The Freedom to Start – An Insider’s Perspective

by Lana Al-Kazimi

Karim Kobeissi is currently the Senior Legal and Policy Advisor to the Minister of Telecommunications in Lebanon. Moreover, he is a managing partner at Kobeissi and Frangie, a law firm established in 2006 that specializes in various facets of law, such as finance, commercial, corporate, real estate, construction, insurance, telecommunications, and energy. Karim received his Bachelor’s of Science in Computer and Communications Engineering from the American University of Beirut before turning his focus to Law and gaining a degree in International Law from Saint Joseph University in Lebanon and his LL.M. from Harvard Law School in 2000. Over and above that, Karim used to play professional basketball for the Lebanese national team, is co-founder of the Civil Center for National Initiative in Lebanon, president of the Harvard Law School Association of Arabia, and teaches at both the graduate and undergraduate level at AUB, among other things.

A prime example of giving back to his country, Karim’s latest endeavor is the Beirut Digital District, which is the key focus of this interview. Karim was my Business Law professor while I was pursuing my Bachelor’s, and I am proud to say I am still learning from him!

What is your view on entrepreneurship in the MENA region?

Entrepreneurship is a mindset, and to allow it to flourish you need to have the necessary institutions in place

This is an interesting question. There are definitely a lot of talented people here. Countries in the MENA are well equipped in terms of education to produce entrepreneurs. However, there needs to be more emphasis on certain freedoms, such as the freedom of speech and assembly. Entrepreneurship is a mindset, and to allow it to flourish you need to have the necessary institutions in place. There is not one initiative that can take off without having the freedom to do so, just look at the examples in the USA. The beauty of Lebanon is that the freedom to aspire and create is here, but it needs to trickle over to other countries in the region. At the same time, the market itself needs to be positioned correctly, and not all countries in the MENA have this at the moment. For entrepreneurship to flourish, the market needs to be open and receptive, as well as ready to experiment. Ultimately, there is definitely a lot of potential for the region, but we are still working towards it.

Can you elaborate on the challenges facing entrepreneurship here?

To start with, there’s an overwhelming lack of market understanding. For example, you see a lot of assets sitting in peoples’ bank accounts, but even though it’s idle money, investors are very hesitant to support disruptive changes. The investors themselves are not ready yet to invest in certain ideas or people, and the inherent issue is that we don’t have enough knowledge of intellectual property rights and we don’t have enough protection when it comes to IP. For example, if I am an investor and you tell me to invest in land or real estate development, I’ll jump at the opportunity. However, if you tell me to invest in the next Google, I’ll ask for collateral. Why? There are very few investments in that area. We need better regulations for investors to be able to do things in an easier way. There’s also an issue with exit strategies – they don’t really exist at the moment. Venture capitalists and angel investors need to know there’s an exit; no one is going to stay in an idea forever. Another issue is that we don’t have a strong capital market, and we barely have proper financial options. On top of that is the challenge of infrastructure; countries in the MENA are not all on the same level with regards to their established infrastructure. In Lebanon the Ministry of Telecommunications, under Nicolas Sehnaoui, has been working very hard to enhance it. It’s going to take time though, it’s not yet fully established. Finally, there is the problem of fragmented markets in the MENA; people working in Jordan are just in Jordan and they cannot easily do business with someone in Egypt. Compare this to the US or Europe, where the exact opposite is true. In the end, there definitely quite a few challenges, but there’s also opportunity.

How did the idea of your initiative, Beirut Digital District, surface?

As a university professor, I cannot tell you how many of my ex-students I see leave the country. It’s not a healthy state of affairs

The whole thing started with a meeting between a French entrepreneur and the Minister [of Telecommunications]. He was telling the Minister how he has a company in Dubai with over 200 employees. Apparently 80% of those employees are Lebanese, and the man said, ‘I wish I could have my business in Lebanon – I’d have both a better quality of life and significant cost reductions’. The Minister told me about the conversation, and we got to thinking about how to make it happen; this is how the idea came up. As a university professor, I cannot tell you how many of my ex-students I see leave the country. It’s not a healthy state of affairs and the economic model here is very simple: We produce talent, export it, they send money home, get old and come back, educate their children, export their children…and the cycle continues.

So how does BDD work and how does it add value?

BDD is a project whereby the government is encouraging and facilitating the creation of digital zones, with private companies investing in buildings, equipment, and services. The way it’s being set up is like a campus, where all the players have easy access to each other and can meet, brainstorm, plan, and execute in the same area. There are many different layers to the project – part of it will be an incubator, just like Berytech. You’ll see the big companies as anchor tenants creating the critical mass to attract startups and provide entrepreneurs with ideas, advice, funds, etc. Another layer of BDD is the educational component; we want to have labs available [through university collaboration] so that entrepreneurs can develop products and machines in-house, and receive the necessary guidance to do so. A third layer is the financial aspect; attracting the private investors and the venture capitalists so that the entrepreneurs can get the necessary funding to take off. We also want to provide the correct infrastructure, such as 4G mobile technology and 24/7 satellite technology. We’re also focusing a great deal on incentives. For example, we are working with IDAL, the investment authority in Lebanon, to provide different players in BDD with some incentives and tax breaks in order to get a final product (the space and the needed services) at lower costs. It’s a cycle, and hopefully it will be a beneficial one for all parties involved. Of course, we’re also going to promote the BDD and other zones that we’re planning via exhibitions, road shows, and so forth. It’s just the beginning, but these are the issues we are tackling so that we can attract the right talent and put Lebanon on the map in terms of innovation and entrepreneurship.

What responsibilities do you think entrepreneurs have in making this initiative work?

The way we’re planning and hoping to implement it is such that the entrepreneur only needs to worry about his or her business. In a sense, we’re trying to provide the most innovation-friendly environment for the entrepreneurs to stay in the region and feel that they have a shot. Actually, not only that they have a shot, but also that the government is supporting their ideas. The present economic model that I discussed previously needs to change, and it’s our duty to make it happen. The responsibility of the entrepreneurs should be to spur change and creativity right here, so long as we facilitate it.

You decided to create this hub yet you yourself left the region for a while. What happened to make you do this now?

I am finally in a position where I can give back and I have the means to do so. One of the most interesting things I saw was when Lawrence Lessig, a Harvard professor and founding board member of Creative Commons, came to speak in Beirut in 2010. There were over 300 people who attended, and it fascinated me. It was at that point that I realized that we have the talent, but more importantly, that the talent could remain in Lebanon and in the region in general if the right opportunity presented itself. The creativity and freedoms we have make for a strong foundation. The thing is, however, the freedoms need to be in place all over the Middle East as well, because how can creativity flourish if we don’t nurture it? Another reason as to why now is, frankly, I received a lot of encouragement for my idea. Prime Minister Mikati was so supportive of the initiative that he would actually check in weekly and gives his directions. Minister Sehnaoui was involved in every step as well. It can easily be said, at this point in time, that our government is acting as an enabler of such initiatives, and that’s a key factor for success. We need to see more of this in the region.

I’m going to switch tracks a bit. As a lawyer, what are some issues you see entrepreneurs facing on the legal side?

The biggest issue here is that so many people have no knowledge about what a company is, how to start it, and how to establish it.

The biggest issue here is that so many people have no knowledge about what a company is, how to start it, and how to establish it. There’s a reason Business Law is part of the BA curriculum! Of course, entrepreneurs should be seeking and receiving advice when they get to that point, but that lack of understanding is there. A legal issue in Lebanon, specifically, is that there is no differentiation in the form of a company. The legal requirements at present are the same for a startup as they are for a bank. Another issue is the capital requirements – in the traditional view of business models, heavy capital investment is needed before a company can be established. But what if the entrepreneur doesn’t have the capital, only the idea? The capital requirement is a huge roadblock, and it needs to be looked into.

Which corporate structures are investor-friendly?

[Laughs] Am I in a classroom? Let me be brief here, there are two structures that are friendly. For entrepreneurs, the limited liability company (LLC) is definitely more favorable, but corporations are better suited for investors, because they include shares, options, and so on. The ideal structure would be to begin as an LLC and transform it into a corporation when investors begin to show interest. There, class dismissed!

Where are the best locations to incorporate, in your opinion? We see a lot of entrepreneurs favoring The British Virgin Islands…

There is a very big misunderstanding when it comes to this. For example, when a Lebanese company chooses the BVI, they still need to incorporate in the place where they operate. Otherwise, they’ll be taxed as a foreign company that is a resident in Lebanon, and the tax amounts are huge. It really depends on whether you’re selling a product or service, but in general the BVI is not always the right choice because of the tax resident consideration, in Lebanon or elsewhere, and being subject to higher costs.

Is there anything specific you want to tell aspiring entrepreneurs in the MENA region?

There are so many opportunities in the Middle East that need to be taken advantage of. I believe it’s time turn our ambitions inwards and remain in the region, and allow the MENA to grow along with all the entrepreneurs and entrepreneurs-to-be out there. In terms of Lebanon and the BDD, I just want to say that Beirut is a good destination and the BDD has a lot of potential. There are so many people who believe in this project; the government believes in it, the private investors believe in it, and many other players also believe in it. All we need now is for the entrepreneurs to believe in it, and allow it to be a success story. We need more projects and initiatives in the MENA, so hopefully this is just the beginning.

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