66102 December 2011 · Number 89 iMENA: AN INNOVATION AGENDA FOR JOBS Simon Bell1 Introduction: A critical issue in the MENA region  Pre-bank and other forms of bank and non- is employment, especially for youth and women. bank financing (innovation financing); Young Arabs have some of the highest unemployment rates in the world, and women are  Links with institutions of higher education, significantly excluded from the job market. Also vocational Institutions; given high concentrations of poverty is some of our  Mentoring and Incubation support; countries (Egypt, Morocco, etc.) inclusive growth  Connections with the diaspora; focused on creating jobs and economic  Entrepreneurship, willingness to take risk – opportunities for the poor and dispossessed is a and acceptance of failure (ability of firms to key part of the agenda. The recent revolutions have only further highlighted the critical importance of enter and exit easily); job creation for the region.  Significantly stronger competitive pressures within the private sector. Yet the region – except in some industries and in some countries – is unlikely to have a comparative The Critical Role of Innovation Financing: MSME advantage in labor intensive manufacturing vis a studies note that 85 to 90 percent of MSMEs retain vis Asia. Moving up the value chain, getting more the same level of employment year after year. It is involved in the service sector, in combination with the remaining 10 to 15 percent that generate 50 to greater innovation in private sector practices and 80 percent of the new jobs. These are the Start Ups products – will be the only way to produce the and the Gazelles (see below) or young growing middle income level jobs that the region so businesses. Unfortunately, most banks will not desperately needs. Innovation and enhanced finance these MSMEs – as they are not disposed to Competition are critical for the JOBS AGENDA in financing new, un-tested startup companies, and the region. This is a key pillar of the World Bank’s because they have no capacity to be able to identify Private Sector Strategy for the MENA Region the Gazelles (high growth companies) that will (2011). grow from 10 employees this year to 200 employees next year. The need is for radically different forms Developing a Supportive Business-Eco System: of finance – most importantly pre-Bank financing in Supporting Innovation will require establishing an the form of Angel Finance, Seed Finance and enabling business-Eco System – which, in turn, will Venture Capital, crowd funding and accelerators. require, inter alia: Bands of Angels and Venture Capitalists in the region have been rare – but we are beginning to  More open Trade and stronger Foreign witness their emergence in recent years. We are Direct Investment; also witnessing a booming of peer-to-peer lending and crowd funding models. As these are the types  A supportive investment climate and of financiers who are most likely to fund high- business regulations; growth-high-employment generating firms, their further development is important. Accelerators such as Y combinator, seedcamp and techstars illustrate the importance of providing coaching, 1Sector Manager, Finance and Private Sector Department, networks, and advice – along with capital. It is Middle East and North Africa Region, The World Bank. these types of financing needs and gaps that technology, expanding their marketing strategy, innovation projects focus on. diversifying their product design, attending a trade fair, etc. – that helps to bring new ideas, techniques, Gazelles, Start-Ups and Innovation in MENA: skills, and ways of thinking into the production Recent work on SMEs has focused attention on the process. To date, MNSFP has supported two such characteristics of high growth firms, which are projects in Tunisia – the Export Development likely to generate the majority of new jobs in Project (I and II), which have a focus on innovation diverse economies; and on innovative firms, which in export markets – and is currently preparing an contribute to productivity growth. An examination EDP 3, with an even stronger focus on innovation. of enterprise survey responses from almost 3,000 SMEs in seven MENA countries links rapid An ex-post impact evaluation – based on a survey employment growth within firms to several firm of 500 Tunisian firms which benefitted from the characteristics: offering workers formal training; EDP projects – suggests that they had a significant innovation (defined as introducing a new product impact on export growth with a 39% higher or upgrading an existing one); having a website; average annual growth rate for program and having 5% or more of workers with a beneficiaries relative to a control group over four university degree or higher. Also important is years. The effect in terms of products and having international quality certification. Some of destinations is more subdued: about 5% higher these are areas where the region lags – for example, growth for beneficiaries. There was also a international data suggests MENA is the second significant increase in employment growth, 10% worst region in both the rate of firms offering more for program beneficiaries than for control formal training and firms obtaining an firms. internationally-recognized quality certification. Finally, the analysis suggests the importance of an A similar operation – the Facility for New Market integrated competition policy. Simply stated, there Development (FNMD), a joint World Bank-DfID is a strong imperative to encourage gazelles and project, supported the development and start-ups to innovate, educate, train, certify, link, implementation of new market and product plans and compete! by local enterprises in West Bank and Gaza. The FNMD matching grant scheme benefited 226 MNSFP and the Innovation Agenda – Operations: companies over 2008-11. Program results indicate that 58 companies entered new export markets, 134 Innovation Projects in MENA – Moving Towards companies entered new local markets, and 66 MENA’s First Innovation Project in Lebanon: ECA companies succeeded in developing new products. and LAC have been preparing and delivering FNMD generated around US$ 52 million in “Innovation Projects� for many years. MENA (the incremental export and local sales and 901 people “other� MIC Region in the Bank) has yet to take an were hired as a result of the businesses’ expansion. Innovation Project to the Board. In 2011, the The New Palestinian Market Development Project Government of Lebanon requested World Bank and Multi-Donor Trust Fund will promote private support for a project to support innovative sector growth in WBG and continue to support the activities within the private sector. The Lebanese Matching Grants scheme – albeit with a modified authorities and the Bank team have proposed a structure. pilot investment fund to provide a combination of cash and equity financing to foster innovative ideas Knowledge Sharing On Innovation: and support start-ups at the early stage growth of firms. The project draws on the Latin American Innovation Conference with ECA-MENA in Eastern and Eastern European experiences while Europe in 2012: As a late comer to the Innovation recognizing MENA differences. This first project is Space – the MENA Region is seeking to leverage slated for FY12 – hopefully this could help a roll- the longer experience gained in this field by LAC out of innovation projects across the region. In mid- and ECA. To this end the region is using staff from November, MENA received a request for support these regions on cross support, as peer reviewers, on innovation from the Government of Jordan. and to advise on operational and analytical work. In combination with the ECA region, MENA is also Matching Grants Schemes: In general, these schemes jointly hosting (along with WBI) an Innovation provide a 50 percent subsidy to particular types of Conference which will bring together key players activities which support firms in adopting a new from the MENA Region with critical thinkers on December 2011 · Number 89 · 2 Innovation from the ECA Region. Connections will diaspora group in the San Francisco Bay Area. be made and field visits will be undertaken with Partnerships are under discussion with Wamda European/Czech innovators to help expose MENA and Oasis500 – two major regional initiatives that to the power of innovation in the private sector. support entrepreneurial activities with strong linkages to diaspora entrepreneurs and investors. The Knowledge Economy Report – Knowledge, Innovation and Competition (KIC!): In cooperation Development Marketplace Egypt – supporting with the Marseilles Center for Mediterranean Innovative Social Entrepreneurs and Innovative Ideas: Integration (CMI) and with colleagues from other The well established model of the Development sectors in the MENA Region, work is proceeding Marketplace is designed to support new and on the first Knowledge, Innovation and Competition innovative business proposals. Increasingly this Report for MENA. A workshop on this topic was model has moved outside of Washington and held at the CMI in mid-November and the report focused on Innovative Social Entrepreneurs – will be finalized by end FY12. This report will particularly impacting the lives of those operating build on lessons from the “P2C - From Privilege to at the Bottom of the Pyramid. In FY12 the MENA Competition: Fostering Innovation and Region and WBI will be supporting an Egypt competitiveness in the MENA region� learning Development MarketPlace which will support event organized by MNSFP in Beirut in June 2011. Innovative Social Entrepreneurs with a major The report analyses the relationship between job emphasis on Job Creation. With assistance from key creation and a knowledge-innovation model, sheds bilateral and possibly other multilaterals, it is light on skills challenges and employment anticipated that this model will be scalable and opportunities in MENA, discusses institutional replicable across the region. reforms required to promote growth, and looks at the role of regional integration to promote the A Virtual Market Place – Alibaba in the Middle East: emergence of innovation approaches. Helping MSMEs enter these more demanding export markets, while also supporting greater South-South Learning Experiences: Learning from MSME integration within the Arab world is the others – particularly other countries at similar vision of the Virtual Market Place. Similar levels of development, can be exceedingly powerful platforms in China and elsewhere have provided in spurring the innovation agenda. Recent South– on-line buying and selling platforms, in South learning exchange between the Lebanese conjunction with on-line payments services, to Government and the Government of Singapore on greatly simplify the movement of goods (and Innovation support, R&D, entrepreneurship, SMEs, potentially services) across a common market. venture capital, incubation, ITC, e-Government, Initial contacts have been made with Google to and the business environment – proved partner on this joint activity and funding has been particularly important in catalyzing interest in secured from the World Bank’s Innovation Fund to MENA’s first innovation project. More needs to be take these ideas forward. done – particularly with some of the more recent entrants into the OECD (such as Turkey, Korea, Innovation and Competitive Industries: The Global and Chile) in addition to the established European Practice approach of the FPD Network links and North American markets. Linking with Innovation strongly with support for Competitive Palestinian entrepreneurs in the West Bank and Industries. This is NOT an attempt to “pick further afield could also open a door to learning winners� but rather an effort to build on the natural from the Israeli experience in innovation. comparative advantages of a country. MNSFP is partnering with the regional IFC Investment Diaspora Links – TechWadi, Rising Tide, LEBNET, and Climate team to undertake a pilot competitive Endeavor: Over the past year, the region has been industries project in Jordan focusing on medical liaising with diaspora networks in the US and tourism, ICT and renewable energy/energy Canada and plans links with networks in France efficient services. In cooperation with WB and IFC and the United Kingdom. To this end, FPD signed tourism and investment specialists, a Tourism a Memorandum of Understanding with Workshop is being planned for April 2011 – which TechWadi/Rising Tide out of Silicon Valley to could lead to the preparation of a regional Tourism provide mentoring support to new and fast Sector strategy. growing enterprises in MENA. Initial contacts have also been made with LebNet, the Lebanese December 2011 · Number 89 · 3 Multi-sectoral interventions in the Innovation Developing an Innovation Strategy for MENA Agenda in MENA: (iMENA): The experiences gained and lessons learned through the above interventions and Innovation and Sustainable Development – Green engagements are evolving into a regional strategy. Innovation: MNSSD has a range of innovation- In collaboration with the Innovation, Technology focused initiatives underway: studies on "green and Entrepreneurship (ITE) Global Practice, growth", waste-to-energy and wastewater reuse MNSFP is preparing a MENA Region Innovation projects, creation of climate innovation centers, Strategy. It is envisaged that the MENA Innovation capacity-building in NASA-created techniques of Strategy (iMENA) will be produced initially as a remote mapping of water resources, regional short document and will become a living document deployment of concentrated solar power studies on as knowledge and understanding of the issues renewable energy desalination, and bus rapid deepens and our involvement in this work transit as a solution for urban congestion – to name increases. The team is also being brought into the but a few. The demand from the region for preparation of the ECA Innovation Strategy – so technology and innovation-based interventions by that both teams can learn from each other in this the Bank is expected to substantially increase as new area of regional Innovation Strategy part of the political transformation. Given the costs formulation. of years of environmental neglect, Green growth is likely to be an important dimension. Private Sector driven Education, Training and Learning Contact MNA K&L Director, MNACS: Laura Tuck for Innovation and Competitiveness: A major challenge for most businesses in the region is that Regional Knowledge and Learning Team: educational institutions and vocational colleges do Omer Karasapan, Roby Fields and Hafed Al-Ghwell not produce individuals with the requisite skills to Tel #: (202) 473 8177 meet private sector needs. MNSFP is working with MNA K&L Fast Briefs: MNSHD in linking tertiary education, private http://go.worldbank.org/OXADZV71I0 sector firms and global industry experts to develop a competitive pilot apprenticeship scheme in West The MNA Fast Briefs are intended to summarize lessons Bank and Gaza. The scheme will complement the learned from MNA and other Bank Knowledge and successful WB Tertiary Education project. Learning activities. The briefs do not necessarily reflect the views of the World Bank, its board or its member countries. Grass Roots Innovation: Innovation that reaches down to the bottom of the pyramid is important for many countries of the region. While its importance is clearly evident in countries such as Egypt, Yemen, Djibouti, Morocco, and Lebanon – with either large populations or high levels of poverty or both – it could be equally important for wealthier countries with pockets of poverty such as Libya, and Saudi Arabia. Learning from other countries where grass roots innovation experiments have traditionally played a much more important role – such as in India – will be critical to this new agenda item. December 2011 · Number 89 · 4