The riots across the Arab region this spring, and the ensuing political changes, highlighted various key problems: frustration with the lack of economic development; the unemployment rate, especially among well-educated young people; and a frustration with corruption. We see an opportunity for social entrepreneurs to play a major role in solving these problems, but impact investing is still lagging behind in the Arab world compared to other areas such as India and East Africa.
I believe Tunisia gives a good overview of the Maghreb, the French speaking part of MENA, in terms of business practices, entrepreneurship culture (or absence of it…) and investment strategies. Many challenges, but also good news, emerged from the hours of discussions I have had with regional experts and investors:
Market Integration: We tend to consider MENA as a uniform region, but the reality is very different. The most common feedback I received is that investors targeting MENA need to understand sub-regions. The Arab world is as diverse as the region from London to Moscow. People do business in very different ways. Legislation is different. The development stage is incomparable between Egypt and Dubai, or Morocco and Yemen. MENA is large and highly populated but is not integrated. It is a mistake to tackle it as if it were an Indian or a Chinese market. For instance, services and products from Jordan are not easily exportable to Algeria and so on.
Sourcing: Obviously, the entrepreneurship mindset is not as developed as in Europe, US or India. National efforts do exist to develop incubators and funds, but the effects are still limited. The kick-off conference of the first Business Angels Association in Tunisia just took place 3 days ago. “There are good ideas on paper, but finding competent and trustworthy entrepreneurs is still very challenging,” says Nader Bhouri, a local entrepreneur and investor. Governance issues are also critical. Some investors refuse to give cash to early-stage start-ups. Instead, they give “service-checks” to use through their direct network. Finding “social” ones must therefore be at least as challenging, if not more.” The concept of social entrepreneurship is still not common at all,” argues Essma Ben Hamida, the Schwab MENA Social Entrepreneur of the Year 2010 and co-founder of ENDA Microfinance.
Timing: The time is almost perfect to develop such entrepreneurship programs. Funds are flooding into the region to develop private sector and bring social solutions to the urgent problems that led to the North-African protests and “revolutions”. A program combining entrepreneurship and social innovation is very appealing to several foundations and institutions opening in the region.