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An Ecosystem for Entrepreneurship—Challenges and Opportunities

The entrepreneurial ecosystem determines the conditions under which entrepreneurs can enter markets and thrive—including capital availability, property rights, and many other factors. A strong business and regulatory environment can encourage entrepreneurial activity, particularly with respect to levels of capture and monitoringcorruption. For entrepreneurs, the most critical elements are accessible markets, human capital and workforce, and funding.

The Arab world's entrepreneurial ecosystem is ranked above average in areas such as informal education, mentors and advisors, and a growing number of government programs to support entrepreneurial activities. Relative to other regions, entrepreneurs face roughly comparable conditions in terms of professional and business services, networking associations, and incubators. Access to finance for micro- and small and medium enterprises is low, in part due to weak financial transparency and infrastructure, particularly in the form of lack of credit information. There are significant gaps in equity investment; a lack of formal education opportunities for entrepreneurs; a difficult regulatory environment; and in access to infrastructure services, particularly with respect to transport and electricity. Information and communication technology (ICT) connectivity also remains an issue.

Different Approaches to Supporting Entrepreneurship

Today, there is growing support to entrepreneurship in the Arab world, with an estimated 150 existing and ongoing activities, along with a rising number of entrepreneurial activities. Since 2000, such initiatives have accelerated and the majority (60 percent) are from nongovernmental organizations (NGOs). Programs include technology incubators, NGOs supporting entrepreneurial activity, network associations, and university programs.

Lebanon and Jordan tend to rank higher on measures of entrepreneurial ecosystems, and both benefit from global networks of diaspora entrepreneurs. In Lebanon, SABIS, a private business school with an entrepreneurial focus, helped to create a schooling philosophy along with a global entrepreneurial ecosystem. Jordan's Oasis 500, a seed-funding company, has gained growing prominence in ICT and mobile and digital media, and provides access to angel investors.

More recently, Saudi Arabia and Tunisia have launched entrepreneurial initiatives. Saudi Arabia's King Abdullah University of Science and Technology developed an Innovative Industrial Collaboration program to foster partnerships with businesses. King Saud University houses the Riyadh Technology Incubation Center and, in 2009, organized the first international entrepreneurship conference in Saudi Arabia.

Strengthening Entrepreneurship Initiatives

Conditions facing entrepreneurs in emerging markets such as the Arab world tend to differ from those in developed markets, particularly in terms of managing increased risk or uncertainty. Successful entrepreneurs frequently leverage cash flows across businesses and develop interlocking firms and relationships to mitigate risk, enhance information flows, and access broader resources.

To boost entrepreneurship, legal and regulatory environments should be improved, the financial sector deepened, and public education on entrepreneurship expanded. In environments with high levels of distortions, reforms need to be even larger to induce entry by entrepreneurs. In addition, more targeted government actions could absorb some early stage investment risk by:

• Ensuring a level playing field
• Mitigating the costs of failure
• Supporting companies at the seed stage and systematizing seed and venture capital financing
• Training competent business managers and tying government support to requirements for monitoring and management assistance
• Using meritocratic criteria in choosing which companies to fund.

Read Part I

Julia Devlin is nonresident senior fellow in the Global Economy and Development program at Brookings Institution. She formerly worked as consultant at the World Bank Group and as a lecturer in economics at the University of Virginia. Her focus is economic development, private sector development, energy and trade in the Middle East and North Africa. She holds a Ph.D. in Economics.