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World Bank Supports MENA’s Transition from Crony Capitalism to Innovation Policies

May 16, 2012

May 2012 - The Middle East and North Africa region (MENA) is classified as a middle income region, but sadly looks more like low income countries. Closed trade, low foreign direct investments and tight monopolies have stymied economic growth and social development for decades. Now, there is an opportunity for change as the Arab Spring redefines the MENA political landscape.

The new era requires “doing things differently and doing different things.” Simply put: what is needed is innovation, and the World Bank is supporting this objective through a strategy that is currently under preparation to promote competitiveness and private sector innovation.

As part of the Bank’s Knowledge and Learning Strategy, the MENA Financial and Private Sector Development (FPD) unit hosted a two-day workshop titled “Innovation Policy: Components and Operations” April 5-6, 2012, in Beirut. The event attracted a large group of Government counterparts to enhance their knowledge and skills on the fundamentals of innovation policy. Representatives from the Ministry of Economy and Trade, Ministry of Finance, the Prime Minister’s Office, the Central Bank, Kafalat (the Small and Medium Enterprise guarantee agency, the National Council for Scientific Research, the Investment Development Authority, attended the workshop in addition to a host of and private sector members.

In his opening remarks, Country Director Hedi Larbi underscored the importance of innovation in spurring growth and development, especially in Lebanon. Larbi referenced the recently released Bank report ‘Using Lebanon’s Large Capital Inflows to Foster Sustainable Long-Term Growth’, which projected the growth payoff of promoting research, innovation and adaptation, and enforcement of property rights at 0.8 percentage point of GDP per year. He explained that promoting innovation in the private sector should be comprehensive and linked to job creation; meaning that support should not only target startups but also existing enterprises that have potential for growth. The opening session also featured remarks from the FPD Sector Manager, Simon Bell, who discussed the impediments to private sector growth in MENA due to weak intra and international trade linkages (outside of hydrocarbon exports), sluggish Foreign Direct Investments (FDI) (except for hydrocarbons and real estate), and monopolized markets (low levels of competition).

In addition, he underlined the region’s poor product and export diversification as well as its exports’ lack of technological input. Bell referred to the Government of Lebanon’s recent request to launch an innovation finance project as a novel and unique endeavor for it will be the first of its kind in the MENA region, which is in dire need for quality and high value added jobs.

Following the opening remarks, the workshop hosted seven panel discussions that covered different components of the innovation ecosystem in addition to a panel on the experience of the World Bank in innovation support projects in both Latin America and East and Central Asia.

Building an innovation ecosystem: Bob Hodgson, WB consultant, set the stage by giving an overview of the building components and the dynamics of an innovation ecosystem. He also tackled the roles of institutions, firms, infrastructure, financing, tacit and codified knowledge, vertical and horizontal linkages, clusters, and the crucial role of culture in nurturing entrepreneurship and taking risk. Hodgson emphasized the importance of the enabling business environment and role of culture and networks in facilitating the transfer of knowledge and technologies.

The Venture Capital model: Elie Habib, Riyada Capital Fund Manger, and Tarek Saadi, Managing Director of Endeavor Lebanon, discussed innovation financing and the different models of financing available for startups along with their growth stages and highlighted the existing financing gaps at the early stage. The panelists discussed the immaturity of VC and equity investment culture in a region dominated by family businesses as well as the lack of deal flow and bankable enterprises.

The role of mentorship in harnessing entrepreneurship: Nicolas Rouhana, Executive Director of Berytech. Rouhana underlined the partnership that Berytech has with TechWadi, the Silicon Valley Arab Diaspora network, and its value in linking local entrepreneurs and startups with the right mentors.

Intellectual Property Rights (IPR): Victor Owade, from the World Intellectual Property Organizations (WIPO), gave an overview of the organizations’ activities and involvement with developing countries and the resources and technical assistance it offers. Owade discussed WIPO’s involvement with five Arab countries through a project to establish Technology Transfer Offices (TTO) to support university-industry collaboration.

Innovative Bank support to innovation: Esperanza Lasagabaster, WB Innovation Technology and Entrepreneurship ITE Group, and Yevgeny N. Kuznetsov, Migration Policy Institute (MPI), presented World Bank Innovation support projects in both Latin America and the Caribbean (LAC) and East and Central Asia (ECA) regions and their relevance to Lebanon’s Innovation Support project under preparation. The panelists discussed projects from 5 different countries: Chile, Mexico, Armenia, Colombia, and India and summarized the best practices as well as the failures of some of the projects’ components.

Technology upgrading and transfer: Alfred Watkins, WB Consultant, Nour Khreis, Mayslward Gaming Company, and Miled Sebaaly, Global Learning, discussed innovation on the firm level; utilizing existing knowledge versus creating new knowledge; knowledge transfer; the value of human capital and the availability of skills and expertise as well as modern and innovative management styles. Khreis and Sebaaly shared their experience as serial entrepreneurs and the hurdles they had to overcome in assembling teams, accessing financing, and maintaining services and products with global competence.

The role of accelerators, incubators, and bootcamps: Nina Curely, Editor of Wamda, and Fadi Bizri, Co-founder of Seeqnce, discussed the emerging role of accelerators in the MENA region and the different models followed, the activities both Wamda and Seeqnce undertake, and their views on the potentials and weaknesses of the entrepreneurial ecosystem. Curely presented a recent research conducted in Jordan that showed that out of 105 entrepreneurs polled, 27% were women, 68% aged 30 or below, and 33.3% of ventures were in ICT.