J.15 Lebanon Enterprise Development Year 2 Annual Report.pdf

2nd ANNUAL REPORT, FY19

Lebanon Enterprise Development Project (LED)

October 2018 – September 2019

November 4, 2019

2 | LED 2nd ANNUAL REPORT

This report was prepared for the United States Agency for International Development (USAID) pursuant to Contract No. AID-268-C-17-00001, Lebanon Enterprise Development Project.

Implemented by:

CHEMONICS INTERNATIONAL INC.

1717 H ST. NW

WASHINGTON, DC 20006

Telephone: (202) 955-3300

DISCLAIMER

This report is made possible with the support of the American People through the United States Agency for International Development (USAID). The contents of this report are the sole responsibility of Chemonics International, Inc. and do not necessarily reflect the view of USAID or the United States Government.

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CONTENTS

CONTENTS

A. INTRODUCTION AND CONTEXT

A1. LED PURPOSE AND KEY PERFORMANCE TARGETS

A2. THE IMPERATIVE OF EMPLOYMENT CREATION

A3. LED DEVELOPMENT HYPOTHESIS, PURPOSE, AND OBJECTIVES

A4. LINKAGE WITH USAID/LEBANON ECONOMIC GROWTH STRATEGY

A4. THE LED TEAM AND STAFFING PLAN

B. KEY ACCOMPLISHMENTS AND HIGHLIGHTS

C. PROGRESS ON TECHNICAL IMPLEMENTATION

C1. OBJECTIVE 1: CREATE JOBS BY INCREASING THE COMPETITIVENESS AND ENHANCING GROWTH OF

LEBANESE CLIENT FIRMS

C1A. REFLECTIONS ON LED’S STRATEGY FOR JOB CREATION

C1B. REVIEW OF TRACK 1 INTERVENTIONS AND PROGRESS

C1C. REVIEW OF TRACK 2 PROGRESS

C2. OBJECTIVE 2: IMPROVE LEBANON’S BUSINESS ENABLING ENVIRONMENT (BEE)

C2A. CONTEXT AND BACKGROUND TO LED’S BEE INTERVENTIONS

C2B. LED ACTIONS TO ADDRESS TOURISM INDUSTRY BEE ISSUES

C2C. LED ACTIONS TO ADDRESS “TRADITIONAL” BEE ISSUES

C3. OBJECTIVE 3: COMMUNICATE RESULTS THROUGH OUTREACH AND SHARE PROJECT KNOWLEDGE WITH

THE PUBLIC AND PRIVATE SECTOR

C3A. REVIEW OF LED’S COMMUNICATIONS AND OUTREACH FOR OBJECTIVE 1

C3B. REVIEW OF LED’S COMMUNICATIONS AND OUTREACH FOR OBJECTIVE 2

D. GRANTS UNDER CONTRACT

E. MONITORING, EVALUATION, AND LEARNING

E1. MONITORING

E2. EVALUATION

E3. LEARNING

ANNEX A

PERFORMANCE INDICATOR TABLE

ANNEX B

STATISTICAL NOTES ON LED RESULTS—JOBS, INCREMENTAL SALES, AND INVESTMENT

ANNEX C

QUARTERLY FINANCIAL REPORT

ANNEX D

LEVEL OF EFFORT TRACKER

ANNEX E

LED STAFFING

ANNEX F

ENTERPRISE ENGAGEMENT TABLE

ANNEX G

PROJECT HIGHLIGHTS— CLIENT FIRM STORIES & EVENTS

ANNEX H

TOURISM ASSESSMENT

ANNEX I

BUSINESS ENABLING ENVIRONMENT ASSESSMENT

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A. INTRODUCTION AND CONTEXT

Chemonics International, Inc. is pleased to submit the second annual report to the U.S. Agency for International Development (USAID) Mission in Lebanon for the Lebanon Enterprise Development Project (hereinafter “the project” or “LED”), Contract No. AID-268-C-17-00001. The LED contract has a three-year based period, i.e. U.S. Fiscal Year 2018 (FY18) through FY20, with a two-year option, FY21-22. Currently, only the base period of the contract has been authorized by USAID.

This annual report covers FY19, i.e. October 1, 2018 through September 30, 2019. LED activities and interventions during this period were based on a revised first-year annual work plan, dated and approved on August 2, 2018, that was valid through November 30, 2018 and a second-year work plan, covering December 2018 through September 2019, that was approved on February 5, 2019.

In Sections B and C, Chemonics reports on progress made during implementation of the second-year annual work plan. In Annex A, we present LED’s performance in relation to the indicators and targets that are contained in the Monitoring, Evaluation and Learning (MEL) Plan. Annex B contains a statistical analysis of selected LED results. Annex C contains the quarterly financial report. Annex D shows the level of effort (LOE) tracker. Annex E shows LED’s staffing. Annex F lists assisted firms.

Annexes G, H, and I contain active links to LED success stories, the project’s tourism sector assessment, and an assessment of the business enabling environment respectively.

A1. LED PURPOSE AND KEY PERFORMANCE TARGETS

LED contributes to Lebanon’s social and economic stability and transformation—and thereby to its journey to self-reliance—by acting as a catalyst for the creation of new jobs—increased employment opportunities—for Lebanese citizens. As such, LED directly addresses one of Lebanon’s most pressing development challenges, high unemployment, which is estimated to stand at 15-25 percent1.

This problem is particularly acute among Lebanese youth, which may be as high as 35 percent.

A2. THE IMPERATIVE OF EMPLOYMENT CREATION

Lebanon is a country in transition, in a region with extremely complex geopolitical challenges. The need for social and economic stability is high. USAID is committed to supporting both.

During the past several years—for longer than LED has been operating—Lebanon has experienced economic, financial and political crises that have shaken investor (domestic and foreign) confidence and that of ordinary Lebanese citizens. This frustration came to a head in mid-October 2019. As of the writing of this report, Lebanon is experiencing its largest and most energetic protests in 15 years, fueled by citizens’ anger over the country’s long-standing social and economic problems and perceived systemic corruption within the Government and ruling class.

Not long before these protests erupted, Lebanon’s economic situation was described by the reputable local newspaper, The Daily Star, as terrible. Economic growth from 2011-2018 averaged only 1.5 percent2 and the IMF estimates that growth in 2018 was only 0.3 percent3. In June 2019, Lebanon’s central bank governor revealed that during the first half of the year the country achieved zero percent growth4. This is far below the 4 percent growth that the Institute of International Finance estimates Lebanon needs to absorb new entrants into the labor force without further mushrooming of the already high unemployment rate5. In addition, Lebanon continues to run twin deficits with an unsustainable debt ratio, and the private sector suffers from lack of confidence in the

1 Lebanon Economic Vision 2018-2022, McKinsey Co., October 2018, page 51.

2 Press Release, “Fitch Downgrades Lebanon to CCC”, Fitch Ratings, August 23, 2019, page 3.

3 Staff Concluding Statement of the 2019 Article IV Mission, IMF, July 2, 2019, page 2.

4 News article, “Lebanon has 0 pct growth in 2019…”, The Daily Star, June 25, 2019.

5 SGBL EcoNews, No. 73, SGBL Bank, October 2019, page 6.

6 | LED 2nd ANNUAL REPORT prospects of the economy, which has depressed growth, investment, and job creation. While the formation of a government of national unity in January 2019 (nine months after national elections) and passage of an austerity budget in July were positive developments, Lebanon’s outlook depended on implementation of the budget and prioritized reforms in 2019-2020. Unfortunately, little progress was made in this regard causing Fitch Ratings to downgrade Lebanon’s credit rating to ‘CCC’ in August, and renewing fears over the exchange rate and the possibility of a currency devaluation.

These factors and more helped to set the stage for the current mass protests.

At present, the pathway forward is uncertain. Implementation of newly announced reforms could help calm citizens’ concerns and eventually shore up confidence and encourage CEDRE donor disbursements. However, there are significant gaps between what citizens are demanding and what the Government is offering, and the interests of Lebanon’s varied political parties are also unclear.

Thus, the solution to Lebanon’s present social, economic and political crisis is still in question.

However, with such an outlook, it is easy to understand that Lebanon’s continued high un- and under-employment will put added stress on the country’s prospects for stability and economic growth. Moreover, it adds emphasis to USAID’s view, as stated in the LED contract, that “there is little doubt that employment generation constitutes a major development challenge for Lebanon.”

To contribute to Lebanon’s peace and stability, Lebanese citizens need wage-based employment, especially the youth, university graduates, and women who experience chronic unemployment.

Accordingly, LED remains an important and timely activity, even if the project is working in an environment where it is increasingly difficult to create and sustain employment.

A3. LED DEVELOPMENT HYPOTHESIS, PURPOSE, AND OBJECTIVES

Most observers recognize that in Lebanon, small and medium sized enterprises (SMEs) are a logical place to look for economic dynamism and employment generation. They also recognize the many problems—both firm-specific and others related to the business environment—that make business expansion and employment creation difficult.

LED’s development hypothesis is that increased private sector employment will contribute to stability and economic growth in Lebanon, recognizing that the private sector creates nine out of ten jobs in the developing world6. The theory of change is that private sector jobs have not kept pace with the growing numbers of Lebanese looking for work because of constraints to growth for private enterprises. Firms will expand their workforce when there is a reasonable expectation that sales will increase, and when more employees are needed to sustain this sales growth.

Accordingly, LED’s purpose is to increase employment opportunities (jobs) for Lebanese citizens by working per the project’s three objectives:

1. Create jobs by increasing the competitiveness and enhancing growth of Lebanese client firms

2. Improve Lebanon’s business enabling environment

3. Communicate results and share project knowledge with the public and private sectors

To achieve this, the LED team uses a problem-solving market-led approach, rooted in the buyer-led approach (BLA) as defined in the LED contract and in the book, We Do Know How – A Buyer-Led Approach to Creating Jobs for the Poor, by James Riordan, to partner with private sector actors to apply a market-led approach to identify clear business growth opportunities—distinct opportunities to link local producers to new markets or to strengthen and expand existing market connections between producers and consumers—that will increase exports or domestic sales and create jobs. LED then works with these actors to define problems or constraints that may limit or inhibit this potential.

LED’s primary intervention is to assist enterprises—referred to as “client enterprise/s”, “client firm/s”, or simply “client/s”—to understand, or better understand, market or buyer requirements;

6 Private Sector Engagement Policy, USAID, page 4.

LED 2nd ANNUAL REPORT | 7 to diagnose the key constraints that stand in the way of boosting sales to these market/s or buyer/s;

and to find solutions to these problems. LED tailors its support to the needs of its partners. LED uses a problem-solving approach to address constraints which involve improving productivity through improved businesses practices and technology, increasing business and trade linkages, and improving access to markets. In all cases, LED facilitates discussions between private sector partners with growth and employment potential and qualified consultants and consulting firms concerning any services that might be needed to tackle the identified constraints. LED acts as an honest broker to foster trust between the parties and lower the perceived risk of consultancies by sharing their cost with beneficiary organizations. This helps to develop the market for business consulting services.

While LED’s assistance is flexible, given the predominance of small and medium sized family owned and operated businesses in Lebanon, the project has identified several frequently needed and high-impact cross-cutting interventions that improve access to markets—export and domestic—and stimulate job creation, often within the context of helping traditional family businesses to upgrade and transform their operations. Accordingly, most of LED’s interventions fall within one or more of the following technical assistance tracks and are usually focused on increasing exports.

• Improving quality assurance and quality management practices

• Strengthening and restructuring human resource structures and practices

• Building the capacity of successful local brands or business models to expand by franchising

• Integrating and upgrading technology to support digital transformation

• Workforce development and job-matching and placement

Within this framework of technical assistance, illustrated in Exhibit I below, LED directs its support principally to four industries where Lebanon is competitive, where there is strong potential for growth, where new employment prospects are high, and that Lebanon has prioritized. These sectors include: agro-industry; industry and manufacturing; hospitality and tourism; and knowledge economy.

Exhibit 1: LED Technical Assistance Framework

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A4. LINKAGE WITH USAID/LEBANON ECONOMIC GROWTH STRATEGY

LED is an important project of USAID/Lebanon’s Economic Growth (EG) Office. Its rationale is anchored in the USAID/Lebanon Mission’s Country Development Cooperation Strategy (CDCS) for 2014-18. LED supports Development Objective (DO) 2, “inclusive economic growth enhanced”, and Intermediate Result (IR) 2.1, “increased private sector competitiveness”.

While according to the LED contract, IR 2.1 has three sub-IRs, Sub-IR 2.1.1, “strengthened business association services and policy advocacy”, Sub-IR 2.1.2, “increased business and trade linkages”, and Sub-IR 2.1.3, “increased workforce development linked to job opportunities”, this structure was replaced to align with the new Private Sector Development (PSD) Project Monitoring, Evaluation and Learning (MEL) Plan that USAID finalized in mid-FY18. The PSD project goal is, “increased productive employment in Lebanon through direct support for the private sector.”

In the PSD MEL Plan, IR 2.1, referred to as PSD Result 1, is underpinned by three new IRs: IR 1.1, “increased domestic and export sales”, IR 1.2, “increased workforce development”, and IR 1.3, “improved business enabling environment”. LED—an activity-level intervention—contributes significantly towards the achievement of these results as shown in the LED MEL plan and summarized in LED’s Results Framework.

LED’s goal—increased employment opportunities for Lebanese citizens—aligns fully with the PSD project goal, and LED is a principal mechanism for the achievement of PSD Result 1. LED’s three contract-specified objectives are easily aligned with the three PSD project IRs. Achievement of LED Objective 1 will be realized by helping the private sector to boost domestic and export sales (PSD IR 1.2) and through increased workforce development (PSD IR 1.3), which will improve the quality and quantity of the labor force. For its part, LED Objective 2 is already fully aligned with PSD IR 1.3—an improved business enabling environment. LED Objective 3—communications and outreach—is a cross-cutting goal of the PSD project. In short, while the contract-specified objectives for LED are presented slightly differently than those of the PSD Project, in fact LED is fully aligned with PSD.

Exhibit 2: LED Coverage of Lebanon

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A4. THE LED TEAM AND STAFFING PLAN

Working to deliver these expected results is the LED team—comprised of Chemonics staff and staff from LED’s two local business promotion partners (subcontractors) Berytech Foundation and the Business Incubation Association of Tripoli (BIAT). The principle of working with and through local partners in targeted geographic regions is a pillar of LED’s approach. Berytech provides coverage for Bekaa, Beirut, Mount Lebanon, and South Lebanon, while BIAT covers North Lebanon. Together, they provide LED with personnel, notably 8 full time business advisors (BA) who are based throughout the country as shown in Exhibit 2. LED’s BAs serve as the frontline personnel to identify, profile and recommend potential client enterprises to LED. By partnering with Berytech and BIAT, LED’s problem-solving market-led approach to enterprise development and job creation is being embedded into the local business support ecosystem.

B. KEY ACCOMPLISHMENTS AND HIGHLIGHTS

A list of key accomplishments, highlights, and measurable results from this period follows. These accomplishments occurred during a year in which the social and economic environment in Lebanon was in constant decline; economic growth stagnated, government and consumer spending slowed, foreign inflows declined, concerns rose over the health of the country’s financial system and the stability of its currency, and key reforms—vital to unlocking donors’ commitments under CEDRE— were not implemented. In all, these events created an environment of concern and uncertainty within the business community and culminated in the ongoing popular protest movement.

Nevertheless, LED was able to make significant progress during the year as summarized below.

1. LED ended the year with 110 active client firms for FY19, bringing the two-year total to 135 active clients spread across the country, as shown in Exhibit 3 on page

12. LED closed deals with 112 firms, but 2 deals were cancelled before technical assistance (TA) began. More details about LED deals are shown in Exhibit 4 on page 11, in Annex F that lists all active LED client firms, and in Annex G that includes a link to stories about these client firms and other LED activities and interventions.

These 110 firms committed (pledged) to create 2,540 new jobs over a two-year period, which brings the two-year total committed jobs to 2,785. (Year 1 client firms pledged 318 new jobs.)

By year-end, TA had started for 117 firms of the 135 active client firms. (In Year 1, LED closed deals with 26 firms, but ended the year with 25 clients due to one cancellation.)

LED considers a deal to be closed when we have signed a memorandum of understanding (MOU), or client growth plan, with a client firm. MOUs are signed only after LED has received two or three approvals from project’s Contracting Officer Representative (COR)—deal pre-approval, deal final approval, and short-term consultant technical approval when applicable. This process is discussed further in Section C1b. Firms are counted as assisted firms only after LED receives confirmation from the company and service provider that TA has been initiated.

2. LED’s deal closure rate steadily increased during the year. In the first quarter, LED closed 19 deals; then in Q2, Q3, and Q4 the project closed 23, 31, and 39 deals respectively.

This shows the improving efficiency and effectiveness of LED’s personnel and processes.

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3. LED pre-approved deals with 121 firms during the year but deals with 9 firms were cancelled—2 after signing an MOU. In Year 1, LED pre-approved 44 deals and had 9 cancelled—1 after signing an MOU. In two years, LED has pre-approved 165 firms and by year-end had signed MOUs with 135 of them and started TA for 117.

4. LED assistance by year-end had resulted in 94 client firms creating 1,321 new jobs. This is 108% of these firms’ first-year committed jobs and 73% of their two-year forecast. Also, 72% of these jobs were created within 6 months from signing the MOU. In terms of full time equivalent (FTE) jobs, these new jobs equate to 515 FTEs. (An FTE is the equivalent of one year of work, so there is an inherent time lag between when a job begins—when it is created—and when an FTE can be counted. Most jobs created under LED are full-time; so, before counting an FTE, one year must pass.) More analysis about the jobs created to-date is presented in Annex B.

5. LED assistance by year-end had resulted in $36.30 million in leveraged investment. This was reported by 74 firms. It is 191% above LED’s life-of-project (LOP) target for the base period and 209% and 155% of the forecasted one-year and two-year leveraged investment. More analysis about the leveraged investment to-date is presented in Annex B.

6. LED assistance by year-end had resulted in $16.44 million in incremental sales by 35 of 38 firms that were assisted in 2018, i.e. the Year 1 cohort. (LED uses official Lebanese financial data—calendar year—provided by assisted firms to calculate incremental sales. This calculation was made by comparing 2017 sales—baseline year—to sales in 2018.) Reported incremental sales are 120% of LED’s Year 1 target and 62% of forecasted first-year incremental sales for reporting firms.

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Exhibit 3: LED Deal Pipeline

12 | LED 2nd ANNUAL REPORT

Exhibit 4: Geographic Distribution of LED Interventions

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Incremental sales for the Year 2 cohort, which includes the 38 Year 1 firms and an estimated 120 Year 2 firms, i.e. firms assisted in 2019, will be available during FY20/Q2, after companies close their financial accounts for 2019. If the incremental sales to forecast ratio is consistent with results to-date, LED will meet and exceed its Year 2 target.

However, the economic situation in Lebanon has deteriorated throughout 2019, and presently the country is paralyzed by protests, currency shortages, etc. These events will negatively impact the financial results of LED client firms. More analysis about the incremental sales to-date is presented in Annex B.

7. LED significantly increased the amount of leveraged funding during the year. Unique among enterprise development projects in Lebanon, LED requires that client firms share the cost of TA—the cost of external consultants or consulting firms. By year-end, LED had leveraged roughly $765,000 in direct costs through client cost sharing, which is roughly 36% of the total direct cost of TA. At the end of Year 1, LED’s direct cost share stood at 71%, but dropped to 64% over the past year. In addition, during the year, LED leveraged the equivalent of $75,000 in direct costs for work in the tourism sector, discussed in Section C2b, by securing pro-bono services from several leading international tourism experts. The cost savings to LED would be significantly higher if standard indirect costs were also counted.

8. LED continued to engage local private sector partners during project implementation as a pathway to sustainability and self-reliance. LED continued its partnerships with Berytech and BIAT for the project’s market-led approach to job creation. By partnering with local organizations on the core component, LED is ensuring this approach is embedded into the local business support ecosystem. In addition, LED continued to engage mainly local consultants to provide TA to LED client enterprises. To-date, LED has engaged 39 individual consultants and 24 organizations;

only one and two service providers respectively were not Lebanese. By using local service providers and requiring client firms to cost share for their services as noted above, LED is strengthening the market for local consulting services—creating and strengthening linkages between local businesses and local consultants and making it easier and more likely that these relationships will continue after LED ends.

9. LED introduced itself to approximately 1,000 individuals at 15 formal events and forums organized by LED or to which LED was invited. LED organized 13 outreach events to create awareness about the project; roughly 880 people participated. LED events covered all regions of the country—Bekaa, Beirut and Mount Lebanon, North Lebanon, and South Lebanon. LED organized one flagship event—a tourism seminar in Beirut—and 12 business-focused outreach events (“LED Talks”) in Beirut, Saida, Tripoli, and Zahle. In addition, LED participated in 2 events in Beirut (Horeca) and Tripoli (Dar Al Ali Association) that reached another 120 people with information about LED. More details are in Section C3.

10. LED reached to more than 388,000 people through social media. By year-end, LED’s

Facebook page had 3,783 followers and its LinkedIn and Instagram pages had more than 1,000 followers each. In addition, roughly 124 firms contacted LED through our online application that

Fast Forward: October 2019

During October 2019, LED closed 10 more deals (145 total to-date) and would have closed 8 more if not for the two weeks of civil unrest. In addition, LED pre-approved 23 new deals with companies pledging to create 381 new jobs, bringing the number of committed jobs to 3,166.

14 | LED 2nd ANNUAL REPORT has been publicized through our social media posts resulting in a 165% increase from last year’s online applications and another 50 firms or individuals have reached out to LED directly through the project’s Facebook page, direct emails or phone calls. More details are in Section C1b.

11. LED created a series of 5 video success stories entitled “Pathways to Prosperity” to capture the client firms’ stories, demonstrate impact, and show how the project’s technical assistance helped them grow and generate job opportunities. These personal stories and testimonials are creating emotional connection with the viewers. The “Pathways to Prosperity” series also aims to promote the businesses of the client firms and the effectiveness of LED’s support for private sector growth in Lebanon. More details are in Section C1b.

C. PROGRESS ON TECHNICAL IMPLEMENTATION

C1. OBJECTIVE 1: CREATE JOBS BY INCREASING THE COMPETITIVENESS AND

ENHANCING GROWTH OF LEBANESE CLIENT FIRMS

C1a. REFLECTIONS ON LED’S STRATEGY FOR JOB CREATION

For Year 2, LED envisioned using a two-track approach for job creation in Lebanon—a firm level track, following the market- or buy-led approach detailed in Section A3, where LED planned to put most of the emphasis and investment most of its resources, and a sector-level track where LED would look to support groups of firms that needed help in cross-cutting areas, e.g. quality management or food safety certification, franchising, family businesses restructuring, and other areas.

C1b. REVIEW OF TRACK 1 INTERVENTIONS AND PROGRESS

As planned, LED placed the greatest emphasis on track one activities during the past year. Following a market- or buyer-led approach, as shown below, LED identified and signed MOUs with 110 new client firms that pledged to create 2,227 new jobs. As such, we exceeded our plan to identify deals that would result in at least 2,200 jobs but fell short of our goal to sign 144 new MOUs.

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An important aspect of our approach was the process of identifying and engaging firms for LED support—firms that would yield a high return in terms of jobs, sales, and leveraged investment.

Enterprise Outreach: During the year, LED relied on networks, outreach, and referrals to promote the project to the Lebanese business community and to identify prospective clients.

Networks—LED sought to leverage the professional and personal networks of its subcontractors, i.e.

BIAT and Berytech; chambers of commerce, associations, syndicates, and other business forums;

business consultants and consulting firms; banks; other donor and USAID projects; various enterprise support initiatives; other key partners and stakeholders; and staff and affiliates (“friends of LED”), to create awareness about the project and build interest in its services. Besides the LED team’s network, local business consultants and consulting firms were most responsive.

Outreach—LED also proactively reached out to the business community though events and social media. As noted, LED introduced the project to roughly 1,000 people at 15 formal events and forums. LED organized 13 of these events, reaching about 880 people, and participated in another 2 that reached more than 120 people. LED was also active on social media, posting stories and videos on Facebook, LinkedIn and Instagram that have reach more than 388,000 people.

Referrals—LED also began to benefit from referrals. Current clients began recommending other businesses for assistance or encouraged companies to reach out to LED for support. LED’s outreach and communications activities also reinforced this as LED frequently included current clients or consultants as speakers in project-organized outreach events.

Enterprise Selecting and Engaging: During the year, LED reached hundreds of companies of which 385 where profiled by LED staff or the BAs hired by partners Berytech and BIAT. 121 were identified as potential client firms, although 9 firms dropped out of LED’s pipeline for various reasons, as discussed in the box at the right. LED “signed up” 110 client enterprises by year-end.

When reviewing and selecting companies to assist, LED continued to follow a seven-step process, detailed below, that was adjusted and refined throughout the year. Most changes were small, but a couple of notable changes included a strategic effort to look beyond agriculture/agro-processing, which accounts for about half of LED deals, in favor of export-oriented manufacturing/industrial sector clients, firms operating in the ICT or service sectors, or those in other non-traditional growth sectors. In addition, LED streamlined communication with the COR about upcoming deals, i.e. deals that LED planned to move to step 2. By discussing these deals with the COR in advance, the speed and efficiency of the approval process was improved for both the COR and the LED team.

Step 1 Profiling: LED profiled 385 companies during the year. At this stage, after a prospective client was identified, the LED team, principally the BAs, gathered information about the firm, i.e. it’s market/s and/or buyer/s; the product/s or service/s offered or potentially offered for sale; the nature

Lost and Cancelled Deals

During the year, LED lost 2 deals after signing MOUs with companies and had to cancel 7 deals before they closed. Through discussions with the company owners, LED had expected these deals to result in an additional 176 jobs in two years. In the first year, LED also lost 9 deals that would have resulted in 96 jobs.

As such, since the beginning of the project, LED has lost a total of 18 deals and 272 expected jobs. These deals were lost for a variety of reasons, including changed conditions within the potential client firm or to the factors surrounding a potential deal; or LED and business owner were unable to agree on the terms of a deal; or there were concerns arising from vetting. One pre-approved deal in the health sector was dropped on advisement from USAID.

16 | LED 2nd ANNUAL REPORT of the transaction/s to identified market/s or buyer/s; constraint/s diagnostic; solution/s assessment;

the expected/needed support from LED; and the potential impact of LED assistance. Then, the team applied the following criteria, or filters, to evaluate each prospective client.

1. Readiness:

• Does the enterprise have a clear and credible business model?

• Does the enterprise have growth potential, a desire to grow, and know how to grow?

• Does management understand the firm’s strengths, weaknesses, opportunities, threats?

• Does the enterprise need assistance from LED?

• Does the enterprise want assistance from LED?

• Is there a clear role for LED and will LED’s assistance add value to the enterprise?

2. Market clarity:

• Does the enterprise know its market, preferably specific buyer/s (with name/address)?

• Does the enterprise understand what the buyer/s or market wants to buy?

• Can the enterprise supply (or potentially supply after support from LED) what the buyer/s or market require—at the right quality, quantity, and price—and can they deliver on time?

• Will the buyer/s or market purchase (or potentially purchase) from the enterprise?

• If a specific buyer is not known, does the firm know in what market/s it can be competitive?

3. Impact potential:

• Will the enterprise or its directly linked suppliers or associates create a minimum of 5 new FTE jobs for Lebanese citizens if assisted by LED? Jobs for women and youth are preferred.

• Will the firm increase its sales value if assisted LED?

• Will the new jobs be created within a maximum of 2 years, preferably within 6-12 months, of LED assistance? Jobs occurring sooner are preferred.

4. Client commitment:

• Will the enterprise cost-share for the technical assistance? (As shown in the graph below, during the year, LED successfully increased the running average client cost share, thus showing client commitment. The average cost share stood at 38% by year-end.)

• Will the enterprise play an active role to identify, select, and negotiate with the consultant or consulting firm that will deliver the technical assistance?

$491

38%

Jobs Impact

LED has signed MOUs with 135 firms that pledged to create 2,540 jobs in two years, an average of 19 jobs per firm. Within one year, these firms committed to creating 1,664 jobs, an average of 12 jobs per firm.

To-date, 94 client firms have reported creating 1,321 jobs—an average of 14 jobs per firms in one year. 72% of these jobs were created within 6 months of TA. 30% of these jobs are held by women.

LED 2nd ANNUAL REPORT | 17

5. Cost effectiveness:

• Will LED’s expected cost-per-job be $750 or less? (As shown in the graph on the previous page, during the year, LED successfully decreased the running average expected cost per job.

From $819, LED decreased this amount over the year to $491, within our target.

In addition to the above-mention criteria, LED also considers other factors, including:

• Does the firm operate in one of the priority sectors?

• Does the firm play a key role in a value chain? Would other firms in the value chain grow and employ Lebanese citizens if the firm grew? Can it be an example to other?

• Will LED assistance add real value (is there attribution and additionality)?

• Are we confident that by assisting the firm we will not create or strengthen a monopoly?

• Are we confident that by assisting the firm we will not create perceptions of favoritism?

• Will a decision to accept the enterprise as a client enable LED to diversify its portfolio?

• Did the enterprise reach out to LED to request for support (did the firm self-selected)?

Information about enterprise prospects that met these criteria was shared with LED management, which decided whether a client should be recommended for assistance and passed to the next step.

Step 2: Stop-go decision (“Go Form” Review): For recommended firms, LED prepared “go form” to introduce and describe the deals—the client, the envisioned assistance, and expected results. LED sent these forms to the COR for review and concurrence, as sort of pre-approval of the deal by USAID. When the COR concurred with the deal, it advanced to the next step. Last year, 121 potential deals were pre-approved and passed this step.

Step 3: Documentation: At this stage, LED compiled everything needed to close the deal, including information and documentation about service provider/s, scope/s of work, final estimate for expected impact, and final cost sharing arrangements, etc. All this information was included in draft MOUs that will be signed by the client and LED. (As applicable, LED also used USAID’s Partner Vetting System (PVS) to vet potential client firms and service providers.) By year-end, 112 clients had passed this stage; nine deals were lost at this stage; and 12 deals were still pending.

Step 4: Approval (final deal review and concurrence): Once all the information and documentation supporting a deal were collected, the final terms and conditions of the assistance from LED were documented in an MOU. LED management sent 112 draft-final MOUs to the COR for final review and concurrence; all were approved. For deals using ST consultants, LED requested COR technical approval for the assignment as required by the contract.

Step 5: Signing MOU: After receiving final COR concurrence and consultant technical approval, as applicable, the COP and an authorized representative of the client firm signed the MOU, making it effective and triggering all actions that are necessary for LED to provide the assistance as agreed. LED signed 112 MOUs during the year, but 2 deals were lost before TA began.

Step 6: Assisting: Once an MOU was signed, LED and the client enterprise began to implement it. During the year, 110 client enterprises reached this stage. Many of them, and the 25 assisted firms from Year 1, began achieving important results as a result of LED support.

We describe selected accomplishments on the next page.

Mr. Jad Atallah of Smart Gourmet and LED Business Advisor Nivine Chaaban (Berytech) after signing MOU.

Client Firms Highlights

After acquiring the Global GAP certification with the support of LED, Farm Fresh managed to close several deals with a class A [top tier] supermarket chain leading us to increase our sales by 10% in only 1 month. And most importantly, this allowed us to enhance our image by being a company that offers healthy, organic, and clean vegetables. 2 x

High Service Clean is in the process of obtaining ISO 9001 certification with LED support. We were able to sign cleaning services agreements with 4 large schools in Beirut during the implementation phase of the ISO before even acquiring the certificate. With these deals, we hired 19 new employees in 4 months and we are expecting to increase our sales by $180,000.

ISO CERTIFIED

19 x

25%

LED introduced me to the value of joining efforts between management and employees at the strategic planning level. Hence, for the first time, I teamed up with my staff to develop a sales strategy that will allow Adokit to expand the catering department and add new categories such as diet and fitness food. Creating new sales channels took out the guesswork for our quarterly estimates for 25% growth and we no longer have to worry about our sustainability.

5 x

With support from LED, Advances & More developed a unique digital platform for medical professionals worldwide to provide news and information about the organ transplantation. This platform was launched in September 2019 and is now available on Apple Store and Android Play Store. The first deal for mass distribution of the service will be sealed before the year-end 2019.

Azkatech was able to close 5 new deals for the value of $86,000 resulting from the expansion of our salesforce and improvement of our employees’ sales and marketing know-how. This was due to support received from the LED Project.

4 x

Nicolas Audi Catering successfully implemented an ERP system with support from LED that help us to secure a project with Hotel Sofitel Beirut in May 2018 to handle their F&B operations. Further, we were recently awarded a contract to take over SGBL’s restaurant and catering services. We also signed a contract with Jamhour School to manage 8 cafeterias/snacks in September 2019 which allowed us to create jobs for more than 20 women.

27 x

Sherke W Noss (Beirut) is expecting to earn its ISO 9001 & 22000 certifications by December 2019. The process improvement made help us to successfully open two new branches, one in Jounieh and another in the Metn area, which allowed them to create 46 new jobs in less than a year.

ISO CERTIFIED

46 x

With LED support, Fast & Associates became one of the first engineering consultancy firm in Lebanon to be ISO 45001 certified.

ISO CERTIFIED

11 x

With LED’s assistance in franchising, Pizza Napoli opened a new branch in Zalka and hired 45 more people to work with them. The increase in sales led to an increase in the demand for fresh organic produce and vegetables which also created a new employment at the farmer’s side. 45 x

At Anthony’s we were able to run our operations more efficiently by minimizing the operational costs and waste. This led to an increase in sales and demand for chicken, which also increased the orders from Hawa Chicken and Lebanese Modern Poultry that are both LED-assisted companies. 25 x

Lebanese Modern Poultry was able to identify specific needs and requirements from head chefs at our top clients, such as chicken products marinated in specific flavors. Using a ‘buyer led approach’, we created these new products to cater for the market’s needs. This was possible after developing our internal operating procedures and improving our sales department with LED’s help.

29 x

With LED’s help, Sombrero was able to create a new product—a sugar free version of our famous chocolate brownies. This product was successful in export markets with increased orders from existing buyers, Lulu Hypermarket and Carrefour Qatar, and new orders from Mega Mart Qatar.

4 x

Due to LED’s assistance, Shapash is helping farmers by creating linkages with apple cider and apple juice companies. We are also collecting apples from farmers in Akkar and Dinniyeh areas, therefore helping in improving the current Lebanese apple crisis. 4 x

Diabco is a roastery producing roasted nuts. A large amount of our product is sold to a U.S. importer who requested us to redesign our packaging. With assistance of LED, we upgraded our product design and packaging to meet our client’s requirement. This caused us to double our exports, not only to the United States but also to Europe and South America.

8 x

Neumann is a software engineering firm established in the Cedars at 2,000 meters where most of the youth immigrate to the city to look for jobs. We offer jobs at the same salary rates given in the market to more than 17 employee so they can stay in their village. With LED’s help, we decided to train our developers on a pioneering global technology to add value to our services. This support helped us grow by recruiting more resources and closing deals with large customers in the region

3 x

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Step 7: Tracking: Technical assistance has been completed for 63 client firms. Now, the BAs and LED’s MEL team are monitoring the results, comparing them with what was envisaged.

LED follows the status of each deal using Pipedrive, a mobile- and web-enabled sales system.

Pipedrive is used by the BAs to manage their portfolios and permits staff from LED’s Beirut office and managers from Berytech and BIAT to monitor the BA/s activities and progress.

C1c. REVIEW OF TRACK 2 PROGRESS

In track two, LED looked for ways to accelerate job creation besides LED’s core approach of assisting individual firms as described in track one. Specifically, LED looked for opportunities to group enterprises that needed help in cross-cutting areas. However, to-date, tailored, firm-level assistance—as provided through Component 1—is the best way to achieve LED’s goal, because firms are the engines for job creation. If LED helps to solve problems at the firm-level that are preventing or slowing growth, then its intervention/s will stimulate or sustain business growth, which will lead to new jobs in assisted firms. As such, LED will have a direct impact on jobs. However, during implementation, we will continue to review this assumption and to draw lessons from our experience once we have more data about the results of our assistance

Furthermore, as shown in LED’s technical assistance framework (Exhibit 1), and in the box above, while we have identified several areas where many firms need technical assistance, we have not yet found ways to deliver this support effectively in a grouped format so that it has the same impact on the business. For most of the assistance that is needed, a tailored firm-specific approach is needed.

C2. OBJECTIVE 2: IMPROVE LEBANON’S BUSINESS ENABLING ENVIRONMENT (BEE)

In Year 2, LED prioritized assistance to the tourism sector through this component, which was consistent with prior discussions between Chemonics/LED and USAID/Lebanon about how LED could adopt a focused sector-specific approach to implementation, while maintaining the project’s core objective of direct job creation through a firm-level buyer-led approach under Component 1.

Frequently Recurring TA

• Improving quality assurance and quality management practices

• Strengthening and restructuring human resource structures and practices

• Building the capacity of successful local brands or business models to expand by franchising

• Integrating and upgrading technology to support digital transformation

• Workforce development and job-matching and placement

LED 2nd ANNUAL REPORT | 21

Second, LED continued to look for opportunities to engage in “traditional” BEE interventions, i.e.

policy, legal, regulatory, administrative, budgetary or institutional reforms that could have demonstrable links to creating jobs for Lebanese; reducing the cost of doing business; increasing private investment; increasing sales; or that have other impacts at the firm- or sector-level.

C2a. CONTEXT AND BACKGROUND TO LED’S BEE INTERVENTIONS

The LED contract notes that this objective is not the main component of LED and gives it a weight of approximately 10%. The contract also envisages LED using a “bottom-up approach” to BEE reform; where the business environment generally relates to the rules (formal or informal) that govern how business is carried out. These rules are largely but not exclusively influenced by government (public sector) decisions/actions. As for a bottom-up approach, LED understood this to mean that reform priorities should be identified from private sector actors—from the bottom— rather than from the public sector. Nevertheless, regardless of who identifies reform priorities, effective BEE initiatives must have strong public and private sector engagement, a condition that in LED’s experience did not exist in Lebanon for much of the project’s current performance period.

For approximately the first 18 months of the project, until May 2019 (well into LED’s second year), Lebanon was stuck in a pre- and post-election period where public sector engagement and activity was limited. From the private sector side, the uncertainty surrounding the new government and the history of private sector neglect by past governments, created an environment in which the private sector seemed not ready to engage on any BEE activity or doubted that any concrete or real change could happen. The private sector is generally profoundly skeptical of the public sector.

Though LED consistently introduced businesses and private sector organizations to Objective 2 through one-on-one meetings and during outreach events and invited them to partner with us to advance BEE reforms, particularly concerning issues that they had already prioritized, these actors showed little interest in this opportunity. Similarly, although LED’s call for grants invited applicants to submit concepts related to BEE reforms, only one applicant, the Lebanese Center for Policy Studies (LCPS), whose concept was submitted near the end of Year 2, proposed an idea related to BEE reform. We believe that country’s economic stagnation, the election season, and their past experience with unsuccessful BEE efforts was the primary cause of this non-responsiveness.

Meanwhile, beginning in mid-Year 1, Chemonics/LED and USAID/Lebanon discussed how the project could adapt to include a sector-level approach to complement the firm-level approach envisioned in Objective 1 and broaden LED’s impact. In a revised Year 1 work plan, approved in August 2018 and running through November 2018 (covering the first 2 months of Year 2), tourism was identified as potential sector and an assessment of the sector was planned, approved and carried in November.

The assessment confirmed the potential of the sector to drive economic growth and job creation.

Following the assessment, a copy of which can be found in Annex H, in the Year 2 work plan, approved in February 2019, LED presented a plan whereby most of LED’s effort under this objective would focus on addressing sectorial opportunities and challenges within tourism. Positioning LED’s tourism sector interventions under Objective 2 was justified because sector-level assistance addresses systemic challenges related to market access, industry competitiveness, stakeholder cooperation and coordination, and possibly policy reform that have industry and economy-level impacts rather than direct, firm-level impacts on jobs, sales (domestic and export), and investment.

Accordingly, to-date, LED’s activities under Objective 2 have been weighted towards tourism sector activities rather than “tradition BEE” initiatives.

C2b. LED ACTIONS TO ADDRESS TOURISM INDUSTRY BEE ISSUES

In November 2018, LED carried out an assessment of the tourism industry in Lebanon and its potential to support rapid economic growth in the country. This was the first step—analysis—in LED’s six-step BEE process. The analysis confirmed that tourism is one of the largest earners of

22 | LED 2nd ANNUAL REPORT foreign exchange, a major source of employment, and a driver for SME development; and its impacts benefit both urban as well as rural areas. The analysis also reaffirmed that Lebanon has all the ingredients necessary to develop a high-yield, sustainable, and responsible tourism sector that can fuel broad-based economic growth. Lebanon has the assets needed for this and a growing world tourism market to tap into. The country possesses natural and historic assets, as well as rich heritage and cultural traditions that allow it to craft distinctive experiences for discerning travelers.

These findings were presented, discussed, and validated in April 2019 during a seminar organized by LED entitled, “Driving Growth & Building Resilience”, that was attended by more than 220 people.

The visiting speakers—7 international tourism experts—also highly rated Lebanon’s potential based on their in-country experience and discussions with industry-insiders. LED’s conclusions relating to the sector were also validated in July 2019, during two focus groups with members from two leading industry syndicates (travel agents and hotels) and a meeting with representatives of the syndicate of restaurants, cafes and nightclubs. Thus, LED was able to move to the second step—public debate and consultations—in a journey to build a more resilient, self-reliant, and growing tourism sector.

And the time is right to do this; because Lebanon’s tourism sector is recovering from a prolonged slump since 2010, which was a landmark year for tourism in Lebanon. Since then, the industry experienced a severe decline in arrivals and revenue due to external and internal political and security influences.