The Challenges of Youth Entrepreneurship in the MENA Region: Exploring Opportunities for Growth

Introduction: Entrepreneurship is a key driver of economic growth, job creation, and innovation. In the Middle East and North Africa (MENA) region, fostering vibrant entrepreneurial ecosystems is crucial to address high youth unemployment rates of around 26% and promote sustainable development especially for young women. This article examines the challenges and opportunities faced by young entrepreneurs in the MENA region, shedding light on the embedment of youth entrepreneurship.

Contestability and the MENA Entrepreneurship Ecosystem: The MENA entrepreneurship ecosystems are characterized by a complex and multifaceted structure, historically dominated by State-Owned Enterprises (SOEs), family businesses, and relationship-based economies. This structure poses several barriers that hinder contestability and impede the growth and success of young entrepreneurs. These barriers include limited access to market data, difficulties in attracting and retaining skilled talent, inadequate regulatory systems, insufficient investment in research and development (R&D), restricted regional and global market access, fragmented and informal sectors, political economy barriers influenced by political connections, limited utilization of technology for growth, and challenges in scaling up businesses.

The dominance of SOEs and family businesses has created an environment where entrepreneurial market opportunities are often limited and controlled by established players. This lack of contestability restricts the entry, exist and growth of new ventures, making it difficult for young entrepreneurs to take risk and compete on an equal footing. Moreover, the limited availability and transparency of market data hinder entrepreneurial decision-making and market analysis, hampering the ability to identify and seize opportunities.

Finding and retaining skilled talent is another significant challenge faced by young entrepreneurs in the MENA region. Education in the MEAN region focuses primarily on theoretical pedagogy, neglecting practical skills, project-based and experiential learning.

The existing labor market often favors established companies, making it challenging for startups to attract and retain qualified professionals. This talent gap across MENA hampers innovation and stifles the growth potential of young ventures. In addition, it is important to highlight that many labor laws in the MENA region are not gender-friendly, which can impose cultural restrictions on women's capital acquisition, business registration, and venture ownership. These gender biases and limitations in labor regulations hinder women's equal participation and hinder their ability to fully contribute to the entrepreneurial ecosystem, despite the higher education enhancement. The existing labor laws often contain provisions that create obstacles for women entrepreneurs, such as discriminatory practices in hiring, promotion, and access to financing. These barriers restrict women's opportunities to acquire the necessary capital and resources to start and grow their businesses. Additionally, the requirements and procedures for business registration and venture ownership may disproportionately affect women, further limiting their entrepreneurial endeavors. Addressing these gender-based cultural restrictions and ensuring gender equality in labor laws are essential steps towards promoting a more inclusive and supportive environment for women in entrepreneurship. By implementing reforms that eliminate discriminatory practices and provide equal opportunities for women entrepreneurs, the MENA region can unlock the full potential of its female workforce and drive economic growth and innovation.

In general, the regulatory framework in the MENA region is often characterized by complexities, inconsistencies, and bureaucratic hurdles. Entrepreneurs face difficulties in navigating these regulations, which can discourage them from starting or expanding their businesses. As one young entrepreneur in Tunisia told me once “The process of establishing my business in France took only a few hours through an online application, while here it took several weeks.”

Limited access to regional and global markets poses another obstacle for young entrepreneurs. Trade barriers, complex customs procedures, and inadequate logistics infrastructure restrict their ability to reach customers beyond national borders. This lack of market access hinders growth and limits the potential for scaling up businesses. In Amman, a young man once asked me, "Do you know how many bribes a truck driver has to pay to transport an apple truck from Beirut to the Gulf?"

The MENA region also faces challenges associated with fragmented and informal sectors (reach 80% in certain countries), where a significant portion of economic activity operates outside the formal regulatory framework. This informal economy presents obstacles in terms of market transparency, access to financing, and fair competition, negatively impacting young entrepreneurs. Informal sector is very limited to ability to obtain capital for growth.

Access to capital is a significant constraint in the MENA region, primarily due to a dysfunctional financial sector that tends to favor well-established entities. This creates limited financial solutions for startups and young entrepreneurs who are not considered bankable from traditional banking perspectives. The current financial landscape in the MENA region poses challenges for startups and young entrepreneurs seeking funding to launch or expand their ventures. Established entities with a proven track record often receive preferential treatment from financial institutions, making it difficult for innovative and emerging businesses to access the necessary capital.??This lack of access to capital stifles entrepreneurial growth in MENA and hampers economic development in the region. Startups and young entrepreneurs, who are typically characterized by their innovative ideas and potential for growth, face significant hurdles in securing funding to fuel their ventures. As a result, many promising entrepreneurial initiatives struggle to take off or reach their full potential. As a result they wait for governments for support and assistance.

Political economy barriers, influenced by political connections and favoritism, pose additional challenges for young entrepreneurs in MENA. The prevalence of nepotism, politically motivated hiring, corruption, and social exclusion can create an uneven playing field, where success often depends on personal networks and connections rather than merit or innovation. One female young entrepreneur in Egypt told me right after the revolution, "I feel like I'm standing on the side of a highway when I look for a job or to start a new business; everyone who is connected can jump into a bus or a car with a driver they know, except me because I know no drivers."

Technological advancements play a critical role in boosting entrepreneurship by reducing sunk costs, enabling young entrepreneurs to enhance management efficiencies, build customer bases with reasonable resources, and develop purpose-driven ventures that attract the new generation of youth. By leveraging technology, entrepreneurs can access cost-effective tools and platforms that streamline business operations, automate processes, and improve productivity. This not only reduces the initial investment required to start a business but also enhances the efficiency and effectiveness of day-to-day management tasks. By leveraging technology-driven solutions, entrepreneurs can optimize their resource allocation, minimize wastage, and focus on delivering value to their customers. Moreover, technology enables entrepreneurs to reach a wider audience and establish a strong online presence. Through digital marketing, social media engagement, and e-commerce platforms, entrepreneurs can connect with their target market, build customer relationships, and generate sales without the limitations of physical boundaries. This allows for the creation of scalable and globally oriented ventures that cater to the preferences and needs of the new generation of tech-savvy youth. In conclusion, technology serves as a critical enabler for entrepreneurship, offering opportunities to reduce costs, enhance management efficiencies, build customer bases, and develop purpose-driven ventures. Embracing and leveraging technology is essential for empowering MENA young entrepreneurs and driving the next wave of innovation and economic growth. A young entrepreneur in Fes, Morocco told me, "I created a 400,000-strong Facebook community of trust before even launching my ride-sharing business. Trust is the core value proposition of my venture, and technology helped me build it."

Addressing these challenges requires system-based, locally driven, and comprehensive reforms in various areas. Improving access to market data, enhancing the regulatory framework to foster entrepreneurship, empower women workforce participation, increasing investment in R&D, facilitating regional and global market access, formalizing the informal sector, and promoting a level playing field free from political favoritism are crucial steps in nurturing a more conducive environment for young entrepreneurs in the MENA region.

By overcoming these barriers, the MENA entrepreneurship ecosystem can become more inclusive, competitive, and supportive of young entrepreneurs, leading to economic growth, job creation, and sustainable development.

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** Hisham Jabi is an international development specialist based in Washington, DC. He is the founder of www.PITA.ps and www.PalTechUS.org and the CEO of Jabi Consulting in Washington, DC “www.jabiconsulting.com” He can be reached at [email protected]