Assessing the Business Environment and Entrepreneurial Ecosystem in Egypt and Tunisia

Members of Tunisia's business community share their concerns at a March 2014 policy roundtable.
Members of Tunisia’s business community share their concerns at a March 2014 policy roundtable.

We know that North African economies urgently need economic reforms, opportunities for youth, and greater economic inclusion. But what do we know about where the opportunities lie and – just as important – what are the greatest barriers that obstruct the growth of businesses?

A few salient insights emerged from a recent survey of 131 Egyptian and 100 Tunisian entrepreneurs and business owners, which was conducted by the Center on Development, Democracy, and the Rule of Law at Stanford in cooperation with CIPE. Many of the findings will come as no surprise — the business environment and entrepreneurial ecosystems have room to improve in both countries, and political uncertainty puts a drag on business. One major, policy-relevant finding is the need to address disparities in access to opportunity.

Respondents from Egypt and Tunisia reported the top barriers to growth in 2013 to be political instability and public disorder, administrative inefficiency, and lack of access to finance. Political instability and public disorder came first among Egyptian entrepreneurs while restrained access to finance came first for Tunisian respondents.

Most Tunisian and Egyptian business owners face problems registering their businesses and in dealing with an inefficient and non-transparent tax system. Interestingly, differences in the experiences of registered and unregistered firms are muted by the high frequency of informal transactions among firms with formal (registered) status.

While self-financing via re-invested profits and private savings remains the norm in each country, Tunisia’s specialized finance for young entrepreneurs and smaller enterprises is making a difference. Access to credit was much better and more evenly distributed in Tunisia than in Egypt.

A major division in both Egypt and Tunisia seems to be the geographic split between North and South. Respondents in Upper Egypt and the Kebili region in Tunisia have deeper grievances with public administration than do those in more northern regions. As for particular constraints on enterprise in the provinces, Egyptian respondents outside of Cairo cite weak infrastructure, shortage of skilled labor, and weak access to finance. Tunisian respondents outside of Tunis cite weak infrastructure, weak access to finance, and weak access to markets.

Curiously, the highest percentage of Egyptians who receive requests for bribes is actually in Lower Egypt, in the northern part of the country, followed by Cairo and then Upper Egypt. It may be that the weaker state presence in Upper Egypt translates into less exposure to corruption and extortion. Or it may be that businesses in Lower Egypt and Cairo have better access to assets and capital and thus are more tempting targets.

Women business owners in Egypt and Tunisia cite family commitments and culture as challenges for doing business. The majority do not perceive discrimination against women in registration and licensing systems, though informality tends to be much higher among women-owned businesses. In Tunisia, but not Egypt, women’s access to bank loans seems to be on a par with men’s.

Fostering entrepreneurship and wider opportunity will be important to the future success of Egypt and Tunisia. Judging by the experiences of business people across regions, administrative reforms and deeper investments in infrastructure and human capital are needed to build a business-friendly ecosystem.

The full study is available from Stanford University’s Program on Arab Reform and Democracy at the Center on Democracy, Development, and the Rule of Law: Amr Adly, “Reforming the Entrepreneurship Ecosystem in Post-Revolutionary Egypt and Tunisia,” Policy Brief (April 2014).

Kim Bettcher is Senior Knowledge Manager at CIPE.