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How scale-ups can lead to growth and jobs in Jordan

Jan 05,2019 - Last updated at Jan 05,2019

Jordan recognises the need to grow small and medium-sized enterprises (SMEs), and the important role they play in growth and job creation. Yet, the overwhelming majority of SMEs fail to become large-scale businesses. To help SMEs grow into major enterprises, Jordan’s public and private sectors must differentiate between the needs of various SME segments.

One segment that deserves particular attention is “scale-ups”. These are SMEs with proven business models, going through a rapid growth phase. Worldwide, they are only about 5 per cent of all SMEs. However, they have an outsized effect on job and economic growth because of their exceptional productivity and innovation. Indeed, assessing a sample of Endeavour-assisted companies, we found that successful scale-ups in the Middle East and North Africa (MENA) on average can generate over three times the revenues and eight times the employment of SMEs. In Jordan, scale-ups created 53 per cent of new posts from 2010 to 2013, despite being just 9 per cent of all firms with more than 10 employees. Although many assume that such fast-growing firms are young and high-tech, scale-ups can be of any age and in any sector.

Interestingly, these companies often have leaders who are visionary entrepreneurs with the potential to give back to the entrepreneurship ecosystem by mentoring, inspiring, financing and launching new ventures. According to Endeavour’s research on Jordan, nine tech companies, started between 1980 and 1989, facilitated the rise of 107 new companies between 1990 and 2012.

To help MENA policymakers, the Ideation Centre, the leading think tank for Strategy& Middle East, together with Endeavour, created a “scale-ups readiness index”. This index assesses the ecosystem maturity of five Middle East countries, Egypt, Jordan, Lebanon, Saudi Arabia and the UAE. The index is based on four growth pillars: business fundamentals, business propellers, demand creators and country readiness. Its results highlight priority areas for scale-ups policies, and showed that Jordan has a below-average score, but is ahead of Egypt and Saudi Arabia.

Jordan’s main scale-up challenges are regulations, access to financing and access to customers. Businesses find planning and operating problematic as regulations, such as taxation, change too often. Moreover, and as is the case in many other MENA countries, financing is hard to obtain. Scale-ups in Jordan mostly approach regional investors for their financing needs, which puts their negotiating position at a disadvantage. Scale-ups in Jordan find it difficult to sell to large customers and to penetrate outside markets. Companies that have something new to sell are constrained in their growth because the Jordanian market is too small, and the appetite for new and innovative products and services is limited in both the public and private sectors.

Still, there have been important changes. Jordan has passed laws changing bankruptcy procedures and secured lending. It has altered corporate law so that private equity and venture capital investors can create Jordan-based funds. More financing is made available, with the total now some $500 million. Of this, $98 million is from the Innovative Start-ups and SMEs Fund, which is managed by the World Bank. The Central Bank of Jordan is also funnelling low-cost money to SMEs through the banking and finance system.

Jordan also has fairly good quality and affordable facilities. The country has a sizeable talent pool, although this pool is sometimes poached by companies based elsewhere. From a mentoring and networking angle, Jordan needs to make its support programmes for scale-ups more targeted and coherent. Such initiatives should deal comprehensively with the fluid needs of businesses and entrepreneurs. Not to mention that more efforts are needed to assist companies with finding export markets.

To play to these strengths, and to address its weaknesses, Jordan needs to create a support network for scale-ups that mobilises public and private sector players. Such a network will enable Jordan to implement a scale-ups strategy. In particular, Jordan can benefit from a scale-ups champion to collect data and statistics for policymakers, identify potential scale-ups, monitor their progress and convene stakeholders to implement targeted policies. The champion could be a public or private body, or a collaboration of the two. It should convene different private and public players to develop the scale-ups ecosystem.

With these relatively modest additional investments and targeted policies, Jordan can help scale-ups, and create significant employment and economic benefits in the process.

Mahmoud Makki is a partner with Strategy& Middle East (formerly Booz & Company), part of the PwC network, and Reem Goussous is the  managing director of Endeavour Jordan

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