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The future of our economy – by Heriot Watt’s Prof. Paul Hopkinson

Heriot Watt Prof. Paul Hopkinson

By Professor Paul Hopkinson, Head of Edinburgh Business School at Heriot-Watt University Dubai and Academic Lead for Heriot-Watt Online

Recently, there has been a noticeable interest in start-ups in the MENA region. MENA has the largest youth population in the world and the highest internet penetration rates, with a rising number of fintech start-ups. Recently, interest in the growth of start-ups has started to materialise further and take on a more substantial importance. Studies are increasingly pointing to start-ups as one of the key solutions to a growing young population, a highly digitised digital market and a talent shortage.

McKinsey & Co recently published a report titled ‘Reimagining higher education in MENAP’, in which it estimated that about 127 million young people are set to enter the region’s labour market by 2040. Currently, average unemployment is estimated at 9.2 per cent in the region – nearly four percentage points above the global average. Accelerated trends since the pandemic, such as digitisation and automation, pose another challenge: finding the right skills. This is not to paint a dire vision of the future of jobs, but to emphasise the urgency to find solutions to help current and future graduates. The sooner we can do that, the better we can mitigate unemployment in the future.

Simply put, entrepreneurs can create opportunities for others, drive innovation and forge new markets, which overall can largely boost economic prosperity. In 2019, the UAE Ministry of Economy revealed that SMEs and start-ups were contributing to 40 per cent of the country’s GDP, as these smaller enterprises employ 42 per cent of the workforce. In addition, it is no secret that start-ups are strongly linked to innovations, an essential requirement to creating a sustainable future. Inter-organisational collaboration between government, public and private institutions is key to addressing the challenges affecting the proliferation of start-ups.

Currently, one of the main challenges facing the start-up scene in the MENA region is a lack of investment in start-ups solely founded by females. According to research by Wamda, while start-ups in the MENA region raised $622m, only $6m was invested in start-ups founded by women. Start-ups cofounded with a male counterpart raised about $17m. This pattern is not unique to the Middle East but is reflective of global trends. According to Boston Consulting Group, if women were given equal opportunities in entrepreneurship, gross domestic product (GDP) could rise by 3 to 6 per cent, which would substantially boost the global economy.

Finding the right talent is a real challenge that start-ups are faced with. Although this could be applicable to the job market as a whole, it is a bigger challenge for start-ups. While still attempting to build the company’s profile, attracting talent while still not being recognised in the job market is a real difficulty. In addition, during the Global Entrepreneurship Congress in Riyadh, several experts mentioned the skills and talent shortage. More needs to be done to prepare future graduates for the job market. To counter this problem, some start-ups open offices outside their country to diversify the talent pool. However, this is a luxury that not all start-ups can afford.

This is where the role of universities becomes pivotal to addressing these challenges. In addition to updating their programmes in accordance with a new and highly digitised labour market, universities should focus their efforts on incubators and entrepreneurship programmes that can help students develop their own business ideas. At Edinburgh Business School, we offer an incubation space to support entrepreneurship and new businesses through offering a set of facilities to host, support and incubate businesses. Spaces are available to both current students and alumni and external applicants. Universities are uniquely positioned to facilitate entrepreneurship due to their role in promoting a culture of innovation and creative thinking and their ability to support institutional development.

Finally, government entities should foster an environment to facilitate opening start-ups. Opening start-ups has proven to be highly bureaucratic and expensive with lots of licensing fees and requirements. According to World Bank data from 2016, it takes an average of 20.2 days to open a business in MENA countries, versus a mere 5.6 days in the United States. Currently, the start-up scene is growing in leading economies within the GCC such as the UAE and KSA. For example, a report released by Magnitt showed that venture capital funding to MENA start-ups rose to $2.6bn in 2021, a 138 per cent increase in comparison to 2020. Although governments have become more agile and supportive, there is still a sense of formality that, if dropped, can facilitate start-up growth.

Overall, aside from start-ups playing a major role in boosting a country’s economy and GDP, start-ups can hugely contribute to creating opportunities for young graduates. In addition, it has been proven that start-ups can greatly foster innovation, which is a key requirement of our current market. It is important to remember that investing in our youth is the biggest investment we can make. The support of public and private institutions and higher education institutes is indispensable for facilitating the right resources and environment that can help the youth translate their ideas into reality.