Scale-ups offer significant opportunity for public and private sectors in MENA to accelerate economic growth

A joint study conducted by the Ideation Center at Strategy& (formerly Booz & Company), part of the PwC network, and Endeavor, an organization pioneering the concept of high-impact entrepreneurship in growth markets around the world, finds that the public and private sectors in the Middle East and North Africa (MENA) have been successfully fostering the development of small and medium-sized enterprises (SMEs), but are missing a significant opportunity to accelerate economic growth.

• Scale-ups are SME with a proven business model that are poised for exponential growth
• Scale-ups have a higher impact on economic growth. In MENA, they are estimated to generate 3.4 times more revenues and 8 times more jobs than SMEs
• Strategy& and Endeavor assessed the state of the Scale-ups eco-system in the region and outlined the priorities for five key markets
• The study included developing a scale-up index which measures the maturity levels of the “Scale-ups ecosystem” in the five MENA countries
• In the UAE, the scale-ups ecosystem is developing at a faster pace when compared to the rest of the MENA region
• Scale-ups in UAE still face a number of challenges, mostly related to financing, access to markets and customers, affordability of infrastructure and facilities and better clarity on the regulation roadmap

Launched on Tuesday, December 11, at Area 2071, an initiative of the Dubai Future Foundation, the study titled "Scaling up MENA SMEs: How a handful of firms can fast-forward economic growth” reveals that countries can enrich the entrepreneurial ecosystem, and have a huge positive economic impact compared to that of regular SMEs, if they give one particular segment known as ‘scale-ups’ the focus it needs.

Scale-ups are SMEs with proven business models that are poised to undergo a rapid growth phase, mainly in terms of revenues or employment. They represent on average 5 percent of SMEs in a given country, and tend to be more productive and innovative when compared to SMEs.

Reem Goussous, Managing Director of Endeavor Jordan, said: “Scale-ups can be of any age sector and are often led by visionary leaders. We at Endeavor also emphasis the entrepreneur’s propensity to give back to the ecosystem by mentoring, inspiring, financing, and launching new ventures. This has the potential to create a “multiplier effect” in the entrepreneurship ecosystem and further drive employment and GDP growth.” Successful scale-ups in the MENA generated on average 3.4 times more revenues and 8 times more jobs than SMEs.

The scale-ups readiness index
Strategy& and Endeavor created a ‘scale-ups readiness index’ to assesses the maturity of the scale-ups ecosystems across the UAE, Saudi Arabia, Jordan, Lebanon, and Egypt based on four key growth pillars: business fundamentals, business propellers, demand creators, and country readiness. The index shows that only the UAE ranks above average globally, and its scale-ups ecosystem is developing at a faster pace than the rest of the region, driven primarily by Dubai’s position as a regional business hub and recent increased focus on entrepreneurship.

However, scale-ups in the UAE still face a number of challenges, mostly being high costs of financing, difficulty connecting with large clients and accessing new markets, technology costs, rent and utilities as well as sub-optimal clarity on the regulation roadmap.

Mahmoud Makki, Partner with Strategy& Middle East said: “Given the magnitude of the potential benefits, the UAE needs to continue its efforts to create a vibrant scale-ups ecosystem and overcome various obstacles preventing scale-ups from growing rapidly. The UAE has undertook significant strides to lower the cost and bureaucracy, however it needs to continue to push aggressively on this front maintain its position as the regional entrepreneurial hub”.

The report outlines seven key areas that all MENA countries should focus on to support the scale-ups ecosystem:

1. Access to financing: A thriving venture capital (VC)/private equity (PE) landscape is vital for the growth of a scale-up. Governments can help by ensuring laws and regulations encourage VC/PE firms to set up operations in the country, and can also set-up a ‘fund of funds’ to attract foreign investments.
2. Access to talent: The private sector, particularly universities, businesses, and associations, can help by partnering with leading technology firms to offer digital training programs for students and employees.
3. Access to markets: MENA countries can support exports by offering mentoring and information sessions to executives on how to access foreign markets, facilitating foreign partnerships, and organizing trade exhibitions and events. Governments could also provide subsidies and/or tax exemptions for companies to set up international branches.
4. Access to large customers: Governments could try stimulating an appetite for scale-ups’ products and services by providing subsidies or other incentives to large firms that buy goods and services from scale-ups. Governments should also consider becoming customers themselves, reduce delays in converting memoranda of understanding or letters of intent into contracts, and speed up payment cycles so that scale-ups can maintain a stable cash flow.
5. Access to clear and transparent regulations: Scale-ups need clear, transparent and stable regulations so they can efficiently run their daily operations and launch new products and services. MENA countries should work to simplify all processes – from opening, to operating, to closing the business; thus increasing the ease of doing business.
6. Access to better facilities and infrastructure: Many countries need to renew efforts to improve their facilities and technology-related infrastructure to ensure a low-cost and high-quality setup. One way to accomplish this is through dedicated locations.
7. Access to networking and coaching opportunities: All countries would benefit from strengthening their networking ecosystem and providing mentoring and scale-ups programs to entrepreneurs.

MENA governments would benefit from setting-up a champion to lead its scale-ups strategy. The champion can be a public or a private body, or a collaboration. Run by a small team, it should define, nurture, and sustain the scale-ups ecosystem, and organize private and public players around growth initiatives.

“Focusing on scale-ups as a distinct segment with its unique needs will definitely create a more vibrant eco-system and accordingly expedite economic growth and pace of innovation in the UAE and the region” concluded Amr Goussous, Partner with PwC ME.