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Entrepreneurship in the Middle East – No Easy Ride

January 11, 2011

Creating a culture in which entrepreneurs thrive is a hot topic throughout the Middle East, and nowhere more so than in Bahrain.

Here’s a story I wrote for the Bahrain Gulf Daily News about a conference on entrepreneurship. It’s published in today’s edition under the heading Culture of Innovation Backed.

The Government of Bahrain, and Tamkeen in particular, have made great efforts in recent years to encourage a culture of innovation and entrepreneurship in the Kingdom. So it was fitting that Bahrain should host the 10th International Entrepreneurship Forum under the patronage of HH Sheikh Mohammed bin Mubarak Al-Khalifa.

As someone who has been involved in starting a number of companies over the past couple of decades, I was a more than interested observer. From the opening day’s proceedings, there were a number of statements that rang true for me.

Professor David Storey of Sussex University made the point that being an entrepreneur is not easy. He quoted statistics from the UK to show that only 30% of start-ups remain in business after five years. He also asserted that chance plays a major part in whether a new business will succeed or fail – well-run businesses often fail while badly run businesses succeed. So the past track record of an entrepreneur is not necessarily a reliable guide to their future success.

I know this from experience. My business partner and I sold one of our businesses in August 2001 – three weeks before 9/11. If the deal had still been pending on September 12th, it would have collapsed. Even if we had sold the company subsequently, it’s unlikely that we would have achieved the same sale price or anywhere close to it for some time.

Another telling observation was that entrepreneurs of the kind being encouraged in Bahrain should add real value. There are all kinds of entrepreneurs – people who start businesses, people who transform their businesses, social entrepreneurs who launch initiatives to help their fellow citizens. To be an entrepreneur is to take risks, not to be afraid of failure, and to have a genuine passion for what they are doing.

Bahrain has always had an entrepreneurial culture. The great trading families, the Al-Mowayyeds, the Kanoos, the Fakhros and the Zayanis, each had founders who started from nothing. Today’s Bahraini self-starters, for all the efforts of the Government, face stiff cultural and practical hurdles. Family opposition, the desire for job security, an education system that in the past did not encourage creativity. As one of the speakers pointed out, the motivation of an entrepreneur should not be simply to make money. There should be other drivers – a desire for achievement, for excellence, or an urge to create something never done before. Wealth flows from these motivations, not of its own accord.

And today, it is not enough for Bahrainis to compete with other Bahrainis in the same fields – replacing one company with another will not add economic value to the country. Bahrain needs entrepreneurs who export knowledge, expertise and competitive products, who bring money into the economy and create new jobs. That’s a big difference from starting a coffee shop at the expense of another. Or even setting up a telecoms company and thereby putting another one out of business.

Looking beyond the local perspective, Professor Zoltan Acs of George Mason University in the USA focused on the projection that by 2050 there will be another 3 billion people in the world, and most of these will be in the so-called developing countries. How do we help countries like Somalia to build an entrepreneurial culture that will generate the innovators of the future? His point was that the recent  engine rooms of innovation – the countries of the West – are suffering declining populations. If the additional three billion are to live in peace, security and prosperity, then they, and the countries they will live in, will need to deliver a much higher share of innovation and entrepreneurship.

Had space allowed, I would have added these thoughts on the conference:

The event was one of a series organised for the past ten years by the OECD and Essex University in the UK. I was surprised not to find any representatives from China, one of the world’s most ferociously  entrepreneurial nations. And if not China, then Singapore or Malaysia, both of which are heavily influenced by the Chinese business culture. Most of the speakers were from Europe and the US, although the developing world was represented by speakers from Nigeria, South Africa and India (if the latter can still be described as “developing”). The absence of speakers from the Far East was a shame, especially given the increasing ties between the GCC and countries like China, Japan and South Korea.

There was quite a lot of debate over whether or not self-employment counted as entrepreneurship. I sided with those who believe that they are separate activities, and that a self-employed person does not naturally become a value-generating entrepreneur. The key difference is ambition and acceptance of risk.

Perhaps because many of the speakers were academics, whose focus is strongly on young people, there was a heavy emphasis on pitching people straight into careers as entrepreneurs as soon as they graduate. I agree that an entrepreneurial mindset should be imbued in youngsters from primary education onwards. But it should not be taken as a given, especially in the Middle East, that graduates are necessarily ready to start businesses. The example of Gates, Jobs and Zuckerberg, each of whom began their entrepreneurial careers in their teens, were rightly used as inspring examples. I wrote a recent post on the same theme.

But these are special people. They came from relatively privileged backgrounds. And, as Malcolm Gladwell points out in his book Outliers, by the time they launched their companies they had notched up many thousands of hours of programming experience. They also created intellectual property, which is a fundamental component of the knowledge economies that Middle Eastern countries are striving to create. To date, the region is behind the curve in investing in research and development, although some countries – particularly Saudi Arabia – are making significant efforts to catch up.

Although Zuckerberg and the others are great role models for would-be entrepreneurs, there’s also a lot to be said for learning about the world of work – and making mistakes – as an employee before striking out on one’s own. People become entrepreneurs at all ages. In the Middle East, there’s a strong tradition of senior ex-employees setting up their own businesses after substantial careers with established companies – Saudi Aramco particularly comes to mind.

So it was encouraging to hear Dr Samir Fakhro of the Arab Open University describing the entrepreneur education that his university delivers to would-be starters in mid-career. I and my business partner both fell into that category when we started our first company. We never had any entrepreneurial education other than what we picked up in our earlier careers. But that work experience, combined with the strong motivation we shared, played a large part in our success.

Finally, it was interesting to hear Nedhal Al Aujan, the CEO of the Bahrain Development Bank, talking about the work his organisation does in supporting entrepreneurship in Bahrain. Apart from being a major source of finance for start-ups, the BDB provides training and mentoring for their clients to a far greater extent than any of the commercial banks I’ve come across.

But one slide in Al Aujan’s presentation – a diagram showing all the organisations involved in fostering start-ups in Bahrain – brought back mixed memories for me. At the back end of the 90s, I spent four years as a non-executive director of one of the UK’s largest Business Link organisations. Business Links were tasked, among other things, with fostering the growth of small and medium-sized enterprises within their regions.

While they did, and I believe still do, excellent work, my main memory as a board member was listening to endless debate and angst about all the other organisations with their fingers in the SME pie. In the UK, there were many publicly-funded groups that were set up by successive governments with the purpose of supporting the UK’s economic growth. Each had a strong interest in supporting SMEs. And government continually tinkered with their remits. The result? Confusion, paranoia and turf wars, not to mention a steep learning curve in coming to grips with such a byzantine landscape.

When I saw the BDB’s diagram, I remembered those days. I hope that Bahrain does not fall into the same trap. The country has a strong economic vision for 2030. There is great enthusiasm for promoting innovation and entrepreneurship, and initiatives across a broad front.

But creating an entrepreneurial culture in a country, as Professor Daniel Isenberg of Babson College pointed out, requires determination, a lot of money and a united sense of purpose. He also believes that a single organisation, accountable to government but not necessarily a permanent part of it, needs to be entrusted with the primary responsibility and the authority for achieving that end. If Isenberg is right, then perhaps Bahrain needs to fine tune the way it’s going about building its knowledge economy. And, I would argue, the same might go for many of the other GCC countries.

  1. Thank you for sharing this article and discussing the events that occured at the 10th International Entrepreneurship Forum. I think that you’ve raised some very good points, particularly in regards to the lack of representation from Asia, especially Singapour and China. Their influence in the Middle East goes beyond energy and business- many SME incubators, particularly within universtities such as KAUST in Saudi Arabia, have modeled their incubation centers after the highly successful ‘Singapour model’. In addition, the amount of knowledge and tech transfers between both continents is substantial, and has a strong impact on joint venturing and partnerships.

    You raise another point regarding the expectation that youth will launch themselves into entrepreneurship upon graduation. It is important that fostering entrepreneurship, and fostering the entrepreneurial mindset are differentiated. The entrepreneurial mindset among youth and graduate should concentrate on providing skills which respond to a skill-set needed within the job market, and shifting the focus away from wishing to work in the public sector to the private sector, whilst instoring a spirit of innovation and contributing to becoming facilitators of change.

    As entrepreneurship is about creating value and innovating- entrepreneurship for entrepreneurship’s sake is not the be-end and end-all. At the end of the day, self-employment reduces to a bunch of statistics- but what is the contribution to economic growth and diversification?

    I would be interested to hear your opinion to which institutions and programs are best-placed to contribute to SMEs development in the region- do you believe it is private sector organizations, or government-run programs?

    I look forward to following your posts and blog!

    • Tatjana, thanks for your feedback and for subscribing to the blog. I agree with your comments, especially the one about fostering an entrepreneurial mindset.

      Regarding your question about who is best placed to contribute to SME development, I think it depends on what kind of SMEs you are looking to encourage. The Middle East has strong tradition of trading. If that’s what governments are looking to foster, then I think that the traditional SME incubation models – wherein government sets up structures, removes bureaucracy and provides finance on easy terms – work fine. For all the received wisdom about people in the Middle East preferring the security of working in government to the risks of starting business, there will always be people who are willing strike out on their own, especially if they have family members as role models. I often hear young people in Saudi saying that they want to start their own business “like my father did”.

      Creating a culture in which people look to start businesses based on invention and intellectual property is another matter altogether. People and governments the Middle East yearn for this. You see more and more references in literature and the media to the Golden Age of Islam. Indeed, when he opened KAUST, King Abdullah explicitly referred back to the Beit Al Hikma – the House of Wisdom established in Baghdad by the Umayyad Caliphs – as the inspiration for the initiative. But with great respect to what the Saudis are trying to achieve with KAUST, without an underlying culture of innovation, research institutes like KAUST are oases in the desert – literally and metaphorically.

      And in my humble opinion, to create that culture in the Middle East will take time – certainly way longer than the five years Daniel Isenberg was talking about that the conference. Government has an absolutely indispensible role in making it happen, because, especially in this region, it needs to reinvent the education system. This is what the Saudis and the Bahrainis are trying to do. But it’s a tough task, because there are strong vested interests in both countries (Bahrain less so than Saudi because of its relative cultural liberality) which resist the change.

      Bahrain is focused on a 2030 vision – because they believe it will take a generation to change mindsets. I actually think it will take longer than that. Why? Because families in this region are so important. By reforming the education system now you can certainly produce a first generation of inventors. But to get to the point when a youngster (like those Saudis) says that he or she wants to become a software entrepreneur or rocket scientist because “that’s what my mother/father did”, you need the innovation virus to have spread widely enough for there to be any number of role models to inspire the next generation. So I would say that 2050 is a more realistic target date, even though in PR terms that’s not a message likely to capture the imagination of today’s society.

      We have to remember that the “West” has a 300-year-old tradition of technological innovation. Also that it took Japan 100 years or so from the ending of their period of isolation really to get into their stride as inventors, rather than replicators of technology. China is getting there faster, but has the benefit of that underlying culture of self-improvement that we discussed earlier. If you didn’t catch it, there was a great article in this week’s Sunday Times by Amy Chua (I can’t send a link because of the ST’s subscription policy unfortunately) in which she talks about the relentless pursuit of excellence on part of Chinese parents – so far from the Western and Middle Eastern child-rearing ethos as to be on another planet.

      So is the private sector best suited to lead the way in creating a culture of innovation? Absolutely, but only after government has done the extremely tricky task of laying the groundwork by reforming education. The private sector can only move as fast as government. There are ways of kick-starting the process. The Saudis are trying to do this by sending 100,000 students to foreign universities. As they return home – especially the women – and find limited or unsatisfying employment opportunities – they will create a groundswell of support for change. Joint ventures between foreign and local companies can also help, but these should increasingly focus on R&D that stays in the country in which it takes place.

      Maybe I’m being pessimistic about the time it will take. It will be a long haul, but it’s definitely doable.

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