MASARYK UNIVERSITY
FACULTY OF INFORMATICS
IT Entrepreneurship Ecosystem in Algeria
DIPLOMA THESIS
Brno, 2016 B.Eng. Rabah Beggar
Statement of an author
Student´s Name and UČO: Rabah Beggar / 429402
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(Article 35 § 3 and 4 of the Copyright Act No. 121/2000 Sb.) to use for educational and other internal purposes on a non-commercial basis my thesis or my other school work, which I authored to fulfill my study obligations towards MU (my work).
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Brno, Jan 11th 2016 ______Student´s signature
iii Declaration
I hereby declare that this thesis is a result of my own work and that I worked independently. All sources and literature that I have used for preparation of this work are properly quoted with full reference to their original source and listed in bibliography.
______
B.Eng. Rabah Beggar, 25/2/2015
Supervisor: Ing. Leonard Walletzký, Ph.D.
iv Acknowledgement
I would like to thank my supervisor Ing. Leonard Walletzký, Ph.D. for his guidance, support and valuable advices that helped me a lot during the writing of this thesis. And as this work is the fruit of my studies so far I would like to say thank you to all of those who ever taught or instructed me. Furthermore, I would like to thank the entrepreneurs who provided answers to my survey. Last, but not least, my gratitude goes to Alaa, Fabian, Vít and all those who matter to me for their continuous support, and most of all to my Family.
v Abstract
Entrepreneurship in developing countries is considered as one of the key elements for a healthy productive economy. However, researches in this area are still limited. The aim of this thesis is to analyze and evaluate the IT Entrepreneurship Ecosystem in
Algeria. This work aims to collect data on the existing ecosystem, getting in touch with as much IT startups as possible through tailored questionnaires, with the final goal of providing a guideline for creating an IT startup in the country where the IT market is still in its early stages providing a variety of opportunities. Government tried to support this by putting in place a number of initiatives, however there is a gap between providing the support and making it accessible for interested individuals. A full analysis of these challenges was carried in this work with some recommendations proposed on how to address them.
vi
Key words IT Entrepreneurship, Startups, DZ Startups, Algeria, IT ecosystem, Entrepreneurs, Information Technology.
vii Table of Content
1 Introduction ...... 1
2. Entrepreneurship, Startups and SMEs...... 3
2.1 Entrepreneurship ...... 3
2.1.1 Product ...... 5
2.1.2 Service ...... 5
2.2 Startups ...... 5
2.3 SMEs ...... 6
2.4 Startups Vs. SMEs ...... 7
3. Algeria’s Ecosystem ...... 7
3.1 Algeria: country presentation ...... 7
3.1.2 Economy ...... 8
3.1.3 Competitiveness ...... 9
3.1.4 Entrepreneurship in Algeria ...... 11
3.1.5 IT Entrepreneurship ...... 12
3.1.5.1 Internet coverage ...... 13
3.1.5.2 3G coverage ...... 13
3.1.5.4 The user base ...... 15
3.2 Entrepreneurship Ecosystem ...... 17
4 Ecosystem analysis ...... 20
4.1 Method used ...... 20
4.1.1 The Entrepreneurial Ecosystem Diagnostic Toolkit ...... 21
4.1.2 Research parameters ...... 22
4.2 Policies ...... 23
4.3 Finance ...... 25
4.3.1 Government Support ...... 25
viii 4.3.1.1 National Agency of Support for Youth Employment ...... 26
4.3.1.2 National Agency for Management of Microcredit ...... 27
4.3.2 Stock Market ...... 27
4.3.3 Start-up Competitions ...... 28
4.3.4 Investors ...... 29
4.3.4.1 Foreigner investors ...... 29
4.3.4.2 Local investors ...... 29
4.3.5 INSOLVENCY ...... 30
4.4 Business Support: Incubators ...... 31
4.5 Human Capital ...... 32
4.6 R&D...... 33
4.7 Markets ...... 34
4.8 Infrastructure ...... 34
4.9 Culture ...... 35
4.10 The 12 steps to create a startup ...... 36
5 Validation via survey ...... 40
5.1 Questionnaire ...... 40
5.2 Sample size...... 40
5.3 Results...... 41
5.3.1 Profile of a typical DZ IT entrepreneur ...... 41
5.3.2 Innovation ...... 42
5.3.3 Recruiting the team ...... 43
5.3.3 Finance ...... 43
5.3.4 Policies ...... 45
5.3.4 Markets & expansion ...... 46
5.3.5 Human capital ...... 47
5.3.6 R&D...... 48
ix 5.3.7 Business Support ...... 49
5.3.8 Infrastructures ...... 51
5.3.9 The surrounding ...... 52
5.4 Return on investment ...... 53
5.5 Recommendations ...... 54
6 Conclusion...... 56
7 Literature ...... 58
Appendix 01 Chronology of Algeria’s history...... 68
Appendix 02 Questionnaire ...... 70
x List of figures
Figure 1. Algeria’s Location in reference with Czech Republic ...... 8 Figure 2. Business Density ...... 12 Figure 3. Current coverage of 3G in Algeria (on the left) Vs Algeria Population Map ...... 14 Figure 4. Algeria’s population pyramid ...... 16 Figure 5. The Three core factors of an ecosystem...... 17 Figure 6. Ecosystem’s Eight Domains ...... 18 Figure 7. Domain Influence on Entrepreneurs ...... 19 Figure 8. ANSEJ Logo ...... 26 Figure 9: ANGEM Logo ...... 27 Figure 10. Ease of resolving insolvency ranking ...... 31 Figure 11. IT Entrepreneurs motivation breakdown ...... 41 Figure 12. Innovation in Algerian IT startups...... 42 Figure 13. Sector of activity breakdown ...... 43 Figure 14. Startups success in securing funding ...... 44 Figure 15. Source of funding for startups ...... 44 Figure 16. Level of funding for startups ...... 45 Figure 17. Impact of policies on startups on-going operations ...... 46 Figure 18. Obstacles accessing Markets ...... 47 Figure 19. Obstacles with human capital ...... 47 Figure 20. Entrepreneurs access to Entrepreneurship educations on University level ...... 48 Figure 21. Cooperation between Researches & Development sector and the industry ...... 49 Figure 22. Obstacles receiving business Support ...... 50 Figure 23. Satisfaction index for support received in incubators ...... 50 Figure 24. Infrastructures vs. Startup needs ...... 51 Figure 25. The Surrounding Vs. IT Entrepreneurs ...... 52 Figure 26. Return on investment breakdown ...... 53
xi
List of tables
Table 1. Entrepreneurship definitions extract...... 4 Table 2. Frameworks used in development of the ANDE Entrepreneurial Ecosystem Diagnostic Toolkit...... 22 Table 3. The Ease of creating a startup ...... 24 Table 4. Profit according to the year of foundation...... 53
xii 1 Introduction
Entrepreneurship, n /ˌɒn.trə.prəˈnɜː.ʃɪp/
Skill in starting new businesses, especially when this involves seeing new opportunities. [1].
Entrepreneurship has a key role in today's economy, being directly linked to innovation, job creation and the small business sector. European Union´s Small and Medium Enterprises (SME) account for more than 99% of all European businesses and contribute for half of the total value-added created by businesses in the EU [2] .
This fact extends to cover the emerging markets. According to the Organization for Economic Cooperation and Development (OECD), SMEs are providing 97% of the total jobs in developing countries. The needs and opportunities are more present in these areas, providing ground for creating new businesses.
In North Africa, entrepreneurship has become the trend. A fair number of students, youth and professionals are creating startups and SMEs in order to answer the market demand that has little or no competition, allowing for fast track growing.
In this work, I am going to focus on Algeria for two main reasons. The first is the lack of relevant research in this area, especially in English. The second is my personal interest in founding my own startup upon my return to my home country.
As the biggest African country, Algeria is witnessing a movement of empowering entrepreneurs to give a push to the local economy. Between 01/2010 and 06/2013 a total of 177010 SMEs were established [3]. However, only a limited number of them can be considered startups if we take into account the innovation of the idea [4].
Choosing the Information technology sector was by default, since it is my field of study and, in recent years, IT changed our life, whether it was through communication platforms, e-learning portals or e-commerce. Nonetheless, this change is still in its early days back home, meaning it is truly a land of opportunities and innovations.
1
Having this in mind, the specific aims of this diploma thesis are to collect data on the existing Algerian ecosystem, get in touch with a number of Information technology startups through tailored questionnaires, and provide a guideline for creating an IT startup in the country.
In order to study a subject, we need to get familiar with it first. For that, in the opening part of this document I am going to give some definitions about the entrepreneurship ecosystem and make a general country presentation.
2 2. Entrepreneurship, Startups and SMEs.
2.1 Entrepreneurship
Entrepreneurship, according to the British English Dictionary, is the skill in starting new businesses, especially when this involves seeing new opportunities [1]. This implicates that every self-employed person can be referred to as an Entrepreneur, whether he is providing a new service/product or redefining an existing one.
However, the Austrian economist Joseph Schumpeter, who considers “carrying out innovations is the only function which is fundamental in history” [5], links between innovation and entrepreneurship. This connection is clear in his definition of what the role of an entrepreneur is: “The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on” [6].
From the literature I went through, I consider the previous definition the one that matches the most in today's environment, there exist a number of other definitions from different entities, which are presented in Table number 1.
“Entrepreneurs buy at certain prices in the present and sell at uncertain (Cantillon, prices in the future. The entrepreneur is a bearer of uncertainty.” 1755/1931)
“Entrepreneurs are „projectors” (Defoe, 1887/2001)
“Entrepreneurs attempt to predict and act upon change within (Knight, 1921) markets. The entrepreneur bears the uncertainty of market dynamics.”
“The entrepreneur is the person who maintains immunity from (Weber, control of rational bureaucratic knowledge.” 1947)
3
“The entrepreneur is always a speculator. He deals with the uncertain (von Mises, conditions of the future. His success or failure depends on the 1949/1996) correctness of his anticipation of uncertain events. If he fails in his understanding of things to come he is doomed.”
“The entrepreneur is co-ordinator and arbitrageur” (Walras, 1954)
“Entrepreneurial activity involves identifying opportunities within the (Penrose, economic system” 1959/1980)
“The entrepreneur recognises and acts upon profit opportunities, (Kirzner, essentially an arbitrageur” 1973)
“The essential act of entrepreneurship is new entry. New entry can be (Lumpkin & accomplished by entering new or established markets with new or Dess, existing goods or services. New entry is the act of launching a new 1996) venture, either by a start-up firm, through an existing firm, or via internal corporate venturing”
“The field of entrepreneurship involves the study of sources of (Shane & opportunities; the processes of discovery, evaluation, and Venkatarama exploitation of opportunities; and the set of individuals who n, 2000) discover, evaluate, and exploit them.”
“Entrepreneurship is a context dependent social process through (Ireland, which individuals and teams create wealth by bringing together Hitt, & unique packages of resources to exploit marketplace opportunities.” Sirmon, 2003)
(Commissio “Entrepreneurship is the mindset and process to create and develop n of the economic activity by blending risk-taking, creativity and/or innovation European with sound management, within a new or an existing organisation.” Communitie s, 2003)
Table 1 - Entrepreneurship definitions extract. Source: [7]
4
Entrepreneurship can rely either on the creation of products and/or services. The difference between the two is as following:
2.1.1 Product
“A product is the item offered for sale. A product can be a service or an item. It can be physical or in virtual or cyber form” [14] this include goods, but is not limited to it, ideas, know-how, and services stands in the heart of today's economy.
2.1.2 Service
According to ITIL1 a service is "a means of delivering value to customers by facilitating outcomes that customers want to achieve without the ownership of specific costs and risks." [13]. in other words it is an intangible output that satisfy the needs of a given buyer who is not willing to manage the needed infrastructure to produce the service in question.
2.2 Startups
The first thing that is associated with entrepreneurship is startups. It is necessary to establish its definition in order for it to be used later on in this study.
“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” [8].
The part “new product” underlines that it is directly connected with innovation, which explains the concept that general public have, through a simple survey I did with other students from different faculties, the majority tend to identify startups as only new successful apps like Whatsapp, Airbnb and Facebook a few years ago. In fact, innovation includes this and exceeds it to other domains and other aspects.
1 Information Technology Infrastructure Library - ITIL is a “best practice framework that has been drawn from both the public and private sectors internationally. It describes how IT resources should be organized to deliver business value” [9]
5 A basic definition could be that it means something unusual that did not exist before. Schumpeter divides innovation into five pillars [5]:
1. Introducing a new product or a new variations of an already existing product; 2. Applying new methods of production or sales of a product 3. Establishing a new market where the given product was not represented in yet. 4. “Acquiring of new sources of supply of raw material or semi-finished goods” [5] 5. “New industry structure such as the creation or destruction of a monopoly position”. [5]
Another definition of startups says that “A startup is an organization formed to search for a repeatable and scalable business model.” [10]. The term scalable suggests that the aim of every startup is to grow (and, consequently, to stop being a startup) and to mature to a fully functional company: to an SME.
Even though SME is the next stage of a Startup, there are differences between the two, which are explained better in the following parts.
2.3 SMEs
Small And Medium Enterprises are companies that fall under a certain legal limit regarding the number of employees and the annual turnover. However, this differ from one place to another.
In the European Union: “The category of micro, small and medium-sized enterprises, (SMEs), is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and an annual balance sheet total not exceeding 43 million euro.” [11]
In Algeria, the location addressed by this thesis, an SME is a service or good provider employing between 1 to 250 employees with a turnover not exceeding 2 billion Algerian Dinar (around 18.6 million euro), an annual balance sheet total not exceeding
6 500 million Algerian Dinar ( = 4.6 million euro), and respecting the criteria of independence. [12]
Respecting the criteria of independence means that the company is purely self- governing and not a division nor a subsidiary of a mother company. No more than 25% of the shares (voting rights) can be hold by another organization [23].
2.4 Startups vs. SMEs
The two terms are similar to each other and have caused a number of controversy. If we consider the Schumpeter’s definition of entrepreneurship, innovation would be the cornerstone to differentiate between the two. Other elements would be the risks taken and the growth rate. Entrepreneurs tend to take high undefined risks aiming for rapid growth and high returns, generating jobs in the market They see their startups as assets with the possibility of being sold in order to work on the next idea, whereas small business owners are emotionally attached to their business, takes limited defined risks, and aim for a stable growth rate, basically living in their comfort zone.
In this thesis, an SME would mean the same as a Startup, and vice versa, as the questionnaire would only be distributed to SMEs that have shown an innovative product/service in the Algerian market, and have participated in job creation.
3. Algeria’s Ecosystem
As the aim of this thesis is to be a guide for anyone interested in founding his own startup in the Algerian market, a presentation of the country, its economy and its information technology entrepreneurship ecosystem is a must, in order to give a general understanding about the country and to draw the big picture of the surroundings. 3.1 Algeria: country presentation
Algeria is a North African country, with a Mediterranean coastline and a Saharan desert interior, between Morocco and Tunisia. It is the largest country in the Continent with a surface of 2,381,741 km2, thirty times the size of Czech Republic.
7
Figure #01: Algeria’s Location in reference with Czech Republic
The country official language is Arabic with Amazigh recognized as a national language in 2002. French is not an official language but it is widely used within the government bodies because of historical backgrounds. An article published on September 2015 [15] reports that 28% of Algerians speak French.
The Government is a unitary2 semi-presidential3 republic. Abdelaziz Bouteflika is the current president and Abdelmalek Sellal is the current Prime Minister.
See Appendix 01 for a chronology of the country history.
3.1.2 Economy
The economic scene has been directly linked to the history of the country. After a long bloody revolutionary war, the country got its independence from France in July 5th,
2 A unitary state is “a state governed as one single power in which the central government is ultimately supreme and any administrative divisions (subnational units) exercise only powers that their central government chooses to delegate”. [16] 3 Semi-presidentialism is “a system of government in which a president exists along with a prime minister and a Cabinet, with the latter two being responsible to the legislature of a state”.[17]
8 19624. The new government faced a number of challenges starting from the migration of the elite educated group known as les-pieds-noir5, and the destruction of the industrial infrastructure6.
As a fresh liberated society, the country adopted a communist economy, a direction supported by the people who sought equality above all to avoid any possible scenario that may lead to discrimination to rise again7. The focus was to build a heavy industry [18] as part of an unbalanced growth strategy. The idea was to start from the top (heavy industry) and the light industry would follow, a strategy similar to the The Great Leap Forward Chinese campaign. However, this attempt did not yield the desired outcome, and the country took another path by the end of the seventies. This time it was a 180 degree change, and the government pushed for an open market, but instead of continuing the journey, a full restructuring campaign was launched to salvage the public companies. In the 1990s the country went through reforms to transition into fully open markets with a more dynamic private sector. Nowadays, the public and oil sectors still dominate the economy.
Algeria was able to manage the global financial crisis due to the high oil prices at the time, and the significant foreign exchange reserve (186$ Billion in 2014 [19]). However the recent drop in oil prices led the state to tighten public spending, and to encourage private investment. Entrepreneurship and small businesses represent the future for the country economy.
3.1.3 Competitiveness
One of the key motivations for IT entrepreneurship in this part of the world are the available opportunities and the freshness of the market, which implies poor
4 For more details read A Savage War of Peace: Algeria 1954-1962 by Alistair Horne.
5 Les-pieds-noir translate to the black feets in English is a term referring to European descendent citizens who lived in French North Africa and benefited from colonialism provided privileges including the almost exclusive right for higher education. 6 Secret Armed Organization - “OAS” an organization formed by ex-officers/Generals of the French army during the Algerian revolution did a series of bombing to stop the negotiating efforts. 7 Powered by the discriminations faced during the colonialism.
9 competitiveness especially in the Information Technology sector (in the Algerian market). The rule is that first movers take most of the market, if we take Ouedkniss.com8 an E-business startup as an example. The founders managed to identify the niche and were pioneers (established in 2006 [20]). After a couple of years, they are the 10th most visited website in the country [21], with no serious competition due mainly to two reasons:
1. The well-established client base and network effect. 2. The competition is no more than copy/paste attempts - no effort is put in innovations.
If we step back to watch the big picture, the situation is not much different: entrepreneurs with the first mover advantage9 dominate the market. The main reason is the naive belief within the people that if you want to succeed you need the support of well positioned individuals within the government or the military. This belief is the result of the society ignorance of its entrepreneur’s success stories and having a glass ceiling to justify personal failure. Writing this thesis is my contribution to try and rise the IT entrepreneurship spirit between my peers.
According to the World Economic Forum in its Global Competitiveness Report [53] Algeria is ranked 79, Switzerland is in top of the list, Germany is the fifth and Czech Republic is number 37.
8 Ouedkniss.com is an e-business platform for individuals and business owners to offer their goods/services to other individuals B to C , C to C platform, and is considered one of the most successful Algerian startups.[20] 9 First mover advantage is “the advantage gained by the initial first-moving significant occupant of a market segment. It may be also referred to as Technological Leadership.”[22].
10 3.1.4 Entrepreneurship in Algeria
Entrepreneurship, startups, incubators are terms that have been used/are being used on a daily basis between University Students, a buzz powered by the various competitions taking place in this domain. As a result, Algerian entrepreneurs are mostly below 40 years old with a high education degree working with the motto “Invest capital to make more capital10” [24].
They have the following characteristics [24]:
1. A strong attachment to family values. 2. Collective spirit as the new majority of early recruits are friends and family. 3. Flexibility in dealing with their employee’s needs. 4. Lack of long term vision for the young generation, as immediate profit is a key concern.
Available opportunities and government funds support are another driver. Through the coming sections I will provide a full analysis of all the elements.
According to the World Bank Group data in its entrepreneurship project, Algeria had a business density11 of 0.58, which means that out of 1724 working age people (between the ages of 19 to 64), there is one person who goes for startups. This density is one of the lowest in the region, as shown in figure 02 below.
10 Capital is the financial value of assets, in our case cash or the generated revenue. 11 Measured by how many entrepreneurs emerge from 1000 working age people between the ages of 19 to 64. [65]
11 Business Density
Tunisia 1.52
Morocco 1.54
Czech Republic 3.42
Algeria 0.58
Germany 1.29
0 0.5 1 1.5 2 2.5 3 3.5 4
Figure 02: Business Density, Data source: world bank, entrepreneurship report [65]
3.1.5 IT Entrepreneurship
According to World Bank Data, only 18% of the population have access to internet in 2015 [26] with an average speed of 3.3 MB/s. This indicates a low internet penetration (131st worldwide [27]) however it also indicates a fresh information technologies market, with tons of opportunities waiting to be taken, which makes IT the most active startup sector, with a focus on Apps development. Areas such as big data analytics12 are still unexplored.
As internet is the number one infrastructure when dealing with IT , I will go in more details about it in the next paragraphs (3.1.5.1).
It is common for the emerging countries to be mobile-first countries where customers use their personal phones for their internet activities, as it is the case in India.. However, this does not apply to Algeria as most of queries are done on desktops, with
12 Big data “is a term that describes the large volume of data – both structured and unstructured – that inundates a business on a day-to-day basis. Big data can be analyzed for insights that lead to better decisions and strategic business moves” [28]
12 the exception for Facebook (the number one social media used in the country according to Alexa’s ranking) due to the last deployment of 3G services.
3.1.5.1 Internet coverage
As mentioned above, the intensity of internet penetration is 18% of the population with an average speed of 3.3 MB/s. Algérie Télécom, a state owned telecommunication company, is the major internet service provider. Landlines are a condition to benefit from the service. Internet packages for individuals ranges from 01 to 08 MB/s , and from 02 to 20 MB/s for professionals. Service disturbance is encountered during peak hours from 14:00 to 23:00 on a regular basis. There exists a network connecting universities and research centers called Academic Research Network - ARN, it uses international Gigaethernet13 links directly without going through the service provider and as a result it has high speeds (around 35MB/s).
Enhancing the network with optical fiber is in progress in the local network as for international links, a cable connecting Oran (the second largest city of the country) with Valence (Spain) is being installed and is going to be delivered in 2016. This cable has a speed of 100 GB/s and a maximum capacity of 20 TB/s [87].
3.1.5.2 3G14 coverage
Launched in 2014, there are three 3G providers in the country:
1. Ooredoo: a telecommunication provider based in Qatar and operating in North Africa, Southern Asia and the Middle East. 2. Mobilis: a state owned telecommunication provider. 3. Djezzy: a branch of the global provider of telecommunication services Vimpelcom (Dutch company).
After analyzing the 03 providers’ networks, Ooredoo is the leader with current 3G coverage represented in the red spaces in figure 03 below:
13 It is a technology of transmitting internet with a rate of a gigabit per second, a form of fast internet. 14 3G is a “cellular networks that have data rates of 384kbit/s and more.” [93]
13
Fig 03: Current coverage of 3G in Algeria (on the left) Vs. Algeria Population Map (on the right)15
As the population is concentrated in the North we see that it is almost fully covered. However, when moving south, only big cities are covered as desert is not highly populated. The coverage is directly related to the population density as seen from comparing the two images. The action plan of the three providers is to provide a full country coverage in three years [84].
3.1.5.3 4G /LTE16 Coverage
Few months after launching 3G services, Mobilis launched the service 4G LTE for professionals (companies’ owners) [85]. To get data on the current status I needed to check with within my network in the telecommunication sector as no public information are available on the subject; the information I gathered indicates that for the regular user LTE is not accessible yet, there exists an offer from Mobilis for
15 Sources:ooredoo.dz/3g/couverture-3g/ for Current coverage of 3G in Algeria and populationlabs.com for Algeria Population Map. 16 Fourth Generation / Long Term Evolution provides faster data transfer for users than 3G , some international standard requires that services to have a peak of 100 MB/s data transfer rate to be categorized as 4G. [92]
14 individuals with the name 4G but in fact it is just an enhanced 3G not LTE, Ooredoo named the same service 3G++. September 2016 is its estimated availability date. Tests performed in Oct 2015 by Ooredoo were successful reaching a speed of 301.6MB/s Downlink and 50Mbps Uplink, Ericsson17 equipment’s were used.[86]. The delivery of Oran’s optical fiber is going to enhance the network. 3.1.5.4 The user base
The user base is critical for all IT startups, it is affected by internet coverage and the user behaviors. There is over 8.2 million internet user in the country, [88]. By the end of Dec 2014 there was 6.8 million user registered on Facebook, 37 000 user registered on Twitter and 560 000 user on LinkedIn.
According to a study performed by Ericsson ConsumerLab18 “Algerians are ready for the digital transformation in their daily life” [89], the study shows that 47% of Algerians sees technologies as a mean to live a modern life. 26% have a smartphone, a number that is estimated to grow in the near future. According to the same study there is a tendency for the youth to use e-commerce platforms, the biggest problem faced so far is the absence of credit cards or other alternative online payment in the market.
Another point to mention is the demographic of the country, as seen in fig below, 36% of the population are between 15 to 34 years old (Generation Y), making a large potential user base.
17 Erricson is a worldwide leader in providing communication technology and services based in Sweden. 18 Ericsson ConsumerLab is an organization within Ericsson that are responsible for studying consumer trends and user behavior in order to meet and anticipate market needs.
15
Fig 04: Algeria’s population pyramid19 Source: adapted from populationpyramid.net [90].
In the next parts of the thesis, I am going to provide a detailed analysis of the IT entrepreneurship ecosystem in the country including more information about infrastructure gathered from entrepreneurs’ experience.
19 Population pyramids are a way of showing the age distributions in a population using a graphical image.
16 3.2 Entrepreneurship Ecosystem
An entrepreneurship ecosystem is the totality of all elements that affect a startup and are outside the immediate control of the entrepreneur, startups growth and success is in direct link with it.
We can group these elements into three [29] core factors:
Fig 05: The Three core factors of an ecosystem.
These three factors are affected by the surrounding legal frameworks and culture.
Opportunities are a reflection to the missing services/goods in the market of the country, the markets are governed by regulation set by the authorities: Policies, and by the country competitiveness. Resources translate to Capital (Finance), research and development elements and infrastructure. Skilled people are the entrepreneurial capabilities of the individuals, in other words the human capital.
Incorporating all these domains together, eight domains are founded, forming the IT entrepreneurship ecosystem:
17
Fig 06: Ecosystem’s Eight Domains.
1. Policy: National / Local Government 2. Finance: Banks, Venture Capitals20, angel investors21, foundations and government Funds. 3. Culture: the elements that shapes the image of entrepreneurs for example: Media, and. 4. Human Capital: Universities and Technical Training Institutes. 5. Research and Development. 6. Markets: Including the consumers, distributions networks, and marketing corporations.
20 Venture Capital is money provided by investors to startup Companies or SMEs with potential long-term growth. It involve high risk for the investor, but it has the potential for high above-average returns.[30] 21 Angel investors are investors “who provides financial backing for small startups or entrepreneurs. Angel investors are usually found among an entrepreneur's family and friends. The capital they provide can be a one-time injection of seed money or ongoing support” [31].
18 7. Business Support: in terms of Incubators, Accelerators, Legal services and Professional Associations. 8. Infrastructures: connectivity, and transportations.
In terms of influence on the entrepreneur these domains vary from Direct, Partially direct to indirect influence [32], as illustrated in the image below:
Fig 07: Domain Influence on Entrepreneurs
The ability to secure Capital, the Business support found on the level of Incubators, Mentoring, legal services, and infrastructure (Electricity, Internet penetration ...etc.) are what gives Finance plus Support a direct influence on all startups.
Culture is indirect because even though it shapes the image in which society perceive entrepreneurs, individuals with high resolve can easily escape its constraints.
The rest of the domains are partially direct because they affect startups growth/ expansion in a great deal, while it is a limited effect during foundation.
19 Even though these eight domains are the base of all ecosystems, each ecosystem itself is unique [29], similarities exist between high performing environments but the unlimited possibilities of interactions between all the elements forming them lead to an idiosyncratic system. These systems are self-sustaining as the improvement in one domain interlocate in enhancement in other ones; it is a loop system that is mutually reinforcing, success of existing startups attracts new ventures for the freshly formed ones, and it keeps going. In other words, if an ecosystem is mature enough it will reach a self-sustainable state.
4 Ecosystem analysis
4.1 Method used
To provide the ecosystem analysis in this thesis, I used “the Entrepreneurial Ecosystem Diagnostic Toolkit” published by the Aspen Network of Development Entrepreneurs (ANDE)22 . Through my research this toolkit was by far the best fit to treat my topic. Other possible method would have been the Williamson model that list four levels for analysis [34]:
1. Embeddedness: informal institutions, culture and traditions. 2. Institutional environment: Policies and formal rules, “Rules of the game” 3. Governance: interacting with the policies, “Play of the game”. 4. Resource allocation and employment: Human capital.
However “The Entrepreneurial Ecosystem Diagnostic Toolkit” provided an in-depth analysis for the all six domains, and whereas the Williamson model has institutional
22 The Aspen Network of Development Entrepreneurs (ANDE) is a “global membership network of organizations that propel entrepreneurship in emerging markets” [33]. It is part of the international nonprofit organization “The Aspen institute” that has a mission to foster leadership and encourages innovations and entrepreneurship.
20 economics23 as an area of focus, the toolkit is tailored for entrepreneurship ecosystems, thus was a better fit.
4.1.1 The Entrepreneurial Ecosystem Diagnostic Toolkit
There has been a number of efforts to establish a framework that allows a detailed measurement of entrepreneurship ecosystem in the different economics. These efforts are empowered by the urge to identify the key elements of successful models in order to recreate them in the less successful environments.
To establish the synthesis used in its toolkit, the ANDE used the existing developed frameworks [32] illustrated in table number 02 below:
Organization Developed framework
Council on competitiveness “CoC” Asset mapping roadmap
The global entrepreneurship monitor “GSM” Information and association communication technology entrepreneurship
Babson college - a private business school in Babson entrepreneurship Wellesley, Massachusetts, USA with a mission to ecosystem project “educates entrepreneurial leaders who create great economic and social value - everywhere.” [36]
The World bank Doing business
Koltai and Company - a US based consulting firm that Six + six focus on international entrepreneurship development and startup venture consulting [37]
Victor W. Hwang - CEO and Co-founder of T2 Innovation rainforest
23 Institutional economics “focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior” [35]
21 Venture Creation, “a firm that grows startups and blueprint assists the development of innovative, entrepreneurial ecosystems worldwide”. [38]
George mason university - an American public Global entrepreneurship and research university. development index
World Economic Forum Entrepreneurship ecosystem
Organization for Economic Co-operation and Entrepreneurship Development “OECD” measurement framework
Table 2 : Frameworks used in development of the ANDE Entrepreneurial Ecosystem Diagnostic Toolkit.
4.1.2 Research parameters
➔ Geographic Unit of Analysis: the geographic region for study is the entire country of Algeria. For an effective approach and as a student from the Faculty of Informatics, the Information Technology is the sector of focus for this thesis.
➔ Depth of Analysis: Defining the scope is an important element of any project, For that identifying the depth of the analysis is critical, The Council on Competitiveness recommend three levels of analysis [32]:
. Asset identification: In this phase I am going to review the existing researches in the area for the country, and to get in touch with the possible academic and non-profit entities. Elements 4.3.2 in this chapter to 4.3.8. . Comprehensive Assessment: within this phase I am going to conduct my research, Analyze the results and draw the profile of a typical Algerian IT entrepreneur. Elements 4.1 to 4.4 of chapter 04. . Basic Evaluation: recognize the strength and weaknesses of the ecosystem, and propose a recommendations to help improve it. Elements 5.3 and 5.5 of chapter 05 in this thesis.
22 ➔ Domain of Interest: I am going to focus on the effect of government policies, Universities, Incubators and Funding on IT entrepreneurship. Will study the other domains, but the ones mentioned above are to be the center of the analysis.
➔ Identifying and Rating Indicators: There exist different indicators for the ecosystem analysis, for each there is a degree of relevance, accuracy, and availability [29] when analyzing a domain, for example universities have a high relevance to human capital domain. Accuracy is how well the indicators describe the domain, and availability is whether we can get the needed up-to- date data or not. I included only those with well-established relevance to the eight domains, moderate or high accuracy, and existing availability in the questionnaires.
➔ Data Collection and Analysis: during this research both primary data24 and secondary data25 were used. Primary data gathered via the questionnaires and interviews I carried, and available secondary data such as non-profit organizations reports.
More information about the questions asked during the interviews and throughout the Google form are available in the beginning of chapter five.
4.2 Policies
Promoting entrepreneurship is a key agenda in the Algerian politics. Ministry of Industry and Investment Promotion in co-operation with the Sustainable Economic Development Program [39], have launched action to strengthen entrepreneurship and to promote the entrepreneurship spirit between youth, students and interested individuals.
According to the Doing business 2016 report, Algeria have made starting a business easier throughout the reforms of 2014/15 [40]. Yet it is still not good enough, a
24 Data collected by the investigator himself for his own purposes. 25 Data collected by a different person/entity for a specific reason to be used by the investigator for his own purpose.
23 comparison between the time26 needed to start a startup shows that it takes 20 days to do so in Algeria [41], whereas it takes 15 days in Czech Republic [43], 10 days in Morocco [44], and 10.5 days in Germany [45].
Country Algeria Morocco Germany Czech Republic
Time to start a business (in days) 20 10 10.5 15
Procedures (number) 12 4 9 8
Cost (% of income per capita) 10.9 9.1 1.8 6.7
Paid-in min. capital (% of income per capita) 23.6 0.0 33.9 0.0
Ranking (worldwide – DB/201627) 145 43 107 93
Table 3: The Ease of creating a startup
Comparing other elements: the number of procedures needed to create a startup from registration to being fully operational, the cost including all official fees and fees for other services that are required by law, and the minimum paid in, (the last two are
26 This represent “The total number of days required to register a firm. The measure captures the median duration that incorporation lawyers indicate is necessary to complete a procedure with minimum follow-up with government agencies and no extra payments.” [42] 27 Doing Business report 2016.
24 shown as a percentage of the economy’s income per capita28). The results are illustrated in table 3.
Algeria ranks 145 with the neighbor Morocco ranking 43, Germany 107 and Czech Republic 93 in terms of the ease to launch a startup. The numbers indicate the climate for creating a startup are manageable, yet still need to be improved to match the neighborhood country Morocco, and to be able to compete with other countries.
4.3 Finance
Getting financial support is the hardest domain for Algerian entrepreneurs, especially for the fresh ones with no track record to show. The banking system managed to go through the financial crises with minimal impact due to the wealth generated by oil in the country. It consist of 35 institution [47], in which 20 of them are foreign private banks; the rest are state owned. The sector went through reforms in 2009 but still have “limited effectiveness” [47] to invest the excess reserve (equity) into value-creating PME and startups.
4.3.1 Government Support
Funding is hard to get in terms of required administrative paperwork, the time consuming process and the difficulty in securing the legal warranty for the needed loans. To help with this the Government have created multiple funds that aims to support entrepreneurship as their direct mission:
28 The average per person earning in the country. “It can be calculated for a country by dividing the country's national income by its population” [46]
25 4.3.1.1 National Agency of Support for Youth Employment
Fig 08: ANSEJ Logo 29
Known locally as ANSEJ -from its French name: L’Agence Nationale de soutien a l'emploi des Jeunes. The fund support university graduates between the ages of 19 to 39 years with a business idea. Funds are given in partnership with Banks, and can go up to 10 millions Algerian Dinar [48] which translate to 85 000 € .
Pros: ➔ The beneficiary has 07 years to pay back the loans with an interest rate of 1%. ➔ Tax relief: The beneficiary does not pay taxes during the first 03 years of startup life Cons: ➔ Long administrative process, it takes an average of 06 months between application submission and receiving the first funds. [49] ➔ The committee studying the application may have limited or no knowledge of the technologies used in startups, which impacts their willingness to take risks in funding the startups projects.
29 Downloaded from the Agency website: http://www.ansej.org.dz/
26 4.3.1.2 National Agency for Management of Microcredit
Fig. 09 : ANGEM Logo 30
A.k.a31 ANGEM - l'Agence Nationale de gestion du Micro-crédit. Works side by side with ANSEJ with a focus on smaller funding request, funds granted for one startup cannot be higher than 1 million Algerian Dinars [49] approximately 8500€, 230 000 CZK.
Pros: ➔ Applications are processed rapidly, it takes an average of 01 month between application submission and receiving the first funds Cons: ➔ Limited funds, maximum of 8500€.32
4.3.2 Stock Market
The Algerian stock market is limited to four listed companies [50] with a plan expand for at least fifty listed companies in the next five years by opening it for foreign investments [51].
30 Downloaded from the Agency website: http://www.angem.dz/portail/ 31 Also known as, a.k.a. 32 8500 euro still can help a baby startup in the IT domain tremendously, as the average salary of a university graduate is 450 euro/month with the exception of the oil sector.
27 As a result, this option may be viable in the future, even though it will require a certain startup maturity to be able to enlist in the stock market, a minimum of five hundred million Algerian dinars (4,2 million euro) capital is required to be eligible for entry [50].
4.3.3 Start-up Competitions
Other financing sources for startups in the area are the various competitions organized by different entities, where the winners benefit from cash capital in the form of a grant, plus professional mentoring through the startup lifecycle, major competitions are:
1. Tstart Sponsored by Ooredoo - a major telecommunications provider in the country - the best five projects get funding for launching the startup in addition to 12 months of incubation33.
2. Ibtikari34 A project launched in cooperation between the Algerian government and the United Nations Institute for Training and Research “UNITAR”. [52] Open for university degrees holders, a training in entrepreneurship is provided for all participants and an incubation is granted for the selected startups.
3. The MIT Enterprise Forum Arab Startup Competition Open for participants from Algeria and other Arab countries, the Arabic chapter of MIT Enterprise Forum Global35, it provides mentoring, coaching and cash prizes.
There exist other competitions beside those ones that are either a onetime event or have an annual frequency. To stay up-to-date on these events I recommend the web portal: alhubeco.com (Startup Company itself that is interested in the entrepreneurship news in the local market).
33 Help to speed up startup growth plus mentoring. 34 The word ibtikari literally means my innovation in Arabic. 35 A global organization that is affiliated with Massachusetts Institute of Technology (MIT) and is focused on entrepreneurship. [54]
28 4.3.4 Investors
Two groups are found in here:
4.3.4.1 Foreigner investors
In the recent years there is an increase of foreign direct investment, coming from Europe, China, and the other Arab countries. However, their main focus is still the energy sector. Information technology has been outside the area of interest [55].
Maghreb36 Private Equity Fund II showed an interest in IT, it is a fund managed by Tuninvest Investments Ltd.37 targeting a total investment of 80€ million size in the form of equity38 and equity-related investments in startups located in North Africa [68]
4.3.4.2 Local investors
For local investors there is a bigger tendency to get them involved in IT startups, as the main criteria is the feasibility of the project and the possible growth opportunities, through my research I managed to identify and divide these local investors to three groups:
➔ JiL'FCE pronounced Jil) that means a generation. FCE) جيل Jil- is from the Arabic word relates to the founders: the Algerian Leaders' Forum - Le Forum des Chefs d’Entreprise FCE - ; the aim of this platform is to create a national network of entrepreneurs, and to provide financial support, the business leaders are willing to invest 01 Billion Algerian dinar (8.5 million euro) [56] in selected startups starting the first semester of 2016.
36 a word that it s used to describe the geographic locations of Algeria, Tunisia, Morocco, Libya, Mauritania and Western Sahara. 37 an investment firm founded in 1994 in Tunisia with an interest in the Maghreb countries and Africa. [69] 38 Investment by buying shares in a startup.
29 ➔ Casbah Business Angels A Venture capital and Private equity group founded by the Algerian diaspora in the Silicon Valley in cooperation with Algerian CEOs. [57] Launched in 2012, they support startup companies by mentorship and monetary investments.
➔ Friends and Family The third possible group of investors are family and friends of the entrepreneur, as he may faces multiple administrative process, family and friends can provide the needed capital based on trust in the form of investment or a simple loan.
4.3.5 INSOLVENCY
Insolvency is the state when the startup can no longer afford doing business, and is not capable of paying back the debt owed to other parties [62]. This is a risk when dealing with entrepreneurship, fast and inexpensive insolvency proceedings allow a quick return to the market for entrepreneurs to work on the next idea, to launch the next startup.
Resolving insolvency in Algeria takes on average a period of 1.3 years, and costs 7.0% of the debtor's assets. Thus leaving the country ranked as 73 out of 189 in terms of ease to resolve insolvency. The most likely outcome of the operation is a piecemeal39 sale, the other option is a foreclosure sale of the startup as a whole. [59]
39 Piece by piece, in a timely manner. [63]
30 Score (out of 100)
MENA region (rank # 123) 31.78
Morocco (rank # 130) 33.89
Czech Republic (rank # 22) 77.5
Algeria (rank # 73) 47.67
Germany (rank # 03) 91.93
0 20 40 60 80 100
Figure 10: Ease of resolving insolvency ranking, Data source: Doing Business reports [64]
As shown in figure number 10, the country has a score above the average for the MENA40 region, but lower than Czech Republic and Germany.
4.4 Business Support: Incubators
Mentorship and professional networks were mentioned in the “Local investors” element, Led by JiL'FCE and Casbah Business Angels. Hence for business support I would analyze the incubators status in the country.
Incubators are organizations and technological parks that help startups grow starting its early stages, they provide working space, mentorship, and even some seed money investments [66],[67].
In 2009 the first incubator were created in Algeria, it holds the name Cyberparc de Sidi Abdellah, and is located 40 minutes from the capital Algiers. This incubator is dedicated to startups that are innovative, offer trainings to the founders from early stages to official lunch, they also act as an intermediate connection with ANSEJ and Banks to
40 Middle East and North Africa
31 secure the needed funding for them. Entrepreneurs are required to submit an application, and present their startups in front of a jury, who decides whether or not to accept the application. The incubator host an average of twenty startups per year for a period of 24 to 30 months each [70].
The second incubator with government support is under The National Agency for the Development of Research and Technological Development - ANVREDET41. This one aims to promote innovation and to reinforce the links between the Research & Development sector and the industry by supporting startups with industrial potential,[71], they organize conferences and animate workshops on what it takes to launch a startup, providing trainings in the area.
Government have plans to create incubators in all universities nationwide, [72], as for individual efforts, a hub with the name Sylabs is to be launched in 2016, it is located in the capital Algiers, and is focused on information technology startups. [73] 4.5 Human Capital
Human capital is directly affected by the education it receives, for that in this domain I will dealing with the Algerian educational system. Article 53 of the constitution [74] stipulate that for all Algerians:
➔ Education is free for all categories. ➔ The right for education is guaranteed. ➔ Basic education is compulsory till the age of sixteen. The network of higher education consist of 97 institutions, 48 of them are universities delivering Bachelor/Master/PhD studies and 20 national schools (écoles nationales supérieures) delivering engineer’s degrees,[75]. In 2015 there was more than 1.3 university students in the country, a high number that implies the availability of the technical/marketing skills in the market. After checking the skill lists available on LinkedIn for 50 Algerian professionals majority of the technical skills are oriented to machinery engineering (Electronics, Mechanics ...etc.) for two reasons:
41 From French name: Agence Nationale de Valorisation de Resultants de la Recherche et du Developpement Technologique.
32 1. The energy sector provides a strong job market for non-IT engineering (machinery). 2. There is only one IT dedicated institute in the country, the rest offers this curriculum side by side with other specialties on faculties, this institute is known as Ecole nationale supérieure d'informatique - ESI (Higher institute of informatics), access to it is very competitive as only the elite high school graduates can enroll to it (top 5%).
When it comes to entrepreneurship, 18% of early stage entrepreneurs received their training on how to start a business after completing their formal education, [76], this returns to the fact that IT entrepreneurship is not covered by the curriculum, very few institution gives training on startup creations, and even less are those who offer it as an independent class. The exception for this is the school of commercial studies in Algiers (EHEC - École des Hautes Etudes Commerciales) where they have a curriculum for third year students about startups.
There exist as well private institutions that offers post graduate degrees with a focus on entrepreneurship, yet it is quite expensive for the average individual.
4.6 R&D
In 2013 government spent 6.1% of its budget on university education and scientific research, a number that is suggested to get higher for the coming years. [77]. There exist 11 research and development center in the country, all sponsored by the state, two of them are dealing with IT:
➔ The CERIST42 Research Center for information technologies. ➔ Advanced Technologies Development center43. Average Age for the Algerian researcher is 45, [79], which shows the investment in the sector, it also indicates that some results in the field are to be seen in the near future.
42 From the French name of the centre: Le Centre de recherche sur l'information scientifique et technique. 43 Known locally as Le Centre de Développement des Technologies Avancées - CDTA.
33 Patents can be registered after successful submission of the application with the authorities and are valid for 20 years, renewal is required on a yearly basis. The approval process focus only on unity and form, not on innovation,[78], a point that requires attention. Mobile applications are not patentable yet, which is a vulnerability for startups that uses the as their core business. The country have been a member of the international WIPO and PCT44 agreements.
4.7 Markets
IT market in the country is wide open for startups, as the field stays unexploited with the exception of e-business. Big data, Data analysis. For example remains untouched for now. The majority of existing startups focus on app development. Credit cards are not spread yet, so online banking is in its primary status, waiting for the taking. This status implies a large number of opportunities, startup can use the Blue Ocean strategy45 to ensure a customer base, blue ocean strategy core concept is to create a new segment of the market avoiding the competitions by making them irrelevant. Another key principle of the theory is to reach behind the existing demand, which can be done by creating new demands that the consumer is not familiar with or have not identified his need to it yet.
4.8 Infrastructure
In terms of infrastructure, three elements are crucial for information technologies, electricity, connectivity, data centers. ➔ Electricity: the ability to access reliable and affordable electricity is a basic need for all businesses, IT startups particularly. The World Bank data ranks Algeria 130th out of 189 in term of the ease of getting electricity. The System Average Interruption Frequency Index (SAIFI) that is the average number of sustained interruptions per consumer per calendar year gives it a score of 9. [59], [80].
44 PCT stands for The Patent Cooperation Treaty whereas WIPO stands for the World Intellectual Property Organization, leading international patents bodies. 45 for more details check the book Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim.
34 ➔ Connectivity: Algeria has one link with Europe for internet connectivity, with a second link being under construction (to be delivered in 2018 [82]), internet debit is of an average of 3.3 MB/s putting the country at the 179th position out of 201 in term of internet speed [82]. 3G was operational starting in 2014 and 4G internet plans are in testing phase now planning to be launched in 2016. 18% of the population have access to internet in 2015 [26]. Algérie Télécom a state owned company is the main internet service provider in the area. The domain name for the country is .DZ. ➔ Data centers: No major data centers are present in the market, only multiple small to medium size service provider exist, they offer web hosting, virtual machines hosting, and dedicated physical servers, DNS servers, in addition to other softwares offered as services. These providers have a high quality customer service according to the data I gathered in my research.
4.9 Culture
Culture has an indirect impact on entrepreneurs as it shapes the individual interest in creating his own business, his fear of failure, and his management style. Every culture has its own strengths and weaknesses when it comes to empowering entrepreneurship.
According to data from the Global Entrepreneurship Monitor46 among people between the ages of 18 and 64, 56% of them believe they have the required knowledge and skills to start a business, 36% intend on launching their startups in the next three years, and 33% are avoiding being entrepreneurs out of fear of failure.
Successful Entrepreneurship is held in high regard in the society, as it translate to being your own boss, being someone that matter in the SME, which brings a social status. This is one of the drives for entrepreneurs to choose this path. The word successful is key because in case of failure the scale would be inverted as society fails to understand why would an employee with job security ( and a salary) will quit his job to go through an endeavor with no guaranteed success risking to be broke and unemployed.
Other important aspect of the Algerian culture is its Islamic background that can be seen in the strong family values. They can have strong effects on business relationships.
46 GED is a global study conducted to analyze entrepreneurship worldwide.
35 Also the people have a strong collective identity and feel the need to belong to a bigger society. Elements if projected on startups leads to the fact that early investment are made by friends and family, the same goes for early recruits who are form the inner circle most of the time when recommendations are to base the hiring on skills not on familiarity in such early stages.
Another impact of the Algerian culture on startups in finding is the de-facto standard based on Islamic values, that loans with interest rate are not to be used by the society, known locally as Riba [91], the government acknowledged this and tried to solve by covering the 1% interest rate in ANSEJ loans. Few interest free loans have emerged to the surface but they stay very limited.
4.10 The 12 steps to create a startup
The standardized company form for startups in the country is the Limited Liability Company47, [59] also known as SARL , an abbreviation based on the French name Société à Responsabilité Limitée, the Paid-in minimum capital requirement is 100k DZD, the equivalent of 853 euro. Below is a step by step guide of what needs to be done on the administrative level to register a startup based on the information found in Doing Business in Algeria report [42] and my personal findings for the standardized company form SARL:
1. Obtain a certificate from The National Trade Registration Centre48 proving the uniqueness of the company name you have chosen, and pick up of the registration forms. Cost: 490 DZD49 (4.2 EUR) Place: CNRC Bordj El Kiffan50. Time to complete: 01 Day.
47 “a private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.” [60] 48 Known locally as Le Centre National du Registre du Commerce - CNRC. 49 DZD is the code of Algerian Dinar. [58] 50 Name of a suburb of the capital city Algiers, located in the north.
36 2. Deposit the initial capital with the notary public. Cost: free of charge. Place: Any available notary public. Time to complete: 01 Day.
3. Obtain the founder(s) birth certificate(s) Cost: free of charge. Place: Depends in place of birth. For those born in Algeria it can be issued at any municipality office of vital records. Time to complete: 01 Day.
4. Define and notarize the startup internal/external laws with the help of a lawyer. In addition to the submission of a specimen of the founder(s) signature(s), and the lease for the registered office of the startup. Cost: depends on the lawyer fees. Place: Any available legal services office. Time to complete: 07 Day.
5. Publish the defined constitution of the startup from the previous step in the official legal journal BOAL51 plus in one of the daily newspapers. Cost: for BAOL it is 48 DZD (0.5 EUR) per line, as for the daily newspapers it depends on the advertisement offers. [61] Place: The National Trade Registration Centre + Any daily newspaper title. Time to complete: 01 Day.
6. File for startup registration with The National Trade Registration Centre, no later than two months from the date at which the startup was formed. Cost: it depends on the startup capital [59] :
➔ 9120 DZD (79 EUR) if the company capital is between 30,001 to 100k DZD ( 256 to 854 EUR ) ➔ DZD 9520 (81 EUR) if the company capital is between 100,001 to 300k DZD ( 854 to 2562 EUR )
51 Le Bulletin Officiel des Annonces Légales - BOAL - translated to the official legal Journal.
37 ➔ DZD 9760 (83 EUR) if the company capital is more than 300k DZD ( +2562 EUR)
Place: Any Available local branch52. Time to complete: 02 Day.
7. Pay a duty stamp and collect the receipt. Cost: 4000 DZD53 (34 EUR) [61]. Place: Any Available local branch54. Time to complete: 01 Day. (This task can be done any moment before not necessarily in the seventh order )
8. Register for corporate tax, income tax and Value Added Tax with the local tax office. Cost: free of charge. Place: Any Tax Authority. Time to complete: 02 Day.
9. Register at the National Social Security Fund55, Any new hires must be reported no later than 10 days from starting date. Cost: free of charge. Place: Any National Social Security Fund branch56. Time to complete: 01 Day.
10. Register at the National Fund of non salaried Social Security - CASNOS57 Cost: free of charge.
52 See online for addresses: http://www.cnrc.org.dz/ 53 DZD is the code of Algerian Dinar. 54 See online for addresses: http://www.cnrc.org.dz/ 55 Known locally as la Caisse Nationale des Assurances Sociales des Travailleurs - CNAS. 56 See local branches at www.cnas.dz/ 57 From the French name of the fund - la Caisse Nationale de Sécurité Sociale des Non Salariés.
38 Place: Any National branch58. Time to complete: 01 Day.
11. Make company seal. Cost: ranges between 1500 to 3500 DZD ( 13 to 30 EUR) . [59] Place: Any seal maker. Time to complete: 02 Day.
12. Stamp the startup's accounting and inventory books at the court when starting the business activities. Cost: 8000 DZD (68 EUR). Place: the Court. Time to complete: 01 Day.
So in total it takes 20 days to complete the needed procedures, the time to complete was counted such that each procedure starts on a separate day, to provide enough time for traveling to the needed offices, and it does not include time spent to gather the information by the entrepreneurs. These 12 steps can be grouped into pre-registration for example step 01 through 06, Registration “step 07” and post-registration, (the rest).
58 See local branches at https://casnos.com.dz/
39
5 Validation via survey
5.1 Questionnaire
Taking in consideration the research parameters established in element 3.1.2 I established a set of questions to collect primary data, to verify/validate and elaborate on the ecosystem analysis in the previous chapter.
The questionnaire consists of two groups of questions, the first focus on profiling the typical Algerian IT entrepreneur, and the second group go through the eight domains. It was adapted from the Aspen institute Entrepreneurial Ecosystem Diagnostic Toolkit, with what would be fit to the Algerian ecosystem.
Questionnaires were sent among the IT entrepreneurs network I established during my research, few interviews were conducted as well to help understand their perspectives. The Questionnaires offered a random sample, easy to reach in a timely manner, however there is the risk that self-reported data is subjective and can differ from reality, to help minimize that I conducted few interviews with three of the participants, to confirm/elaborate their answers.
A complete list of the Questions used is found in Appendix 02.
5.2 Sample size
According to the initiative “founded in Algeria”59, there is 21 registered IT startup in the country [83], if we take the assumption that only half the existing startups registered within this initiative, there will be around 40-50 active startups in the region.
For this thesis I managed to get 21 response from 20 different startups, they range from active operational startups to others that are still in the building phase. I conducted three 30 minutes interviews to further discuss the questions.
59 See at http://www.foundedinalgeria.com/
40 5.3 Results
5.3.1 Profile of a typical DZ IT entrepreneur
Algerian IT entrepreneurs are young individuals, 52% are between the ages of 18 to 24 years old, and 48% are between 55 and under 40 years old. This can be related to the fact that most of the entrepreneurs are university degree holders, their first contact with startups as a concept is in college, hence no entrepreneurs under 18 are active in the scene for now, high schools provide zero education on entrepreneurship. On the other side of the specter, the IT market is still young and as a result +40 entrepreneurs are not present yet, they take more the seat of investors instead. The presence of women-entrepreneurs is limited as it makes 5% of the active entrepreneurs in the region, I tried reaching to the women developers groups through social media but that didn't rise the number of answers I received from them.
In term of motivation figure 11 shows that the biggest percentage of respondents (57%) launch their startups to innovate, Being your own boss (43%) was in the second level side by side with available opportunities and other motivations as solving existing problems and leaving a positive impact on society.
60% 57%
50% 43% 43% 40% 33%
30% 24% 20%
10%
0% To be your Innovation Increase available Other own Boss personal opportunities income
Figure 11: IT Entrepreneurs motivation breakdown
41 Increasing the personal income comes last with 13%, which in my analysis is related to the relatively young entrepreneurs that are not yet in the stage of being financially worried.
5.3.2 Innovation
As indicated on the first chapter innovation is a key characteristic of entrepreneurship, to measure it I asked the participants the question: Is your startup innovative? Figure 12 illustrates the received answers:
A must have 24%
Game 13% changing
New to the 47% Algerian Market
Tailored for a specific 16% market segment.
Other: 3%
Figure 12: Innovation in Algerian IT startups.
The startups tend to offer products/services that are new to the Algerian market, and 24% identified their products/services as a must have. As for the sector of activity, as shown in figure 13, Big-data and Analytics are in the rear of the list, Software development comes second, and others lead the list, indicating that startups are integrating IT in a distributed way without focus on a specific segment. Startups that chose others as sector have products combining IT with other technologies and services. For example some combined it with marketing to offer visibility service (gen-42.com).
42
24%
Software Development Mobile Apps
5% E-Business Analytics Other 57% 5%
5%
Figure 13: Sector of activity breakdown.
5.3.3 Recruiting the team
When it comes to recruiting team members or choosing co-founders, the cultural effect can be seen clearly, 70% are working with their family members, Friends or university colleagues, competitions represent 10% of finding teammates that shares the same passion, and are able to add values to the startups. The last 20% recruit employees based on the needed positions, candidate skills and motivation.
5.3.3 Finance
Figure 14 shows the success of startups in securing a funding, a total of 60% were able to secure funding, whereas the other 40% did not.
43 Yes, easily 24%
48% Yes, after a big struggle 29% Nope
Figure 14: Startups success in securing funding.
The bars of Figure 15 shows the source of funding for the successful sixty percent, self- support takes the lead, followed by family and friends investments that are a characteristic of the local culture. and what is interesting is that invests comes before last with only 6% contributions, this implies the absence of strong investment funds, on-going initiatives such as JIL’s FCE that will launch in 2016 may help boost this percentage.
30%
25%
20%
15%
10%
5%
0%
Figure 15: Source of funding for startups.
44 Having self-support the number one source of funding for startups explains why early seed is the leading level of funding with the existing startups (Figure 16). Early seed funding means that startups have enough money only for early development of their product/service, while bootstrap means the ability to be operational based on personal investment plus the operating revenues.
Early Seed 37%
Enough to be boot strap 21%
Enough to be operational 21% partially 16% (not enough)
Other: 5%
Figure 16: Level of funding for startups.
5.3.4 Policies
For policies I measured two points, the legal registration of the startup and the customs restrictions, the questions for this element as for the following ones was asked in the form of assessing the degree to which the elements in question are an obstacle to on- going operations of startups, this way the focus is on what needs to be enhanced, the elements posing no obstacles are the ones already well developed in the ecosystem. Legal registration poses a major obstacle, and only 10% faces no obstacles with customs regulations, the other 90% range from moderate to impossible to deal with.
45 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Legal registration of the Customs startup
No obstacle Minor obstacle Moderate Major Totally impossible
Figure 17: Impact of policies on startups on-going operations.
Decentralization, reducing the needed paperwork for registration and making more PME friendly laws are recommendations that can reduce the negative impact policies is having on startups.
5.3.4 Markets & expansion
Accessing local market is seen as a moderate obstacle by 33% of active startups, it is a high ratio taking in consideration that the entrepreneur is familiar with the environment, market demand and potential users. A possible reason for this would be the lack of proper marketing channels.
Being able to expand internationally is of utmost importance for IT startups, as the information technology market is similar worldwide, what requires attention in in figure 18 is that accessing both MENA markets and international market pose a serious obstacle ( 71% between major and totally impossible for MENA Vs. 76% for international market), this can be related to the custom regulations restrictions mentioned in the previous element, and for the fact that 47% of IT startups provide products/services that are new only to the Algerian market, strong competition is already available elsewhere. Tailoring services for local need is another constraint.
46 60% 50% 40% 30% 20% 10% 0% Access to local market Access to MENA Access to the rest of the markets world
No obstacle Minor obstacle Moderate Major Totally impossible
Figure 18: Obstacles accessing Markets.
5.3.5 Human capital
Entrepreneur's satisfaction with human capital is low, between no obstacle and minor obstacle for availability of technically skilled employees/co-workers the percentage is 24%, 15% for availability of Business savvy employees, and another 24% regarding access to entrepreneurship trainings.
50%
40%
30%
20%
10%
0% Availability of technically Availability of Business savy Access to Entrepreneurship skilled employees/co- employess trainings workers
No obstacle Minor obstacle Moderate Major Totally impossible
Figure 19: Obstacles with human capital. I find element 4.3.3 (recruiting to the team) directly linked with this, as entrepreneurs tend to look for individuals in their immediate network circle, resulting in difficulties
47 finding resources with the missing skills, as the immediate circle is composed of people who share the same orientations, background and most of the time similar technical skills.
By asking the question: Did you personally had any training on launching a startups at you university? Figure 20 shows that only 43% had training on the subject included in their university curriculum, and 10% benefited from educations within the competitions they took part in.
10%
43% yes no other
48%
Figure 20: Entrepreneurs access to Entrepreneurship educations on University level.
5.3.6 R&D
17% of the information technology startups reported registering at least one patents, and cooperation between Research & Development sector and the industry was marked totally impossible by an astonishing 19%. whereas the majority (57%) sees it as a major obstacle when answering the question, To what degree is cooperation between R&D sector and the industry an obstacle to on-going operations of your startup.
48 1% 5% 19% 19% No obstacle Minor obstacle Moderate Major Totally impossible
57%
Figure 21: Cooperation between Researches & Development sector and the industry.
5.3.7 Business Support
In business support, I focused on three elements: Access to Incubators, Access to Mentorship/ Coaching, and Access to legal services. As illustrated in Figure 22 the last one (Access to legal services) is the area that requires immediate attention as 94% find moderate obstacles at the least receiving it.
49 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Access to Incubators Access to Mentorship/ Access to legal services Coaching
No obstacle Minor obstacle Moderate Major Totally impossible
Figure 22: Obstacles receiving business Support
To further analyze the business support the question: How satisfied are/were you with your Incubator experience if any? Was asked, above average satisfaction was observed in networking and mentorship. 41% were below average with the Development of their personal business skills in the incubator. 35 % were not satisfied with the working spaces, a ratio that goes up to 53% when it comes to the level of support they received in securing funding.
Securing fundings
Development of…
working space
Networking
Mentorship
0% 20% 40% 60% 80% 100%
Not satisfied 2 3 4 Extremely satisfied
Figure 23: Satisfaction index for support received in incubators
50
Centralizations of incubators around the capital city is another down point facing entrepreneurs from different cities taking in consideration the vast surface of the country.
5.3.8 Infrastructures
1
2
3
4
5
6
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
No obstacle Minor obstacle Moderate Major Totally impossible
1. Electricity (Big cities) 2. Electricity (suburbs) 3. Internet connectivity (Big cities) 4. Internet connectivity (suburbs) 5. Web Hosting (Big cities) 6. Web Hosting (suburbs)
Figure 24: Infrastructures vs. Startup needs
As shown in figure 24 above, electricity is not a problem for over than 50% of the startups, however internet connectivity comes with alerting numbers, 71% see it as a moderate obstacles or above in big cities and it rises to 81% in suburbs.
As for hosting over 43% sees it as a minor obstacle at most in suburbs and it rises slightly to 48% in big cities.
51 5.3.9 The surrounding
In this element different aspect so of the environment were investigated, as shown in figure 25, only 05% of entrepreneurs sees the overall business environment as no obstacle, where the majority (43%) sees it with at least moderate difficulty, 14 percent goes to the extreme end describing it totally impossible.
50% 40% 30% 20% 10% 0% Overall Level of Level of Crime & theft Bribery (el Corruption business support from support from 9ahwa) Envirenemnt the society Family and Friends
No obstacle Minor obstacle Moderate Major Totally impossible
1. Overall business Environment 2. Level of support from the society 3. Level of support from Family and Friends 4. Crime & theft 5. Bribery 6. Corruption
Figure 25: The Surrounding Vs. IT Entrepreneurs.
To measure the cultural effect, two questions were asked, the first regarding the level of support from the society and the second goes more into the inner circle about the level of support received from family and friends, only 10% categorized the latest as a major obstacle where on the other hand 43% marked the support received from society as a major obstacle in the least.
52 Corruption, bribery, crime & theft even though at first sight they may seem irrelevant to IT startups, they were seen by 46% as a major obstacle in the least, with only 19% responding that they have never encountered such behaviors.
5.4 Return on investment
Figure 26 shows the breakdown of return on investment, 43% reported that their products/services are not commercialized yet, and only 19% are making a profit already. A percentage that remains low. The difficulties accessing international markets, and the lack of mentorship are of direct influence on this.
Negative profit ( 43% 38% losing money for now) Yes, we re making profit.
Not commercialized yet.
19%
Figure 26: Return on investment breakdown.
A cross table between the year of foundation and return on investment shows the following results: Negative profit Not commercialized yet. Making profit.
2013 50% 33% 17%
2014 17% 50% 33%
2015 57% 29% 14% Table 04 : Profit according to the year of foundation.
53
Highest negative profit percentage is seen in the young startup (founded in 2015) which is normal for a startup in early stage. And what is interesting is that the third of the startups founded in 2014 are already making profit.
5.5 Recommendations
The main challenges for IT startups in Algeria are:
1. The user Base. 2. Absence of e-payment technologies. 3. Finding and recruiting skilled employees (technical plus business employees). 4. Securing finding. 5. Bureaucracy: Long startup time and the needed paperwork. 6. Custom constraints. 7. Accessing international markets. 8. Cooperation between R&D and the industry. 9. Centralization of incubators. 10. Low internet penetration and limited internet speed.
To reduce their effects on IT startups I recommend the following:
At government level:
1. Introducing LTE services to the market. 2. Legal flexibility to adapt to market changes. 3. Integrating modern IT skills in universities curriculum. 4. Promoting entrepreneurship courses, workshops and camps in universities. 5. Introducing a crowd funding platform in the region. 6. Develop free trade agreements with neighborhood countries, and simplify export procedures. 7. IT industry should sponsor and be involved in developing research plans. 8. Regionalization of incubators to make them available for the largest entrepreneurs’ community. 9. Modernization of internet infrastructure by deploying optical fiber.
54 10. Opening the telecommunication market to more foreign investors to increase the competition and lower the price.
For information technology entrepreneurs:
1. Take the risk, First mover advantage is important to secure in a fresh market, hence entrepreneurs who takes risk get the benefit.
2. Get an associate, Having the help of an associate when dealing with legal services can help you focus on product/service development, this applies when lacking technical and business skills as well, hiring new team members with the missing skills will give the startup a synergy, as one man company tend to fail more often.
3. Be Agile, Release fast, release often, waiting for perfecting the product before releasing it will hold back and there is a chance to lose the first mover advantage.
4. Produce simple Apps, With the low internet speed in the country, simple apps that does not require big bandwidth will be a smart choice. The app does not to be complicated it needs to be essential.
5. Personal efforts makes the difference, In terms of skills whether it was technical or business skills relying only on universities curriculum is not sufficient, personal efforts makes the difference to acquire critical skill.
6. Keep trying, Return on investment is still low, but as seen in element 5.4 third of the startups that survived the first year started to make profit. Takeaway from this is to push and not to give up.
7. Know when to give up, This goes directly in the opposite of the former recommendation, and is valid in
55 case of loss of interest or a failed pivot, if your product or service does not have much demand in the market, and the trial to adapt it to markets needs then it is time to go to the next idea.
6 Conclusion
The aim of this thesis was to collect data on the existing Algerian information technology ecosystem in the purpose of providing a guideline for those interested in creating an IT startup in the country. Collecting this data was challenging as researches in this area are still limited and no similar work have been carried before. However this challenge was met notably via the collection of primary data via survey of Algerian IT startups.
Within the first part of the thesis a short country presentation was introduced, followed by important definitions as entrepreneurship and innovation, and information about the current status of IT entrepreneurship in the region.
In the analytical part, I studied the eight domain forming the Algerian ecosystem: Policy, Finance, Human Capital, Research and Development, Markets, Business Support, Culture and Infrastructures. This data was validated later with primary data gathered from existing startups.
According to this analysis the IT market is still in its early stages providing a variety of opportunities. Government tried to support this by putting in place a number of initiatives, however there is a gap between providing the support and making it accessible for interested individuals.
Algerian IT entrepreneurs are motivated to innovate, they rely on their inner circles for recruiting team members. They face many challenges including securing funding, bureaucracy in legal registrations, and first of all in establishing the user base due to the low internet penetration level and the limited internet speed. Return on investments stays below 20%, with startups surviving the first year having a one third chances of making profit.
56 In a broader sense this thesis have established a guideline for creating an information technology startup in Algeria, but there are still several areas of research for future investigation. First of all it would be interesting to follow the evolution of Algerian IT ecosystem in the incoming year as the recent effort from the government and the economic crisis caused by the drop of oil prices can generate quick changes. And eventually a comparison of the Algerian ecosystem with other countries ecosystem could bring interesting insight. Countries of comparison do not need to be neighboring one, analyzing Kenya where IT startups were able to create a user base [93] beside limited internet infrastructure for example can provide valuable insight.
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67 Appendix 01 Chronology of Algeria’s history.
3000BC Berber people settled in the coastal regions of north Africa
202 BC Kingdom of Numidia is established in northern Algeria
24 Bc Algeria Under the Roman empire.
622 Islam enters algeria
1587 Algeria joins the Ottoman Empire.
1830 French invaded Algeria
1839 Prince Abd El-Kader El-Djazairi start a nationwide revolution for liberty and found the modern Algeria.
1947 Adoption of a new status for Algeria.
1948 Discovery of oil in the sahara.
1954 Start of the 1954 war for independence.
1962 The country gain its independence.
1965 Military coup d'etat
1969 Algeria join the OPEC.
1971 Nationalization of the oil sector (economic independence).
1985 First Collapse of the oil price.
1988 State of emergency declared as riots against economic conditions turned violent
1989 New constitution that promote the multiparty system and renounce socialism.
1992 Start of civil war
68 1999 End of civil war
2002 The beginning of the rise of the oil price, Country to be living an economical boom.
2011 Official lift of emergency state
2015 Second Collapse of the oil price. New economical strategy is emerging that support entrepreneurship
Sources:
Algeria Timeline. (n.d.). Retrieved December 31, 2015, from http://www.worldatlas.com/webimage/countrys/africa/algeria/dztimeln.htm
69 Appendix 02 Questionnaire
The questions used in the questionnaire are the following:
1. What startup(s) have you been part of?
2. SEX
a. Male b. Female c. Prefer not to say 3. Age
a. Less than 18 years old b. 18 - 24 c. 25 - 39 d. 40 up
4. What is your motivation to create your own startup?
a. To be your own Boss b. Innovation c. Increase personal income d. available opportunities e. Other
5. Is your startup IT related?
a. Yes b. No
6. Is your startup innovative?
a. a must have b. Game changing c. Tailored for a specific market segment. d. New to the Algerian Market
70 e. Other
7. Year founded
a. mm/dd/yyyy
8. Are you working in a team? How did you chose your team members/ co- founders?
9. What is the sector of your startup?
a. Mobile apps b. Software development c. Publishing d. E-Business e. Big-data f. analytics g. Graphic design h. Other
10. Were you able to secure funding for your startup?
a. Yes, easily b. Yes, after a big struggle c. Nope
11. Where does your funding come from if any?
a. ANSEJ b. ANGEM c. Competitions d. Investors e. Family and friends f. Personnel g. Other:
12. What is your current level of funding, if any?
71 a. Early Seed b. partially (not enough) c. Enough to be operational d. Enough to be boot strap ( be able to proceed for production quickly) e. Other To what degree are the elements below an obstacle to on-going operation of your startup: (Support?) No obstacle Minor Moderat Major Totally obstacle e impossible
Access to Incubators
Access to Mentorship/ Coaching
Access to legal services
13. How satisfied are/were you with your Incubator experience if any? (Support)
a. Mentorship b. Networking c. working space d. Development of Personal business skills e. Securing funding
14. To what degree are the elements below an obstacle to on-going operation of your startup: (Policy)
No obstacle Minor Moderat Major Totally obstacle e impossible
Legal registration of the Startup
Customs
72 15. To what degree are the elements below an obstacle to on-going operation of your startup: (Market) No obstacle Minor Moderat Major Totally obstacle e impossible
Access to local market
Access to MENA markets
Access to the rest of the world
16. Did you personally had any training on launching a startups at you university?
a. Yes b. No
17. To what degree are the elements below an obstacle to on-going operation of your startup : (Infrastructures)
a. Electricity (Big cities) b. Electricity (suburbs) c. Internet connectivity (Big cities) d. Internet connectivity (suburbs) e. Web Hosting (Big cities) f. Web Hosting (suburbs)
18. To what degree are the elements below an obstacle to on-going operation of your startup : (Human Capital)
No Minor Moderate Major Totally obstacle obstacle impossible
Availability of technically skilled employees/co-workers Availability of Business savvy employees
73 Access to Entrepreneurship trainings
19. To what degree are the elements below an obstacle to on-going operation of your startup : (Business environment)
a. Overall business Environment b. Cooperation between Research & Development sector and the industry c. Level of support from the society d. Level of support from Family and Friends e. Crime & theft f. Bribery g. Corruption
20. Have you registered any Patents, copyrights or trademarks?
21. Does your startup have any profit margin?
a. Negative profit ( losing money for now) b. Yes, we are making profit. c. Not commercialized yet. d. Other
22. How would you describe the Algerian IT Startups ecosystem in one word?
23. Something about yourself (whatever you'd like to share for example: name, motto or something else, if any)
24. Would you be interested in a 30 minutes Skype interview about your startup experience? If yes leave your contact information.
25. Email address ( Optional ) ( will not be published )
26. Any comments?
74