Four Ways To Nurture Entrepreneurship In The Middle East
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Governments in the Middle East and North Africa (MENA) need new approaches to stimulate entrepreneurship and the broader ecosystem of small- and medium-sized enterprises (SMEs).
Across the MENA region, governments are encouraging SMEs through entrepreneurship promotion authorities. The aim is to create jobs and diversify economies away from natural resources, and although there has been some recent growth in the number of startups, overall SMEs remain marginal in MENA economies. To make their SME policies more effective, entrepreneurship promotion authorities need more appropriate support, mentoring, longterm education, and to be more careful about what they are measuring.
While there have been some successes in recent years, the region is still behind more developed economies. For example, between 2013 and 2018, the number of startups in the MENA region grew by 48%, while the number of deals increased 23%. There have been some high-profile exit deals, such as Careem, a ride sharing company, and Souq, an electronic retailer. However, these were exceptions, and neither was acquired by a player from the region. Overall, startups are just 0.3% of all companies in the MENA region, while the OECD (Organization for Economic Co-operation and Development) average is 6.9%. The region suffers from insufficient funding, with venture capital (VC) worth only 0.03% of MENA GDP in 2018, compared to 0.5% of GDP in the United States. So, while governments often rightly pay attention to structural changes, such as ensuring more financing, there are four ways that their entrepreneurship promotion authorities can improve their SME policies.
First, entrepreneurship promotion authorities must tailor SME support according to where a company is in its lifecycle. Static policies are not always appropriate because companies can go through periods of growth, stability, and decline. For example, access to infrastructure is critical during the incubation stage. Seed financing and flexible office space are needed at the startup phase. Access to series B-C financing, and later-stage funding, is vital during the growth stage. Entrepreneurship promotion authorities should understand the changing needs of companies at each stage of their lifecycle to ensure they receive the right enabling measures. The relevant authority should coordinate with the different stakeholders -such as public authorities, incubators, financial institutions, private companies- to ensure that their services match the needs of each stage.
Second, entrepreneurship promotion authorities need to activate community support networks for SMEs. Leading entrepreneurs often contribute to the ecosystem through mentorship, financing, employment and launch of new companies. For example, Endeavor, which assists SMEs worldwide, calculates that in Buenos Aires, just seven leading entrepreneurs in 1990 contributed to the creation of 146 companies by 2011. Chile, for instance, has attracted startups, and then requested them to mentor local entrepreneurs. Entrepreneurship promotion authorities can facilitate networking activities and incentivize entrepreneurs to coach and mentor others.
Third, governments need to embed an entrepreneurial culture early on. Although there are some changes, the regional norm for career success remains a stable job in a large public or private company. Unsurprisingly, the rate of business ownership is low- just 3.1% and 2.6% of working age adults own a business in Saudi Arabia and the UAE, compared to 6.4% and 7.9% in the UK and US respectively. Singapore, for example, has developed programs for students to travel overseas to get firsthand experience. By 2017, Singapore had become one of the top 12 startup ecosystems globally. MENA governments could start by teaching school students how to start a business, and provide them with the opportunity to engage with successful entrepreneurs, and learn from their experiences.
Fourth, entrepreneurship promotion authorities need to measure what matters to give their support more impact. For example, many authorities report the overall number of startups and value of funding. While such information can raise awareness, they also need to monitor the right key performance indicators of companies’ progress. Entrepreneurship promotion authorities should analyze whether the support that they provided to companies was effective at helping these companies to grow. The information is then used to educate policy makers. For instance, authorities in Ireland, the Netherlands, and the UK closely monitor the sustainability of companies at each stage of their lifecycle, and their impact on GDP and jobs.
Together, these four new approaches will enable entrepreneurship promotion authorities to be more effective in providing support to SMEs. Along with broader structural policies to provide financing and improve the business environment, these more focused policies can help the MENA region to increase the number of SMEs and their contribution to the economy.