October 23, 2011

Accelerating Entrepreneurship in the Middle East and North Africa

One of MENA’s top priorities in the coming years is job creation for a youthful population whose size and energy could either catapult economic activity at home, or be lost to better opportunities abroad.

While capitalizing on the potential talent of the youth generation is no small task, it may prove an essential move for countries in MENA if they are to retain said talent for the benefit of the economy. According to the World Economic Forum, 75 million jobs must be created by 2020—but how can the region, in just nine years, create 40 per cent more jobs than are currently?

The Middle East and North Africa (MENA) has one of the world’s youngest workforces, with more than half of its population under 25. This situation poses both enormous opportunities and challenges; a large, motivated generation of young working people can propel grown and prosperity for entire countries, as was seen in the West post-World War II and is currently happening in China. The challenge comes in providing enough jobs and opportunities to keep the youth engaged and, most importantly, to prevent loss of talent due to emigration.
Experts from The World Economic Forum, Young Global Leaders, and Booz & Company say that one way to tackle this seemingly mammoth task is by nurturing start-ups. These experts have outlined concrete recommendations to accelerate entrepreneurship within the region: 10 imperatives (detailed below) that all stakeholders in the entrepreneurial ecosystem can follow.

“We believe that the key to accelerating job creation will be fostering a business environment in which entrepreneurs can easily start new companies, spread innovation and spur economic activity in general,” said Joe Saddi, Chairman of the Board of Booz & Company. “To do so, policymakers and business leaders must first identify what motivates people to start businesses; they must understand the elements of a healthy entrepreneurial ecosystem, and which of those elements are lacking or immature in the MENA region.”

Saddi continues to say that those elements which could be lacking include entrepreneurial culture, regulatory framework, infrastructure, equity investors, financing for small and medium-sized enterprises and formal education about entrepreneurship. An entrepreneur, within this article, is a person or company who starts or owns a new business.

“There are myriad benefits to fostering a start-up friendly environment,” said Habib Haddad, CEO Wamda. “Not only do start-ups employ their owners, but the spillover benefits for the larger economy can be significant. As start-ups mature into small and medium-sized enterprises (SMEs), they become significant contributors to employment and Gross Domestic Product (GDP).”

An initial glance at entrepreneurial activity in MENA suggests that it is robust; Arab countries average out at 13 per cent of the region’s working population engaged in entrepreneurial activity, which is considerably higher than (more than doubly so in some cases) the USA (8 per cent), UK (6 per cent) or Japan (3 per cent).

However, the statistics are deceptive; such high percentages are driven by necessity as low-end merchants seek to satisfy their basic needs. This type of entrepreneur deserves government support, but governments must focus their efforts on those high-value entrepreneurs who are truly innovative, or who are able to recognise and seize an opportunity in the market. This type of startup activity has positive spillover on job growth and economy development, and is worth encouraging; indeed, some governments have established targeted initiatives (Qatar’s Science and Technology Park, Oman’s SANAD programme and Tunisia’s Centre des Jeunes Dirigeants d’Enterprise) to do just that.

“Governments in the region must start thinking creatively and active decisively about spurring job creation,” said Soraya Salti, Senior Vice-President, Middle East and North Africa, INJAZ. “Encouraging entrepreneurship is one way to go—start-ups attract bright, innovative young people, whose determination for success drives economic activity, creates jobs and opens up new opportunities for others.”

There are 10 imperatives that all stakeholders in the entrepreneurial ecosystem, including but not limited to governments, NGOs, companies and entrepreneurs themselves, should follow to influence and improve the overall atmosphere and create an entrepreneurial culture.

These include:

  1. Offer a Helping Hand. Established entrepreneurs should give time, advice and seed funding to aspiring entrepreneurs. A successful predecessor is often the biggest source of inspiration to the next generation of business owners. Established entrepreneurs can become involved in a number of ways, including counselling and collaborating with NGOs to create conferences and programmes that aspiring entrepreneurs can benefit from. To encourage start-ups, Linda Rottenberg and Peter Kellner established Endeavour, a non-profit organisation, in 1997, which is active in more than 10 emerging countries with further plans to expand in the coming years.

  2. Change Behaviours and Evolve the Culture. Discuss entrepreneurship every day, and generate hype around a handful of success stories. Public figures have the power to promote and even glamourize entrepreneurship, and can use their status to alter popular opinion about the value of launching a start-up. This is especially important in the Middle East, where it is more acceptable to maintain a steady government job than to venture into entrepreneurism. Those who might be reluctant to explore this path can be persuaded if they are made aware of the benefits to both individual and country that come with being an entrepreneur.  The private sector should also play a part by becoming more public in its activities; NGOs should invite the media to conferences and forums, and individuals should grant more interviews to further broadcast their successes.

  3. Bring Entrepreneurship to the Classroom. Everyone in high school and university should learn entrepreneurial principles. Ministries of education across MENA should collaborate with the Arab League Educational, Cultural and Scientific Organisation (ALESCO) in a regional joint effort to promote curricula that include entrepreneurship. Educating teachers is the first step, so that they are able to pass on their knowledge to their students and encourage the idea of entrepreneurship at an early stage. Universities can then create more specific goals to provide students with the desire, skills and knowledge to start a company. For example, they can establish degrees and courses in entrepreneurship that cover the subjects core to creating a successful business (such as business planning and risk management), with coursework consisting of specialised seminars in which students create business plans to be presented to angel investors or venture capitalists. Beyond the classroom, universities can offer support to entrepreneur clubs.

  4. Bring Entrepreneurship to the Office. Companies should encourage employees to unleash their own talent. Corporate entrepreneurship must ultimately rely on the individual employees for entrepreneurial inspiration, but corporations can help unlock that potential. Companies can tap into this by creating an internal process to assess and fund entrepreneurial ideas generated by employees, as well as offering time to work on them—either during the day or as paid leave, with the offer of further support once the start-up is created. Saudi Aramco, for example, has set up an entrepreneurship centre to provide networking, regulatory facilitation, funding, mentoring and education to Saudi start-ups.

  5. Don’t Imitate Silicon Valley. Identify and leverage your country’s own unique resources. While the norm is to emulate the success that Silicon Valley has become, governments, NGOs and private groups should realise that the inspiration-spawning hub evolved from a series of intertwining factors—and a healthy dose of luck—that cannot be recreated. Instead, members of the entrepreneurship ecosystem should focus on the MENA-specific advantages, which may not lie in IT but in natural resources (oil and gas, fruits, vegetables, water or fish), strategic position (such as a hub between trade regions, point of access from one region to another, or proximity to a religious or tourist attraction), climate (which could support the cultivation of specific plants, such as coffee or mangos, or be good for tourist activities, such as surfing, snorkelling and diving) or human resources (such as date farming expertise in Saudi Arabia and hospitality training in Egypt).

  6. Welcome New Ideas. Engage domestic and foreign workers to encourage a free flow of expertise and enterprise. Immigration and naturalisation laws hinder the free flow of talent and expertise into the region, which puts local entrepreneurs at a disadvantage and discourages foreign entrepreneurs from setting up shop. Streamlined immigration rules should give start-ups access to the expertise that they need. Governments should also review rules that restrict real estate, business and stock ownership by foreigners since these also discourage foreign participation in local ventures.

  7. Break the Stereotype. Great entrepreneurial ideas can come from anyone in any industry. Good ideas can come from anyone, anywhere, any time—not just from the entrepreneurial stereotype of a young, brilliant kid with a hot IT idea, which is enforced by the success of the founders of Google and Facebook, as well as Yamli and Woopra. Likewise, not all start-ups need to be IT-related to be a success. Governments and NGOs should encourage entrepreneurial initiatives that leverage a country’s best resources, without fixating on the IT industry; they would be wise to create non-technology incubators that provide mentoring, financial assistant and support to entrepreneurs in various fields. Likewise, venture capital firms should establish funds aimed at non-technology industries, such as consumer goods, retail and education.

  8. Embrace the Diaspora. Tap successful entrepreneurs living abroad for their advice and connections. The Middle East has been losing talent for years as regional talent seeks opportunities abroad, where stable governments and more developed legal and economic systems exist. However, these individuals tend to retain strong familial and emotional ties to their homeland. MENA governments and NGOs would be wise to tap this enormous network of business expertise for advice and insight. The Lebanese Business Council is an example of a global business organisation and association (BOA) that hosts networking events for Lebanese communities across the globe.

  9. Eliminate Red Tape. Governments should give many kinds of support to all types of entrepreneurs. Governments should centralise, streamline and shorten the administrative steps necessary to set up a business (and lower the legal costs). They can change rules to make it easier for start-ups to get funding, and lend their support to forums where entrepreneurs and investors meet. Subsidized management training has proved successful in Singapore, with the economy growing by 14.7 per cent in 2010; MENA’s governments can look to Singapore’s successor inspiration.

  10. Expand the Venture Capital Model. VCs need to go beyond funding and provide a support structure for entrepreneurs. Venture capital firms must proactively seek out likely start-ups rather than waiting for entrepreneurs to come to them. Entrepreneurial networks can help to source promising ideas, but there are other creative ways to search for the next big thing—VCs could also seek out young companies that have been denied bank loans, for example. Once VC firms have invested in a start-up, they need to take a more active role—for instance, by assign a team of industry experts to mentor entrepreneurs, or providing help with tactical decisions and long-term planning.

Ahmed Youssef, partner at Booz & Company concluded; “Creating an entrepreneurial culture will take time, especially in a region where entrepreneurial aspirations are not well understood or, necessarily, respected. Everyone with a vested interested in job creation and economic growth must make a concerted, coordinated effort to develop an entrepreneurial ecosystem, as success will depend upon everyone taking ownership, taking action on their own, and cajoling others to act.”

MENA is in dire need of a fully-fledged entrepreneurial ecosystem to provide the necessary jobs for its rapidly growing working-age populations, and in order for its society to fully benefit from talent and ideas of people of all ages and backgrounds. The recommendation is for stakeholders to act now to lay the groundwork for the MENA region’s youth, so that their full capacity is harnessed to the benefit of their countries.