Posts Tagged ‘Arab governments’

In the lead up to participating in the Arabian Business Digital Forum, Wes Schwalje, Chief Operating Officer of Tahseen Consulting, sat down with Arabian Business to discuss the Arab region’s quickly growing digital economy and how regional businesses can prepare for a digital future.

Arabian Business: In a world where everything is digitized, businesses need to pursue innovation to disrupt their own business model before the competition does. How are you seeing this happen in this region?

Schwalje: In order to answer this question, we must first define how we measure innovation. If we use company spending on R&D as a proxy for innovation, the UAE ranks 22nd in the world and the highest in the Arab World according to the World Economic Forum Global Competitiveness Report. So the UAE is a good bellwether for how the digital economy is disrupting incumbents in the region and how incumbent firms are investing to avoid disruption.

The Abu Dhabi Innovation Index and Innovation Survey, which was conducted in 2014, sheds a bit more light on the kinds of firms and sectors that are spending the most on R&D and innovation. This research shows that only very large firms, primarily in the oil and gas, manufacturing, and business services, are really investing in R&D and innovation. However, when we scratch the surface a bit more, we see that the majority of these firms are allocating their R&D funds to acquiring machinery, equipment, and software. It seems more likely that industry incumbents are spending on R&D to secure their current market positions rather than investing in R&D because they want to grow by developing new products. So when we say innovation in the Arab World, for the most part this still means acquisition of technologies from abroad by large companies.

This raises a very important question for the region – what about the other 90% of firms in Arab economies that are SMEs? How are they innovating? If we look at the Global Entrepreneurship Monitor surveys from the UAE, only 2.3% of businesses in the UAE have tech-based business models. Low rates of technology infusion in SMEs are quite consistent across the region. In many Arab economies, including the UAE, the majority of SMEs operate in sectors where innovation is less of a competitive factor. So a key issue that Arab nations are struggling with now is how do we make our SMEs more innovative?

Arabian Business: Customers have been spoiled by the likes of Amazon and Apple, and now expect every organization to deliver products and services swiftly and with a seamless user experience. How can non-tech companies meet these expectations?

Schwalje: Given the industrial structure in the region, a better question might be, how can SMEs compete with larger incumbent competitors at the national, regional, and international levels? In my opinion, technology-based digital disruption is one competitive strategy but is not always the answer. Tahseen Consulting’s research on effective competitive strategies in the region shows that non-tech companies can compete by pursuing a number of paths to competitive advantage including

  • Embracing being an underdog – whatever industry you are in view the best in class competitor as the company you need to beat
  • Dominating a niche that is untapped
  • Outperforming in areas where flexibility and agility are advantageous
  • Delivering more personal customer experiences

Arabian Business: Data is king in the new digital world, how important is it for companies to be collecting and analyzing customer data? How well do companies in the region really ‘know’ their customer?

Schwalje: It is absolutely critical for companies, big and small, to be collecting and analyzing customer data. And one of the most interesting applications I think is in pricing. Dubai is a testing ground for dynamic pricing – companies and government agencies are using dynamic pricing to maximize revenues and smooth demand. In the UAE in particular, I am very excited to see how things evolve with the application of AI in dynamic pricing strategies due to the stratified structure of the labor market and wage level differences. Right now many people are familiar with peak pricing due to the popularity of ridesharing technology companies. But there are a whole host of other dynamic pricing strategies that can be leveraged by companies with better customer data such as segmented pricing, time-based pricing, service time pricing, advanced pricing, and bulk pricing.

Arabian Business: Few established companies are ready to face the implications of digital change. Do you think they really realize how fast the change needs to happen, or how transformational it needs to be?

Schwalje: There are several reasons why established companies have not embraced the digital economy in our region

  • Market structures that lack competition
  • Governments are both a regulator and operator or key shareholder in several industries
  • Public policies that establish unnecessarily high barriers to entry for technology-driven upstarts
  • Digital skills gap
  • Fear of the unknown – how will automation affect impact jobs?

Internationally there is this looming black cloud proposition that businesses need to pursue innovation out of fear of being disrupted by the competition, but perhaps companies are a bit isolated from this in our region. I think larger companies do realize that they need to change, but I would argue that some companies are isolated a bit from the sort of competition which would really force them into an innovate or perish scenario. For example, how is it that Dubai only had online grocery delivery in 2013 when the first online grocery store in the US IPOed 21 years earlier? Why did it take us 2 decades to make this change?

Arabian Business: If you could offer advice to companies here in the region, what concrete steps should they take to pave the way for a digital future?

Schwalje: As a region we need to transition from innovation acquirers to innovation originators. When companies are asked what stands in the way of innovation, the top answers we consistently hear are the market is dominated by established enterprises and innovation costs are too high .To fix this I think there are two key areas of focus: We need a serious regional dialogue about competition policy that promotes technological innovation, price competition, and consumer choice. We also need a concerted effort by governments in the region to provide funding to help SMEs research, develop and commercialize new technologies, and accelerate the adoption and adaptation of these technologies – this perhaps could be funded by countries across the region through micro surcharges like the Innovation Dirham. But these surcharges must be linked to tangible results and the funds must trickle down to SMEs.

In this Insights at the Edge of Government Analysis Flash, we look at the increasingly diverse industry sectors being targeted by Saudization efforts in Saudi Arabia. In the GCC countries, a key challenge to promoting employment in more diverse sectors of the economy and the private sector remains the relatively high reservation wage set by public sector employers. Recent high profile Saudization efforts are increasingly targeting economic sectors offering average monthly wages from 3,000-5,000 Saudi Riyal per month which have traditionally not been financially and socially attractive. Without a wage subsidy program, potentially similar to Kuwait that incentivizes private sector employment, public sector employment will likely to continue to attract the vast majority of Saudis and put pressure on Saudis to wait for public sector positions.

Renewed Saudization efforts targeting sectors which have traditionally not been financially and socially unattractive

In his recent paper Open Data: A Paradigm Shift in the Heart of Government Ali M. Al-Khouri, Director General of the Emirates Identity Authority, cited Tahseen Consulting’s work on how social media technologies can be used to increase transparency and openness of Arab governments.

Al-Khouri cites Tahseen Consulting’s white paper An Arab Open Government Maturity Model for Social Media Engagement in explaining the need for governments to reflect joined up policy by reducing data silos. Tahseen Consulting’s social media maturity model challenges previous models of e-government and open government maturity based on the experiences of Western countries by offering region-specific guidance that accounts for the unique governance tradition of Arab public sector entities.

Our Arab government social media maturity model has been cited as a potential model for Korean public sector entities, highlighted by the World Bank as a valuable approach in communicating with Arab youth, and referenced in the World Wide Web Foundation’s Open Data Barometer.

When it comes to cutting edge research on the societal impacts of information and communications technology, social scientists and public sector leaders turn to Sage Jounals’ Social Science Computer Review. Tahseen Consulting is honored to have its framework for public sector social media adoption highlighted as a potential model for Korean public sector entities to leverage social media in efforts to make government more open, transparent, and accountable in the article Social Media Risks and Benefits: A Public Sector Perspective.

View Our Arab Public Sector Social Media Engagement Model

To obtain a copy of the study “An Arab Open Government Maturity Model for Social Media Engagement” please go to:

Our analysis of Arab public sector social media engagement found that existing generalized evolutionary models of e-government and open government offer poor prescriptive roadmaps for increased use of public sector social media use in the Arab region. As shown in the table reproduced from the article below, Tahseen Consulting’s social media based engagement model is the only empirically derived adoption model based on public sector social media activity in the Arab World.

Social Media–Based
Government Model
Social media–based adoption and engagementConsists of three stages for social media engagement, moving from one-way communication stage to service delivery and accessibility stageSchwalje and Aradi (2013)
Open government
maturity model
Consists of five levels of social media maturity, suggesting practitioners to achieve one level at a timeLee and Kwak (2012)
Social media
utilization model
Consists of three stages of utilization for citizen’s engagement in social media starting from Stage 1 (information socialization) and moving to Stage 3 (social transaction)Khan (2013)
Adoption process
for social media
Consists of three stages social media adoption process, evolving from informally experimentation to wide form of communication medium involving strategy and policies for social media useMergel and Bretschneider (2013)
Source: Reproduced from Khan, G. F., Swar, B., & Lee, S. K. (2014). Social Media Risks and Benefits: A Public Sector Perspective. Social Science Computer Review. doi: 10.1177/0894439314524701 available at

The World Bank’s Communications for Governance and Accountability Program has also cited our research on how governments can use social media to engage with young citizens more effectively. The World Bank’s article Look Who Has a Megaphone… which cites our research is available here.

GCC leaders must adjust policies to move beyond low impact forms of technologically-driven citizen engagement that do not address public demands for increased accountability, improved performance, and participation in decision making

While the use of technology is a common denominator between Arab open data initiatives and those in other countries, leadership, social, cultural, and institutional factors have negatively influenced the effectiveness of open data initiatives in the GCC. According to a new Tahseen Consulting report, most GCC open data initiatives are severely lacking in comparison to open data programs in OECD countries.

The report outlines a comprehensive framework and best practices that Arab governments can use to improve open data initiatives and bring them into alignment with good practice from OECD countries. Any information such as transit schedules, hospital locations, school enrollment data, birth statistics, traffic data, or weather trends might qualify as an open government initiative. However, by focusing on low priority government activities, GCC open data initiatives rarely provide additional information that is not already available via traditional media or institutional websites.

View a Summary of the Report’s Findings

Is Open Data Leading to Better Government in the GCC?

While the embrace of open government to complement public sector service provision is still in its infancy in the GCC, there is much expectation that open data will have a transformative impact on citizen participation, policy formation, and the way public sector entities conduct business. Relative to OECD countries, most GCC governments focus on national data portals rather than regional and city initiatives, have not enacted right to information laws, fail to engage civil society and academia in efforts, and lack education and training courses for developing more effective open data programs, the report says.

Drawing on examples from OECD countries, Tahseen Consulting’s report Is Open Data Leading to Better Government in the GCC? Identifies several policy, implementation, and data improvements that GCC governments can undertake to make the most of regional open government and data initiatives.

“There are many examples of open government and data best practices from the OECD countries that need to be applied more effectively in the GCC,” said Wes Schwalje, Chief Operating Officer of Tahseen Consulting and author of the report. “Use of technology is not a substitute for deeper reform towards transparency, accountability, and cooperation. Current open data initiatives must go beyond releasing data on non-sensitive political topics towards the release of data which involves the public in a participatory dialogue that can shape decision making, policies, and public service delivery.”

How GCC Open Data Initiatives Compare to OECD Benchmarks

Although several GCC countries have invested heavily in open government and data programs and establishing e-government authorities, Tahseen Consulting’s research finds that GCC government open data programs may not be adequately meeting citizen needs. GCC governments must adapt to new citizen expectations for participation and engagement, coproduction of government services, crowdsourcing solutions to societal issues, and increased transparency and accountability.

View Our Other Work on Open Government and Data in the Arab World

An Arab Open Government Maturity Model for Social Media Engagement

GCC governments must respond to evolving citizen expectations by showing clear senior level commitment to open government and data programs, establishing federal implementation guidelines, and ensuring sufficient resources. “GCC governments must become much more specific in establishing guidelines and data standards for open government and data initiatives,” said Walid Aradi, Chief Executive Officer of Tahseen Consulting. “Most federal guidelines in the GCC remain at a general level and only outline basic principles without specifying how government entities should implement open government and data programs and what types of data should be released.”

Tahseen Consulting has developed an Open Government and Data Diagnostic Tool to help GCC governments adopt more effective practices to make the most of open government and data initiatives. Tahseen Consulting’s diagnostic tool provides a comparative framework that enables entities to determine specific organizational changes that need to be made in order to reach higher stages of open government and data maturity and compare their organization’s maturity level to other entities in the region.

Insights to Help GCC Governments Succeed With Open Government and Data Initiatives in Response to Increased Citizen Expectations

Lack of guidance on how to implement open government and data good practices and regional governance traditions have led to several public sector entities introducing politically low impact programs that fail to enhance transparency, citizen participation in decision making, and collaboration in public service delivery. “Technology often solidifies existing institutional practices rather than changing long standing organizational behaviors,” said Schwalje. “Bringing Arab open government and data initiatives in line with the spirit of programs in OECD countries will require reforms at the national level as well as substantial organizational changes at many entities.”

Tahseen Consulting’s research identifies several ways in which GCC governments can align open government and data programs with similar initiatives in OECD countries.

Enact Right to Information Laws. Many Arab countries do not have right-to-information laws, don’t permit citizens to request data, and have no mechanisms via which to handle citizen requests for data. In several countries, right to Information laws will need to be passed to overcome a prevailing culture of secrecy that limits citizen access to information.

Enact Personal Data Protection Laws. The principle of a right to privacy of personal information is codified in some Arab constitutions and contained in laws that require consent for collection and processing of personal data However, very few countries have federal laws that protect personal information. Many of the data privacy policies in the region have broad clauses related to taking measures to prevent use and disclosure of information but do not specify particular methods of compliance. Updated personal data protection laws are required to reduce citizen concerns about how their personal data is used.

Increase Civil Society Engagement. There is little evidence which suggests that civil society or information technology professional groups are being actively engaged by governments in forming open government and data strategies, identifying data requirements, or in increasing citizen use of open data. Open data initiatives are generally designed to broadcast data rather than create a genuine dialogue about what data might be required by the community. There is a significant role that civil society can play in defining the types of data citizens might find useful and in analyzing publicly available data.

Establish Regional and City Initiatives. The majority of entities with open government and data initiatives are federal ministries, authorities, or agencies. More emphasis on creating regional and city initiatives is required to ensure local needs are being met.

Increase Academic Participation. There is very little evidence that the academic community and academic institutions publish open data as a part of fulfilling their research mandates. For example, grant guidelines for receiving funding from national research funds rarely contain stipulations to publicize data which could be useful to other researchers. An institutional research culture which supports sharing of data must be instilled to promote higher impact research.

Improve the Education and Training System. At the higher education level, many public and private universities offer computer and information science degrees which address concepts related to open government and data. While degree programs cover technological subjects, many programs fail to sufficiently provide more extensive training on areas such as data science, visualization, legal issues related to open data, and open data entrepreneurship.

For more on Tahseen Consulting’s work on open data in the Arab World and other findings in the new report, please visit

The King Abdulaziz Center for World Culture, an initiative of Saudi Aramco, invited Tahseen Consulting’s Wes Schwalje to Saudi Arabia to host a panel on global best practices in the transition to knowledge societies. The panel, which was held at the Global Knowledge Society Forum, featured:

Dr. Hun Joo Park
Executive Director, Korea Development Institute

Dr. Indrajit Banerjee
Director, Knowledge Societies Division, UNESCO

H.E. Professor Dr. Nasser David Khalili
UNESCO Goodwill Ambassador

Dear Readers,

As 2013 draws to a close, here is a look at our most popular content of the year. We hope you are enjoying Tahseen Consulting’s Research and Insights, and we look forward to continuing to engage with you in 2014.

Best wishes for a happy and productive new year,

The Tahseen Consulting Team

Tahseen Consulting’s Walid Aradi Interviewed on Dubai TV’s Money Map

Tahseen Consulting’s CEO Walid Aradi appeared on Dubai TV’s Money Map to discuss the role of entrepreneurship policy in economic development and meeting the region’s youth unemployment challenge.
Women Wanted: Attracting Women to Technical Fields in Qatar

In this article, we discuss the difficulties Qatar faces in terms of promoting technical and vocational education amongst females. Over the past several decades Qatar has dramatically reformed its education and training system to align it with macroeconomic policies aimed at advancing towards a knowledge-based economy. However, technical vocational education and training (TVET) has not been a significant focus of educational reform.

Promoting Entrepreneurship in the Arab World: The Need for Tailored National Approaches

Understanding the determinants of self-employment and how they might differ across the region is critical to meet the region’s youth unemployment challenge

An Arab Open Government Maturity Model for Social Media Engagement

While embrace of social media as a component of open government initiatives is still in its infancy in the Arab World, there is much expectation that public sector social media use will have a transformative impact on citizen participation in government, policy formation, and the way public sector entities conduct business. However, existing evolutionary models of e-government and open government maturity based on the experiences of Western democracies offer little support to Arab entities that operate in an institutional environment characterized by much different governance traditions.

Arab Knowledge Economies Require More Effective Skills Formation Systems to Generate High Skill, High Wage Employment

As Arab countries pursue knowledge-based economic development, national skills formation policies require significant rethinking says this report from Tahseen Consulting in collaboration with the Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research.

Skills Shortages and Gaps May Limit the UAE’s Islamic Finance Hub ambitions

Based on our projections that a another $87 to $124 billion could potentially enter the Islamic banking system in the UAE by 2015, approximately 7,800 new jobs will be created at Islamic banks in the UAE assuming current asset concentration ratios remain similar.

Arab Corporate Social Responsibility Rapid Appraisal Diagnostic

Given the scattered use of Global Reporting Initiative standards in the region, Tahseen Consulting has developed an Arab Corporate Social Responsibility Rapid Appraisal Diagnostic based on analysis of a representative sample of 128 regional CSR initiatives and previous literature.

The Arab World’s Most Generous Philanthropists Could Mobilize $24 billion by Signing the Giving Pledge

If the Arab World’s billionaires signed a pledge to donate their wealth to philanthropy, an estimated $24 billion would be mobilized.

Arab Students Studying Abroad Contribute $77 Billion to Other Economies

Arab students studying abroad have generated $77 billion in income for other countries over the last decade without even considering other economic externalities.

Only 11% of Arab Educators Regularly Use Educational Technologies in their Classrooms a Tahseen Consulting Study Finds

Due to the region’s youthful demographics and widespread use of mobile technologies, Arab educators face the challenge of meeting new expectations of learners who want engaging, interactive, and individualized learning experiences.


In January 2013, we highlighted the issue of skills shortages and gaps potentially limiting the ambitions of aspiring Islamic finance hubs in the Arab World. A key challenge that all aspiring Islamic finance hubs face is developing a banking workforce with Sharia knowledge, the ability to clearly explain Islamic banking products, and the ability to contribute to product development. Without these competencies staff in Islamic financial institutions have difficulties explaining products to customers and are unable to contribute to product innovation. In the run up to the recent Global Islamic Economy Summit in Dubai, our research on skills needs required by emerging Islamic financial hubs was cited in by several news outlets and institutions in the GCC.




7daysarticle coverage.fw

View Our Other Work on Islamic Finance and Banking in the Arab World

In our blog post Skills Shortages and Gaps May Limit the UAE’s Islamic Finance Hub ambitions (, we highlight that the UAE, for example, faces tremendous skills shortages in forging a vibrant Islamic finance industry.

In our blog post Tahseen Consulting’s CEO Sees Strong Growth Potential for Local Banks in the UAE (, Walid Aradi outlines why local banks have been gaining market share from international competitors in the UAE

In our blog post Tahseen Consulting Analysis Cited by Abu Dhabi Council for Economic Development in its Analysis on the Growth of Islamic Finance in the UAE (, Tahseen Consulting’s Wes Schwalje comments of on the growth of Islamic finance in Abu Dhabi

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.

Necessity and Opportunity Entrepreneurship in the Arab World

Since 2001, the Global Entrepreneurship Monitor (GEM), which is an annual assessment of entrepreneurial activity in 100 countries, has distinguished between two types of entrepreneurs: opportunity entrepreneurs who pursue business opportunities voluntarily for personal interest, greater independence, or higher income often at the same time they hold a regular job and necessity entrepreneurs who are engaged in self-employment because they are unable to find better work and self-employment is the best alternative, but not necessarily preferred, employment option (Reynolds, Camp, Bygrave, Autio, & Hay, 2001; Xavier, Kelley, Kew, Herrington, & Vorderwülbecke, 2012)[1]. Analysis of GEM data indicates that innovation-driven countries with higher GDP per capita have higher rates of opportunity entrepreneurship while lower income countries have higher concentrations of necessity entrepreneurs. GEM data also suggests that a higher percentage of opportunity entrepreneurship occurs in high skill, knowledge-based business services with a greater concentration of necessity entrepreneurs in low and semi-skilled consumer-oriented economic sectors. Growth aspirations also vary substantially based on entrepreneurship types with the majority of necessity-driven entrepreneurs expecting their firms to remain under 5 employees (Reynolds et al., 2001; Xavier et al., 2012).

GEM data on 11 countries in the Arab region enables the classification of countries according to their ability to provide a sufficient enabling environment for opportunity-driven entrepreneurship. Arab countries can be classified into three maturity stages which relate economic development, labor market conditions, and industrial structure to the potential for opportunity-driven entrepreneurship. A brief description of each equilibrium phase is discussed below and applied to 11 Arab countries for which GEM data is available in Figure 1.

Low Opportunity Entrepreneurship Equilibrium: A low opportunity entrepreneurship equilibrium occurs when an economy adopts a lower value added production orientation when faced with a low supply of workforce skills. In economies facing low opportunity entrepreneurship equilibria, the industrial structure is typically made up of a large number of micro and informal enterprises which are highly susceptible to economic shocks. Small firms are more susceptible to economic fluctuations that can cause changes in unemployment rates or fail to provide sufficient employment opportunities which lead to comparatively high levels of necessity entrepreneurship. Egypt, Palestine, and Yemen, which have high concentrations of necessity entrepreneurs, exhibit low levels of ecosystem maturity in terms of presenting opportunities for opportunity-based entrepreneurship.

Intermediate Opportunity Entrepreneurship Equilibrium: With an average annual GDP growth rate of nearly 3% in 2012 according to World Bank statistics, over two times the GDP growth rate in the OECD, the Arab countries which fall in the intermediate opportunity entrepreneurship equilibrium stage are experiencing comparatively moderate levels of economic growth which has been shown by GEM data to lead to significant levels of necessity entrepreneurship (World Bank, 2013). However, the structure of such economies, which cannot be classified as specializing in knowledge-based industries or goods and commodity industries which require low levels of workforce skills, have led to comparatively lower levels of unemployment than in countries in a low opportunity entrepreneurship equilibrium. For this reason, such economies also offer significant opportunities for opportunity-based entrepreneurship. Countries at the intermediate opportunity entrepreneurship equilibrium stage have implemented economic policies to enhance entrepreneurship and enacted reforms towards improving the quality of education and integrating entrepreneurship within education and technical and vocational education and training systems. Countries at the intermediate opportunity entrepreneurship equilibrium stage include Algeria, Jordan, Morocco, Syria, and Tunisia.

High Opportunity Entrepreneurship Equilibrium: Countries in a high opportunity entrepreneurship equilibrium are generally comparatively wealthy countries on a GDP per capita basis with a substantial number of knowledge-based industries which provide high skill, high wage employment to a majority of the population. These countries may also have large rates of concessionary public sector employment which provided funding and availability for opportunity-based entrepreneurship. The industrial structure of such countries is characterized by a strong small and medium sized enterprise sector as well as large, sophisticated firms which may be state owned. Countries in a high opportunity entrepreneurship equilibrium have implemented economic policies specifically to support entrepreneurship and have achieved significant success in improving the quality of education and integrating entrepreneurship training into education and technical and vocation education and training. The level of economic development, labor market conditions, and industrial structure of such economies is conducive to high levels of opportunity-based entrepreneurship particularly in higher value added service industries. Countries at the high opportunity entrepreneurship equilibrium stage include Lebanon, UAE, and Saudi Arabia[2].

Based on the maturity model for opportunity-driven entrepreneurship proposed, the Arab countries exhibit a large degree of diversity in their ability to provide an ecosystem conducive to opportunity-based entrepreneurship. However, the diversity of entrepreneurial opportunities available in countries across the region has not led to targeted economic policy interventions regarding entrepreneurship at the national level. In several Arab countries, economic policy does not differ significantly based on the higher concentration of either necessity or opportunity entrepreneurs. Most Arab countries are pursuing identical entrepreneurship policies, which include career guidance, funding, business skills training, reducing bureaucracy, and establishing business incubators, without regard to the types of entrepreneurs in their countries and vastly different support needs required by necessity versus opportunity-based entrepreneurship.

Arab countries can be classified into three maturity stages which relate economic development, labor market conditions, and industrial structure to the potential for opportunity-driven entrepreneurship.

Figure 1. Opportunity-based entrepreneurship ecosystem maturity 

The Need to Distinguish Between Types of Entrepreneurs in the Arab World

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. Figure 2 summarizes the key differentiating characteristics between necessity and opportunity-driven entrepreneurs according to international empirical studies.

Category of Comparison Opportunity EntrepreneursNecessity Entrepreneurs
AgeOn average approximately 5 years younger according to empirical studies based on international dataUp to 5 years older than opportunity entrepreneurs in empirical studies based on international data
EducationTend to be more highly educated with education and general labor market experience having a positive impact on earnings and reducing exit ratesTend to be less educated and benefit more from specific vocationally oriented education found to be related positively to earnings
Industry ExperienceMore likely to have working experience from regular employment in the same industry they are enteringLess 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 employmentOften driven into self-employment after involuntary job loss or scarcity of employment opportunities
CyclicalityMore likely to create ventures when economic conditions are good and unemployment is low; They also choose to create businesses regardless of their employment statusNegative economic shocks that are more likely to affect small firms or increase unemployment push individuals to create businesses
Quality of Opportunities PursuedCreate larger businesses in knowledge-based industries which require significant amounts of invested capital and employees generate higher earningsLess 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 CreationHigher probability of creating additional jobs Primarily focused on employing themselves and have lower probability of creating additional jobs
Firm Survival Higher survival and lower failure and closure ratesFace 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 ToleranceInvest higher amounts of capital into their venture and are more risk tolerantLower amounts of invested capital and lower tolerance for risk
Tendency to Seek External SupportMore likely to have built their network to include people valuable in the process of venture creation such as potential customers, cofounders or financiersLess likely to seek support in the form of professional or personal assistance during venture creation

These empirical 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, regional entrepreneurship policy is designed around a one size fits all approach which is particularly lacking in regards to serving necessity-driven entrepreneurs. Based on the proposition that entrepreneurship policies in a given country should reflect the mix of necessity versus opportunity-driven entrepreneurs operating in the country, Arab countries, based on the equilibrium stage they fall into, should have significantly different, contextually dependent economic policies surrounding entrepreneurship. However, in many Arab countries entrepreneurship policies are not necessarily aligned with macroeconomic and other critical policies for economic development. Several studies (See for example Aradi, Buckner, & Schwalje, 2013) of the Arab region have shown a large disconnect between entrepreneurship policies and programs and critical sector development strategies. For example, Aradi, Buckner, & Schwalje show that Qatar’s entrepreneurship and educational policies are not necessarily aligned and are not viewed as complimentary. This results in a lack of career guidance for aspiring entrepreneurs and entrepreneurship training being rarely offered in K-12 schools due to lack of an approved curriculum. Rather than complementing existing curricula, aspiring entrepreneurs in Qatar are exposed to entrepreneurship much later in their schooling or have to seek out such training at specialized institutions outside the formal education system.

Implications for Policy and Practice

Due to the scarcity of empirical work on necessity and opportunity entrepreneurship in the Arab region, it is difficult to formulate specific prescriptions at the national level. However, this exploratory analysis shows that strong differences exist between necessity and opportunity entrepreneurs which have not been accounted for in regional entrepreneurship policies. Entrepreneurship policy across the region fails to differentiate between necessity and opportunity entrepreneurs favoring a one size fits all approach that is largely shaped by programs that serve opportunity-driven entrepreneurs. In doing so, tailored offerings based on the characteristics of different types of entrepreneurs are rarely considered.

International empirical findings, assuming applicability to the Arab region, suggest 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 likely includes all of the Gulf countries, is presumably much different than 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 targeted national policies. Instead of classifying all entrepreneurs as a homogenous 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. Figure 3 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 PolicyTypical Opportunity Entrepreneur Approach in the Arab RegionWhat 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 venturesDefined policies and programs to meet the specific needs of necessity entrepreneurs and other country specific challenges
Entrepreneurship EducationEarly and post-secondary entrepreneurship education and business skills training at university and non-university based business incubatorsSupport 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 EnvironmentMacroeconomic 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
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

From this analysis, it is clear that a large number of Arab states should be reassessing their strategies, policies, and programs to maximize expenditures on fostering entrepreneurial activity. This article is designed to raise issues to spur a more informed debate around the impact of entrepreneurial policies in the region and promote national policies that accommodate, when necessary, both opportunity and necessity entrepreneurship.  

[1] Caliendo & Kritikos identify a third classification of push-and-pull entrepreneurs who are driven by a mixture of push (unemployment or difficulty locating a suitable job) and pull factors (personal interest, greater independence, or higher income). Though they express mixed motivations for pursuing entrepreneurship, push-and-pull entrepreneurs are more similar to opportunity entrepreneurs.

[2]Upper-middle income countries like Lebanon may not be able to emulate many of the policies and practices of the richer Gulf Cooperation Council countries which generally offer highly paid public sector work and social benefits that affords many individuals the time and resources to pursue opportunity-based entrepreneurial endeavors alongside full time work. This suggests that even at particular equilibrium stages, countries will likely need to follow country context dependent policies aligned with national resources available to support entrepreneurship relative to other socio-economic government aims.