Despite Lebanon's economic woes and the vilification of the central bank and its governor for the country's worst economic crisis in decades, the institution has extended financing to a fund that is independently supporting domestic manufacturers.
Cedar Oxygen, a Lebanon-focused trade finance fund, was launched in mid-2020 with a $175 million anchor investment from the Central Bank of Lebanon to provide importers and exporters in the country with access to short-term trade and supply chain-related finance products.
"This is about bringing back 'made in Lebanon'," Karl Naïm, managing director at Cedar Oxygen, told The National.
A trio of crises compounding one another has sent Lebanon spiralling. The country's economy is estimated to have contracted 25 per cent in 2020 and may shrink an additional 9 per cent this year if a government isn't formed and reforms are not implemented, according to the International Monetary Fund.
Covid-19 and a devastating explosion at the Port of Beirut in August that caused at least $5 billion in economic losses, accentuated the country's economic woes.
"Of the three crises, the economic crisis has by far had the largest – and the most persistent – negative impact," according to the World Bank. "Exchange market pressures stifle trade and corporate finance in the highly dollarised economy, constraining the importation of capital and final goods, and inducing disruptions all along the supply chain."
These constraints are exactly what Cedar Oxygen aims to address.
"These factors have created an urgent need for a new approach and for access to alternative capital from outside Lebanon," Mr Naïm said from his office in Paris.
The central bank is currently the only backer of the Luxembourg-domiciled fund, though the company is working to raise an additional $500m from foreign investors.
The team is setting up a new regulated fund structure to attract direct foreign investment – a goal Mr Naïm said will be reached by mid-March. Cedar Oxygen is "in discussions" with a handful of undisclosed investors from the US and Europe.
At the end of last year, Cedar Oxygen finalised its first facility for nut and snack firm Lebanese Roasting Group, also known as Castania, to finance the import of raw materials. It has approved three new deals since then and is aiming to do five transactions a month and provide up to $250m of new financing lines this year.
Mr Naïm and his founding partners, all Lebanese expats and serial entrepreneurs with private equity experience, were approached by the central bank to offer an independent, private solution for financing industrial activity, which contributes 14 per cent of the country’s gross domestic product, and helps attract foreign investment.
The group pitched a digital platform that would bring importers and exporters onto a single online destination to access short-term trade and supply chain finance products following a proper vetting process.
The central bank agreed to invest in the plan, and Jordan's Arab Bank affiliate in Switzerland signed on as its banking partner. The Association of Lebanese Industrialists is a collaborator to bring business along.
Mr Naïm acknowledges that the Lebanese diaspora of 12 million across the world, is critical to the fund’s success and garnering the kind of support it needs to be successful.
The team has spoken to more than 160 companies in Lebanon and 110 have "expressed interest" in accessing loans or credit lines through the platform. Three new companies join the fund's digital platform on average each week, a first step towards applying for financing.
Applications are processed by both internal and external risk experts within a week and screening criteria include environmental, social and governance principles. Through its lending platform, Cedar Oxygen aims to reduce poverty, increase access to essential goods, revitalise industry and create jobs.
The knock-on effects could be enormous, Mr Naïm said. "Fresh dollars", a reference to money brought into the country from abroad, will allow manufacturers to strengthen relationships with their partner banks and boost the country’s exports.
Bringing on old school industrialists is not easy. Many rely on pen and paper to maintain their books. But Mr Naïm said this crisis is an opportunity like no other to bring Lebanon’s economy into the 21st century.
They monitor the phones constantly and do regular on-site visits to help companies get set up on the platform.
Nassib Ghobril, chief economist at Byblos Bank, told The National he is hopeful Cedar Oxygen can meet the ambitious targets it has set itself, but the appetite of investors outside of Lebanon for exposure to the beleaguered country remains uncertain.
The government’s fateful decision to default on its eurobond payments last March has been the biggest challenge, he said. Since then, there have been no negotiations with bondholders and talks with the IMF for a $10bn bailout have stalled.
The absence of progress on these fronts has delayed "a return of capital inflows to the country and to normal lending operations by banks" while companies have had to find other sources of financing.
Still, Mr Ghobril believes in the adaptability of the private sector and a variety of companies in the country worthy of financing.
“Any initiative that helps provide funding and liquidity to Lebanese companies in general, and to manufacturers and exporters in particular, is welcome”.
