regard, said Nasrallah.

Nasrallah said that some banks have offered the businesses with loans, but the high interest rate makes this way of funding unattractive.

"There should be funds given by international organizations such as International Finance Corporation at low interest rates," he said.

Nasrallah noted that another challenge is default in payments by the clients of the enterprises.

"SMEs today are witnessing more defaults in the payments of their clients due to the complicated economic situation in the country," he said.

He explained that since banks are giving high interest rates on deposits, clients intend to deposit their money rather than paying for the goods and services purchased from their suppliers.

Nassib Ghobril, economist and head of the economic research department at Byblos Bank, said that SMEs in Lebanon are facing bigger issues other than defaults in payments.

High operating costs, low competitiveness of the economy, unhealthy business environment and poor investment climate are among the issues and challenges facing SMEs in Lebanon.

"Lebanon ranks in the 80th place out of 140 countries on the World Economic Forum's Global Competitiveness Index, meaning that 67 percent of countries around the world have a more competitive economy than Lebanon," said Ghobril.

He attributed the low competitiveness of Lebanese economy to political uncertainty, corruption in the public sector, poor infrastructure, difficulties and cost of dealing with public administration, unclear economic and financial policies, high inflation rates and high tax rates.

Ghobril also said that 75 percent of countries have better business environment than Lebanon, citing the Ease of Doing Business survey for 2019 by World Bank.

The economist added that Lebanon does not even have an insolvency legal framework for businesses.

"When a company wants to terminate its work in Lebanon, it continues to pay taxes because it cannot terminate its work right away. It needs a lot of time," explained Ghobril.

"There is a draft law in the parliament for this purpose awaiting to be approved," he added.

Ghobril said that all of these problems facing SMEs are reflected in the fall of foreign direct investment (FDI) in Lebanon.

"Officials tend to attribute the drop in FDI to regional development, which is not the case," he said, noting that the main reason behind this drop is the structural weakness in the Lebanese economy.

FDI contribution to GDP in Lebanon dropped from 14 percent in 2008 to 11 percent in 2017, and the greenfield FDI is equivalent to only 0.2 percent of Lebanon's GDP, Ghobril added.