Entrepreneurship is one of the key drivers of economic development in any country. The Middle East and North Africa (MENA) region is full of untapped labor potential and entrepreneurial skills. According to the International Council of Small Business, this region has the highest unemployment rate in the world after Sub Saharan Africa and very little innovation from the private sector. The main reason for this is the political unrest in some of the countries. The other common factors stifling entrepreneurship in this region are inadequate infrastructure, inappropriate property laws and a market built mainly around family businesses. The level of entrepreneurship, however, varies from country to country based on different factors. Some parameters as discussed hereunder can be used to compare these levels.
Ease of doing Business
Out of all the countries in the MENA region, the United Arab Emirates ranks the highest in terms of ease of running a business venture. The UAE also ranks very high globally; 11th in the world. According to the World Bank, doing business in the UAE is considered an easy process for both locals and ex-pats because of its free trade regime, improved e-commerce and easier access to business permits. It is followed by Morocco and Tunisia while Yemen ranks the lowest (187th globally). Starting a business in Yemen is challenging due to difficulties in the acquisition of permits and registration of property as well as its high taxation rates. The country generally does poorly in international trade and is neglectful of minority investors.
Technological Advancements and Innovation
Technology is essential for the growth of business in the 21st century. Digitization of information and communication is key to the success of any venture in this age. Studies indicate that some countries within MENA are not well versed in the utilization of technology to further their development. Despite being among the most digitally connected regions in the world, MENA countries lag behind North America, Oceania, Europe, and East Asia in terms of innovation. This can be attributed to the failure by governments to encourage innovation, lack of sound policy systems and poor quality education.
The governments are also keen on the protection of banks and large telecommunication companies which hinder the penetration of new stakeholders within the markets. Iran’s innovation efficiency is the highest in the region followed by Israel, Kuwait, and Egypt. UAE and Saudi Arabia have the highest innovation input but one of the lowest outputs due to a lack of efficiency.
A gap exists between the education system and the labor markets. Youth unemployment is about 28% in the Middle East and 30% in North Africa. The saturation of the job market by educated youth is set to skyrocket in the coming years, with few jobs to absorb them. The World Economic Forum estimates that 20 million youth are expected to join the job market by 2025. A shift in the education system is therefore paramount to alleviate this situation. Entrepreneurial education needs to be integrated into the school curriculum to allow students to gain skills to become self-employed as opposed to competing for limited job opportunities. The private sector can also get more involved by offering entrepreneurial skills to the marginalized within the community as part of their corporate responsibility.
Some countries within the MENA region are making strides in bridging this educational gap. Egypt’s Ministry of Higher education, for example, came up with the National Strategy for Science (2015) which links the education system with the economic market. Tunisia has developed institutions to support innovation and to create a new culture of entrepreneurship. Morocco founded the Morocco Innovation Initiative in 2009 to spread innovation, drive competition within the economy and encourage research and development at Moroccan universities.
Access to Capital
Financing is the most important aspect when it comes to starting a business. Business capital comes in many forms: personal savings, bank loans, angel investors and venture capitalists. The ease of access to financing within a country is a measure of the quality of its entrepreneurial culture. Since this region is oil-rich, it attracts a large number of venture capitalists. MENA is experiencing a drastic increase in the number of successful start-ups and the amount of available funding. It is estimated that from 2014 to 2017, investments from venture capitalists increased from $53 million to $410 million. According to the 2019 MENA Venture Investment Report, a total of $471 million was invested in 238 start-ups within the first half of the year. The UAE had a lion’s share of these investments, taking up 26%, followed by Egypt and Lebanon at 21% and 13% respectively. Of these investments, only 30% were from companies within MENA, showing a significant contribution from foreign inventors.
Fellowship and incubation programs such as Wamda X in Dubai are proving to fund for upcoming enterprises. They provide entrepreneurs with grants and give them access to mentorship programs that ease the process of starting a business. Examples of other start-up incubators available in the region are the Misk Growth Accelerator in Saudi Arabia, AUC V-Lab Start-up Accelerator in Egypt, Agrytech Hackathon in Lebanon and iPark in Jordan.
Bank financing is difficult for SMEs in MENA. Even though they make up 96% of the registered companies in the region, SMEs only receive 7% of the total lending by banks. Although banking is the major source of financing for small businesses, other sources of alternative funding are available such as seed capital, capital markets, and crowdfunding. Fintech accelerators are available for start-ups in Egypt, the UAE, Jordan, and Lebanon.
Perception of Entrepreneurship within the region
In earlier years, being employed was considered more prestigious compared to starting one’s venture. Starting a business was viewed as a risky endeavor that only the rich could partake. This perception has changed over the years with many people quitting their jobs to be founders of their businesses. Averagely, 75% of people within MENA view entrepreneurship as a wise career choice. This positive outlook on entrepreneurship translates into a higher number of new businesses in the market.
83.4% of Egyptians and 81.3% of Saudi Arabians think entrepreneurship is a sound career choice. Only 17.02% of the population in Lebanon are afraid that their business would go under if they were to start it.
There has also been an increase in the number of women as entrepreneurs or managers in new businesses. In Qatar, there is almost an equal number of women and men in the business market, followed by UAE and Saudi Arabia. The lowest numbers of women in business are in Palestine and Jordan.