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What Is Next for
MENA’s Entrepreneurs?

The entrepreneurship community in the Middle East and North Africa (MENA)
region has gained global attention in recent years. Against the backdrop of a shift-
ing political landscape and economic uncertainty, new firms and entrepreneurs
are being increasingly cited as a vanguard of economic development. Tuttavia, if
this vibrant population of young businesspeople and the institutions that support
their efforts are to make their mark on the region, they must be able not just to
start businesses but to scale them as well. To identify the specific factors that
impinge on efforts to scale, the Wamda Research Lab conducted the largest study
on entrepreneurship and scale in the MENA region to date, which included a sur-
vey of over 900 entrepreneurs and experts in the region.

MENA’S GROWING ENTREPRENEURSHIP ECOSYSTEM

In July 2014, The Economist published an article entitled “The Tragedy of the
Arabs.” As the title suggests, the article focused on the downward spiral that Arab
countries find themselves in; some countries are experiencing collapsing
economies and destabilization, while others are confronting severe resource con-
straints and general political uncertainty. And yet, against this landscape there has
been a significant rise in the number of institutions that support MENA’s entre-
preneurs, and the discussion of why and how entrepreneurship should be embed-
ded in economic development agendas is picking up steam. Despite negative fall-
out from the Arab Spring, there are currently over 200 institutions actively sup-
porting entrepreneurs in the region, at least a seven-fold increase since 2000,1 E
this ecosystem will likely continue to grow. In a Wamda Research Lab survey of
Sopra 150 institutions that support entrepreneurs in MENA, more than 70 per cento
indicated their intention to expand their services into more countries or to
increase their services in countries where they are currently active within the next
couple of years.

The past 4-5 years have arguably seen the greatest consensus on the utility and
necessity of creating entrepreneurial businesses in the MENA region in recent his-
tory. This consensus has centered specifically on the need to create new institu-
zioni, policies and programs across countries to support the growth of young

Jamil Wyne is the Manager of the Wamda Research Lab.

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enterprises, specifically those with the goal to grow and to do so quickly. Of
course, these are not the first strategic efforts to support local enterprises in the
region. Microfinance has long been recognized as a tool for alleviating poverty in
the region, perhaps most notably the Sanabel Microfinance Network that was
formed in 2002, whose membership now includes over 90 microfinance institu-
tions from 12 countries, and serves more than 2.5 million borrowers. Tuttavia,
new accelerators such as Jordan’s Oasis 500 and Egypt’s Flat6Labs, major regional
corporate entrepreneurship in enterprises such as MBC Group and Zain Group,
and a growing pool of venture capital funds, including Silicon Badia, Middle East
Venture Partners, Ideavelopers, and Wamda Ventures, all point to a type of entre-
preneurship that focuses on opportunity, growth, and scalable impact.

Although many of these new organizations have profit-driven ambitions at
their core, it is arguable that such entities in the MENA region have a dual role. In
a region with such high unemployment rates—over 10 percent for the entire pop-
ulation and over 25 percent for youth in the labor market—and failed develop-
ment policies that are both a cause of this lack of economic opportunity and a bot-
tleneck that will prevent any noticeable change in the future, creating new enter-
prises, specifically those that can scale, and expanding current ones are critical
tools for growth.2 There are many areas aside from unemployment that hold back
the region, particularly private-sector growth. A lack of coordination between uni-
versities and the private sector, minimal evidence of patented technology, and a
frequent overreliance on government support for employment or foreign aid all
create divisions between institutions and individuals that have similar goals for
advancing social and economic prosperity.3

Given these unprecedented developments, the MENA region has a unique
opportunity to receive a greater level of funding and strategic support for starting
new business ventures. This growing momentum has direct implications for
MENA’s economic growth: the increasing number of new enterprises can be a
source of employment and wealth creation across the region. Tuttavia, making
the most of this opportunity will require more than the creation of new enterpris-
es.

Translating this excitement and opportunity into tangible economic growth
will require MENA’s entrepreneurs not simply to start companies but also to scale
them. Globally, fast-growing companies create the lion’s share of jobs in a given
economy. The Global Entrepreneurship Monitor, among other research groups,
finds that high-growth enterprises represent roughly 10 percent of the private sec-
tor in any given economy, yet they are responsible for upwards of 50 percent of
jobs, even more in certain economies.4

WHY WE NEED DATA ON MENA’S ENTREPRENEURS

Before discussing the study findings, it is important to note the role research has
played in the region’s entrepreneurship community, especially in these early
stages of development.

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What Is Next for MENA’s Entrepreneurs?

Data and metrics will be critical in assessing the progress the growing ecosys-
tem makes over time and in identifying areas of improvement. For years, IL
analysis relied on most came from external parties such as the World Bank and the
World Economic Forum, which generally rank countries along different indices to
examine how each performs in terms of doing business, accessing resources, com-
petition, and other factors. While these tools have great value, the MENA region’s
entrepreneurship ecosystem needs more locally generated data.

There are manifold applications for this type of data. Research can help to
identify how the ecosystem evolves over time and where more support is needed
to advance policies and programs, and to develop key indicators of progress.
Investors can leverage these insights to identify attractive sectors and to bench-
mark industries and countries that show potential. Policymakers can use the data
to assess where the most pressing gaps are, while new entrants can understand
how to create their agendas to serve the ecosystem’s needs most effectively.

To better understand how the process of scaling plays out for MENA’s entre-
preneurs, the Wamda Research Lab, in partnership with Endeavor Insight, carried
out the largest study on enterprise scaling in the region to date. We surveyed over
900 entrepreneurs and entrepreneurship experts in the region and held follow-up
interviews with more than 100 of them.

METHODOLOGY

Our study focuses on a specific cohort of entrepreneurs in the MENA region:
those with ambition to scale their companies. Although there is no official figure
for the number of entrepreneurs in the region who are looking to scale, we assume
Quello, based on global figures, entrepreneurs with the ambition to scale are rare.5
Our research is based on a survey of over 900 entrepreneurs and entrepreneurship
experts (768 entrepreneurs and 169 experts) throughout the MENA region.6 The
survey asked entrepreneurs a series of questions to gain an understanding of
whether they had accessed certain resources needed to scale, and a series of ques-
tions about the barriers to growth they faced. Experts were asked the same ques-
zioni, and to indicate which growth barriers they observed most often. All respon-
dents completed a self-administered online questionnaire, which was circulated
from February 24, 2013, through May 30, 2013. We also conducted phone inter-
views with a subset of 111 individuals from the entrepreneur and expert samples
to add qualitative insights to the survey findings.

WHAT DID WE FIND?

Primo, we found many young, promising entrepreneurs in the region whose com-
panies have grown over the past 4-5 years. Since 2009, around 80 percent of com-
panies more than three years old had experienced positive job growth, and rough-
ly one-fifth of our sample had a compound annual employment growth rate of 20
percent or better over the previous three years, which we define as scaleups.7 These
companies have not just started up, they have begun the path to scale and could

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be lynchpins for widespread job growth in the MENA region. The ambition to
scala, as well as the record of growth that many startups in our sample demon-
strated, is critical for job creation. Scaling companies create the majority of jobs in
any given economy and play an indispensable role in economic growth.8 A popu-
lation of growing MENA startups could significantly help to reverse the region’s
lingering unemployment.

Tuttavia, we also found that these entrepreneurs face a multitude of barriers
to growth. Across countries in the MENA region, companies with varying growth
rates reported similar challenges in building teams, obtaining investors, E
expanding across borders. More than 60 percent of the experts we surveyed said
that scaling was the most challenging development phase for entrepreneurs.
Samih Toukan, CEO of Jabbar Internet Group and a leader in the MENA startup
community, stated, “I’m not as worried about the starting up process right now as
I am about the scaling process in the Middle East.”

Understanding the precise barriers to scaling is instrumental in helping
MENA entrepreneurs become key job creators. While there has been notable
growth of the MENA entrepreneurial ecosystem, to maximize its full potential and
address the region’s daunting unemployment, startup founders must be able to
grow their companies.

Obtaining Investment

The funding landscape in the MENA region has evolved significantly in the past
half decade and now encompasses more sources of capital for entrepreneurs.
Angel investor networks, venture capital funds, and even several government
funding programs have come to the fore. Three times as many companies received
funding in 2012 as in 2009. The entrepreneurs in our sample collectively had 220
investors between 2009 E 2012, with the most substantial increase in 2011 E
2012, when the number nearly doubled. These new resources could help to sustain
and stabilize growth for many startups, yet according to our survey results ,
MENA’s entrepreneurs still face many funding challenges.

Entrepreneurs surveyed said that the supply of venture funding in their coun-
tries was small (36 per cento). Thirty-two percent of scaleups and 34 percent of non-
scaleups agreed that the limited supply of venture funding was a primary challenge
in obtaining investment.

While both entrepreneurs and experts agreed that the supply of funding is a
constraint to obtaining investors in MENA, our survey pointed to other factors
that could limit access to funds. Experts also pointed to entrepreneurs not under-
standing what investors were looking for (31 per cento) and not knowing how to
pitch their ideas effectively (30 per cento). È interessante notare, entrepreneurs pointed to
investors not offering enough value beyond cash (24 per cento) and investors think-
ing that their business model was too risky (18 per cento).

These findings raise the question of whether, even with more funding avail-
able, entrepreneurs and investors are well enough aligned to see that investments

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What Is Next for MENA’s Entrepreneurs?

are made effectively. The opposite is also true; if entrepreneurs and experts
achieved better communication and alignment, would there be enough capital?

Increasing the supply of funds has many facets and requires a strong overview
of the funding landscape in the region. The following three findings in particular
can help to explain the precise funding gaps that those surveyed experienced:

Few large investors: Investing has increased since 2009, but there is a lack of
funding of more than US $500,000—while many entrepreneurs surveyed had received equity funding, few had obtained larger amounts of investment needed to scale. Jordan, Lebanon, and Egypt all had median funding under US$200,000. IL
UAE had more companies with higher levels of investment, but this was the
exception.

Minimal follow-on funding: Over two-thirds of companies had not received
more than one round of funding at the time of the study. Jordan had the highest
percentage of companies that received follow-on funding, yet most companies
surveyed had received only one round.

Lack of debt funding: Only 12 percent of entrepreneurs surveyed had
received loans. Lebanon and the UAE had higher rates of companies receiving
debt funding, yet in each case the majority of companies surveyed had not gotten
loans.

As the region’s entrepreneurship ecosystem gradually frees up more capital for
young and growing enterprises, it needs to take a more critical look at its entrepre-
neurs’ and investors’ specific needs in order to enhance conditions for investing.
Both founders and funders believe there is a lack of capital, yet there is more to the
story than just a short money supply. Larger investment, follow-on funding, E
minimal access to credit all underpin this issue. Inoltre, communication
between the supply and demand sides also needs to improve to ensure a more col-
laborative environment with more properly aligned expectations.

Building a Team

The majority (63 per cento) of entrepreneurs in our sample stated that finding talent
was their biggest challenge in building a team. The second was paying salaries (35
per cento), followed by retaining talent (22 per cento). Experts identified the same
barriere, citing finding talent (62 per cento), retaining talent (36 per cento), and pay-
ing salaries (34 per cento) as the major issues they have observed. The same trends
remained true at the country level; Jordan, Egypt, Lebanon, and the UAE each had
a high percentage of entrepreneurs who identified finding talent as a challenge; In
Jordan it was nearly 70 per cento. Paying salaries was also cited by a high percentage
in each of these countries, including nearly 50 percent of entrepreneurs in Jordan.
The concerns surrounding access to talent are even higher for faster growing
companies; 71 percent of scaleups cited finding talent as a challenge. This was fol-
lowed by 28 percent who cited retaining talent and 23 percent who cited paying
salaries.

The difficulty in finding and retaining talent is particularly concerning, given
that the region has such a high youth unemployment rate—an estimated 25 per-

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cent of youth in the MENA labor market are without jobs—yet many of the com-
panies surveyed cannot find the talent they need.9 During individual interviews,
many entrepreneurs and experts pointed to the region’s outdated education sys-
tems as a primary reason for problems accessing talent. They said that both a lack
of skills and poor attitudes impinged on their efforts to find and retain employees.
Bearing this in mind, education reform can certainly help to assuage the hiring
processi.

Tuttavia, when addressing the problem of a lack of qualified talent, poor edu-
cation alone cannot be the reason, nor can reforming education be the sole solu-
tion for improving access to talent and team-building. Education systems across
the MENA region are indeed in need of significant improvement, and policymak-
ers and the private sector have discussed education reform for many years.
Governments in the region have been tackling the problem for decades, with gov-
ernments in both oil-rich countries and those without oil spending billions to
enhance curricula and produce more employable young people who can compete
for good jobs. Infatti, between 1965 E 2003, governments in the MENA region
spent an average of 5 percent of their GDPs on education.10

Tuttavia, increasing access to talent will require more than improved educa-
tion systems. Entrepreneurs interviewed bemoaned both job applicants’ and cur-
rent employees’ general lack of professional interest in working with a startup for
the long term. The stability and relatively higher income offered by government
and corporation jobs are attractive to job seekers, in MENA and around the world.
Entrepreneurs in our study often pointed to this reality, stating that many consid-
er employment with a startup only a temporary position—the product of a culture
that is not interested in working for a startup.

Put differently, while our study suggests that there are indeed individuals will-
ing to start a company in the MENA region, they cannot always find people who
want to work with them. Although offering stock options could be one way to
incentivize employees to join a startup and stay for the long term, the legal system
in many countries in the region complicates this. A lack of legal provisions and
protection for shareholders minimizes the utility of offering stock options. When
asked if they had offered staff equity in the company, entrepreneurs interviewed
said that they had explored doing so but that employees were usually more inter-
ested in receiving a higher income up front than in waiting to see if and when
profits materialized.

There are other serious issues that need to be addressed to ensure that entre-
preneurs can build teams that will enable them to scale, such as improving laws for
offering employee stock options and changing general cultural perceptions of
what it means to work for a startup. This will require stakeholders to think more
holistically in finding ways to build better teams.

Expanding into New Countries

The majority of those in our sample had not yet successfully opened an office in
more than one country, which magnifies some of the key challenges entrepreneurs

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What Is Next for MENA’s Entrepreneurs?

face in trying to expand into new countries in the MENA region. Forty-seven per-
cent of entrepreneurs surveyed said that finding partners was a challenge to geo-
graphic expansion, followed by the cost (40 per cento) and legal processes (28 per-
cent) involved in setting up a company. The experts surveyed also identified find-
ing partners as a top challenge (53 per cento), followed by the legal process of setting
up a business (46 per cento) and finding local talent (24 per cento).

Both scaleups and non-scaleups cite finding partners to facilitate expansion as
a top challenge (46 percent and 55 per cento, rispettivamente). The second most cited
hurdle is the costs of setting up in a new location (35 percent and 38 per cento,
rispettivamente). Even entrepreneurs in the UAE, where access to large corporations
and proximity to other wealthy Gulf Cooperation Council markets could help
facilitate access to new markets, finding partners to facilitate expansion and the
legal processes involved in setting up a business were still noted as key challenges.
The challenge of finding partners and dealing with costs and legal processes
when trying to access new markets highlights the general obstacles to regional
integration. Although there are common themes across the region in terms of cul-
ture and language, many of the entrepreneurs interviewed point to the MENA
region’s fragmented markets. World Bank researchers suggest that, while more
trade agreements have been signed by governments in the region in recent years,
regional trading is not growing at a significant pace, thus economic integration in
the region is still minimal.11

These realities trickle down to the grassroots level of individual entrepreneurs.
Time and time again, the entrepreneurs we interviewed discussed how any com-
pany that wants to scale needs to conceive of the MENA region as one whole mar-
ket rather than a collection of individual countries’ markets. The average popula-
tion of the nine countries covered in our survey is approximately 10 million peo-
ple, but this number was skewed by Egypt’s 80 million inhabitants, meaning that
most MENA countries covered in our study have relatively small populations.
Working in countries with such limited populations means that entrepreneurs in
the MENA nations who want to grow large companies will need to think region-
ally from day one. Even entrepreneurs in Egypt, who indicated in our survey that
they are slightly less interested than their peers in other countries in opening
offices in other countries in the next 1-2 years, still need to expand beyond their
country’s borders.

The need to facilitate greater economic integration between countries in the
MENA region has direct implications for its entrepreneurs. Just as too little inter-
country trade can impinge on economic progress, the challenges that hinder
entrepreneurs from establishing new offices in countries other than their own, hir-
ing new employees, and accessing new customers can hold back the expansion of
young enterprises.

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WHAT DOES THIS MEAN?

While considerable gains have been made in the past 4-5 years in terms of growing
the size and diversity of the MENA entrepreneurship ecosystem and in entrepre-
neurs growing new companies in the region—with many more seeking to grow—
there are still barriers that hold back growth. Building teams, obtaining investors,
understanding customer needs, and accessing new markets are all critical factors
of the growth process.

On the one hand, these findings suggest that, although the ecosystem has
grown in recent years, conditions for growing a business have not necessarily
improved. Thus policymakers and other stakeholders looking to improve condi-
tions for scalable enterprises in the MENA region must understand that an
increase in the number of supporting institutions does not necessarily reduce the
barriers to scale. While most of the entrepreneurs in our sample have yet to open
offices in new countries, many plan to do so in the next 1-2 years, which means
that the challenges we identified in our study could significantly limit this poten-
tial growth, should they remain unresolved.

It is important to note that these barriers have both internal and external com-
ponents. Per esempio, when identifying the challenges to building a team, both
entrepreneurs and experts cited external challenges in finding talent, but they also
pointed to internal difficulties in finding the proper incentives to help retain
employees. No single institution can tackle these challenges on its own; Perciò,
resolving each challenge will require coordinated efforts between multiple players
and pooled expertise to create sustainable, holistic solutions.

Despite the numerous barriers discussed in the report, two clear findings can

be drawn from the survey.

Primo, information from both entrepreneurs and experts is needed to address
challenges more holistically. The two groups generally have similar opinions on
the barriers to scale, which will serve them well in determining which issues need
to be addressed. Having input from both groups also helps avoid assigning too
much responsibility for the challenges covered in the report or pointing fingers
when an effort fails.

Secondo, and perhaps most importantly, we now have a baseline that we can
use to benchmark developments among the study’s cohort of entrepreneurs.
Entrepreneurs, investors, policymakers, and other players should see this as a
competitive advantage when trying to develop new programs and regulations, E
a general enhancement to the ecosystem around them.

There is no quick fix to the problem of scaling new enterprises in the MENA
region, and in some cases ironing out kinks in the system may take years of advo-
cacy and reform. Tuttavia, the following ideas are a starting point for addressing
some of the challenges detailed in this article:

Increasing access to capital is imperative. In parallel, improving knowledge-
sharing between entrepreneurs and investors will enhance funding opportunities.

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What Is Next for MENA’s Entrepreneurs?

Improving education systems and increasing access to entrepreneurship train-
ings will help improve local talent pools. These efforts must also include elements
that will help entrepreneurs retain talent.

Reducing legal challenges and the cost of expanding an enterprise into new
countries will facilitate expansion, but this must be coupled with initiatives that
help entrepreneurs identify strategic partners that will help them enter new mar-
kets.

Policymakers also need to understand that improving the ability to scale is not
solely related to funding, crossing borders, finding talent, or understanding mar-
kets as independent factors. It hinges on each and all of these factors, and any
effort to provide comprehensive solutions needs to take all of them into account.
This responsibility needs to be shared among institutions in the ecosystem and
entrepreneurs as well.

In future studies, the Wamda Research Lab team will dig deeper into these key
areas. In the meantime, we welcome thoughts and ideas on how to build stronger
ecosystems and to scale enterprises more effectively in the MENA region.

1. Wamda Research Lab’s mapping of institutions that support entrepreneurs in the MENA region.
2. International Labor Organization (ILO), “Global Employment Trends," 2013; see also, World

Economic Forum Global Agenda Councils, “Youth Unemployment Visualization," 2013.

3. Ibrahim Said and Joulan Abdul, “Youth in the Middle East and the Job Market,” Carnegie

Endowment for International Peace, 2011.

4. For information on the impact of scaling companies, see Erkko Autio, “Global Report on High-
Growth Entrepreneurship,” Global Entrepreneurship Monitor, 2007; George Foster et al.,
“Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies,” World
Economic Forum, 2011; Organization for Economic Co-operation and Development (OECD),
“High Growth Enterprises,” Eurostat: OECD Manual on Business Demography Statistics, 2007,
chap. 8.

5. See Erik Hurst and Benjamin Wild Pugsley, “What Do Small Businesses Do?” Brookings

Institution, 2011; Autio, “Global Report on High-Growth Entrepreneurship.”

6. The experts represent venture capital firms, angel investment networks, incubators, accelerators,
NGOs, corporations, and universities that have specialized programs to support entrepreneurs.
7. Endeavor Insight defines scaleups as companies with a three-year compound annual employee
growth rate of over 20 per cento, and non-scaleups as companies with a three-year compound
annual growth rate below 20 per cento.

8. For information on the impact of scaling companies, please see Autio, “Global Report on High-
Growth Entrepreneurship”; Foster et al., “Global Entrepreneurship and Successful Growth
Strategies”; and OECD, “High Growth Enterprises.”

9. ILO, “Global Employment Trends”; see also World Economic Forum Global Agenda Councils,

“Youth Unemployment Visualization”; Said and Abdul, “Youth in the Middle East.”

10. Ahmed Galal, “The Road Not Traveled: Education Reform in the Middle East and North

Africa,” World Bank, 2008.

11. Alberto Behar and Caroline Freund, “The Trade Performance of the Middle East and North

Africa,” World Bank, working paper series no. 53, 2011.

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