Ingredients For An Entrepreneurial Environment

Earlier this month, the World Economic Forum (WEF) ranked the UAE as the 12th most competitive nation globally, outperforming established countries such as Denmark, Canada, Australia and France. Despite UAE’s seven-place improvement over last year’s ranking, the report provides several areas of improvement, including the need to focus on research and development (R&D) and business innovation to diversify and sustain the economy.

Echoing the two sub-themes of Dubai’s winning Expo 2020 bid — sustainability by producing innovative sources of energy and water; and opportunity through creating sustainable economic development by promoting entrepreneurship and innovation, the WEF’s recommendation highlights the gap between our aspired-to themes and our actual state of innovation.

Now that the euphoria of our Expo win has dissipated, it is time for us to focus on cultivating the ingredients to help create the right environment for entrepreneurship and innovation.

Add a dash of entrepreneurial attitude

The Global Entrepreneurship Monitor (GEM) Report on Entrepreneurship in the UAE, which last took place in 2011, found that the UAE had the second lowest rate of established entrepreneurs amongst innovation-driven economies. GEM is the largest source of research about entrepreneurship, with its 2011 survey spanning 54 economies.

That there was a decrease in entrepreneurial activity in the UAE compared to previous years was surprising given that UAE respondents had the highest perceived capabilities to start a business and the second highest entrepreneurial mindset in that group.

Similarly, a bayt.com and YouGov survey of Millennials released in January discovered that almost three quarters of respondents preferred to have their own businesses to being employed.

Given the high rate of entrepreneurial interest, respectable social status of entrepreneurs, and perceived abilities to start a business, what then are the impediments preventing these aspiring entrepreneurs from actually becoming entrepreneurs?

Sift through the barriers to entry

The WEF report indicated that the four most problematic factors for doing business in the UAE were:

• Restrictive labour regulations (19.9 per cent)
• Inflation (15.2 per cent)
• Inadequately educated workforce (14.4 per cent)
• Access to financing (13.9 per cent)

With the exception of inflation, the remaining three factors were also cited by would-be Middle Eastern entrepreneurs as impediments to starting a business in an October 2013 bayt.com and YouGov survey. The requirement of having a business license first before being able to legally conduct transactions and the inability of non-nationals to work for someone other than their employer (their legal sponsor) make entrepreneurship a more complex proposition in the UAE compared to other countries.

Despite the number of different factors included in that survey, the resonating theme that rang loud and clear was the lack of access to financing. Of those who attempted, but failed, to start a business, financing was the biggest hindrance, with 68 per cent stating they were unable to obtain financial support and 45 per cent being unable to self-finance start-up of business.

Other factors mentioned as either obstacles to or general concerns about starting a business were uncertainty of profit or fear of making a loss, corruption in society, bureaucracy, strict governmental regulations, fear of failure, inability to establish ‘wasta’, and hiring the wrong people.

Mix the four E-gredients together

In their Entrepreneurship in the UAE Report, Dr. Constance Van Horne and her colleagues call for the 4E model of entrepreneurship policy. To improve the state of entrepreneurship in the UAE, their model proposes the following:

• Education: Including entrepreneurial education (or at least introducing the entrepreneurial mindset) starting in primary school and encouraging entrepreneurial experience as part of the curriculum or as an extracurricular activity; incorporating more training and internships; establishing private-public partnerships to convert ideas into commercially-viable operations; and increasing investment in R&D.

• Ecosystem: Increasing the availability of financing for entrepreneurs; establishing more innovation zones such as MASDAR; improving the flexibility of labour force regulations; and partnering smaller businesses with larger firms.

• Export: Establishing collaborations with more advanced economies; improving advisory (legal, financial, investment) networks for start-ups; and attracting qualified work forces.

• Enthusiasm: Creating a positive view of entrepreneurship through media; including initiatives like ‘entrepreneurial leave’ for Emirati government employees to reduce risks of leaving secure employment; rewarding excellence; and connecting business, academics, and social leaders to foster cross-learnings and exchanges.

Let mixture simmer and watch entrepreneurship rise

Given the interest in becoming business-owners expressed by respondents in various surveys, there appears to be a fair number of what the GEM Report calls ‘Aspiring Entrepreneurs’, those expecting to start a business within the next three years. However, it is the conversion of these Aspiring Entrepreneurs to Nascent Entrepreneurs, those who have made some efforts in the previous 12 months to start a new venture, and New Firm Entrepreneurs, who own an operating business for at least four to 42 months, and finally to Established Entrepreneurs, who have operated a business for more than 42 months, that need the most support.

It is here where the incorporation of the 4Es is most critical. Although there have been improvements in the UAE entrepreneurial ecosystem, more are required for entrepreneurs to flourish.

According to Alexandar Williams, director of the Strategy and Policy Division of Dubai SME, an agency of the Department of Economic Development, tasked with developing entrepreneurship and Small and Medium Enterprises (SMEs), “the Dubai start-up ecosystem is evolving, and more public and private stakeholders are being co-opted into its fold”.

“What we need is more depth and quality of ideas, projects, and deals that will attract smart investor monies and market interest. This means our entrepreneurs need to work with experts and advisors to continuously develop and adapt their business models. If they fail, they should never to give up, as failures add to the wealth of experience accumulated, which is valued by investors,” Williams adds.

Organisations that support entrepreneurs such as Impact Hub and Heels and Deals (the latter is for women entrepreneurs) are wonderful initiatives that provide collaboration and support for start-ups, but are not sufficient on their own without start-up financing.

Even with the entrance of Dubai-based crowd-investing site Eureeca, an excellent alternate source of capital, the would-be entrepreneurs in the region are all still shouting “Show me the money!”, echoing the oft-quoted mantra from Jerry Macguire.

Let’s hope the venture capitalists are listening.

Jeanette Teh is Assistant Professor in the School of Business Administration at the Canadian University of Dubai (CUD). A former lawyer from Toronto, Jeanette teaches business law, employment law, business ethics, and management. Any views expressed in this article are solely those of the author’s and not of the university.