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If you want to create jobs in the Maghreb, enable entrepreneurs

Latest Wamda survey results highlight obstacles to growing companies

In the coming months, I’ll continue to write about issues related to strategies for economic growth in the Maghreb and youth employment in particular. These topics are particularly challenging because jobs, equality, and dignity are themes still resonating negatively after the Arab uprisings, as there has been little progress in addressing these issues. While there are many structural concerns that impact job growth, ranging from broadband availability, logistics and distribution facilities to legal and regulatory regimes, and political risk, there are substantive issues as well.

Wamda report cover

Wamda Research Lab report on barriers to scaling up entrepreneurs

Among the most pressing is identifying core sectors of opportunity for investments that would result in large-scale job creation. This is a critical concern because foreign direct investment (FDI) usually targets multimillion dollar projects that, aside from tourism and shopping malls, are more capital than labor intensive, limiting their net impact on job creation. And in the Maghreb countries, agricultural labor still is the dominant sector for employment, which is both seasonal and outside the usual government social services schemes. Thus, there is a need to fill the gap between small concerns, which are usually in the informal sector, and the large corporations, where jobs depend on skilled applicants.

In developed countries, small and medium-sized enterprises (SMEs) generate 60 to 70 percent of jobs. According to The next step – breaking barriers to scale for MENA’s entrepreneurs, a recent report from Wamda Research Lab, in the Middle East and North Africa (MENA), SMEs, constitute a majority of enterprises [approximately 80-90 percent], yet account for an average of 30 percent of private sector employment and 4 to 16 percent of total employment.” This more limited role for SMEs as job creators in the MENA highlights two negative outcomes: the high level of public sector salaries distorting the overall labor market and share of national budgets, and the scale of the challenges facing the private sector in growing employment when SMEs are quite small in scale.

Building up the “middle”

IMF Managing Director Christine LaGarde recently said in a speech in Morocco, “Strengthening the economic middle means giving a shot in the arm to small- and medium-sized enterprises (SMEs) in the formal sector. These are the kinds of firms that form the backbone of a healthy economy, and— in other regions of the world—are the main engines of job creation.”

The Wamda report takes up this theme and surveyed more than 900 entrepreneurs and experts on “the barriers to scaling up” faced by existing firms with a track record of growth.

Their results focused on four priority areas to enable expansion and job creation:

  • Increasing revenues through better marketing, market access, and market education for consumers and entrepreneurs to drive demand for products and services.
  • Boosting investment while improving communications between investors and entrepreneurs.
  • Attracting talent through improvements in the educational system and robust employee benefits.
  • Facilitating expansion across borders by reducing legal barriers and costs and identification of strategic partners.

The report concluded that “To achieve the maximum impact on job creation, the region’s entrepreneurship ecosystem must reduce the barriers to scale for entrepreneurs. A multi-stakeholder approach is needed across the ecosystem if these barriers are to be effectively addressed.”

Women entrepreneur

Less than 15 percent of entrepreneurs in study are women

This emphasis on the private sector driving job growth is consistent among stakeholders, including the World Bank, IMF, EU, UNDP, and others. All parties point to the requirement for a viable, sustainable ecosystem of institutions that supports the training, mentoring, incubation, and other services needed to support entrepreneurs. While these have expanded rapidly in the past ten years to more than 140 in MENA, resources available for scaling existing companies to grow successfully are not yet sufficient. Among the entrepreneurs surveyed in the Wamda report, “roughly 60% say that scaling is the most challenging development phase for entrepreneurs in the region.” For successful start-ups to become job creators, much more must be done by all stakeholders to enable and promote scaling.

Strategies for successful scaling

It is instructive to review the profiles of the participants in the Wamda survey, as they characterize entrepreneurs throughout the region and provide insights into how to support their initiatives. For example, almost three-quarters of those surveyed have either studied or worked abroad. Women make up less than one quarter of the founders of the companies surveyed. And personal savings were the source of initial investments for close to three-quarters of the group while financing from friends and families made up 43 percent of funding sources. This poses several types of challenges: how to engage women more effectively, how to engage the diaspora and reverse brain-drain, and how to make better financing options available from banks and private investors.

Exponential growth in technologies creates demand for highly skilled personnel

Exponential growth in technologies creates demand for highly skilled personnel

Among the entrepreneurs and experts interviewed, “entrepreneurs experience difficulties understanding marketing strategies for the countries they seek to enter, and face challenges acquiring marketing talent to execute their strategies…entrepreneurs need to determine proper market fit for their products and services.” This lends support to the need for broadening regional exchanges that link together entrepreneurs across markets to increase access to market awareness and skilled human resources. In fact, “The majority (63%) of entrepreneurs in our sample state that finding talent is their biggest challenge to building a team.”

In terms of investment, a third of the respondents noted the “small supply of venture funding was a primary challenge… [and] investors not offering enough value beyond cash.” This is a common affliction of growing firms once the start-up capital is exhausted. Perhaps a beneficial role for international and bilateral technical assistance should focus on mobilizing local capital for local firms that demonstrate a clear and well-defined business plan for regional markets. Linking these across borders would address the skills, markets, and investments challenges.

As the Wamda report explains – a view shared by many others — “Economic and social prosperity in the MENA region cannot be achieved without widespread and sustainable job creation. Entrepreneurs are critical to these efforts, yet in order for them to contribute meaningfully to the region’s employment agenda and foster thriving societies, they must be able to scale their companies.”

Progress is being made as governments develop a range of strategies to promote entrepreneurs and their efforts. For example, the report points out that “…Morocco eliminated the minimum capital requirement for limited liability companies in 2013. That decision, along with the institution of several banking reforms over the past several years, have made Morocco one of the most friendly countries for SME lending in MENA.” Only through a concerted and long-term program to support entrepreneurs across a range of sectors through multiple stages of growth will job creation achieve the levels needed to meet skilled labor supply and job demand.

Morocco’s King Drives Regional Economic Integration with Africa

Morocco and Mali sign 17 different bilateral cooperation agreements to strengthen economic and development ties

Even before the publication of a 2008 landmark study by the Peterson Institute identifying the benefits of regional economic integration in the Maghreb, international organizations and experts were expressing concerns that cross-border politics were depriving the area of much needed incentives to intra-regional trade. This past week, at the 3rd Maghreb Entrepreneurs Forum held in Marrakech, that theme was echoed by participants from the private and public sectors.

The Forum was organized by the Maghreb Employers Union, a coalition of employers from across the region who are trying to do what politicians are reluctant to do – move towards greater economic integration through closer cooperation and coordination of supply chains and marketing. Among the many speakers was Miriem Bensalah Chaqroun, president of the Moroccan business confederation (CGEM), which hosted the event. She noted that “Trade between the UMA [Arab Maghreb Union] countries [Algeria, Libya, Mauritania, Morocco, and Tunisia] represents on average only 3 percent of global trade in these countries, which represents the lowest level of integration in the world.” The forum has created an initiative called the Maghreb Trade and Investment Initiative (IMCI) to provide a roadmap to strengthen trade and intra-regional investments.

The topic of lost opportunities was echoed in a message to the participants from IMF Managing Director Christine Lagarde: “The economic integration of the countries of the Maghreb Union could create, according to our studies, between 2 and 3 percent additional GDP per year for each country.” Simon Baker, Director of the Maghreb section of the World Bank, added, “Currently the Maghreb counties often compete on products exported to the EU in particular. But there is a significant potential for a better division of labor through the establishment of value chains and regional production.” He also noted that “Studies conducted by the World Bank show that the loss of earnings due to the lack of Maghreb integration is estimated at 3 to 9 billion dollars per annum for the region as a whole.”

King Follows Own Path to Regional Integration

While the countries of North Africa struggle to overcome obstacles to greater integration, King Mohammed VI of Morocco has turned his attention to West and Central Africa as natural markets for the Kingdom. He has embarked on his second trip to Africa in less than a year to strengthen diplomatic, economic, and cultural ties with Morocco’s neighbors to the south. “This keen interest in the continent’s development is nothing new.” according to the Med Africa Times, “since Morocco cancelled as early as 2000 all the debts of the poorest African countries and exempted their products and goods from customs duties.”

The current visits are taking the King to Mali, Guinea, Cote d’Ivoire, and Gabon. The article goes on to point out that “Morocco has tirelessly endeavored to strengthen and diversify its economic relations with Africa and to encourage investments, at the institutional level as well as at the level of the private sector which has significant investments in several sectors including banking, telecoms, housing, insurance, and mining.” As with his earlier tour of African countries, the King will preside over political and economic cooperation agreements to support increased economic partnerships throughout the continent.

For example, it was announced that Morocco and Mali had signed 17 different cooperation agreements, promoting increased investment, industrial cooperation, air services, trade, health services, telecommunications, job training, natural resource and drinking water management, and others.

In one initiative, for example, the OCP Group, Morocco’s giant fertilizer company, the largest producer in the world, will invest more than $600 million to build a fertilizer factory in Jorf Lasfar dedicated entirely to the African market, where record level economic growth is anticipated in the next ten years. The plant’s planned production of one million tons of fertilizer annually will be exported exclusively to Africa, according to OCP Group’s president Mustafa Terrab, who made the announcement during the King’s visit to Mali.

Although Morocco’s strategy for regional economic integration may be said to mirror the movie line “If you build it, they will come,” it is apparent that its drive for regional economic integration both in the Maghreb and throughout West and Central Africa is looking more achievable every day.

Taking a fresh look at Morocco’s economic development

In the first two weeks of September, I’ll be writing my blogs from Morocco, which will give me a front row seat to see how economic growth is advancing given challenges internally and within the larger international business environment.

Several stories this past month provided greater details of the progress that is being made. There are three that are particularly interesting in that they point to the decisions Morocco is making about how to make its economy more globally competitive.

Growing Saudi-Moroccan business ties

This week, Saudi Arabia and Morocco launched a new round of projects to ratchet up the volume of business between the two countries. It should come as no surprise that the current trade balance favors Saudi Arabia because energy importer Morocco needs Saudi energy supplies to meet domestic demand.

The head of the Saudi-Morocco Business Council, Mohammad al-Hamady, noted that the total volume of trade between the two countries amounted to approximately $4.4 billion in 2011, with Saudi Arabia exporting far more to Morocco than it imports. He added that economic and trade relations between the two countries have been growing steadily, with Morocco becoming Saudi Arabia’s sixth-largest trading partner.

As part of its commitment to Morocco’s overall development, last year Saudi Arabia committed $1.2 billion over the next five years for investments, primarily in tourism development projects, making it the third largest investor in Morocco. Hamady believes that a major obstacle to greater trade is the lack of direct maritime transport lines between the two countries, and this was at the top of the agenda of the Saudi-Moroccan Business Council meetings in Jeddah this week.

Exploring for energy sources

CNBC and Reuters carried stories on expanding oil exploration projects in West and North Africa, with a special nod towards Morocco.

Ken Judge, the commercial director of Gulfsands, which had been active in Syria, said that “As you might imagine, after Syria what we’re looking for is some stability, and Morocco’s got terrific political stability, but it also has the best fiscal terms of any country in the Middle East and North Africa region.”

These efforts complement the expanding Moroccan focus on renewable energies, with RFPs for two more solar projects coming out shortly.

These opportunities and others, both trade and investment, are to be highlighted in the upcoming US-Morocco Business Development Conference to be held November 4-5, 2013 in Rabat.  Later that month, Rabat will host The Morocco Summit with a wide-ranging exploration of Morocco as a hub for inter-regional business across Europe, Africa, and the Middle East.

Young business leaders

BBC carried a very interesting video report that reviewed projects to advance the economic status of women in rural areas, where there is great need to overcome poverty and illiteracy in advancing women’s empowerment. The report details projects that are run by young educated women working to enable women with little education to become family breadwinners through commercializing artisanal crafts and other products for domestic and international markets.

Another story about youthful entrepreneurs recounts how several Moroccans worked for months before receiving their first rate-free loan for entrepreneurs to start up a food delivery service in Morocco.

Their key decision was to build a talented staff from scratch who then acquired their skills by constructing the company from the ground up. Youssef El Kachchani of www.doofry.com, the food delivery company, found great success in recruiting widely via the web and putting potential employees through a two-week intensive reading session before starting.

This was similar to the strategy used by Youssef El Hammal, who launched www.stagiaires.ma in 2012 to connect students with recruiters. He found that hiring recent graduates was better than employing ones with more experience because “they’re highly motivated and excited to learn. Because they haven’t been working for corporations, they’re still open-minded, creative risk-takers.”

So it should be an interesting time to catch up with what’s going on in Morocco. With a new government coalition being formed and an extensive economic reform agenda in the wings, it is a period of great anticipation that the economy will expand and create the jobs so badly needed in Morocco.