13 Apr
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6 min read
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Regardless of which region of the world you live in, you will face many challenges when starting a new business and will have to go through many highs and lows throughout the entrepreneurship process. The establishment of a business might be the most exciting decision you make in your life, but keep in mind that walking this path has barriers that are specific to each country. The difficulties of this path in European countries are different from those in the Middle East. The present article seeks to take a glance at the challenges you might face when establishing a business in the MENA region.
Entrepreneurship is an imperative component of creating new jobs and economic growth in all communities. Entrepreneurship fosters innovation, and innovation is the main driving force for economic growth and development.
Small successful businesses are the main driving force of creating jobs, growth, income, and consequently, poverty eradication in developing countries. However, the business and entrepreneurial environment in the MENA region is under the pressure of exhausting bureaucracies, dysfunctional judiciary, governments suffering from inflation, and inadequate and unstable executive mechanisms. The essential barriers to economic success in contemporary MENA stem from improper trade policies, incomplete execution of the contracts, management suffering from tax conflicts, unstable property rights, strict entry regulations, and insecure land ownership.
Overly formal administrative procedures often impose great costs in terms of time and expenditure on investors in every country. The costs of such systems are exhausting and the investment returns are insignificant, which might discourage the investors before even starting a business or make them withdraw in the middle of the way. It often leads them to take their investments elsewhere. Tedious paperwork and formal mazes harm small and newly-established businesses. An Inefficient judiciary that does not protect property rights or facilitate contracts also discourages traders and eventually leads to inadequate investment or capital flight.
There was no Arab country on the list of top 20 countries in terms of business facility, and only the five oil-rich Arab countries including Bahrain, Saudi Arabia, UAE, and Qatar were among the top 100. For instance, Egypt ranked 126 among the 180 countries of the world in terms of ease of business in 2008. Difficult accessibility to credit, non-progressive available human capital, and bureaucratic inefficiency are among the factors challenging development in the business environment of Egypt.
The implementation of rules in Arab countries still requires complex judiciary and administrative procedures, which leads some investors to resort to illegal actions to address their problems faster, even if such actions cost more.
Regulatory reform in terms of job entry and exit, access to credit, contract enforcement, and labor force quality is non-progressive in the Middle East compared to the other regions of the world. On the contrary, bureaucracy and its costs are extremely high in this region which restricts private businesses.
Corruption is another essential barrier to business and economic development in the MENA region. There is ample evidence suggesting that corrupted institutions hinder economic progress. The prevalence of corruption leaves negative impacts on the advancement of human capital and private investment, leads to political instability, and eventually reduced growth.
As long as the environment is corrupted, people will have no motivation to fight the corruption and change their conditions even if they are suffering from a poor economic state, which fosters the persistence of corruption. Unbridled corruption inhibits the dynamicity of businesses and hinders transparency in business environments, resulting in privileges based on kinship or relationships that damage the market environment and the competition process. Delegating key government positions based on kinship rather than merit damages the government’s efficiency and its capability of achieving development goals.
Business in the Arab world is no easy task. Arab traders face complex regulations to obtain export permits and numerous organizational barriers that are often ambiguous and inconsistent with the laws in other regions of the world. Even in Morocco has separated its economy from its Arab neighbors, establishing a new business requires at least 20 documents and takes over six months. These barriers discourage investors from entering the market, as a result of which competition declines, economic inefficiency is intensified, and the market suffers recession. Besides, tedious paperwork in the MENA has resulted in unfavorable behaviors such as nepotism, bribery, favoritism, and eventually, corruption.
One of the potential reasons behind the persistence of paperwork is the government’s determination to keep itself in charge of allocating capital. Political authorities in contemporary MENA do not support the establishment of autonomous –or in other words, independent legal entities- since they are worried these firms might squander considerable amounts of capital and increase their economic –and eventually, political- power, which might be a huge threat to the autocrat governments of the Arab world. Even today, most Arab countries have strict rules for the establishment of independent firms with limited businesses, especially those operating in the field of foreign investment, since autonomous business companies contribute to the formation of democratic regimes where citizens can accumulate wealth and improve their economic position away from the central power, capitalists, and the relations between them and without relying on the element of capital. This process may gradually eradicate the governing class and foster the distribution of power in the community.
Besides, the existence of small and medium-sized firms and supporting them foster the emergence of an academically educated middle class that presses the government for political change and fundamental reform. Thus, MENA authorities have shown no interest in making fundamental changes in the current business procedure so far. Comprehensive economic development for young Arabians will face great challenges should these business trends in the Arab world remain unchanged.
Aside from the mentioned fundamental entrepreneurship barriers in the Middle East, this ever-critical region suffers from other challenges concerning business establishment which will be briefly reviewed in the following.
Middle Eastern entrepreneurs pay huge efforts to interest capitalists in their projects and collect their required capital. They are forced to limit their scope of activities to accomplish their goals. Financial restrictions force them to keep their activities less than their capabilities.
Establishing a new business is no easy task in the Middle East since there are plenty of rules that must be adhered to during the entrepreneurship process. Establishing a business takes longer than it initially looks which results in entrepreneurs losing their time and faculties. Establishing a company is a huge decision. If you plan to do so in the Middle East, it would be best to consult the respective experts before taking any action.
Startups tend to operate in small markets in the Middle East. Thus, companies seeking to earn from advertisement have few options, a situation that is worsened by the increasing competition between new businesses. The small market scale intensified the competition and eventually prevents expansion to larger and newer markets of the region.
Entrepreneurs in the Middle East would have to overcome many challenges, but get two rewards as soon as their business starts to prosper, including financial and emotional rewards. On the one hand, they will feel at ease and achieve financial benefits knowing that their business is financially stable and profitable. On the other hand, they will feel proud seeking the quality of the goods and services and customer satisfaction.
