What’s Holding Back Entrepreneurs in the Middle East and North Africa?

The Middle East and North Africa (MENA) region has had its fair share of economic challenges over the last few years. The Arab Spring’s political unrest has brought even more economic woes to countries still reeling from the global financial crisis, leading to the mass migration into Europe that we are seeing today. Add high unemployment rates, especially among Arab youth, and the region’s economic challenges might seem insurmountable.

The source of these challenges is primarily a lack of opportunity. The public sector, which the region has traditionally relied on to provide employment, cannot realistically create enough jobs to meet demand today or in the near future. However, the World Bank, the World Economic Forum, the ILO, national governments, and political and corporate leaders hail entrepreneurship as a long-term and viable means to provide an alternative source of jobs and economic growth.

Entrepreneurs can create wealth, enable economic regeneration through innovation, create jobs, and often go on to become philanthropists. Given these benefits, regional governments, supported by corporate and international government donors, have made it their top priority to create jobs by supporting the incubation and proliferation of entrepreneurship. Several programs are now attempting to encourage the development of an entrepreneurial mindset though schools, businesses, and events. Many of these efforts have focused on and made good progress in providing funding for entrepreneurship through angel investing, growth equity capital models, and government-backed lending within certain countries.

But investors still do not seem to be able to get their expected rates of return on investment in the region. Governments have yet to implement adequate economic reforms; bankruptcy laws and bureaucracy continue to be a barrier to entrepreneurial success. And despite the progress that has been made, unemployment levels remain high at around 12 percent, with youth unemployment above 28 percent in the Middle East and 30 percent in North Africa—the highest rate in the world.

Clearly, using entrepreneurship to solve MENA’s economic challenges is not so straightforward. According to Shikhar Ghosh of Harvard Business School, 30-40 percent of startups around the world end up having to liquidate their assets, with investors losing most or all the money they put in, and 70-80 percent fail to meet their projected return on investment. Moreover, we believe that it is five to 10 times more difficult for an entrepreneur in MENA to get to break-even than it is in the United States or the United Kingdom. Reasons include the region’s lack of appropriate management of property laws, inadequate infrastructure such as electricity and internet in certain countries, and a market system that is so heavily structured around major family businesses that it stifles small startups, preventing them from growing, breaking through, and becoming successful. Just as importantly, the region suffers from a lack of talent to build teams and human capital, which comprises knowledge, skills, and behaviors such as an entrepreneurial mindset and a core spirit of confidence, resilience, and motivation. In many cases, cultural and societal norms promote a fear of risk-taking and failure, and do not empower children to be curious and make choices for themselves.  

Given these barriers, it is imperative that international governments, philanthropists, corporate CSR programs, and financial investors work to develop the fundamental pillars of a more fertile and balanced entrepreneurial ecosystem: environment, infrastructure, financial capital, and human capital. Moreover, given current trends in the region, we believe that investors should pay particular attention to that last pillar, human capital. All four pillars are important, but a recent Mowgli Foundation report, titled “Nurturing Human Capital: The Missing Piece of the Entrepreneurship Puzzle in MENA,” shows that developing human capital in the region does not receive as much attention or investment as the other pillars.

The pillars of the entrepreneurship ecosystem and the elements that make up each pillar (Mowgli Foundation, 2013)

In fact, most current investment in MENA entrepreneurship comes in the form of technical training or financial capital. While both are valuable, they are unlikely to yield the best return on investment if provided to would-be entrepreneurs who may have the technical skills but are not confident, resilient, motivated, and ultimately empowered to take on the entrepreneurial journey. Without certain mindsets, abilities, and behaviors—such as a sense of belonging to a community that offers companionship along the lonely entrepreneurial journey, a tolerance for risk, resilience, and related skills—entrepreneurs cannot effectively deal with many of the obstacles and interferences that arise when building new enterprises; they may not be able to turn their potential and capability into success.

This is why we fundamentally believe that a greater focus on developing human capital is critical to the success of MENA entrepreneurship, and is the foundation upon which all other elements of entrepreneurship and its potential impact can grow. Especially for those who have been through school and are now thinking about starting a company, the best way to address obstacles, develop human capital, and nurture entrepreneurship is holistic mentoring that focuses first on the personal and then on the business aspects of development.

Today, a number of organizations acknowledge the need for human capacity development, and especially through mentoring, including funders such as USAID and the World Bank (within its technical assistance packages); investors such as Flat6Labs, Oasis500, and Wamda; and online mentoring platforms such as MicroMentor and the Cherie Blair Foundation. However, most of these organizations tend to focus on the development of skills and knowledge through training courses, skills and performance coaching, and business advice—typically short-term interventions. They do not focus on empowering and strengthening the entrepreneur’s personal growth through the development of leadership qualities such as a strong sense of purpose, quality judgment and decisions, emotional intelligence and empathy, creativity, motivation, consideration of how to serve others, and management of ego.

For mentors to effectively empower entrepreneurs to develop these qualities, they need to build a trust-based relationship that is mutually beneficial and non-transactional, and takes a long-term view. Organizations seeking to address this need might learn from the Mowgli Foundation's model, which provides mentoring programs that inspire, connect, and guide entrepreneurs and leaders to overcome life's personal and business challenges. Mowgli's program involves:

• Strengthening entrepreneurs and their businesses by matching them with trained mentors in facilitated, supported, and supervised long-term relationships over a 12-month period, which sets the foundations for a longer-term mentoring relationship and ensuring the greatest levels of impact.
• Training and nurturing mentors not to give advice but to ask questions and listen as the entrepreneur to explores, reflects on, and addresses key obstacles that might be holding them back from fulfilling their potential. Mentors also help ensure that the entrepreneur’s business direction is aligned with their purpose and that they have a safety net to rely on when they want to step outside of their comfort zone.
• Building of a global community of trained mentors and entrepreneurs that are able to connect for networking, learning, and growth opportunities.

A recent Mowgli Foundation report found that through investing in this sort of mentoring, our funders, such as the UK’s Department for International Development and Foreign & Commonwealth Office, the European Union, Lafarge Egypt, and OCP Entrepreneurship Network in Morocco, who cover the delivery costs of our entrepreneurial mentoring programs in MENA, have achieved an average return on mentoring investment of 890 percent during their first year of mentoring. This average only reflects the jobs created and safeguarded and does not include the additional financial revenues and potential positive outcomes that the entrepreneurs have achieved through their businesses.

Developing entrepreneurial skills and knowledge among aspiring MENA entrepreneurs is undoubtedly necessary. However, without also developing their behavioral and leadership qualities through holistic mentoring, the chances of business success and sustainability are marginalized. Mentoring needs to be a central component of any initiative that seeks to inspire leadership, increase return on entrepreneurial investment, reduce unemployment, and drive economic growth to alleviate poverty.

Read more stories by Kathleen Bury.