NEW ENTREPRENEURS AND HIGH GROWTH

ENTERPRISES IN THE MENA REGION

Presentation by Professor David Storey at the 6th Meeting of the MENA-OECD Working Group on SME Policy,

Entrepreneurship and Human Capital Development

Rome, 17 July, 2012

The importance of high performance enterprises

High performance enterprises are crucial for direct job creation, competition and economic growth.

• These firms have been analysed in OECD and some emerging economies.

• But research on this topic in MENA is very scant.

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Making the case for high performance firms

• Two thirds of new firms fail within 5 years

• Of those that survive, a tiny minority make a major economic contribution to job and wealth creation

• 4% of new starts create 50% of new jobs within a decade

• 4 enterprises, started less than 20 years previously, generated 13% of US GDP

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Enterprise creation and performance in MENA compared

with other economies

Comparing MENA with other groups of countries:

•Nascent

•Infant

•Young

•Mature

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Nascent, Infant, Young, and Mature Firms

Enterprise count in MENA is generally lower than in other emerging

economies and is skewed towards nascent and mature firms

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Share of firms expecting growth in employment and by

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The gender gap

• One in three entrepreneurs in MENA heading a nascent and infant enterprise is a woman, one less than in other emerging economies.

• This proportion drops to one in five when looking at more established enterprises.

• The root of this gap is in the limited participation of women in the labour market.

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The case studies

20 high performance young enterprises, established by highly educated entrepreneurs in:

Egypt,

Jordan,

Morocco,

Tunisia

UAE.

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This study

• One of these enterprises in each country was identified as a fast grower – but all may be considered as high potential;

• All these enterprises were (by chance) owned by graduates ;

• Interviews were conducted in 2011.

The businesses I

• All started after 2005 and, in aggregate, currently have > 1000 workers.

Six have > 50 workers and 3 >100 workers

The largest firm currently has 490 full time employees.

Five are valued at > 1 million Euros.

In two years time five firms will have more than 100 full-time workers but 5 will still have less than 10 workers.

Total employment is expected to be > 2000.

The businesses II

The businesses are in a huge diversity of sectors.

3 are in manufacturing 3 in restaurants and retailing –others are in construction, personal and business services.

Only one was clearly high tech, whereas about half made no claim whatever to be high tech.

However most embraced new technologies in differing aspects of their business.

Less than half belong to any form of business or trade association.

The owners

• All are graduates

• 15 males and 5 females

• The oldest founder was 56 years of age and the youngest was 27

• The vast bulk are in the 30-50 age range

• Apart from the UAE founders, almost all were born in the country where they started the business

Prior business ownership

• One quarter currently owns another business, but three quarters do not.

• One quarter owned a business before they began this one, but three quarters did not.

• Of those that had prior business ownership experience, only one continues to trade. The others closed the business before this business began.

Getting started

All founders experienced multiple problems at start-up and in their early days.

•Virtually two thirds of new firms reported experiencing problems with access to finance and the recruitment of skilled labour.

• Problems over government regulations, combined with corruption, also had to be addressed.

Today’s problem areas

• Today the firms have taken steps to address these problems and so they are mentioned by fewer firms.

• However access to finance continues to be a problem for a number of firms, together with the recruitment of skilled labour.

• The competition faced by the firm in its marketplace is also an important current problem.

The access to finance issue I

• There is a strong and widely-held view that the financial sector is providing inadequate access to finance for new and small enterprises.

• Only one firm said that banks went out of their way to assist enterprises.

• At face-value this might imply that few of these firms received bank funding, but this is not the case.

The access to finance issue II

IN FACT

• 80% of those firms that sought bank funding received it.

• Of the one third that never sought bank funding, most were “discouraged”.

• This is a marketplace where information is highly imperfect.

• The need for a considerably better dialogue between the finance and the enterprise community is clear.

The role of government I

• There is less hostility to government than towards the financial sector.

• Although the nature and intensity of that hostility varied between countries....there is no clear consensus on what governments need to do to help new enterprises with growth potential.

The role of government II

Some (fairly) consistent themes are:

• Reducing regulations and the associated corruption

• Review the tax system –its fairness and coverage

• Improve basic reliable public services such as water, electricity and transport

• Improve access to skilled labour

• Provide a legal structure in which operates speedily and at low cost

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Thank you for your attention.