The World Government Summit hosted annually in Dubai is emerging as a key forum to define the agenda for the next generation of governments. Tahseen Consulting is honored to have contributed its thoughts on how Arab governments can innovate to solve some of the most significant challenges facing the region.
In the following interview, Tahseen Consulting’s Chief operating Officer, Wes Schwalje, spoke with representatives from the World Government Summit regarding his thoughts on building entrepreneurial ecosystems in the UAE and Arab World.
World Government Summit: Why is entrepreneurship important for the UAE?
Schwalje: The UAE Vision 2021 establishes entrepreneurship as a vital enabler of the UAE’s transition to a knowledge-based, highly productive, and competitive economy. For this reason, entrepreneurship ecosystem development at the national and Emirate levels has been prioritized as a key economic development policy priority. The UAE views a vibrant entrepreneurship ecosystem as essential in order for startups and small and medium-sized enterprises (SMEs) to grow, thrive, and commercialize innovative ideas. To assist SMEs, UAE policymakers have primarily focused on cultivating a healthy risk-taking culture, easing access to finance, implementing better regulation, and enabling SMEs to reach international markets. As in other countries, the UAE is targeting small firms due to their potential to create jobs and grow into profitable companies that can serve as engines for employment and economic development. The UAE Ministry of Economy recently estimated that SMEs contribute more than 60% of the UAE’s GDP and provide 86% of all private sector employment. The immediate goal of the UAE’s entrepreneurship development policies is to establish assistance programs that support fledgling ventures in the early, vulnerable stages of their development so that they are able to grow and become engines that sustain growth for long-term development. Over the longer term, nurturing and supporting entrepreneurs is important to the UAE for creating jobs, encouraging nationals to join the private sector, economic diversification, boosting innovation, increasing productivity, and commercializing research.
World Government Summit: How can the government help to create a new generation of entrepreneurs?
Schwalje: Many entrepreneurs in the UAE still struggle with starting and growing their businesses because significant resources have been devoted to limited, singular interventions at either the national or Emirate levels rather than devoted to system wide change. Though it has expanded rapidly, the UAE entrepreneurial ecosystem, which includes upwards of 330 different public and private stakeholders, currently lacks critical institutions and cooperative platforms which could make it more effective. Some Emirates have been much more effective at developing vibrant entrepreneurship ecosystems than others. While there is no one-size-fits-all model for building a competitive entrepreneurship ecosystem, more work must be done to catalyze an inclusive dialogue where policymakers, entrepreneurs, and other stakeholders come together to discuss barriers and find solutions at the national and Emirate levels.
Institutions tasked with implementing entrepreneurship development policies must work in closer coordination to build a conducive culture for entrepreneurial risk taking, enhance access to new venture finance, ensure venture-friendly markets for products, and improve institutional and infrastructural support for entrepreneurs. While some progress has been made, entrepreneurship policies must also be more closely aligned with national technical and vocational education and training policies. This will require integrating entrepreneurship more effectively into the education system from an early age. There is also an urgent need for career guidance to accommodate entrepreneurship so that it might be possible for students to differentiate between choices after secondary schooling like starting a business, joining the armed forces, seeking a job immediately, attending a technical program, or continuing their studies at the higher education level. Based on the scarcity of initiatives which specifically target aspiring female entrepreneurs, more entrepreneurship education and training for women is needed in the GCC. While most GCC nations have supported entrepreneurship centers to improve the environment for entrepreneurship including providing funding and training, reducing bureaucracy, and establishing business incubators, very few of these centers specifically cater to women’s needs.
World Government Summit: Which other stakeholders can get involved too?
Schwalje: Policy frameworks and institutions play a particularly important role in entrepreneurship ecosystem development. Some Emirates have made significant progress in developing institutionally rich entrepreneurship ecosystems while other Emirates offer much less support for entrepreneurs. A key risk in designing national and Emirate level entrepreneurship development policies is proceeding without systematic input from entrepreneurs and other stakeholders. While identifying the particular needs of entrepreneurs in each Emirate is essential, international experience offers prescriptive guidance for developing entrepreneurial ecosystems and the key institutions and stakeholders that should be involved.
Policy makers must ensure the regulatory framework supports entrepreneurs. Public and private sector stakeholders must work to ensure the presence of early customers and, once fledgling business begin to grow, they can reach regional and global markets. Access to a full spectrum of financial services is critical to entrepreneurial success. This include the presence of financial institutions which provide SME finance, venture capital funds, corporate venture capital funds, government grants and loan programs, and angels and angel groups. A vast array of support organizations ranging from incubators and accelerators to competitions to export assistance centers is required for a competitive entrepreneurial ecosystem. These institutions must work together to help entrepreneurs turn an idea into a business, launch, and then grow by providing training, mentorship, networking, expert guidance, and inspiration. The private sector is important due to philanthropic giving and corporate social responsibility programs support entrepreneurship, identifying opportunities in their supply chains that can present opportunities for entrepreneurs, commercializing academic research, and in opening up exit opportunities for entrepreneurs. The institutions that govern the education and training system must work to ensure emerging skills needs are met and provide quality, entrepreneurial training. Finally, the media is important to ensure entrepreneurial successes are highlighted to inspire the next generation of entrepreneurs.
World Government Summit: Is there a need for different approaches in other Arab countries?
Schwalje: In many Arab countries, economic integration, the need for economic diversification, occupational preferences for public sector employment, and high youth unemployment rates have prompted the adoption of economic reforms to improve the enabling environment for entrepreneurship. However, understanding the determinants of self-employment and how they might differ across the region is critical if entrepreneurship is to be a solution for the region’s youth unemployment challenge and can ultimately lead to desired economic outcomes. Differing determinants of entrepreneurship across the region have significant implications for national policies and support programs that might be offered to regional entrepreneurs. The distinction between necessity and opportunity entrepreneurship is becoming increasingly relevant as countries in the region are largely pursuing undifferentiated entrepreneurship policies that are primarily aimed at opportunity entrepreneurs.
World Government Summit: How are the needs of entrepreneurs different across the Arab region?
Schwalje: An emerging body of international empirical literature suggests that necessity and opportunity entrepreneurs differ significantly in socio-economic characteristics; motivation and the types of opportunities pursued; and the potential for their entrepreneurial endeavors to create jobs and motivate private investment.
|Category of Comparison||Opportunity Entrepreneurs||Necessity Entrepreneurs|
|Age||On average approximately 5 years younger according to empirical studies based on international data||Up to 5 years older than opportunity entrepreneurs in empirical studies based on international data|
|Education||Tend to be more highly educated with education and general labor market experience having a positive impact on earnings and reducing exit rates||Tend to be less educated and benefit more from specific vocationally oriented education found to be related positively to earnings|
|Industry Experience||More likely to have working experience from regular employment in the same industry they are entering||Less likely to have experience from regular employment in their focus industry|
|Motivation||Voluntarily attracted into self-employment by the identification of opportunities; They often leave wage employment or pursue opportunities alongside full time employment||Often driven into self-employment after involuntary job loss or scarcity of employment opportunities|
|Cyclicality||More likely to create ventures when economic conditions are good and unemployment is low; They also choose to create businesses regardless of their employment status||Negative economic shocks that are more likely to affect small firms or increase unemployment push individuals to create businesses|
|Quality of Opportunities Pursued||Create larger businesses in knowledge-based industries which require significant amounts of invested capital and employees generate higher earnings||Less likely to have business ideas with significant growth prospects and more likely to exploit entrepreneurial opportunities in low-income, low knowledge-content sectors|
|Potential for Job Creation||Higher probability of creating additional jobs||Job creation, Investment, and Survival
Primarily focused on employing themselves and have lower probability of creating additional jobs
|Firm Survival||Higher survival and lower failure and closure rates||Face a higher risk of failure, or, if they survive, they may produce only marginal businesses,
invest insignificant amounts of capital, fail to create further jobs, and earn minimal incomes
|Capital Investment and Risk Tolerance||Invest higher amounts of capital into their venture and are more risk tolerant||Lower amounts of invested capital and lower tolerance for risk|
|Tendency to Seek External Support||More likely to have built their network to include people valuable in the process of venture creation such as potential customers, cofounders or financiers||Less likely to seek support in the form of professional or personal assistance during venture creation|
These findings present strong evidence that national training and support programs for entrepreneurship require significant tailoring to meet the needs of both necessity and opportunity-driven entrepreneurs. By not accounting for particular needs of different types of entrepreneurs, some national entrepreneurship policies in the region are designed around a one size fits all approach which is particularly lacking in regards to serving necessity-driven entrepreneurs.
International evidence suggests a strong case for more tailored national entrepreneurship policies in the Arab region which reflect the mix of necessity versus opportunity-driven entrepreneurs operating in particular countries. Entrepreneurship in countries at a high opportunity entrepreneurship equilibrium, which includes all of the Gulf countries, is presumably much different entrepreneurship in countries like Egypt, Palestine, and Yemen in a low opportunity entrepreneurship equilibrium. Necessity and opportunity entrepreneurs differ in socio-economic characteristics; motivation and the types of opportunities pursued; and the potential for their entrepreneurial endeavors to create jobs and motivate private investment. These differences are potentially unexploited policy levers which might serve as guidance for more targeted national entrepreneurship policies. Instead of classifying all entrepreneurs as a homogeneous group driven by opportunity and offering undifferentiated support, regional governments can introduce targeted training programs and support, contingent financing, and subsidies which might better serve both necessity and opportunity entrepreneurs. If entrepreneurship is to continue to be championed as a panacea for the region’s youth unemployment challenge and resolving structural economic and labor market issues, then such tailored policy measures appear long overdue. The table below presents a summary of potential components of regional entrepreneurship policy which may need to be reconsidered to more effectively meet the needs of both opportunity and necessity entrepreneurs.
|Components of Entrepreneurship Policy||Typical Opportunity Entrepreneur Approach in the Arab Region||What Might be Needed to More Effectively Reach Necessity Entrepreneurs in the Arab Region|
|Entrepreneurship Policy Approach||Policies view entrepreneurs as a segment of the national economy who can take advantage of all programs and may not distinguish between small business support and policies which support entrepreneurial ventures||Defined policies and programs to meet the specific needs of necessity entrepreneurs and other country specific challenges|
|Entrepreneurship Education||Early and post-secondary entrepreneurship education and business skills training at university and non-university based business incubators||Support for training in specific technical and vocational areas potentially below the post-secondary level in addition to early and post-secondary entrepreneurship education and business skills training|
|Access to Finance||Increasing the supply of capital through direct loans and venture funds||Public financing programs that may target a broader range of industries along with a stronger focus on helping entrepreneurs access capital by focusing more on business issues such as management skills and evidence of a solid business plan|
|Optimizing the Regulatory Environment||Macroeconomic approach to tax and regulatory policy focused on changes in laws (e.g., general tax reductions) and regulations that affect everyone doing business||Policy impact analysis to determine if regulatory changes are sufficiently focused on the needs of necessity entrepreneurs; Policies that most benefit these businesses are those that defer expenses, allow companies to convert tax incentives into cash, and lower development costs|
|Technology Exchange and Innovation||Cluster development and leveraging public funds that encourage university-private sector collaboration||Benchmarking and evaluating the benefits associated with state investments on necessity entrepreneurs and whether they are adequately served by such initiatives|