An Iraqi boy wearing a Manchester United jersey looks at a toy made by students for a science project exhibition at Al-Mutamayizin School in Baghdad. Source: AHMAD AL-RUBAYE/AFP/Getty Images[/caption]“Invest in whichever sector that could serve the young generation ... in the service sectors, like education, healthcare and coffee. We’re talking about frontier markets ... Iraq, Lebanon and Tunisia,” advises Shwan Taha, founder of Rabee Securities, the first international Iraq-based brokerage firm. On February 2, Taha’s firm brokered the largest initial public offering in the Arab world since 2008, when the Saudi Arabian Mining Company began trading publically.
At the second annual Wharton MENA Business Conference on February 16, Taha joined other high-profile Middle Eastern business leaders, including Global Chairman of Booz & Company Joe Saddi and Chairperson of Global Investment House Maha Al-Ghunaim, at a conference entitled “Economies of Freedom: Reshaping the Future of the MENA Region.” Held at the Wharton Business School in Philadelphia, the day was dedicated to five panels on entrepreneurship, energy, investing, women in business, and assessing the ‘new normal’ in the economies of Egypt and Tunisia.
A potential entrepreneur or investor sitting in the audience of the Wharton Business School panel would find it difficult to segment the right frontier market from the emerging markets within the Arab world—never mind the difficulty of calculating the political risk that varies across countries in the MENA region. Investing in any sector involves challenges like accessing financial capital, but business people in the region would do well to take into account the unique additional challenges facing their business.
Identifying the niche
When discussing growth markets in the region, Taha left out the technology sector, which has burgeoned in countries like, Egypt, Jordan, Lebanon and Saudi Arabia. While Saudi Arabia is the only Gulf country on this list, the absence of other Gulf countries is not surprising for two reasons. First, the Saudi government has made huge investments in technology partnerships with universities. Second, market research and the Arab Social Media report indicate that Saudi residents are increasingly representing a huge share of Arab social media users: Arabic is the fastest-growing language on Twitter, and Saudi Arabian users represent about thirty percent of those communicating over Twitter in Arabic.
A budding entrepreneur may transform a challenge into an opportunity by investing in logistics, educational materials, and ways to expand service delivery. In densely populated areas, the service sector also has room for businesses that are more creative than simply opening up another food and beverage outlet. For example, a group of young Egyptians founded Mashaweer, the first personal service business in Egypt, which runs errands and deals with the infamous metropolitan traffic in Egypt for its customers. Mashaweer received scale-up support from Endeavor, a global entrepreneurship non-profit.
According to Joe Saddi of Booz & Company, many MENA economies have focused on “spending much on the hardware, but not the quality of curriculum and teachers—or the ‘software’ side of things.” Saddi also emphasized the potential for entrepreneurs to invest in the education and logistics sectors across the MENA region. He further recommended the healthcare sector in the Gulf economies. There is, however, still much that needs to be improved before the region can be considered an economic success from a business perspective. Saddi’s own prescription for “reshaping the future of the MENA region” involves addressing five key areas of change. The first of these is weighing ability against openness, which is providing limited access to opportunities based on merit ability against free, equal access. The second involves balancing the desire for regional transformation with the appeasement of more traditional forces. The third requires taking decisions on whether to nationalize key sectors or open them to private enterprise. The fourth is to design ways to include groups and skill-sets that have historically been excluded from the labor force. The fifth is balancing national sovereignty against encouraging regional cooperation.
In essence, Saddi is focused on political risks to business, which vary across the MENA region. These risks must be resolved if a key source of regional instability is to be addressed: 92 million jobs need to be created in the MENA region for full employment by 2030 (excluding oil exporting countries in the Gulf), according to the World Bank.An new entrepreneur might consider investing in ideas that promote the logistics and education sectors. For example, teaching and educational materials are largely available in English or French. Hence, there is a large market potential for developing math, science, and history materials in the Arabic language that will also include new curricula criteria. Once developed in Arabic, there will be a spillover market potential in computer software that will supplement teaching aids and include learning games for classroom instruction.
Regarding the logistics sectors, Egypt presents a successful entrepreneurial story. Dense urban areas, like Cairo, deal with traffic delays and transportation challenges. As a result, savvy young Egyptians established Mashaweer.
Formalizing the informal economy is an important step in modernizing the economy, but it still needs to be balanced against the traditional ways of doing business in the MENA region. Such transformation may involve a variety of ministries. One such initiative might involve incentivizing the process by enlisting business students part-time to identify local vendors’ textiles or handicrafts and offer assistance in registering the business. In exchange, the vendors could be offered an online platform to promote and sell the goods through their country’s Ministry of Tourism, which focuses on attracting tourism by showcasing local, cultural handicrafts. Three objectives could be achieved through such a program. First, there is the opportunity to formalize the businesses that lack the infrastructure to market their goods. Second, as budding entrepreneurs promote online marketing of local goods, they gain the experience that is vital to launching their own enterprises in the future. Essentially, this is the kind of on-the-job training that students seek from competitive multi-national corporations. Third, there are backward and forward linkages between the local vendors and difference branches within the tourism sector.
Access to capital
Based on the experience of tech startup founders Henri Asselly and Anthony Kory, traditional banking institutions are hesitant to provide seed capital for technology entrepreneurs: they see it as too risky. Angel funding, or funding from a limited number of affluent investors, is one alternative. Another option is crowdfunding, or sourcing startup capital from a large number of investors who each contribute a small amount, usually through the Internet. A third option, at least for those older than twenty-one, is to enter a contest to compete for funding.
Even if a budding entrepreneur has an idea and gets seed funding, he or she might find that an idea is no substitute for business acumen. As such, organizations have developed to coordinate competitions across the region that award grants from corporate sponsors. The Arab non-profit, Injaz Al-Arab, for example, holds its competitions in Jordan, Egypt and ten other MENA countries. Winners can access Injaz’s mentoring network, in addition to the training it offers the awardees via its Accelerator Program. Injaz’s Egypt director, Dina El-Mofty, describes one contest success story: “A team raised one thousand dollars, won the additional ten thousand dollars to supplement their seed funding, and is now valued over two hundred thousand dollars a year later.”
Last year, ASDA'A Burston-Martseller conducted the Arab Youth Survey across twelve Arab countries, which found that Arab youth had shifted more towards economic, rather than political, aspirations. They prioritized ‘earning a fair wage’ over ‘living in a democracy,’ a change from the previous survey. Injaz has already responded to this shift by opening up its training courses to youth in entrepreneurship, economics, business skills, financial literacy and business ethics.
Women in business
Accessing capital must be pursued at the same time as participating in both formal and informal business networks. To that end, the Wharton conference offered a cautionary note to female entrepreneurs: do not focus solely on joining women’s groups to succeed, because you may risk missing lessons from networks within your industry. Ironically, it still committed a common error by scheduling the entrepreneurship panel at the same time as the women in business panel, as though the two topics are mutually exclusive.
That scheduling conflict demonstrates how entrepreneurship is often viewed through a separate lens, and how tech businesses and female-run enterprises are often considered mutually exclusive. Substantive questions asked by the entrepreneurship panel moderator and venture capitalist Christopher Schroeder about topics like protecting intellectual property would have been equally pertinent to the women in business panel. The women in business panel even identified the tech sector as an area of potential growth and recruitment for female entrepreneurs.
Questions from the women in business panel would also have been of equal interest in the entrepreneurship discussion. For example, World Bank Economist Sahar Nasr described the trends of ‘gazelles,’ which are high-growth small and medium enterprises (SMEs) that include many technology businesses. Nasr’s observations applied not only to women in business, but offered the additional success stories that the entrepreneurship panel attendees sought from invited technology sector leaders from Lebanon, like Chief Technology Officer at Telnic Henri Asselly and Spreengs CEO Anthony Rabih Kory.
Entrepreneurial future
Almost serendipitously, NASDAQ Dubai announced an advisory group to explore launching the first equity market in the Middle East that will only focus on attracting financial capital for small and medium-sized businesses in the region two days after the Wharton conference. NASDAQ Dubai estimated that about 72,000 SMEs generate forty percent of Dubai's gross domestic product. (This story of SME impact is not that different in middle-to-low income MENA countries.) As NASDAQ Dubai designs its framework, hopefully they will consider important questions, like why access to finance remains a challenge for female-owned SMEs. This was among the key questions posed by Nasser Saidi, economist and former minister of trade in Lebanon.
While each of the keynote speakers rooted their recommendations for growth within a politically risky environment, Taha offered a different perspective. It might even appeal to any budding entrepreneur who might have become demoralized by Saddi’s observations about how much work remains to be done in MENA economies. Taha recommended that entrepreneurs “go out and do the craziest thing,” because that is what will thrive in frontier markets like Iraq, Lebanon and Tunisia.
