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BUILDING HIGH-IMPACT ENTREPRENEURSHIP ECOSYSTEMS
HOW TO CAPITALIZE
ON HUMAN CAPITAL
IN MENA
a report from:
supported by:
4
Endeavor Insight
How to Capitalize on Human Capital in MENA
I.
II.
written by
Rabia Qari
Endeavor Insight
5
Introduction
6
Overview
8
III.
Ideas for Entrepreneurs Who Want to
Improve Human Capital
12
IV.
Appendix
14
About
15
V.
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Endeavor Insight
How to Capitalize on Human Capital in MENA
7
I. Introduction
Startups and scale-ups, more than regular companies, live and die by the strength of
their employees. Even the most insurmountable obstacles can be overcome if a company
is led by talented and committed people. Entrepreneurs in the Middle East and North
Africa (MENA) face constraints along two axes: educational systems in these countries
fail to produce the talent to build innovative companies and management oftentimes
fails to attract and retain the talent that does exist. Endeavor Insight interviewed a number of its MENA-based entrepreneurs, and its findings mirrored a global trend: 35% of
high-growth entrepreneurs interviewed by the World Bank in a 60 country study also
cited access to human capital as the most significant obstacle to their firms’ success.1
This report seeks to provide data on specific human capital challenges faced by
entrepreneurs within MENA at three specific phases: sourcing talent, recruiting talent,
and retaining talent. It also offers suggestions for overcoming these challenges based on
the experience of successful entrepreneurs in the region. While the depth of the human
resources challenge varies significantly across MENA (Figure 1), the recommendations
proposed in this report address challenges common to all countries in the region. These
findings are based on interviews with Endeavor’s entrepreneurs across the region, human
capital experts from Egypt, Lebanon, and Jordan, and an in-depth literature review.
While the report focuses primarily on Egypt, Jordan, Lebanon, Morocco, Turkey, Saudi
Arabia, and the UAE, the majority of its findings are relevant for other countries in the region.
Figure 1: Relative Ability to Source, Recruit and Retain Talent for Selected
MENA Countries
Source: World Economic Forum, Competiveness Survey 2012
EGYPT
JORDAN
LEBANON
MOROCCO
KSA
UAE
Sourcing/Finding
Talent
Recruiting:
Compensation
Recruiting:
Training
Retaining
Overall
Proxies:
Sourcing: “How well does educational system meet requirements of a competitive economy” and “Quality of management schools in your country”
Recruiting (Training): “To what extent do companies invest in training and development”
Retention: “To what extent does your country retain and attract talented people”
1 The Enterprise Surveys, World Bank
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Endeavor Insight
How to Capitalize on Human Capital in MENA
9
II. Overview
Sourcing Talent
Finding talent is never easy for companies, but when universities are weak and
enrollment is low, even a country’s most promising graduates often lack key skills.
Entrepreneurs tend to source talent from within their own countries, especially from
local universities, and as a result have trouble finding qualified prospective hires. In
MENA countries, tertiary school enrollment stands at 26.3%, compared to 90.3% for
OECD high-income countries.2 Given this yawning gap in university enrollment, it is
no surprise that in a survey conducted by the International Finance Corporation (IFC),
the percentage of firms identifying an inadequately educated workforce as a major
constraint was 38.8% for MENA, as compared to only 14.4% for OECD high-income
countries.3 MENA tertiary school enrollment moves in lockstep with its human capital
formation, compounding the skills deficit with a lack of college-educated workers.
Even those students who do make it to university may not be getting the education
they need. Shahinaz Ahmed, from Education for Employment in Egypt, explains that
“the current education system does not prepare students for the workforce. The public
has not received their end of the bargain from the government and the education system
is mainly preparing them for government jobs.” Heba Sweed, from the Career and
Entrepreneurship Development Office (CEDO) in Egypt, adds that “there is a big gap
between what the companies we work with need and the skill sets students have. The
biggest complaint from employers is that fresh graduates are not being provided with the
right communication, interviewing, teamwork, work ethic, and presentation skills.” This
is consistent with feedback from Endeavor entrepreneurs in the region, who identify
sourcing talent and a lack of relevant skills as the most important issues facing them.
There are also significant differences in education systems among MENA countries.
The World Economic Forum (WEF) conducted a survey demonstrating that tertiary
school enrollment was lowest in Morocco and Egypt, and highest in Lebanon and
Jordan.4 These results follow on its analysis of the extent to which the educational
systems meet the needs of a competitive economy. On a scale of one to seven, the lowest
scoring country was Egypt (2.3 out of 7) and the highest scoring one was Lebanon (5.1
out of 7) (Figure 2).5 Lebanon, Saudi Arabia, and the UAE all performed better than
the average for OECD high-income countries, suggesting that sourcing qualified
2
3
4
5
World Economic Forum, “The Global Competitiveness Report”, 2011–2012
IFC Data, 2011
World Economic Forum, “The Global Competitiveness Report”, 2011–2012
World Economic Forum, “The Global Competitiveness Report”, 2011–2012
Figure 2: Assessing Education Systems in MENA
4.5
OECD High-Income
5.0
5.1
5.3
Lebanon
Saudi Arabia
4.7
4.7
UAE
4.6
4.7
4.0
3.9
Jordan
Turkey
3.3
Morocco
3.3
Egypt
2.3
3.6
4.5
3.0
How well does your education system meet the needs of a competitive economy? (1–7)
How would you assess the quality of management or business schools? (1–7)
*1 = not very well at all, 7 = very well
talent should be less of an issue in these countries. Masters programs in business and
management fared similarly (Figure 2). When asked to rate the quality of management
or business schools in the country, Egypt scored the lowest (3 out of 7) and Lebanon
the highest (5.3 out of 7) in the WEF study.6 Educational outcomes vary significantly
between countries, and variation in the WEF data suggests that some MENA
entrepreneurs face bigger challenges than others when sourcing talent.
6 World Economic Forum, “The Global Competitiveness Report”, 2011–2012
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How to Capitalize on Human Capital in MENA
Case Study: T.A. Telecom
Endeavor Entrepreneur, Amr Shady, began his career working in the family business in Egypt but
always yearned to work in what he perceived to be the more engaging and dynamic technology
sector. So, in 1999, he started T.A. Telecom, the first mobile marketing agency in the Middle East.
Over the course of ten years, T.A. Telecom has significantly expanded its mobile platform offering
and now serves customers in Egypt, the UAE, Saudi Arabia, Nigeria, and Afghanistan.
However, his success has not come without significant challenges. One of these challenges
has been sourcing talent. Amr comments that after losing ~20% of the company’s employees—
mainly due to the revolution in Egypt—finding talent has become more of a struggle.
Although there is a strong pool of talent with the relevant technical skills, finding individuals
with the appropriate combination of technical and professional skills is highly challenging. Amr
commented, “There are a lot of people with technical backgrounds, but finding someone with a
professional attitude, presentation skills, and the right work ethic - this is the problem.” Amr and
his HR team continue to seek new avenues for sourcing talent, and have developed strong university relationships and an internship program to attract talent at an earlier stage.
Recruiting Talent
Once companies source talent, the next challenge becomes recruiting it. When companies hire employees, they must balance compensation and opportunities for professional
growth. Unsurprisingly, both of these areas represented big challenges for the Endeavor
Entrepreneurs interviewed for this report, and this trend extends to the majority of
companies across the region. The Middle East Salary Survey asked MENA employees
about their satisfaction with current salary and found that 38% had low satisfaction and
58% medium satisfaction. Although salaries vary significantly in absolute terms across
the region, variations in the cost of living keep salary satisfaction uniformly low in all
countries (Figure 3).7
MENA employees also perceive that their company’s compensation structure
lags behind that of the market or peer companies. In the same survey, 63% of
respondents said that the pay within their company was lower than companies in
the same industry.8 With such low salary satisfaction across the region, MENA
employers can gain a competitive advantage in the recruitment process by focusing
on employee compensation.
Successful recruitment undoubtedly goes beyond compensation, and opportunities
for professional development are important for attracting top-quality candidates.
Despite the fact that these benefits can be affordable options that foster goodwill with
employees, companies often overlook their value. Across MENA, the percentage of firms
offering formal training is only 26.7% versus 41.1% for OECD high-income countries.9
When asked to rate the extent to which companies in their own country invest in
training and development, respondents to the WEF survey scored Egypt the lowest
(3 out of 7) and the UAE the highest (4.7 out of 7).10 For entrepreneurs who struggle to
find well-rounded employees, training is the only way to develop staff members
with the technical know-how and “soft skills” that underpin success in an
entrepreneurial environment.
Where compensation or opportunities for professional development are lacking, an
attractive fringe benefits package can help entrepreneurs to secure top talent. Potential
benefits for these employees include healthcare, vacation days, and additional revenue.
The average composition of compensation packages in MENA indicates that companies
place a lower priority on these ancillary benefits: 36% of employees still receive only a
basic salary.11 Entrepreneurs may not be able to provide large pecuniary benefits, but
flexible work schedules, networking opportunities, and added vacation can attract top
candidates to a new venture. Once hired, these employees will likely be more satisfied in
the work environment and more productive as a result.
Figure 3: Average Monthly Salary (in USD)
$3,624
$3,130
$2,434
$2,052
$1,455
$1,002
Egypt
Jordan
Lebanon
Saudi Arabia
UAE
MENA Average
N for each country: Egypt – 18,588; Jordan – 9,811; Lebanon – 5,040; Saudi Arabia – 85,896;
UAE – 109,284. Morocco not included because N<500
7 Bayt.com Middle East Salary Survey, March 2012
8 Bayt.com Middle East Salary Survey, March 2012
9 IFC Data, 2008–2009
10 World Economic Forum, “The Global Competitiveness Report”, 2011–2012
11 Bayt.com Middle East Salary Survey, March 2012
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How to Capitalize on Human Capital in MENA
Retaining Talent
Human capital flight or “brain drain” is an unfortunately common phenomenon in
MENA, making talent retention especially difficult. During our interviews, a clear
theme emerged: the best and brightest usually leave to pursue opportunities in other
countries. The graph below, based on WEF surveys, highlights the failures of some
MENA countries to retain talent, with five of seven countries performing below the
OECD high-income country average. In particular, Lebanon and Egypt, countries with
continued political unrest, underperform their peers in the region.12 Discontent is not
just limited to these two countries, as 31% of respondents to the Middle East Salary
Survey said that within the next 12 months, they would look for a better job as an
expat elsewhere.13 MENA workers are on the hunt for new opportunities, regardless of
geography, and MENA companies must respond in order to retain quality workers.
Figure 4: Does your country retain and attract talented people (1–7)*
OECD High-Income
Figure 5: Increase in Pay versus Increase in Cost of Living
Egypt
4.3
5.2
UAE
5.2
Morocco
Lebanon
Pay Increase
Cost of Living Increase
Saudi Arabia
3.4
Jordan
3.3
Turkey
Lebanon
This problem is made more acute by the implications of increasing living costs
coupled with stagnating wages. Long periods without a raise means a real decrease in
total compensation as inflation decreases the value of take-home pay. MENA employees
compared their increase in wages with their average cost of living and found that while
wages were up by 7.8%, living costs had soared 22.2% over the preceding 12 month
period (Figure 5).15 Entrepreneurs constantly seek out progress and should build firms
whose compensation structure reflects this constant focus on advancement.
Jordan
Saudi Arabia
Egypt
13
2.9
UAE
MENA Average
2.5
0%
2.4
1 = No, the best and the brightest usually leave to pursue opportunities in other countries
7 = Yes, there are many opportunities in other countries
While it is evident that retention of talent is an issue for many MENA countries,
what is less clear are the factors contributing to this problem beyond regional instability.
Like their peers, Endeavor Entrepreneurs interviewed for this report struggled with
talent retention, citing inadequate compensation and a lack of career progression as
the main barriers to retaining top employees. These two issues come hand in hand:
as an employee takes on more responsibility, he or she expects added compensation
or a change in title to match his or her workload and relative importance to the
company. Although a promotion can at times take the place of a raise, eventually the
best employees will expect more than a new title to keep them around. When asked
the total amount of any raise they had received in the last 12 months, 34% of MENA
participants said “none”, and 19% said between 1% and 5%.14 Of those who did get a
raise, 46% were either unhappy or very unhappy with it. Without proper performance
evaluation procedures in place to reward productivity and competence, entrepreneurs
risk losing their strongest employees.
12 World Economic Forum, “The Global Competitiveness Report”, 2011–2012
13 Bayt.com Middle East Salary Survey, March 2012, N = 16,067
14 Bayt.com Middle East Salary Survey, March 2012, N = 16,067
5%
10%
15%
20% 25% 30%
Source: Bayt.com MENA Salary Surveys: Participants were asked by what percentage they
thought their cost of living had increased in the last year as well as what their pay increase was
(N=16,067)
Case Study: E-Masary
Moatasem Osam and Omar El Sanhoury realized that 95% of their community in Egypt did not
have a bank account and desperately needed a cheaper option for banking services. This realization
led to the creation of their mobile payments platform, E-Masary, which provides electronic and
online payment options, mobile top-ups, and games to its users.
With a total of 60 employees, E-Masary has seen a few of its employees leave over the past
two years, which has taught them important lessons about retention. As Moatasem says, “We
had a top team member who left us once and it really taught us the importance of giving people
ownership and equity.” Although they offered this employee equity as she was leaving, at that
point, it was too late. This departure pushed Moatasem and Omar to reconsider the importance of
offering equity options to top employees, particularly at key milestones, and they have said that in
the future, they hope to give top performers ownership and a stake in the long-run success of the company.
15 Bayt.com Middle East Salary Survey, March 2012, N = 16,067
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How to Capitalize on Human Capital in MENA
III. Ideas for Entrepreneurs Who Want
to Improve Human Capital
It is clear that human capital management is a pain point for MENA
entrepreneurs looking to build capacity. In order to assist entrepreneurs in the
region, Endeavor Insight has developed three recommendations to help tackle
each of these three phases with “quick wins.” These recommendations assume
that entrepreneurs are already meeting certain fundamental human capital needs.
These baseline criteria include: competitive compensation, basic training, clear
performance management procedures, and basic benefits that include health
insurance and annual leave. Once entrepreneurs fulfill these basic requirements,
the below recommendations are creative solutions for easy human capital wins
that can improve talent within a company.
Case Study: Pozitron
In 2006, Firat Isbecer left his job in Paris and joined his brother, Faith Isbecer, in his mobile software company, Pozitron. Founded in 2001, Pozitron, provides B2B mobile banking and payment
systems for companies in Turkey, MENA, and the U.S.
Since 2007, Pozitron’s team has grown at an average of 41% per year. Firat contends, “The key
[to our consistent team development] has been university relationships. We understand that there
is a limited quantity of top talent coming out of universities, and we want to make sure we get it
first.” Pozitron has done just that by engaging six Turkish universities; they solicit professor referrals of their top students and recruit at university job fairs.
Additionally, Pozitron has seen the value of offering internships to university students. “Not
only are they a good source of skilled, affordable, labor,” comments Firat, “but they are also excellent long-term assets.” Interns are some of the strongest brand ambassadors for Pozitron because
after returning to their universities post-internship, they tell their classmates about their experience
and refer additional talent. Pozitron understands the value of investing in university relations and
internships and their burgeoning, talented team is testament to their success.
Three Ways to Build a Team that Lasts:
SOURCING
RETAINING
1) Don’t forget the youth: develop relationships with universities
2) Build psychic equity and a strong company culture
The Problem: Only 50% of the entrepreneurs interviewed had a
The Problem: The top two reasons talented employees left Endeavor
The Solution: There are many ways to go about building university
The Solution: To build loyalty and increase retention, companies should
relationship with local universities or offered an internship program to
their students. It is surprising that entrepreneurs are not taking advantage
of these opportunities because building these relationships has minimal
cost and can result in a direct talent pipeline from a growing company to
a top university. relations (see the Pozitron case study below for more guidance), but here
are several ideas to consider:
• Understand which universities have strong programs in areas relevant
to your company and the talent you want to recruit.
• Reach out to the career office of all relevant universities to understand
what mediums they have in place for you to interact with students
(online job postings, job fairs, etc).
• Develop a competitive internship program with a formal structure
and potential exit opportunities for participants.
• Attend career fairs at all relevant universities.
• Contact professors of departments that are relevant to your hiring needs.
companies were inadequate compensation and lack of growth
opportunities. When companies do not have a strong and clear culture
and vision, it can be difficult to generate loyalty among employees. Too
often, companies in the MENA region overlook the benefits that come
with building a strong team dynamic and culture.
build a strong corporate culture. Communicating and instilling this
vision are effective ways to allow your employees to feel like they are
a part of something bigger than themselves and to provide them with
psychic equity. Three “culture building” tactics that entrepreneurs can use:
1. Transparency: Management should communicate the CEO/
founder’s vision and strategy frequently and transparently to
all employees.
2. Empowerment: Allow employees of all levels to submit well
thought out, actionable ideas, and allow them to follow through on
them. This will create an environment where people feel empowered
to contribute to the growth and direction of the company.
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How to Capitalize on Human Capital in MENA
3. Hire someone to manage talent: When asked what their #1 piece
of advice would be to a first-time entrepreneur in their country,
two-thirds of entrepreneurs answered “hire a talent manager early
on.” As the company grows and the founders become more removed
from the day-to-day management of employees, this role becomes
particularly important. Hire someone who will take responsibility
for training, implementing performance management processes,
organizing team-building events, actively soliciting feedback from
employees, structuring the recruiting process, and managing onboarding of new employees.
Case Study: Eastline Marketing
Nemr Nicolas Badine and Marc Dfouni founded Eastline Marketing, the first digital marketing
agency in Lebanon and one of the first in the MENA region. Their mission is to connect brands to
users with various channels and they have signed large global accounts with well-name brands such
as Toyota, Kimberly-Clark and DHL.
Nemr and Marc know that their success would not have been possible without the people
who make up their company. They have therefore found a way to retain talent. “You need to know
your company’s culture and vision and clearly articulate it to your employees,” Nemr comments,
“at the end of the day, monetary incentive is nice, but you have to cater to people’s emotional needs
and having a strong culture and creating loyalty and cohesion allows people to feel like they are
a part of something bigger.” Nemr firmly believes that when company strategy is transparently
communicated, and when employees feel as though they are intrinsically a part of the company’s
journey, that they will be more committed and ultimately perform better.
3) Align incentives via profit and revenue-sharing
The Problem: Too many entrepreneurs in the MENA region allow
regulatory obstacles to inhibit their ability to provide stock options to
their employees. Around 90% of entrepreneurs interviewed did NOT
offer equity in their companies. “There is no culture of giving equity
amongst SMEs in Egypt,” comments Amr Shady of T.A. Telecom.
While it is true that in some countries, equity options may not be legally
permitted, where legal, equity is a powerful tool that gives employees a
greater stake in the success of the company and thus greater impetus to stay.
The Solution: There are creative, alternate ways to provide incentives to
employees beyond providing equity options. Profit-sharing or revenuesharing schemes are legal, effective ways of giving employees ownership
in the success of the company. Allowing your employees to share in the
performance of the company is one of an entrepreneur’s greatest assets
when it comes to retaining employees.
Case Study: Yemeksepeti
Melih Odemis was studying computer science in Turkey when Google, E-bay and PayPal were
founded, so it is no surprise that with such role models he went on to start his own company
shortly after graduating. In 2000, Melih partnered with co-founders, Nevzat Aydin and Cem
Nufusi, to start Yemeksepeti, an online food-delivery service.
With nearly 220 employees, Yemeksepeti has done well in its recruiting and retention practices. When asked the number one piece of advice Melih would give to new entrepreneurs, he was
quick to say, “it is impossible to be completely successful unless you are willing to share.” Acknowledging that within Turkey and many other MENA countries, there is no legal framework that
allows stock options, Yemeksepeti has instead decided to implement a revenue-sharing model. As
Melih states, “Profit-sharing is good, but new companies are usually not profitable for a few years,
so we implemented revenue-sharing”.
These best practices should not be viewed lightly. Indeed, access to and retention of human
capital is an issue for even the best performing countries within the region. And, rather than wait
for overarching systemic changes (e.g. greater access to higher education, improved labor laws,
or fewer regulations) to be enacted from the “top-down” entrepreneurs should proactively and
creatively begin addressing human capital issues from the “bottom-up.” While each entrepreneur
does not have the power to rewrite public policy, he or she can and should heed the advice of their
counterparts and make these simple and relatively inexpensive adjustments to their company
culture, recruiting routes, and incentive structures. These changes have the power to reshape their
access to and retention of the best human talent for their companies.
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How to Capitalize on Human Capital in MENA
IV. Appendix
Entrepreneurs Interviewed:
Ahmed Farouk, Imtenan, Egypt
Moatasem Osam, E-Masary, Egypt
Amr Shady, TA Telecom, Egypt
Firas Al Otaibi, Think Arabia, Jordan
Dr. Amin Amin, ASK, Jordan
Yousef Shamoun, Akhtaboot, Jordan
Nemr Nicolas Badine, Eastline Marketing, Lebanon
Jad Khoury, Print Works, Lebanon
Ulkem Birsen, Youth Holding, Turkey
Melih Odemis, Yemeksepeti.com, Turkey
Firat Isbecer, Pozitron, Turkey
Experts Interviewed:
Shahinaz Ahmed, Education for Employment, Egypt
Dr. Abdel Elsaid, Turning Point, Egypt
Heba Sweed, CEDO, Egypt
Elie Khoury, YallaStartup, Lebanon
Fadi Daou, MultiLane SAL, Lebanon
V. About
About Endeavor
Endeavor is leading the global high-impact entrepreneurship movement to catalyze longterm economic growth. Over the past ten years, Endeavor has selected, mentored and
accelerated the best high-impact entrepreneurs around the world. To date, Endeavor has
screened more than 30,000 entrepreneurs and selected 726 individuals leading 455 highimpact companies. These entrepreneurs represent over 200,000 jobs and over $5 billion
in revenues in 2011 and inspired future generations to innovate and become
entrepreneurs too.
About Endeavor Insight
Endeavor Insight is the research arm of Endeavor that seeks to deepen understanding
of how high-impact entrepreneurs contribute to job creation and long-term economic
growth in order to educate key constituencies, such as policy makers. In addition,
Endeavor Insight seeks to serve as a knowledge center for high-impact entrepreneurs,
VCs and others in order to provide useful information and tools that assist high-impact
entrepreneurs as they grow their business.
About Omidyar Network
Omidyar Network is a philanthropic investment firm dedicated to harnessing the power
of markets to create opportunity for people to improve their lives. Established in 2004
by eBay founder Pierre Omidyar and his wife Pam, the organization invests in and helps
scale innovative organizations to catalyze economic and social change. As of October
2012, Omidyar Network has committed more than $580 million to for-profit companies and nonprofit organizations that foster economic advancement and encourage
individual participation across multiple initiatives, including entrepreneurship, financial
inclusion, property rights, government transparency, consumer Internet and mobile.
To learn more, visit www.omidyar.com
About The Abraaj Group
The Abraaj Group is a leading alternative investment management group in global
growth markets. Founded in 2002 by Arif Naqvi, the group has raised over US$ 8
billion and distributed c. US$ 3.5 billion to investors. Employing over 300 people, the
group has 33 country offices spread across 7 regional hubs in Bogota, Dubai, Istanbul,
London, Mumbai, Nairobi and Singapore.
The Abraaj Group currently manages approximately US$ 7.5 billion across 25 sector
and country-specific Funds across 3 primary strategies: (i) Private Equity (majority and
significant minority investments greater than US$ 50 million); (ii) Small and Mid-Cap
(SMC) PE investing (targeting influential minority investments of less than US$ 50 million); and (iii) PE Real Estate (primarily yield-generating real estate investments).
Funds managed by the group have holdings in over 150 partner companies that
collectively employ in excess of 100,000 people and create sustainable value in sectors
including manufacturing, education, retail, aviation, oil and gas, financial payments
infrastructure, healthcare and agribusiness. The group’s current partner companies
include industry leaders such as Network International, the largest independent payment
solutions provider in the Middle East and Africa, Integrated Diagnostics Holding, the
Middle East’s largest privately owned medical testing laboratory, Brookside Dairy, the
largest dairy in East Africa, and Iasacorp, a long established family run women’s retail
business in Peru.
The group is committed to the highest environmental, stakeholder engagement
and corporate governance standards and is a signatory of the UN-backed Principles for
Responsible Investment and the United Nations Global Compact.
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January 2013
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