When the going gets tough Middle Eastern entrepreneurs stand resilient and better equipped than their global peers to navigate the COVID-19 crisis.
This is not only because having had their fair share of economic challenges over the last few years, the understanding that life will knock you down - often a key message for to entrepreneurs - is a very engrained trait across the Middle East.
As the media focus is rightly on the public health crisis resulting from COVID-19 and the human impact it is having on communities around the world, what makes this unprecedented volatile episode in financial markets different to previous ones, is the fact that it is composed of a series of shocks to the global economy rather than a single event.
What started as a China-centric demand shock, has quickly turned into a global demand blow and is now infecting credit markets. Thus, the initial setback is at risk of compounded with a global credit and liquidity shock. What is more, these waves of successive shocks started hitting the world economy hard at a very late point in the cycle when markets tend to overreact.
Middle East and North African (MENA) entrepreneurs are, however, well positioned despite these factors.
First, lack of access to bank lending - until now a major challenge for MENA entrepreneurs - may in fact shield them from the liquidity squeeze faced by their global peers. Indeed, while SMEs in the MENA region represent about 96 percent of registered companies and about half of employment, they account for only 7 percent of total bank lending - the lowest level in the world.
Therefore, MENA SME entrepreneurs who do not source their liquidity through the banking system are in a far better position to absorb these liquidity shocks because they simply do not rely on overnight markets. Instead, they rely on government-backed initiatives that have showed their strong commitment to supporting entrepreneurs such as the new investment vehicle launched by Saudi Arabia’s Public Investment Fund (PIF) aimed at investing in venture capital and private equity funds geared towards small businesses.
Other than governmental support, recent years have seen the launch of numerous incubators, accelerators and venture capital funds across the MENA, with one of the region’s largest private sector funds coming from Saudi Telecom’s announcement of a $500 million startup fund.
Second, players across MENA’s private and public sectors have united in an unprecedented effort to offer entrepreneurs resources that help them navigate the coronavirus pandemic. The UAE is full of examples of this:
• Abu Dhabi Global Market launched measures to support registered entities operating in its financial free zone on Al Maryah Island.
• Bayzat, a technology company providing HR, payroll, and insurance solutions has offered its platform for free to help companies navigate remote working more smoothly.
• Commerce app Zbooni has offered free sales processing to UAE merchants.
• Sharjah Entrepreneurship Centre’s has offered free learning resources for startups.
Such concerted and resolute efforts have been simply unparalleled across the world and are likely to ease the pressure on MENA entrepreneurs as a result of the crisis.
Third, MENA millennials have a notoriously entrepreneurial, resilient and creative mindset. The region is home to the highest proportion of millennial entrepreneurs in the world (63 percent of the business owners surveyed by a recent HSBC Private Banking study were aged 35 or under) and has the youngest average age for entrepreneurs (26 years old).
Saudi Arabia, for example, enjoys one of the highest levels of entrepreneurship attitude across the MENA region and beyond. According to the 2019 Global Entrepreneurship Monitor’s survey of 49 countries, Saudi Arabia ranked first in self-perceptions about perceived capabilities for entrepreneurship and it ranked second in terms of perceived opportunities for entrepreneurs. Resilience and creativity are key attributes that will help entrepreneurs lead their organizations through the crisis.
Therefore, as entrepreneurs across the world struggle with squeezed cashflow, drastic drop in revenue and the inability to service the debt on corporate balance sheets, the spirit of resilience and character places Middle Eastern entrepreneurs in a better position to recover from this crisis, and indeed find new opportunities.
Roxana Mohammadian-Molina (@Roxana_M_Molina) is an adviser to tech companies across the GCC.