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Small business might be key to regional success

The National, 29 October 2014 - The Arab world is home to about 350 million people and rising – and young people comprise more than half that figure.

How will their energies be utilised? Youth have the highest unemployment rates in the region. Before the first winds of political change began to pick up in 2011, many young people looked to government for employment and opportunity. In Egypt, the most populous Arab country, 80 per cent of youth surveyed in 2010 held this view of government. But if realising this wish was difficult then, it is almost impossible now.

In North Africa and some parts of West Asia, no Arab government has the financial capacity to create enough jobs for the majority of the unemployed youth. Yet many young people still wait for unproductive jobs in overstaffed and under-equipped civil service sectors. They console themselves with excuses, assumptions and convictions that government is responsible for their plight. This attitude does not solve the problem.

The post-2011 years have caused a debilitating drain on public finances. While a declared goal of the Arab uprisings was to achieve a better standard of living, these revolutions ushered in economic slowdowns, cross-sector redundancies, reduced revenues, currency devaluations, rising inflation and increased debt service costs. This was topped with heightened internal and external security threats that diverted resources from badly needed social and economic developments.

Even Arab countries that were not engulfed in upheaval remain exposed to forces of instability, as well as their own socioeconomic pressures. The mix is potentially lethal. Governments must assiduously concentrate on shrinking unemployment’s share in it.

Young graduates who wait for government employment are either unwilling or unable to seek other avenues. An important part of the problem, the incompatibility between graduates’ educational outputs and job market requirements, is well-known. Yet a pivotal factor that is missing but is being largely overlooked is the ability to conceive of a real alternative.

A lot more attention must be given to small and medium-sized enterprises. The goal should be to encourage and support a proliferation of independently owned SMEs whose owners and employees have more immediate, direct and tangible stakes in their home country’s prosperity and stability.

Surveys published on the eve of the 2011 uprisings revealed that less than one-tenth of the population in each of a dozen Arab countries owned a “baby business” – defined as less than 42 months old. Formal training for starting and developing a business was quite modest – less than 30 per cent of early-stage entrepreneurs at best. Informal training and advice from family and friends were often cited as the most prevalent sources of business-related knowledge. This explains much of the problem.

Today’s discouraged youth will not automatically transform into tomorrow’s business leaders. They cannot be expected to just plunge into the sea of business and swim, even if some can and do.

A key role that Arab governments can play is to help reduce the risks new SMEs face. They can do this by making valuable yet affordable business development resources easily accessible.

They can facilitate important training and guidance for would-be entrepreneurs and new ventures. The first five years in the life of a business are critical to its success. That is why there are organisations that serve as incubators for budding enterprises to help them survive in their most vulnerable stages. Business guidance is vital in a venture’s formation phase.

There is a whole lot more than extending microloans that governments, non-profit organisations, and seasoned entrepreneurs can do to support aspiring young entrepreneurs and their emerging ventures.

Such investments are well worth it. Governments will move beyond old solutions to adopting new, progressive responses. Large enterprises will be contributing to developing a more economically active society. New entrepreneurs who succeed in business will make their own contributions in turn. Even those businesses and aspiring entrepreneurs that ultimately don’t succeed will at least have given their employees and themselves a more useful work and life experience than they could have gained previously.

Amal A Kandeel is an economist and director of Pioneers International, an international business development and geoeconomic analysis services company specialising in the Middle East and North Africa.

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