Entrepreneurship in Middle East and North Africa: New Evidence on Motivational Factors for Females
(This is a guest post by Beschir Hussain, WHU-Otto Beisheim School of Management, and Ammar Rizvi, University of Oxford)
The Arab Spring has brought to the fore a rise in unemployment as a major challenge facing the Middle East and North Africa (MENA). Declining labor demand from the public sector, a slowdown in the private sector and a rapid increase of the labor workforce have resulted in a widening job market gap. In 2011, the overall unemployment rate reached 10.2% in the Middle East and 10.9% in North Africa.
Women are particularly at risk of unemployment in MENA. Latest statistics suggest that the ratio of female to male unemployment in the region stands at 2.3. Nearly 1 out of every 5 women is unemployed. For young women in North Africa, the unemployment rate is even at a harrowing 41% — the highest for any other region in the world, according to the International Labor Office (ILO).
In order to absorb both already unemployed workers and new labor force entrants, an estimated 100 million jobs must be created by 2020. Since labor markets will significantly influence the economic and social future of the MENA region, it is important to understand how to foster job creation. Policies specifically geared towards tackling unemployment among women may be key to tackling the wider challenges of the region.
Prof. Dr. Malte Brettel says, “Female entrepreneurship in MENA remains an inadequately explored area in research. Although more women than ever are earning advanced degrees in various fields that qualify them to run their own businesses and create jobs for the greater society, researchers have often ignored studying their motivations and challenges in the past.This study was conducted to address this gap.“
MENA countries need to establish a sustainable entrepreneurial ecosystem to facilitate entrepreneurial activity. While a healthy entrepreneurial environment helps to convert more nascent women entrepreneurs into successful ones, understanding what initially drives these women towards entrepreneurship is of prime importance.
A recent study conducted by Beschir Hussain and Ammar Rizvi examines some of the motivating factors for female entrepreneurs and business owners in MENA. They interviewed 121 women entrepreneurs from 11 industries across 10 MENA countries. It was found that the majority of women did not start their business out of a need for income, but instead because they had identified an opportunity where innovation could solve a problem.
The results show that gaining a sense of achievement and overcoming a challenge were the two most prominent motivating factors leading to the founding of a business. Job satisfaction and independence were indicated to be quite significant motivators, being ranked as the second and third most relevant motivational factors. Interestingly, financial incentives, such as security of family or increase of income, seem to play only a minor role, according to the data.
Prof. Dr. Malte Brettel adds, “Women are one of the fastest-growing groups of entrepreneurs. Nonetheless, economic and cultural barriers in MENA prevent them from exploiting their full potential to establish new and innovative, high-value-added companies. This study is the first of its kind to study what actually motivates women to become entrepreneurs in MENA.“
The survey also asked the respondents to mention the most significant challenges they faced when establishing their business. The analysis revealed a broad spectrum of problems. Many entrepreneurs said they felt overwhelmed by the numerous and diverse tasks that are associated with the founding and building the company. The most common barriers mentioned by the respondents were limited management skills, economic and political instability in the region, and limited access to capital.
The results make clear that exploring different avenues of investment and securing funding from venture capital companies remain a challenge for women in MENA. The political risk and economic instability of the region reinforces this trend further. The majority of respondents said their businesses were financed with their own savings or with financial support from family and relatives. A mere 8.7% of the female entrepreneurs received venture capital, out of which a third also indicated to have used additional personal savings to fund their businesses.
Financial success is often closely linked to funding opportunities. Unsurprisingly, most companies that were established by the respondents remain relatively small in terms of annual gross revenues. Almost 40% of the businesses generate less than 50,000 USD and less than 10% have revenues that exceed 1 million USD per year. 90.9% of the businesses that generate more than a million were established at least 3 years ago. Most of them are located in Turkey (45.5%). Other countries include Lebanon (36.4 percent), Qatar, Saudi Arabia and UAE with 9.1%, respectively.
“Despite a major progress in education for women in MENA, female-led companies still only represent 18% of all registered companies. Most of them remain relatively small and are not able to scale their businesses due to significant barriers when it comes to funding opportunities and capital raising,“ says Prof. Dr. Malte Brettel.
TRAINING, NETWORKS AND SEED CAPITAL
Based on the results of the study, a set of five recommendations were given on how the findings can be used and translated in decisions to foster female entrepreneurship in MENA:
- The survey showed that one of the most significant challenge female entrepreneurs face is a lack of experience. Government sponsored institutions, privately held incubators, and early stage investment companies could design tailored assistance programs for women entrepreneurs. Offering training programs on how to manage a business with family and childcare could help ease the weight of balancing multiple responsibilities at a time.
- The vast majority of entrepreneurs featured in public have been men. Giving more attention to female entrepreneurs while considering the motivational factors discussed in this study could inspire more women to become entrepreneurially active. Since achievement and challenge were mentioned to be the main drivers that motivate women to start a business, more media coverage could focus on the major achievements and contributions rather than the financial gains.
- The absence of formalized networks makes it difficult for women to obtain access to institutional knowledge. Although a few privately organized initiatives have established online networks in a variety of industries, a lot still needs to be done to allow female entrepreneurs to connect with like-minded people. Providing support through networking events and access to trade associations would enable female entrepreneurs to meet key industry players and explore new avenues of company synergies and mutual collaboration for sourcing new talent.
- The results of this study show that raising capital still remains a challenge for women entrepreneurs in MENA. While political and economic uncertainties have been cited as general reasons for underinvestment in the region, the few available funding channels are largely invisible for nascent female entrepreneurs. In order to make these avenues more visible, company registration agencies could collect and provide consolidated information on various funding opportunities to entrepreneurs, who have just started with their businesses.
- The procedural complexity of starting a business has a significant influence on the entrepreneur’s decision to establish a company. Streamlining procedures and reducing the minimum capital required can help more entrepreneurs’ launch their businesses faster. For example, a one-stop destination could help entrepreneurs to understand the process more easily, launch the company faster, and thereby have more time to focus on managerial challenges. Through this system, entrepreneurs would no longer need to visit multiple government agencies to file sometimes repetitive information.
About the Authors
Beschir Hussain works in Private Equity & Venture Capital. He completed his M.Sc. in Management and B.Sc. in Philosophy and Economics, having studied at WHU and Columbia University. He is a fellow of the German National Academic Foundation and the founder of Avicenna-Studienwerk, a Germany-based foundation that grants scholarships for highly gifted students.
Ammar Rizvi is an M.Sc. Candidate in Water Science, Policy, and Management at the University of Oxford and has a B.A. in Environmental Economics and Policy from UC Berkeley. He has been involved with two emerging businesses over the past 5 years and has served on the Committee for the Oxford Entrepreneurs Society.
We would be happy to report on any women entrepreneurs based in the MENA region. If you are one or knows someone who is just embarking on their entrepreneurial journey, please do get in touch with us. Meanwhile, please do share your thoughts below in the comments!