By Courtesy World Economic Forum Naguib Sawiris, Orascom Telecom CEO and Egypt’s most visible businessman, has a thing or two to say about embracing risk. By Courtesy World Economic Forum Saeed Al-Muntafiq, executive chairman of UAE’s Tatweer, promotes private-sector involvement in schools, but attempts to do the same in Egypt have met with resistance. By Courtesy World Economic Forum Abraaj Capital CEO Arif M. Naqvi says the Arab world is better at spending money on infrastructure than people. By Silvia Dogliani “I think human capital is the key —it’s the oil of the twenty-first century,” says Sherif Kamel, director of AUC’s Institute of Management. By Mohsen Allam Social Entrepreneur Ehab Abdou (seen in this bt file photo) spearheaded the Young Innovators Award to encourage university students. By Courtesy World Economic Forum Endeavor founder Linda Rottenberg is looking to Egypt to launch the non-profit’s first MENA chapter.

By Hadia Mostafa

Last year, the United States issued an average of 495 patents every single day. It’s a figure that speaks volumes about innovation, but also about risk-taking, one of the core propositions of entrepreneurism. It’s also a statistic that should terrify business leaders in the Arab world when you consider that in the past eight years, the entire region has granted a total of exactly 298 patents.

Researchers, scientists and entrepreneurs of Middle Eastern origin have a reputation for flourishing when placed in systems that encourage innovation, suggesting that the problem is not one of aptitude, but one whose roots are within the systems that inhibit the nurturing and growth of talent and risk-taking.

Today, governments throughout the Middle East —Egypt included — are waking up to the fact that no amount of economic reform, petroleum revenues or foreign direct investment will save the day if they don’t start heavily investing in human capital. The stakes are immense: Their entrepreneurial spirit snuffed out by decades of ‘security’ in the form of state-promised jobs (Egypt) or guaranteed annual incomes (the Gulf), the majority of today’s Arab labor force lacks both employable private-sector skills and the initiative to seek self-employment.

Is it any wonder, then, that joblessness is rampant?

Those looking to the region’s emerging multinationals as the engines of job creation are repeating the same mistake as did the fathers of socialist economic thought in Egypt. Although a handful of Egyptian and Arab corporations have grown in recent years to be classified as multinationals, they alone won’t drive economic growth in the decades to come. As any economic theorist — and every Italian businessman —knows, it’s better to have 25,000 small and medium-sized enterprises powering your economy than it is to have one dominated by 25 Orascom Construction Industries. Without a new crop of entrepreneurs in the still-struggling Egyptian SME sector, sustaining growth rates at today’s 6%-plus will be virtually impossible.

The business community is waking up to this reality: Discussions on the need for regional economies to diversify beyond oil, gas and mega-corporations dominated discussions at this past May’s World Economic Forum (WEF) on the Middle East, held on the Dead Sea in Jordan. With the vast majority of the oil wealth in the Gulf Cooperation Council pouring into real estate investments and the stock market, there was an urgent call for a paradigm shift towards knowledge-based industries.

The message was clear: The Arab world desperately needs a Bill Gates.

“If we don’t learn from our mistakes, then we are condemned to repeat them,” said Arif M. Naqvi, vice-chairman and CEO of the UAE’s Abraaj Capital. “In the 70s and 80s we had a big oil boom. We invested in infrastructure, big buildings and fancy highways, but we didn’t put a lot of money into training our people. Against that backdrop, we are in a similar situation today where we have an enormous amount of liquidity [estimates put surplus revenues at $200-400 billion a year] that has been generated in a very short period of time. We need to invest it sensibly in a manner that will benefit not just our children, but our great-grandchildren as well.”

“It is not so much about diversification, but rather about the state of our minds, our openness and our appetite for risk,” said Mohamed Bin Ali Alabbar, chairman of Emaar Properties, the UAE-based real estate giant. Alabbar, who spoke at a session on diversification at the WEF, went on to note that the challenge is even greater for Egypt, Jordan and Dubai, which lack the oil wealth of other nations in the region.

To get to the crux of the problem, we need to go back to basics. As just about everyone in the business community can agree, deficits in the Arab world’s education systems are at the root of our inability to develop healthy, diversified economies based on small and medium-sized enterprises.

“I am a very strong believer in investing in people. I think human capital is the key —it’s the oil of the twenty-first century,” says Sherif Kamel, director of the Institute of Management at the American University in Cairo (AUC). “This means there is a wealth of opportunity in Egypt: With 58-65% of our people under the age of 35, we have a very young population. I totally disagree with the premise that our large population is a burden —on the contrary, I see it as a huge asset. With the proper systems, the demographic can become an opportunity rather than a challenge.”

Easier said than done: With the severe funding shortfalls and impenetrable bureaucracies that dominate public education, changes are not going to come easily. Right now, educational reform is lagging severely behind economic reform —the virtuous cycle theorists hope for can only come when the two systems are in sync.

Are public-private partnerships the way to modernize national school curricula and infrastructures? That’s the controversial model advanced by Saeed Al-Muntafiq, executive chairman of Tatweer, the company that manages the portfolio of companies under Dubai Holding. Al-Muntafiq cites the example of Abu Dhabi, where the private sector has been brought in to manage public schools. “The government still funds the schools, but management is left up to those whose jobs it is to manage,” he notes.

In Egypt, where the public school system needs both funding and management reforms, the problem is slightly different. Although a handful of companies have gotten involved with an even smaller handful of pilot schools, their inability to advocate for curriculum change has blunted their impact. In fact, many argue that the state educational establishment is openly hostile to private-sector involvement — even when that involvement involves donations of cash, equipment and time.

Others in the private sector have tried to take business education outside the classroom as part of their corporate social responsibility programs. Shell’s Intellaca, for example, operates in Egypt, Jordan and Oman as an open workshop through which participants are given a five-day crash course on starting a business. The curriculum includes training on developing and marketing ideas, writing business plans and applying for funding.

Some of the better private schools in Egypt are now starting to pay closer attention to issues like entrepreneurship through a mix of coursework, school projects and community service requirements.

“There are international schools that are teaching foreign curriculums with strong entrepreneurial values within them,” says Kamel. “It’s great, but we want to build entrepreneurs that will operate in this society, and in order to do that they have to understand the system. The problem with students who have been educated in foreign schools is that they often don’t understand how things operate locally and, even worse, they may lack the Arabic skills to maneuver well within the system.”

AUC tries to present the best of both worlds. Two years ago, it added courses on entrepreneurship in both the business department and the university’s Executive Education Program. A year before that, the university launched an Entrepreneurs Society that now has 120 undergraduate members who are dedicated to the cause. According to Kamel, one of the group’s faculty advisors, the society has brought business leaders to lecture and train their members on the challenges and opportunities in starting a business. The society publishes its own bi-weekly newspaper — The Lead — and holds an annual business plan competition. The winning plan receives LE 20,000 in funding through sponsorships.

“I think this is a very interesting model,” Kamel says. “A lot of our top businessmen and politicians like [Orascom Telecom Chairman] Naguib Sawiris and [Minister of Investment] Mahmoud Mohieldin have gotten involved with the group because they rightly see that some of these students could be possible job candidates two or three years down the road.”

Although efforts such as these are commendable, they are merely a drop in the bucket of what needs to be done if we are to make a difference in a population of 70 million. As Kamel rightly points out, “How many people have access to quality private schools and universities like AUC?”

In its 88-year history, the AUC has graduated 22,000 students. That’s approximately 700-800 students a year, a figure that has been increasing gradually; graduating classes were as small as 20 during the university’s early years. Of those 22,000, Kamel estimates that there couldn’t be more than 10,000 AUC graduates who are still active in the marketplace today.

“Now take that figure and compare it to the 185,000 students who are currently enrolled in the University of Alexandria and you will realize that the impact of these graduates in the grand scheme of things is not as high as we might imagine it to be,” says Kamel.

Ehaab Abdou, a social entrepreneur, Ashoka Fellow and the chairman and founder of Nahdet El-Mahrousa, a youth-led NGO with a vision to develop Egypt through the active participation of young professionals, has been involved with youth in Egyptian universities through a program called the Young Innovators Award. The program supports the most innovative and promising graduation projects from a range of faculties at national universities.

“We started out with Cairo University and we have now grown to include six universities in total: Minya, Alexandria, Al Azhar, Ain Shams and Cairo,” Abdou says. “The awards and support for the projects are made possible through our corporate sponsors who include P&G, BG and Sony Ericsson. Some of the projects that we see are first-rate, but unfortunately there is a lack of good ideas simply for fear of trying new things. We don’t think outside the box and there is a general lack of confidence and lack of ability to even communicate the ideas properly.

“It’s a malfunction of the system,” he continues. “Because schools don’t equip them with the right tools to succeed in the marketplace, it is up to private initiatives to work with our youth so that they may develop their creativity and self-expression.”

Cultural factors and prejudices have nearly as much to do with our national aversion to risk as the system of education that discourages free thinking and self expression. Young people in the Arab world are usually advised by their elders to go out and get secure jobs rather than risk failure.

“I think that in Egypt we may even have a smaller percentage of entrepreneurs than other countries in the region like Lebanon, for example,” says Abdou.

“Geography might have something to do with that. The Lebanese are traders by nature because of their geographic location whereas Egyptians are traditionally more agricultural and more settled. For thousands of years we have planted the seed and waited for it to grow. It was unnecessary to take risks.”

The idea that it’s okay to fail, learn from your mistakes, then pick up and start all over again is virtually non-existent. Once you fail, the stigma tends to stick with you. At the other end of the spectrum are cultures like the United States, where serial entrepreneurs regard “failure” as something akin to a rite of passage. The system not only accepts failure, it encourages you to risk it.

It says something about the legislative approach to failure in business when Egypt still imposes prison sentences on debtors who could, in another economy, file for bankruptcy protection to get themselves back on their feet.

No one can vouch for the benefits of trial and error better than the region’s top businessmen, who have all taken tremendous risks, failed a time or two and survived to achieve great success afterwards.

“Failure should not be frowned upon. You have to have one, two, three failures, this is how you learn, it’s what makes you stronger,” says Alabbar. “Your ability to be daring, take risks and have a positive state of mind that yes, it can be done, is essential. The real estate market in Dubai got very tight, very competitive you could either sit tight and die or possibly take your luggage across the border and take some risk. You’d be surprised that the majority of the time you succeed.”

Closer to home, telecoms titan Naguib Sawiris received a “going concern” warning from his auditors in 2002-03 after an ill-timed foray into sub-Saharan Africa: That’s finance-speak for “Hey, buddy, consider bankruptcy.” Today, his very healthy empire stretches from Algeria to Iraq, from Egypt to Italy and Greece.

“I remember when we first went to Algeria,” Sawiris recalled on a stage he shared with Alabbar at the WEF. “Everybody said we were crazy because there was a lot of terrorism and political instability. They said the price we paid for the license was outrageous — then just a few years later somebody, paid $6 billion for the third license in Saudi Arabia, a country with half the population of Algeria. Today, Algeria is one of the best countries to invest in, so we have proven the skeptics wrong.”

Although we have miles and miles left to traverse, Egypt has taken its first steps on the long journey toward creating an entrepreneur-friendly climate.

When the Ministry of Communication and Information Technology (MCIT) was created in 1999, there were only 350 companies operating in the sector. Today, seven and a half years later, there are 1,700 companies — most of them SMEs specializing in software development, hardware and customer support services.

“Many of them are young people with the mentality of, ‘I don’t want to be an employee’,” says Kamel, who says that when he asks his AUC students what they want to do after they graduate, an increasing percentage want to go into private business. A decade ago, he recalls, the overwhelming response was “work for a multinational.”

“I think there are more people out there today who are ready to take some risk, but before you can tell them to go out there and give it their all, you have to provide them with an encouraging environment. There are more facilities today and the private business culture is slowly, but surely, being developed — but things are not yet rosy.

“Entrepreneurs still need better access to financing, a more transparent regulatory environment and effective bankruptcy laws. The facilitators — whether it’s the government or the banks — have to take risks, too. How can we expect entrepreneurs to take risks if they get the feeling that the provider is not willing to do the same.”

Endeavor, a global non-profit organization that empowers entrepreneurs in emerging economies by putting them in touch with a high-profile network of business leaders, is currently in the process of establishing a chapter in Egypt.

Endeavor Egypt will be the organization’s first foray into the MENA region since it first launched 10 years ago in Latin America. The brainchild of social entrepreneur Linda Rottenberg, Endeavor’s 267 high-impact entrepreneurs — who represent 160 companies in eight countries — have thus far generated over $1.7 billion in revenues and 75,000 jobs.

“Last year, we sent a scoping mission to Egypt and Morocco,” Rottenberg told bt on the sidelines of the World Economic Forum on the Middle East in late May. “We look for countries that have the right dynamics for entrepreneurship, which is basically an educated population with some entrepreneurial activity already in place. Egypt has lots of potential and I think that it is an ideal place for us to start.

“I have just met with one of Egypt’s top businessmen, Orascom Telecom Chairman Naguib Sawiris, who is by coincidence friends with our chairman, Edgar Bronfman Jr. [also chairman and CEO of Warner Music] and he has agreed to help us set up Endeavor Egypt. So it looks like the ball is definitely rolling.”

Less than two weeks after Sawiris’ pledge of support, representatives from Endeavor were in Cairo for a week-long visit during which they met with Sawiris and other members of the business community in an attempt to raise awareness of the organization, raise funds and recruit for Endeavor Egypt’s board of directors.

“The way our business model is set up is that we take the business elite in each country who are really committed to economic development and convince them to bring in their influence and resources to bear on the entrepreneurs. They help to pull up the next generation through their network, power and influence in the marketplace,” says Cindy Ko, Endeavor’s vice president for international expansion, who led the delegation to Cairo.

According to Mona Fayek, Sawiris’ advisor on institutional and NGO affairs, the Endeavor global team and Sawiris are currently looking for top business leaders who would like to commit to funding five years of local operation at an estimated cost of $3 million and form a 6-8 member board of directors. It is as of yet uncertain who will serve on the board other than Sawiris, who is likely to become its first chairman, but heavyweights such as Kato Group’s Ibrahim Kamel and Arab African Bank Chairman Hassan Abdallah have reportedly expressed their interest.

Once a board has been finalized, a managing director and a local staff of five or six will also be hired.

“I think there is a duty for people like us to devote some time which is very precious into creating the next generation of SMEs and entrepreneurs. It’s not a very difficult process,” says Sawiris.

“Endeavor believes that you don’t need outside expertise,” Ko says. “The best people to give advice to entrepreneurs are the local business leaders who know how the system works. So key to our success is building a network of businesspeople that are committed to the mission: who will give their time, their advice and their contacts to the entrepreneurs that we select.”

Entrepreneurs who are interested in seeking Endeavors’ services must go through a rigorous selection process that includes screenings and interviews which can take anywhere between six months and two years. According to Ko, approximately 3% of the entrepreneurs that first apply are accepted.

“A lot of people ask us why we don’t help more people, but I think Endeavor is unique in that way. The idea is to have a catalytic effect. We are trying to create role models so it’s not about quantity. It’s about picking top quality people. Over the course of the selection process we see where the weak points are, so once the entrepreneurs become selected we help them put together an 18-24 month work plan — a needs assessment. Once we have identified those needs, we put them in touch with the appropriate resource within our network who will give them advice, mentoring and commercial contacts,” says Ko.

“If they need access to financing, we will get in touch with financial institutions, bankers and venture capitalists as well. Entrepreneurs selected by Endeavor essentially get fast-tracked with the banks. They still have to go through a credit approval process but without our intervention many would not even been considered. The idea is to try and break the myth that entrepreneurs are bad credit risks,” she adds.

Ko says roughly two-thirds of all small business owners Endeavor deals with need some form of financial assistance. “The financing component is important, but I wouldn’t necessarily say that it is the most important. Networking is the biggest hurdle.”

According to Rob Reid, the Silicon Valley entrepreneur who founded Rhapsody, now the second-largest online music distribution company (after iTunes) with millions of subscribers, “mentorship is always the missing element.”

Reid, who accompanied Ko on her visit to Egypt in May, has been a member of Endeavor’s global advisory board for the past nine years and volunteers a couple of weeks a year with the organization.

Having himself gone through the experience of starting up and selling a tech company, Reid is anxious to give back a little of what he has learned. He plans to devote even more time to Endeavor during the next year as they prepare to launch in Egypt. A fluent Arabic speaker, Reid spent a year in Egypt during the late 1980s studying at the American University in Cairo’s Arabic Language Institute.

“When I started my company, there were so many things that were present in Silicon Valley to make life easier. There was capital, a favorable legislative environment, legal and accounting experts who specialize in the needs of startups, but above all there was a very large community of people who had done it before, whose view is that the way to give back is to help other entrepreneurs become successful and create jobs. My first three investors were all successful high-tech industry CEOs. They didn’t just put money into my company, they were all available to give me counsel and help me out with whatever I needed. Without that, I wouldn’t have made it. That’s the kind of thing that an entrepreneur needs more than capital. It’s the rolodex that counts,” says Reid.

“Over time Endeavor builds a community,” he continues. “For example, in Brazil where we have been present for 10 years, there is a huge network of dozens and dozens of Endeavor companies. The idea is that in the long-term we will create that self sustaining, self regenerating community of entrepreneurs that are going to be the muscle and the might of the network,” he adds.

If all goes well, Endeavor hopes to launch in Egypt by the end of the year. So far, the response to the organization —which has virtually zero name recognition in the region — has been strongly positive.

“People are very excited when we present them with the idea,” Ko says. “We hear all the time that there is no mentality of entrepreneurship in Egypt, but we sense that change is imminent. You have a great cabinet with a private sector mentality that we have heard so many good things about so the groundwork is already there.

“Now we want to help create success stories that are going to attract a lot of attention and help build a new venture environment.” bt