Creating a start-up culture in the Middle East

The Middle East has a very low rate of business start ups compared to other regions, and the reasons for this are not hard to find. Lifting the obstacles to entrepreneurialism could create jobs and increase economic growth in the region, according to an analysis by Booz Allen Hamilton.

by Booz Allen Hamilton
Last Updated: 23 Jul 2013

Start-up activity in the Middle East has been limited to date, with even more dynamic economies in the region such as the UAE positioned quite low in international rankings. For example, only 2.7% of the UAE population is engaged in early-stage entrepreneurial activity, compared with 19.3% in Indonesia, 10% in the United States, 6.1% in Turkey, and 5.3% in South Africa.

Joe Saddi, senior vice-president and head of the Middle East for Booz Allen Hamilton, identifies three main components that make a business environment favourable to start-ups. First, and crucially, there must be a large base of entrepreneurs and an entrepreneurial culture. Second, there must be innovation activity, which includes identifying market opportunities and developing new concepts. Third, there must be effective support for start-ups.

Saadi spoke at a conference on entrepreneurship at the fifth annual Middle East Day, hosted by the London Business School's Middle East Club, where speakers addressed the challenges and opportunities facing entrepreneurs in the Middle East, at a time of huge capital inflows into the region.

Small and medium sized business, all of which began as start-ups, provide at least half the jobs in most OECD countries. They contribute 70% of total employment in the European Union and 49% in the United States, while they make up 60% of France's GDP, 55% of Indonesia's GDP and 40% of the United States' GDP.

Very low R&D expenditure in the Middle East is a major impediment to start-up activity, according to Saddi. The Arab average for R&D expenditure as a percent of GDP is 0.2%, while in Turkey it is 0.6%, 1.15% in Brazil, 2.3% in the OECD, 2.8% in the United States, and 3.1% in Japan.

In addition, entrepreneurs wishing to start a business face a variety of administrative, cost and financing hurdles. In one Arab country, for example, the most problematic factors for doing business were identified in a survey as access to financing, bureaucracy, lack of an educated workforce, and taxes.

The time it takes to start a business in the example country was 36 days, 1.5 times as long as the OECD average, while the minimum capital required is 25 times the country's average per-capita income, compared to just 44% of per-capita income in OECD countries.

A comprehensive strategy to encourage a culture of entrepreneurialism would include:
· Developing a favourable business environment, including tax incentives, streamlined procedures, and the reduction of red tape and bureaucracy.
· Finding ways to facilitate access to financing and support for start-ups, whether public, private or through joint partnerships.
· Governments should enable a unified and single point of contact (a one-stop shop) for entrepreneurs to develop their business ideas.

Saddi said: "Market needs can be determined by the interaction of leaders from the government, private sector, and education, while the establishment of close links between universities, businesses and the financial sector encourages innovation and the commercialisation of new technologies." Governments can play a pivotal role in promoting R&D and new business ideas, said Saddi.

Booz Allen Hamilton, July 15
Review by Joe Gill

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