CYRUS Institute of Knowledge Conference Boston, MA, October 7, 2012

1. Entrepreneurship in the Islamic WorldWafaN. Almobaireek, King Saud University, Riyadh, Saudi ArabiaAhmed A. Alshumaimeri, King Saud University, Riyadh, Saudi ArabiaTatiana S. Manolova, Bentley University, Waltham, MA, USA CYRUS Institute of Knowledge Conference Boston, MA, October 7, 2012

2. Motivations for the Study • Nurturing a culture of entrepreneurship is a critical priority to public policy at the national and supranational level • the latest GEM report urged public policy makers in the MENA region to encourage entrepreneurship • There is a need to better understand the drivers, processes, and desired outcomes of entrepreneurial activity in the Islamic world in order to inform both individual entrepreneurship initiatives and public policy

3. The Islamic World (I) • 23% of the world population, spread around 200 countries • >60% in Asia; 20% in MENA • The MENA region has the highest percentage of Muslim-majority countries • Our overview uses membership in the Organization of Islamic Cooperation (OIC) as a guide • 57 member states

4. The Islamic World (II) • Per capita GDP: • $600 (Somalia) to $102,700 (Qatar) • Stages of economic development (WEF, 2012): • 28 either factor-driven or in transition to efficiency-driven stage of development • 7 efficiency-driven • 5 either in transition to innovation-driven (Turkey, Lebanon, Oman) or innovation-driven (Bahrain and UAE). • Global Competitiveness Report (WEF, 2012): • Qatar (14th out of 142 countries) • Saudi Arabia [17], Malaysia [21], the UAE [27], Brunei-Darussalam [28] • Chad (142 out of 142 countries)

5. The Islamic World (III) • Institutional Influences • 7 declared Islamic states • Afghanistan, Bahrain, Iran, Mauritania, Oman, Pakistan, and Yemen • 12 have declared Islam as the state religion • Algeria, Bangladesh, Egypt, Iraq, Kuwait, Libya, Malaysia, Maldives, Morocco, Qatar, Tunisia, United Arab Emirates • Different colonial legacies • British, French, Ottoman • Ex-Soviet Union republics • Azerbaijan, Uzbekistan, Tajikistan, Turkmenistan, Kazakhstan and the Kyrgyz Republic • Multiple religious and tribal identities

6. The Islamic World (IV) • Entrepreneurial Activity • GEM: early stage entrepreneurial activity (16 countries covered) • Between 4.7% (Saudi Arabia) and 24% (Yemen) of the population aged 18-64 engaged in entrepreneurial activity • WorldBank’s Entrepreneurship Snapshots (23 countries covered) • Entry density varies between 0.08 (Burkina Faso) and 4.27 (Gabon) • MENA average 0.63, the second lowest after Sub-Saharan Africa

7. Organizing Framework • Level of Economic Development • Socio-Demographic Profile • Islamic Values • Institutional Framework • Cultural Heritage Adopted from Hitt et al., 2011

8. Inputs to the Entrepreneurial Process: Human Capital • Only 4 Muslim countries (UAE, Brunei, Qatar, and Bahrain) have a very high level of human development (2011 Human Development Index) • Low number of years of schooling • 9.3 years in UAE; 1.3 in Burkina Faso • High illiteracy rates • 46.6% among men and 71.5% among women in Pakistan • Low life expectancy • 47.8 years in Sierra Leone • Burgeoning yound population • Mean age across the MENA region is 25 years • Persistent high levels of youth unemployment (30% in Saudi Arabia and Tunisia) • The cost of youth exclusion, stemming from the depletion of their human and social capital is estimated to reach $53 bn in Egypt alone • In the next 10-15 years , some 100 mln new jobs need to be created in the MENA countries alone to absorb the emerging workforce • The MENA countries contain the lowest proportion of women entrepreneurs compared to other countries in the world (GEM 2010 Women’s Report)

9. GlobalMedian Age as of 2009

10. Inputs to the Entrepreneurial Process: SocialCapital • Strong ties, originating from family, kinship, or tribal affiliations are a powerful source of trust, moral and financial support and the creation of opportunity • Personal connections (wasta in Arabic) in business life have given rise to a class of intermediaries who make it their profession to befriend and provide access to people of power and influence • The degree to which social capital in the Islamic world can be used productively or unproductively depends to a large extent on the transparency of government regulations • most Muslim countries have mid-range rankings, with the UAE perceived as least corrupt and the Central-Asian ex-Soviet Union republics, Afghanistan, Iraq, Sudan, and Somalia perceived as the most corrupt (2011 Corruption Perception Index, Transparency International)

11. Inputs to the Entrepreneurial Process: FinancialCapital • Islamic principles of financing prohibit giving or receiving an interest • A variety of investment and profit sharing vehicles which can be used to support entrepreneurial ventures • About 72% of the people living in Muslim-majority countries do not use formal financial services • Access to financial capital depends strongly on the level of economic development • Cash-rich Gulf economies rank high in financial market development (Bahrain 14th in the world) and have various funds to support entrepreneurial initiatives • Cash-poor Muslim nations are traditional recepients of international aid and micro-finance • Islamic finance structures (such as the Zakat funds) can be used more actively to alleviate poverty

12. New Venture Characteristics: Per Capita GDP and Early Stage Entrepreneurial Activity (GEM 2010)

13. New Venture Characteristics: Necessity and Opportunity Entrepreneurship

14. Entrepreneurial Activity: Limited Liability Company Registrations (2004-2009)

15. Entrepreneurial Activity: Institutional Influences

16. Entrepreneurial Activity: Cultural Influences Percent TEA R2=-0.17 Percent Respondents

17. Outcomes of the Entrepreneurial Process • Entrepreneurship in the Islamic world is understood to be a spiritual as well as an economic activity • directed both at generating profits and enhancing social welfare • the traditional Islamic waqfsystem is a good example of infusing economic activities with a social value component • Social entrepreneurship can provide an important avenue for socialization and self-realization of women

18. In Conclusion (I): • We need to know more about entrepreneurship in the Islamic world • GEM has data on 16 Muslim countries • The WBES includes 23 Muslim countries • Only 7 countries have complete records • Some interactions of macro and micro-effects need to be examined in more depth • Role of institutional and cultural pressures by gender and age cohort • Mechanisms through which social capital is acquired, structured, and utilized by men and women • Role of Islamic financing schemes compared to traditional venture and angel capital financing

19. In Conclusion (II): • Public policy makers in Muslim countries at all stages of economic development can do more to create a national framework in support of entrepreneurship • transparent and business-friendly institutions • strategic investment in human capital • entrepreneurship training targeted at women and youth • entrepreneurial financing commensurate with the country’s level of economic development

20. Q U E S T I O N S?