Three Reforms Needed To Stimulate Entrepreneurship, Innovation And Employment In GCC In the GCC, the contribution of small and medium enterprises (SMEs) to the overall gross domestic product (GDP) remains small, and the pace of innovation, while accelerating, is still in need of major improvement.

By Huda Al Lawati

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.


In the GCC, the contribution of small and medium enterprises (SMEs) to the overall gross domestic product (GDP) remains small, and the pace of innovation, while accelerating, is still in need of major improvement. SME contribution stands at 20% of GDP in Saudi Arabia. By contrast, in Europe, SMEs represent 58% of GDP according to Eurostat, and they create 70% of all jobs.

Our governments recognize the importance of the SME sector, especially as a tool to create jobs, and have put in a lot of effort to stimulate young minds to innovate and/or set up and run their own businesses. SME funds, VC funds, incubators, and accelerators focused on the tech space, one-stop shops aimed at easing complexity, conferences and hubs that aim to congregate talent in an ecosystem have all been set up in recent years. Large organizations are also playing their part as corporate social responsibility increasingly becomes a measure for rating companies and their leadership teams.

However, some key areas fundamental to the development of the SME sector, and essential for entrepreneurs and innovators to thrive, have not been addressed properly to date.

Before young men or women even get to the stage of requiring funding or an ecosystem to work within, they have to arrive at the stage of ideation, followed by a decision to take risks. Following successful fundraising, these individuals enter a new stage of competition, and strive for survival in an environment, where, historically, a culture of monopolistic tendencies by large family-owned and other firms has developed. Let's take each of these stages, and examine the challenges associated with them.



Ideation needs a foundation of relevant and decent education, or access to information. We are spending a lot of resources of time and money in startup workshops, conferences, and accessible information platforms, but the reality of the matter is that by the time you are at the age of benefitting from these initiatives, you have already missed out on a lot of preparation.

Where we need to intervene is at the early stages of elementary and preparatory education. Granted, this investment will take time to bear fruit, but it is essential. Private schools still represent less than 20% market share across the GCC according to UNESCO, where English is introduced in grade 4. In today's world, that already puts public school graduates at an early disadvantage vis-à-vis their counterparts. A lot of them struggle. In 2017, UAE started taking some measures to teach more science subjects in English for grades 10, 11, and 12 as many public school pupils fail the high school exit test that measures their level of English readiness in grade 12.

Holistic education is also a gap within the public system. Whereas private schools run entrepreneurship camps and have career counselors to help kids think about future aspirations, public school kids are often reliant on what is known to their parents or what they access on social media, which tends to be skewed towards fashion and food, limiting ambition horizons considerably.

A memorizing and regurgitation approach is encouraged at the expense of a thinking and problemsolving approach across the board. An enhancement of the schooling systems particularly public syllabi, is one of the most important areas of focus when looking to diversify our economies, and build an SME growth engine for healthy, productive countries.



In Silicon Valley, you can meet any number of people who call themselves serial entrepreneurs, and wear their one, two, or three startup failures as badges of honor. Here though, we find it difficult to embrace failure as part of any learning journey. Culturally, we are not very tolerant of failure, but this is only a very small part of the real issue at hand.

There is a more tangible, practical aspect of risk-taking associated with starting up or running a business in many of the region's markets, which is embedded in the lack of a true limited liability regime. The capitalist system has thrived on the concept of limited liability, whereby the risk that you take with a venture is limited to that which has been contributed into the venture, and nothing more. However, we have not implemented this truly into our corporate law.

In fact, even today, and despite being signatories to human rights charters that forbid debt imprisonment, many of our markets continue to put failed entrepreneurs owing money and crooks who have defrauded others out of money in the same place– jail. There have been measures to improve bankruptcy laws in the recent past, but this imprisonment law, combined with authority to issue travel bans due to money owed by people, is a real risk that entrepreneurs in developed markets do not have to take.

The law has actually led to a weak credit rating system, whereby instead of investing in strong credit check and diligence departments, lenders simply rely on postdated checks and IOUs, because no matter how well intentioned you are, they can put you behind bars to get their money back. Once imprisoned, most of the systems have no exit other than repayment or settlement, meaning that it acts a bit like a ransom case.

On top of this, even directors and officers of any entity that is in default of payment are at risk of imprisonment and travel bans, so companies that are new and therefore risky, or those that are in distress and in need of experts, actually find it difficult to enroll the support they need.

It is imperative that the limited liability concept is properly and completely embedded into our legal systems. Without this, the funding initiatives are not truly supportive of entrepreneurs, and could, in fact, end up being exploitative.



GCC markets are considered tax havens given the low or zero level of corporate taxation depending on the country you are in. However, in many cases, this is compensated by exorbitant set up and running costs, as well as fees that can scarcely be absorbed by a struggling startup.

Despite the many one-stop shops and investor friendly campaigns, the reality remains that in the UK, you can be up and running as a new business for as little as GBP100- that is an impossibility in our region. Even recent freelancer licensing schemes entail over AED7,500 of costs before accounting for any visa needs that you may have.

For businesses setting up under specific regulators, multiple authorities (economic departments, relevant ministry, municipality, civil defense, etc.) pose a huge challenge. The authorities seldom communicate with each other, and what may pass with one can be blocked by another.

Furthermore, barring a few free zones that offer "flexidesks" at exuberant rates, no authority would even agree to look at any application without reference to the "premises" being used. The practical ramification of this requirement is that many entrepreneurs burn hard earned money in renting space they cannot use for up to a year in some cases, especially if food, municipality, or healthcare authorities are involved.

Costs of operations are also high regardless of size– whether you are an established multi-billion-dollar group or a startup, the same level of visa costs has to be paid to secure expat workers.

Unfortunately, all these are the ingredients for perpetuating monopolies and putting them at a permanent advantage versus newcomers. Large groups, with existing cash flows from established presence in various sectors, are always better placed to bear the set up, rental, visa, and other costs of a new business or concept.

When comparing this to an environment with corporate tax, it's easy to see why the latter is more supportive of entrepreneurs– you do not pay taxes if you are making losses, whereas, in the former, you are paying high fees (albeit not termed taxes), regardless of performance or stage of growth.

Related: Driving Opportunity: Three Recommendations To Help Spur Entrepreneurship In Kuwait

Huda Al Lawati

Founder and CEO of Aliph Capital

Huda Al Lawati is the founder and CEO of Aliph Capital, the first female-founded private equity firm in the Middle East. Aliph invests in midmarket and emerging high-growth enterprises in the GCC focused on digitization and tech-enablement as tools for growth.

Huda has 20 years of experience in private equity, operations and investments across emerging markets. Her prior roles include Partner at Gateway Partners, Chief Investment Officer at Savola Group, and Partner and Chief Investment Officer (MENA) at the Abraaj Group. She has served on multiple boards and committees across the region including Tim Hortons, Panda Retail Company, Herfy (Tadawul), AlKabeer, Savola Foods Company, SMG, The Entertainer, and Kudu. She started her career with Schlumberger in 2002 after graduating from Brown University, RI, USA with a BSc in Neuroscience and a BA in Business Economics (Honors).

Throughout her career she has led over US$2 billion of equity and over $1 billion of debt deals and has experience in growth capital, MBOs, LBOs, venture capital, equity markets, and structured equity transactions. She has played leading roles in strategic initiatives, corporate turnarounds, change management, organizational building, and investor relations. She is currently an Independent Board Member at Saudi Fransi Capital, an Independent Board Member and Risk Committee Chair at Hala, a Member on the Investment Committee of Al Ula Development Company, and she also serves on the Advisory Boards of two family offices. She is also a Member of the Board of Directors the Young Arab Leaders and a Member of the Young Presidents Organization.

Related Topics

Personal Finance

5 Entrepreneurial Mindset Principles That Empower Financial Literacy

Adopting the right mindset is key to financial literacy. Follow these five guiding principles to enhance your understanding of wealth creation and growth.

Starting a Business

Its First Year, This Startup Struggled to Get 75 Clients. Five Years Later, They Have 18,000. Here's How They Did It.

Financial planning startup Facet knew they were targeting a huge untapped market. But getting clients wasn't as easy as they hoped.


11 Strategies to Help Entrepreneurs Thrive in the Face of Adversity and Criticism

How to effectively handle criticism and use it as fuel for success


The 5 Key Characteristics and Qualities of a Good Leader

The creation of high-performance teams has become a paramount objective for numerous top-tier companies.

Growing a Business

Want to Sound Smarter? This Stanford Professor's Simple 3-Point Technique Will Help

With a little structure, you can impress audiences with your ad-libbing all day.

Business Culture

What Is the 'Coffee Cup Test'? Watch Out For This Tricky Interview Trend.

Some people find this recent hiring trend impractical, while others think it's a sign of character. Either way, here's what you should know about it.