- Entrepreneurs face lack of financing, stiff regulations, political instability, lack of diversification, and more
- The average cost of opening a corporate account in Saudi Arabia is US$3,750, in Qatar and Abu Dhabi US$4,950
- Average incorporation costs in the first and second year of running a business in Qatar are US$9,025 and US$1,400, in Bahrain US$10,900 and US$1,580, in Saudi Arabia US$28,750 and US$7,420
- Business environments are geared towards helping companies in the oil and gas industry. It’s much more difficult for entrepreneurs to set up businesses in other sectors
It’s challenging to start up a business. Entrepreneurs have many things to consider and decisions to make before and after setting up to remain competitive and become successful. In the Middle East, countries have become more open for business and governments are continually implementing policies making this possible. Still, entrepreneurs face many challenges along the way, such as lack of financing, stiff regulations, political instability, lack of diversification, and more.
We’ve put together a list of the top challenges entrepreneurs face. If you can get past these obstacles, your business will surely succeed.
Opening and maintaining a business account can be difficult. If all you have is an idea, but no funds to back it up, you may find yourself in a tough spot. Most banks require a high minimum balance to be maintained. This means that a part of your startup capital is tied up in the account itself and cannot be used for other business needs. According to Healy Consultants, the average cost of opening a corporate account in Saudi Arabia is US$3,750, in Qatar and Abu Dhabi US$4,950.
Lack of financing by government and banks to SMEs, especially those with little to no turnover. Governments and banks prefer lending to larger, more established firms. Some governments are introducing more loans and grants for SMEs, but there is still a lack of them in many Middle Eastern countries. In a survey conducted by the World Bank, more than 50% of entrepreneurs said their initial business capital came from their own personal funds or loans from friends and family.
High incorporation costs as fees for licensing, government registration, free zone travel, and other incorporation requirements are high, especially for new startups. Healy Consultants estimate, the average incorporation costs in the first and second year of running a business in Qatar are US$9,025 and US$1,400, in Bahrain US$10,900 and US$1,580, in Saudi Arabia US$28,750 and US$7,420. When faced with expensive fees even before they begin operations, smaller startups may just fizzle out before they have a chance to make a mark.
Unfavourable regulations mean new entrepreneurs seeking to set up their business have to navigate a challenging regulatory environment. There is no safety net as bankruptcy regulations in the Middle East don’t provide adequate protection to lenders or borrowers. Labour regulations in different countries can also prove a challenge, despite many countries providing employers incentives to hire local citizens. A word of warning, foreigners or expats will face religious Islamic-Sharia laws in many industries, especially banking. And, laws from your own country for operating in the Middle East are often stricter on international firms.
Political instability is strong. Middle East nations have seen, and continue to experience, political power struggles between ruling elite families and politicians, and war and economic conflicts with neighbouring countries. This affects the government’s ability to create better business environments and discourages foreign investment, trade, and business.
Lack of diversification in economies is also a problem as many countries GDPs are overly reliant on oil and gas. As of 2018, this was 42.5% in Kuwait, Oman 26.9%, Qatar 16.6%, Saudi Arabia 28.7%, and UAE 16.6%. This over-reliance means that business environments and the resources nourishing it, are geared towards helping companies in the oil and gas industry. It’s much more difficult for entrepreneurs to set up businesses in other sectors. There would also be less volatility if the economy was diverse because it’s not severely affected by demand fluctuations in oil and gas. More diverse sectors mean more opportunities for startups to gain a foothold. So this lack of diversity is challenging for entrepreneurs.