Enterprise in the Arab World: Held Back by Politics
Tarek OsmanA Missed Opportunity
The economic backwardness of the Arab World is striking. Its poor record is second only to Sub-Saharan Africa. In a region of 250 million people, more than 50% of whom are under 35, more than 40% of whom are under the international poverty line, and with an unemployment rate over 25%. Hence, one would expect to see people striving to develop new ventures, think up new ideas and generally embrace risk. Yet this is not the case. Osman draws two key reasons for this:
- Firstly, Arabs are not taking the risks that create job opportunities and wealth.
- Secondly, the region as a whole is not innovatively productive.
In 2007 a leading member of the Gulf Venture Capital Organization reported a disappointingly low “deal flow” - i.e. the flow of business ventures in which the venture capitalists could invest. Likewise Arabian Business featured a report in 2006 on new business ideas. Their key offerings were a new fashion store, and a new hotel chain.
The second Arab Human Development Report drew a number of reasons for this lack of enterprise. Amongst others these were poor education, the concentration of economic power, the skewed wealth distribution and the crushing of the middle class. However, Osman believes the problem lies elsewhere.
Not Playing the Game
According to behavioural sciences, most people are neither risk-takers nor risk-averse; they are risk neutral. Their appetite for undertaking risk is directly related to the potential gains and the possible risks. This means there is a balanced relationship between the risk and expected return. For this relationship to exist, all the factors affecting the risk-taking process should be observable, assessable, and calculable.
However, in the prevailing economic climate of the Arab World, such factors are not easy to foresee because of the lack of democracy, the absence of the rule of law, the foggy sphere in which politics and economics (especially financing) interplay, and the overriding feeling that the political powers have a disproportionate influence over the political and economic game.
Entrepreneurs remain at the mercy of the whims, interests and inclinations of a limited number of individuals controlling generally corrupt systems and as long as this is the case, it seems unlikely that entrepreneurs will draw the Arab economy into a new era of dynamism and innovation.
This summary was prepared by the Atlantic Community editorial team. The original article, Risk in the Arab World: Enterprise vs. Politics, can be found on Open Democracy.
Related Material from the Atlantic Community:
- Transparency International: Corruption Ruins Lives
- The McKinsey Global Institute: Emerging Global Finance Giants: The New Power Brokers
- Council on Foreign Relations: Islamic Banking Systems Growing and Spreading to Europe
