The Fallacy of Women Entrepreneurship in the MENA Region

Development Theories• The human factor in economic development, the innovator economic

agent

• The role of efficient institutions, rewarding incentives, enabling legal framework, and property rights to nurture this small entity

• Developing countries …..borrowing the tools of development from successful economies of the West.

• But: the starting point is different.

First...

• The West: SMEs are an essential, and integrated instrument of local and regional growth.

• The New Deal plan (1942) established “Smaller War Plants Corporation” (SWPC) …later this transformed large firms led economies to SM size firms in 70s and 80s.

• Developing Countries and MENA: SMEs competitive, disconnected, and are not perceived significant enough to contribute to the development process.

Second…

• The West: Technology diffusion…..exploited the shortage in the labor force along with boosting productivity…..producing more with existing labor force.

• Developing Countries and MENA: SMEs are viewed and endorsed to alleviate the pressure on overwhelmed labor markets…….dismissing labor saving, productivity enhancing tools as an appropriate technology.

Third…

• The West: small business owners and entrepreneurs have many characteristics in common. The entrepreneur/SME owner takes risks to realize an idea with a long-term vision… has a significant and positive impact on economic growth

• Developing Countries and MENA: SME owners and entrepreneurs start and end with “having an idea”.

• SME owner motivated by necessity….makes calculated decisions to set up the business for short-term goals and gains.

Fourth…

• Gender (in)equality:• The West: FLFPR in the west was not that much different from

current levels of MENA. But, Western government played a significant role. In 1942, the U.S., adopted an aggressive campaign urging more than six million women to join the labor market during WWII.

• Why gender equality?: Modern economic development theories maintain that gender inequality inhibits economic growth.

Fifth…

• The West: efficient and enabling institutions. • State coordinated policy interventions nurtured the

interdependence between macro planning and the development of SMEs (financial assistance, protected rights).

• Developing Countries and MENA: saturated with large numbers of identical informal micro and small enterprises….not eligible for public financial assistances.

Informal Business…Informal Financing

• The rise of formal and informal micro and small businesses in developing economies was matched by a similar rise in formal and informal lending institutions, particularly micro lending/micro finance institutions (MFI).

• In the last 20 plus years, MFIs rendered two types of institutions: • 1) small, MFIs (most likely an NGO or internationally backed by a

development agency for the purpose of social development or helping vulnerable and low income groups),

• 2) a “microfinance-lending window” in commercial financial institutions such as banks and credit unions.

Source: World Development Indicators, 2015

0 100 200 300 400 500 600 700 800 900 1000

Algeria

Egypt, Arab Rep.

Lebanon

Libya

Qatar

Saudi Arabia

Syrian Arab Republic

Tunisia

West Bank and Gaza

Yemen Rep.

Depositors and Borrowers from Commercial Banks, (per 1000 Adults)

2013 Borrowers 2013 Depositors 2010 Borrowers 2010 Depositors

0

10

20

30

40

50

60

Algeria Egypt, ArabRep.

Iran, IslamicRep.

Iraq Jordan Lebanon Morocco Syrian ArabRepublic

West Bankand Gaza

Yemen, Rep. Bahrain Kuwait Oman Qatar Saudi Arabia United ArabEmirates

Loan

form

Fin

anci

al In

stitu

tions

Loan

Fro

m F

amliy

/Frie

nds

Percentage of People 15+ years Who Took a Loan from Family/Friends, and from a Financial Institutions in the Last Year, By Gender, 2011

Females-Fmly/Frnd Males-Fmly/Frnd Females-Fin.Inst. Males-Fin.Inst.

0

20

40

60

80

100

120

140

160

180

200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Domestic Credit to Private Sector (% of GDP)

EA&P OECD MENA SSA SA

MENA

0

1

2

3

4

5

6

7

Egypt Iraq Jordan Lebanon Morocco WB/G Syria Tunisia Yemen MENA East Asia &Pacific

South Asia Sub-SaharanAfrica

Access to MFIs in Select MENA Countries, and Regional Comparison

(%) Active Borrowers per WAP GLP/total credit

Success / Failure of MFIs:

• Good repayment rates are indicative of low risks and increased profitability.

• But compared to a small or medium size loan offering institution, managing a micro lending institution requires additional personnel and administrative costs.

Women in the MENA Region: The Legal Systems in MENA

• The constitution: the family is the core unit of society.

• Derived laws and regulations therefore protect this entity where the man is the breadwinner for the family and the woman as a secondary agent in the family.

Achievements of MENA:

• Two of the most noted achievements of the MENA region during the last sixty plus years are:

• the promotion of women’s educationand

• successes in closing the education gender gap.

N.A. vs. M.E.

• A higher female participation in North African countries compared to Middle Eastern countries.

• Normalized by population, the average FLFP in North Africa rose by a little over 3 percentage points; and by 1.6 percentage point in the Middle Eastern countries between 2002 and 2012.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Distribution of Women in the Labor Force (Ages 15-64) Across MENA Countries

Turkey Egypt Iran Morocco Sudan Algeria Yemen IraqTunisia Syria Libya Lebanon Jordan WB&G GCC

Turkey

Egypt

Iran

Morocco

GCC

Business Differences

• Female owned businesses are significantly smaller than those of males across the globe.

• Tiny size == vulnerable to external shocks.

• Consequences of failing

0

5

10

15

20

25

Algeria_Fem Algeria_male Egypt_Fem Egypt_Male Iran_Fem Iran_Male Tunisia_Fem Tunisia_Male Turkey_Fem Tukey_Male UAE_Fem UAE_Male

Percentage 18-64 Population Who are involved in a New Business

2008 2009 2010 2011 2012 2013

0

5

10

15

20

25

2008 2010 2012 2008 2010 2012

Females Males

Total early-stage Entrepreneurial Activity--Working Age Population, Egypt

The Empowerment (Desperate) Effect:

• While short term benefits of micro funds are not contested in the literature, the evidence is uncertain in the long run.

• Some scholars believe that targeting women with microcredits is sure to bring short and long term economic benefits and improve the welfare of the household.

• Others find a small fraction of informal micro businesses in developing countries mature into formal small businesses

A More Important Question is: • Does the availability of funds or easy access to micro loans guarantee

any level of empowerment for women or long term economic growth?

• Recent empirical evaluations on the borrowers’ business or standards of living are mixed. Results differ by the objective of the program.

• Programs with “women empowerment” objectives (i.e. access to loans), have rendered positive outcomes.

• Yet, programs valuing control over resources, (i.e. control over loan use), delivered negative outcomes.

• Other studies find evidence that the empowerment of women, measured by their participation in decision making within the household, differs by social status and is contingent upon social norms

Do these surveys convey the whole picture?

• Non response issue…• the culture of sharing the experiences and opinions for research and

scientific reasons. ……………varies by education• Particularly in GCC.

• Noncompliance…

More Regulations

• MFIs in: • Morocco and Egypt: capping the interest rate (already imposed

on financial institutions), will be enforced on MFIs.

• Will discourage further commercial institutions from participating in the microcredit market.

Conclusion:

• MSMEs business owners in MENA do not fit the “entrepreneur” definition.

• Necessity, survival and lack of other income generating activities ……== Competition is already fierce among men.

• The business structure is not “institutionally” promoted.• Financial institutions are underdeveloped• The legal system is not conducive to the advancement of women.• Economic dev. is insufficient in promoting empowerment== targeted

intervention.• The connection between microcredit and improving standards of living is not

causative…but associative….=== need all-inclusive battery of fin and non-fin tools.

Need More:

• Short and long-term impact studies of microfinance.

• Programs to alleviate poverty (control over available resources) should not be lumped with programs to promote gender equality (regulate /amend legal and property rights).

Egypt: A Case Study

• MSMEs dominate the non-agriculture private enterprise sector (99percent), of which 11percent is owned by women, and contributes 75percent of national value added and 4percent of industrial exports.