agri-business in lebanon - more capital
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More Capital SALNo. 58 on the List of Financial InstitutionsPaid-up Capital LBP 7,500,000,0003rd Floor, Building 157, Saad Zaghloul Street, Downtown P.O. Box 11-4621 Beirut, LebanonTel: +961 1 999 160E-mail: info@morecapital.comWebsite: www.morecapital.com
Agri-Business in LebanonSector PerspectiveNovember 2020
Prepared by:
Mohamed IbrahimJad SalameZad SleimanMounia El Saad
Agri-business is a major constituent of Lebanon’s economy
64.3%
of Lebanese industrial enterprises are related to agro-food processing
18.2%
11.5%of Lebanon’s workforce is employed in the agri-business sector
of Lebanon’s total land area is classified agricultural (32ndhighest globally)
Source: FAO, CCIB, CIHEAM 2
Many of the agri-business activities across the value chain are carried out by domestically based players
Agricultural inputs
Agricultural production
Processing & Packaging Distribution Retail
Agriculture Machinery
Seedlings and Saplings
Seeds, Fertilizers and Pesticides
Animal & Fish Feed
Land & Water Resources
Plant Products
Animal Products
Fish Products
Storage
Packaging
Transportation
Wholesale Markets
Local and International Retail Markets
Agri. Waste Mgmt.
Agri. Technology
Primary Processing
Secondary Processing Dedicated Export partners
Exam
ple
of
loca
l pl
ayer
s Ke
y Pr
oduc
ts/ A
ctiv
ities
Mainly importers of seeds, fer2lizers and feedstuff
Performed Domestically Not Performed Domestically Source: More Capital Analysis 3
Existing key enablers could be leveraged to further boost the sector’s attractiveness
• Real cost of local human capital has considerably decreased following the current financial crisis
• High unemployment rate due to the recent economic crisis increases the availability of human capital in the overall agri-business sector , which already employs 6.5% of the workforce in primary agriculture and 5% in other agro-industry related activities
• Diversified climate and topography of Lebanon enables the growth of many types of crops including tropical, subtropical high value crops (e.g., avocado, banana, kiwi), as well as high processing value crops (e.g., olives, grapes)
• Strategic location to export to Europe and the GCC where production costs are higher
• Skilled, multilingual, and educated workforce that can be attracted to the sector
• Abundant creative talents that can be leveraged to deliver innovative solutions in agri-business
• Strong expat community which could add value in terms of investment, capability transfer and market access
Affordable and Available Human Capital
Favorable Climate, Location and Topography
Skilled Entrepreneurial Talents
Source: CIHEAM 4
Lebanon’s agri-business has significant room to improve in terms of efficiency, land utilization and economic contribution
Source: World Bank, FAO
Contribution to GDP by Hectare of Agricultural Land (2018, USD per ha)
12,313
8,290 8,183 7,949 7,342
4,5923,860 3,306 3,036 2,959 2,895 2,703
Malta Norway Netherlands United ArabEmirates
Egypt Mauritius Cyprus Italy Switzerland Viet Nam Finland Lebanon
5
Multiple challenges currently hinder the sector’s growth and improvement
Suboptimal Agri-business Trade
Limited routes accessible to international markets for exports, and heavy reliance on imported products competing with local
produce
Ineffective Land Utilization
Fragmented and underexploited agricultural
land areas
Lack of Proper Funding
Limited availability of funding options dedicated
and tailored to agri-business, which is further
exacerbated by the current financial crisis
Inadequate Regulatory Framework
Lack of an incentivizing agri-business policy framework to encourage further investment, production, employment, local
market development and exports
Source: More Capital Analysis 6
Agricultural lands fragmented and underexploited
70% 39% 14%
of Agri-land holdings are less than 1 hectare
Current land ownership fragmentation has an adverse impact on efficiency
which in turn is limiting the land’s productivity and positive returns of
economies of scale
of Agri-land is used for high value-added products
Limited part of agricultural land is currently being cultivated for high
economic value products despite its eligibility
of Agri-land is currently being utilized
Small proportion of agricultural land is currently being used showcasing the significant potential for incremental
growth
Source: Mckinsey, FAO 7
82%
60%
52%
12%
18%
40%
48%
88%
Beer
Processed coffee
ImportedLocally Produced
2011-2020 Average
2016
Fish2011-2018 Average
Potato2011-2018 Average
Local Consumption100%
Source: FAO, Lebanese Customs, Blom Invest
Exports have declined between 2014 and 2019 due to geopolitical factors including disruptions in land routes passing through Syria
600
650
700
750
800
2014 2015 2016 2017 2018 2019
Selected Products Consumption Breakdown (%)Yearly Agri-business Exports* (USD Mn)
Suboptimal agri-business trade balance given prevailing geopolitical factors and inefficient local production
/
* Includes fruit and vegetable products, live animals and their produces, processed food and beverages, animal or vegetable fats and oils and their deriva8ves.
8
Inadequate governmental oversight and support
Inexistent Sector Wide Strategy or Incentives
• Ambiguous perspective on crops (e.g.. investment, support, and subsidies are not targeted) as part of the Ministry of Agriculture’s strategy
• Lack of an incentivizing tax regime for agri-business related companies
• Low score in ease of doing business (143/ 190) given inefficient judicial system, corruption and tedious bureaucracy
Unfavorable Trade Agreement Framework
• Absence of trade agreements with many top performing trading partners (e.g., South Africa, Angola, Ghana) and trade promotion agencies
• Inefficient trade agreements currently in place offering minimal restriction and safeguard for local produces
Limited Food Safety & Quality Standards
• Unclear standards and weak oversight on food safety, with a fragile inspection system (not ISO 17020 certified)
• Lack of compliance with international quality concerns and export related standards (e.g. European standards)
• Non-existence of national legislation on packaging and labelling
Few Beneficial Initiatives
• Some beneficial stand-alone incentives launched however with minimal coordination with other gov. bodies & minimal promotion thus diminishing their impact
• Example of initiatives include, MoA projects, Cannabis law, BDL subsidized loans (e.g., circulars 313, 318)
Source: CBI Europe, CCIB, Ministry of Economy and Trade (MoET), Ministry of Agriculture (MoA), World Bank 9
Source: CBI Europe, MoET, USAID
Most financing across the value chain was
funded by bank loans and informal channels
(e.g. loans from traders & suppliers)
High Reliance on
Debt
Direct investments were limited due to local financial markets
dynamics and family ownership culture with
only few exceptions within agritech
Limited Direct
Investment
Initiatives limited to NGOs’ in-kind grants to farmers and subsidized loans promoted by BDL
and international organizations mostly
available to manufacturers (SMEs)
Limited Funding
Initiatives
Agri-business’s share of overall credit did not exceed 1% while its contribution to GDP exceeded 5%. Low
ticket size per investment ranging
between 4 and 600 Mn LBP
Inadequate Channeling of Funding
Trivial funding landscape
10
Recent economic crisis creates opportunities for the Agri-business sector
Impact on Agri-business SectorEconomic Crisis Characteristics
Political and Social Turmoil
• Regional conflicts impacted local political turmoil over the years, fostering corruption and bad financial management
• Diminished trust and confidence in the current Lebanese system leading to protests and civil unrest
Banking Crisis and Capital
Controls
• Rush on banks creating a sector wide liquidity squeeze• Informal capital controls in place whereby depositors' access
to foreign currency deposits was substantially limited
Currency Devaluation and
Inflation
• Lebanese pound has lost over 80% of its value since October 2019 in the black market
• Drastic increase in prices due to extremely high reliance on imports
Deteriorating Economy
• Decline in tourism due to political turmoil in addition to the Corona Virus
• Sharp decrease in economic activity due to high inflation accompanied by the decline in tourism activity
• Sharp increase in unemployment rate
Land UsageTo ensure food security and self sufficiency several initiatives were introduced to cultivate neglected agricultural lands
Trade DynamicsDemand of local products increased given the limited ability to maintain import levels due to the deteriorating currency, while the need for fresh funds boosted exports (annualized imports decreased by 22%, annualized exports increased by 4% between 2019 and 2020)
Regulatory LandscapeAgri-business sector gained visibility and priority on the political agenda which paves the way to more attention and support initiatives
Funding LandscapeCurrently the formal lending market is shut for businesses. However, current capital controls encourage direct investments by local depositors especially in export-oriented opportunities. Economic sectors are currently more attractive to fund following the diminished trust in the financial sector
Source: More Capital Analysis 11
Increasing local supply of local Agri-business products already underway to compensate for market demand
… leading to many local producers increasing their production to cover for local demand
Economic crisis has driven downwards the demand for imports… (Lebanon Imports 2018-2020, Mn USD)
423
17,889
14,060
12,502
2,891
83,089
42,664
61,090
789
2,114
3,288
762
26,720
20,424
29,810
Feed Stuff
Olive Oil
Wine
Beer
Honey
Chocolates
Water
Fruits
Dairy Products
18
355,533184,186
2018 2020 annualized
-96%
-96%
-85%
-74%
-74%
-68%
-52%
-51%
-48%
xx 2018-2020 decrease
Source: Lebanese Customs, Awalan.com
“The demand on our dairy products has increased by 50% which pushed us to
increase production by up to 2 tons per day which is around 30 percent of our
daily production”
“Our production went up 5 times, but profitability didn’t follow mainly
because of a lag in price increase. We have also sustained a shortage of
workers due to the devaluation of real wages”
12
Legacy along with new market dynamics create attractive investment opportunities within Lebanon’s agri-business sector
E X I S T I N G S E C TO R
Agr i -bus iness i s a key sec to r in
Lebanon cont r ibu t ing to 5% o f
GPD and employ ing 11 .5% o f
work fo rce . Loca l p layers a l ready
present ac ross va lue cha in and
key po ten t ia l enab le rs ex is t .
N E W M A R K E T D Y N A M I C S
Economic c r i s is c rea ted room fo r
g rowth fo r the sec to r and
inc reased i t s a t t rac t i veness v is -à -
v is o ther loca l convent iona l
inves tments ( f inanc ia l sec to r and
rea l es ta te ) .
AT T R A C T I V E I N V E S T M E N T
O P P O RT U N I T I E S
New a t t rac t i ve inves tment
oppor tun i t ies have emerged
ac ross the va lue cha in f rom
fa rming to p rocess ing &
d is t r ibu t ion .
+
Source: More Capital Analysis 13
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