GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
Rents, SMEs, and the structural obstacles to entrepreneurialism in Oman, Bahrain and Qatar
Paper Proposal Text :
Gulf states have long discussed the necessity of small and medium enterprises (SMEs) to the long-term sustainability of their economy, particularly in combination with localization policies that encourage the local workforce to become an active part of the SME sector. The benefits of such a move are particularly clear as governments increasingly find themselves overstretched as they attempt to provide secure employment for their citizens in the public sector; the employment creation potential of private sector SMEs cannot be overlooked. It also presents a promising opportunity to encourage the kind of work motivation and entrepreneurialism that, if business guides are to be believed, has been lacking in the region for some time.

Yet most Gulf states have struggled to create the political and economic incentives necessary to support SME growth or entrepreneurialism of nationals. Preceding from a basis that obstacles to entrepreneurialism are political, structural, and removable, this paper focuses on how the environment for local entrepreneurialism can be improved via SME growth. This is a multifaceted issue that has increasingly been discussed across the Gulf region, crossing the fields of economics, sociology, business studies, and political economy. The paper draws from a series of 120 semi-structured interviews with citizens of Oman, Bahrain and Qatar, including members of government, prominent actors in the private sector, development experts, and youth entrepreneurs, to explore how Gulf citizens view their state’s economic policy, why they prefer either the public or private sector and what incentives govern their productivity at work.

This paper focuses on the post-2011 time period where states have been forced to balance political responses aimed at deflecting pressure from the Arab Spring with changes necessary to encourage economic sustainability. In some cases these moves demonstrate the tension between short and long-term social needs, as in Oman where a government move to raise minimum wages in response to societal demands created difficulties for SME business-owners, who couldn’t afford to pay the higher wages. This issue is exacerbated when the government both demands higher levels of employment of citizens at the same time as raising the wages of nationals – a positive move from the perspective of local workers yet one that raises costs again for SMEs.

Another key issue discussed is management of government-funded programs designed to support SME growth or entrepreneurialism. In the past management of these programs has been of serious concern, and there are few indications that suggest that new programs such as the Al Raffd fund in Oman will be significantly different to past attempts. Governance is crucial; in Bahrain an internal government dispute over expatriate worker fees resulted in funding for Tamkeen, which provided support for business growth and local workforce training, being suspended for three years. Yet small-scale, competitive and targeted programs, if run well, can be extremely effective, and the paper discusses some examples of youth entrepreneurialism programs that have been relatively successful in Qatar.

On the other side of the equation is worker motivation – the set of structural incentives that govern how effectively Gulf citizens perform at work. Here, citizens across Oman, Qatar and Bahrain in both public and private sectors identified merit-based promotions as key to their productivity, yet in many Gulf states the business system tends to reward employees for loyalty rather than performance.

At its core, this paper argues that obstacles to entrepreneurialism and SME growth stem from the rentier structure of the political economy, which encourages a system based on loyalty rather than individual performance and tends to result in poor management of over-extended programs flush with government funding. Rents also support overly centralised structures that allow for quick decision-making yet also contribute to a lack of forethought. This is particularly apparent in government where key economic decisions will often be taken reactively – especially since 2011 - without fully fleshing out how the latest decision will impact the economy in the long-term. At the same time, governments from all three states have repeatedly called for SME growth and increased entrepreneurialism among nationals – indeed they have published economic vision plans that support this type of development; this suggests that awareness and political will are being inhibited by the implementation process. This paper contribute to the workshop by presenting a detailed analysis of the obstacles to localized SME growth based on extensive fieldwork across Oman, Qatar and Bahrain, and outlining some potential avenues for improvement that Gulf governments could explore.