Youth and Social Entrepreneurship in the Middle East
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2019 Youth and Social Entrepreneurship in the Middle East Yousuf Abdelfatah Occasional Paper 11 1 RUTGERS GLOBAL POLICY ROUNDTABLE Rutgers Global Policy Roundtable is an initiative of the MA Program in Political Science – Concentration in the United Nations and Global Policy Studies (UNMA) developed jointly with its partner institution - Marymount Manhattan College in New York (MMC). The Roundtable offers lectures and panel discussions in New York City and on the Rutgers University campus concerning important global issues. It is also aimed to assist UNMA students in their professional development and academic growth. Rutgers Global Policy Roundtable offers three types of sessions: 1. Professional development for UNMA and MMC students; 2. Sessions featuring the research of Rutgers faculty and students which is cutting-edge in the realm of global affairs; 3. Sessions which pair Rutgers faculty with UN officials and/or members of the internationally-oriented private sector as well as Rutgers alumni to exchange views and policy perspectives on pressing global issues. For information on Rutgers Global Policy Roundtable, please contact us at: [email protected] BIO: Yousuf Abdelfatah received his bachelor’s degree from Rutgers University in 2018 where he completed a double major in Political Science and Economics. He is currently working as a Research Assistant at the RAND Corporation based out of their DC office. Prior to joining RAND he worked as an intern at The Brookings Institution’s Center for Middle East Policy and as a Research Assistant in the UNMA program. His research interests include topics related to both human and national security, the MENA region, political transitions, and post conflict reconstruction. This paper is an adaptation of his senior honors thesis. unstudies.rutgers.edu 2 Youth and Social Entrepreneurship in the Middle East Contents I.Introduction………………………………………………………………………..4 II.Importance of Entrepreneurship………………………………………………….4 III.The Latin American Example…………………………………………………….7 IV.Youth in the Middle East…………………………………………………………10 V.The Current State of Entrepreneurship in the Middle East…………………….15 VI.Factors Influencing Entrepreneurship…………………………………………..18 VII.The Legal System…………………………………………………………………19 VIII.Civil Society and the Private Sector………………………………………………21 IX.Bureaucracy………………………………………………………………………. 23 X.Conclusion……....................................................................................................25 XI.Works Cited………………………………………………………………………..27 3 Introduction The Middle East and North Africa (MENA) has the highest youth unemployment rates of any geographical region in the world. The region has an average youth unemployment rate of over 30 percent and many countries such as Egypt, Yemen, and Iraq suffer even higher unemployment rates. This lack of jobs has created a myriad of problems, not only economically but socially as well. One potential solution to the region’s economic problems is the encouragement of social entrepreneurship, especially among youth. This paper raises the following questions. Can the region’s economic problems be addressed by promoting youth entrepreneurship? if so, how can this behavior be encouraged? What are the social and political obstacles to doing so? Lack of economic opportunity in the MENA undermines national and regional political stability. As evidence, one needs look no further than the Arab Spring. The political uprisings which swept across the Middle East were, at their core, spurred by economic interests. Mohamed Bouazizi’s self-immolation in Tunisia in late 2010, which sparked the protests which spread across the Arab world, was not brought on by a desire for more representative government, but by his frustration at being unable to operate his merchant stall without interference by the city in which he worked. Bouazizi was himself an entrepreneur, attempting to operate in the informal sector of his country’s economy and facing the impediments confronting entrepreneurs across the region. One of the Arab Spring’s most popular chants was “‘aysh, hurriyya, ‘adalah ijtima‘iyya,” which translates, “bread, freedom, and social justice.” Notice that bread comes first, a fitting symbol of the movement’s economic roots. This paper is divided into five sections. First, we discuss the importance of entrepreneurship and what it means to be an entrepreneur. Then we use Latin America as a case study to understand just how effective entrepreneurship can be in alleviating the social and economic challenges faced by many countries in the Middle East. Following the discussion of Latin America, we examine the large youth demographic in the Middle East and its potential economic and political ramifications. We then shift our focus from the state of youth in the region to the state of entrepreneurship. Here we discuss the political and institutional context within which the region’s youth entrepreneurs operate, as well as examples of successful initiatives. Finally, we discuss the factors which both encourage and prohibit entrepreneurship in the MENA region, and how these issues can be addressed to create a more entrepreneur-friendly environment. Importance of Entrepreneurship Before we begin our discussion of entrepreneurship in the Middle East and North Africa, it is essential to first define what exactly is meant by entrepreneurship. Entrepreneurs are the backbone of the production process. They are responsible for its organization and coordination and serve as a link between capital and labor markets. Most importantly, entrepreneurs are responsible for creating innovations and making them available to the public. They are responsible for what Joseph Schumpeter termed “creative destruction”- the creation of new technologies and production methods that replace the old ones and drive society forward. Entrepreneurship necessarily involves a certain level of risk. Innovating and creating unique businesses involves a high degree of uncertainty about both the nature of the market and the 4 productive potential of the respective business. In economic theory, the profits accrued to entrepreneurs are largely a result of this willingness to accept risk.1 However, at a certain point, excessive risk begins to impede the formation of social enterprises and disincentives entrepreneurship. It is imperative that governments do what they can to create an entrepreneurial- friendly business environment by eliminating unnecessary risk. While this undoubtedly offers substantial social benefits, such a policy can be complicated by excessive levels of bureaucracy, high levels of corruption, institutional obstacles, and other political variables which will be discussed in the “Factors” section below. Social entrepreneurship can be defined as, “engaging in an initiative whose primary aim is to achieve positive social impact and to do so using financially, sustainable methods.”2 In short, social enterprises operate in the area between purely for-profit and non-profit ventures. This does not mean that a social enterprise cannot be profitable. Rather it only suggests that it has a twin mandate of being both profitable and promoting positive social change. Social entrepreneurship has four central principles3: The achievement of a positive social impact, the application of non-conventional ideas to social challenges, financial sustainability, and the possibility of “scaling up” the business or innovation being applied to society. Social entrepreneurship is distinguished from entrepreneurship more generally because the goal is not solely profit maximization but also the creation of positive social change. It should be noted, however, that many of the strategies designed to encourage social entrepreneurship can also benefit entrepreneurship more broadly defined. Currently, the public sector accounts for most of the employment in the Arab world. These public sector economies developed after “revolutions,” largely by military forces, which involved the nationalization of domestic and foreign banks and industries. To this day the public sector accounts for between 60 and 80 percent of total formal employment in the Arab Gulf states, Egypt, Iraq, Jordan, and Tunisia and constitutes a sizable percentage of total employment. This overreliance on government jobs presents a major problem for economies throughout the MENA region. State finances in the Middle East are increasingly strained and governments are unable to bankroll bureaucratic salaries. At the same time, the state cannot risk scaling back salaries or laying off unproductive employees because of the risk of creating social unrest in what is already a delicate political environment. Meanwhile, bloated public sectors have crowded out private sector employment and reduced regional productivity. Protected public sector firms have little to no incentive to innovate and reinvest in themselves. Additionally, the extensive corruption which characterizes these bureaucracies poses a major problem for private businesses and overall productivity. The large state public sectors and the potential for a secure government job 1 Eduardo Lora and Francesca Castellani, eds., Entrepreneurship in Latin America: a Step up the Social Ladder? (Washington, DC: The World Bank, 2014), 19 2 Diana Greenwald, and Samantha Constant. “The Context for Social Entrepreneurship in the Middle East.” Social Entrepreneurship in the Middle East, vol. 1, 2015, pp. 39–66., doi:10.1057/9781137395368_3. 3 Ehaab Abdou, et al. SOCIAL ENTREPRENEURSHIP IN THE MIDDLE EAST TOWARD