In many Arab countries, economic integration, the need for economic diversification, occupational preferences for public sector employment, and high youth unemployment rates have prompted the adoption of economic reforms to improve the enabling environment for entrepreneurship.
According to new research by Tahseen Consulting, understanding the determinants of self-employment and how they might differ across the region is critical if entrepreneurship is to be a solution for the region’s youth unemployment challenge and can ultimately lead to desired economic outcomes.
“Many countries in the region are pursuing undifferentiated entrepreneurship policies. Our study focuses on the need to distinguish between two types of regional entrepreneurs: opportunity entrepreneurs who pursue business opportunities voluntarily for personal interest, greater independence, or higher income often at the same time they hold a regular job and necessity entrepreneurs who are engaged in self-employment because they are unable to find better work and self-employment is the best alternative,” says Wes Schwalje, Chief Operating Officer of Tahseen Consulting and author of the study.
The study indicates that innovation-driven, high income Arab countries have higher rates of opportunity entrepreneurship while lower income Arab countries have higher concentrations of necessity entrepreneurs. However, most Arab countries are pursuing identical entrepreneurship policies, which include career guidance, funding, business skills training, reducing bureaucracy, and establishing business incubators, without regard to the types of entrepreneurs in their countries and vastly different support needs required by necessity versus opportunity-based entrepreneurs.
Necessity and opportunity entrepreneurs differ significantly in socio-economic characteristics; motivation and the types of opportunities pursued; and the potential for their entrepreneurial endeavors to create jobs and motivate private investment. Opportunity entrepreneurs tend to be younger, more educated, and have experience working in the same industry they are planning to enter. For this reason, they are more likely to create larger businesses that have the potential to create jobs and experience lower failure rates.
Necessity entrepreneurs, on the other hand, tend to be less educated and are less likely to have experience in their focus industry. Necessity-driven entrepreneurs typically pursue businesses with lower potential for growth and job creation and face a higher risk of failure.
Entrepreneurship policy across the region fails to differentiate between necessity and opportunity entrepreneurs favoring a one size fits all approach that is largely shaped by programs that serve opportunity-driven entrepreneurs. In doing so, tailored offerings based on the characteristics of different types of entrepreneurs are rarely considered, says Walid Aradi, Chief Executive Officer of Tahseen Consulting.
The study’s findings suggest a strong case for more tailored national entrepreneurship policies in the Arab region which reflect the mix of necessity versus opportunity-driven entrepreneurs operating in particular countries.
The differences between necessity and opportunity entrepreneurs are unexploited policy levers which might serve as guidance for targeted national entrepreneurship policies.
Instead of classifying all entrepreneurs as a homogenous group driven by opportunity and offering undifferentiated support, regional governments can introduce targeted training programs and support, contingent financing, and subsidies which might better serve both necessity and opportunity entrepreneurs.