How the entrepreneurial ecosystem in Palestine would score using the global entrepreneurial monitor index

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Msc. Entrepreneurship joint degree Master UvA and VU Riyad Joma

Stud.ID. UvA 11439726 Stud. ID VU 2630206

Supervisor: Dr. Nazlihan Ugur

Application: April 1st 2018 Submission: July 1st₂₀₁₈

How the entrepreneurial ecosystem in Palestine would

score using the global entrepreneurial monitor index

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1. Abstract

Fast growing entrepreneurial enterprises constitute a principal source of innovation, productivity growth and job creation (World Economic Forum, 2013). Measuring the entrepreneurial ecosystem in Palestine adds a particular importance to this study.

Entrepreneurs act as a catalyst for economic and social progress (World Economic Forum, 2013). A huge corpus of studies, therefore, has tackled the significance of the entrepreneurial environment as well as the economic indicators that matter most for vibrancy and growth. Aimed at measuring the entrepreneurial ecosystem across the globe, ‘the Global Entrepreneurship Monitor (GEM) has tracked rates of entrepreneurship across multiple phases of entrepreneurial activity, assessed the characteristics, motivations and ambitions of entrepreneurs; and explored the attitudes societies have towards this activity’ (Global Entrepreneurship Monitor, 2016).

In principle, the study delves into the current entrepreneurial ecosystem in Palestine. It also aims to find a proxy that measures the factors addressed in the GEM© model, i.e., the National Entrepreneurial Framework Conditions. Those conditions have nine distinctive categories: entrepreneurial finance, government policy, entrepreneurial subsidized programs, entrepreneurship education, research and development transfer, commercial and legal infrastructure, internal market openness, physical infrastructure, and cultural and social norms (Global Entrepreneurship Monitor, 2016).

The research shows that Palestine is still lacking in the many aspects in the ecosystem. It scored the lowest on a scale of nine in R&D transfer (2.1) which is lower than the reported 2016/2017 mean of (3.8). The score is equal to that reported in Senegal at the bottom of the table. The highest score obtained was in the physical infrastructure (6) which is less than the

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global mean of (6.5) ranking Palestine 50th_{equal with Kazakhstan and the United Kingdom,}

higher than Turkey and Jamaica and lower than Columbia. Over all, the final grade for Palestine on the same scale was (3.96).

2. Preface

This document is written by Student Riyad Joma who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

3. Acknowledgment

Thanks are first due to my advisor Dr. Nazlihan Ugur, whose office had been my resort to overcome the challenges faced me along the way to bringing this thesis to the light. She

consistently allowed this paper to be my own work, helping me stay on the right track whenever she discerned I was standing in need of her guidance.

I would also like to thank the experts who were involved in the validation and data collection of this research project. Without their passionate participation and input, the research could not have successfully been conducted.

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Last but not least, I shall express my profound gratitude to my family and my friends for providing me with unwavering support and encouragement throughout my years of study and the process of researching and penning this thesis.

4. Introduction

No wonder, governments around the globe are engaging more and more in promoting entrepreneurship as one of the main driving factors for the economy, as ‘[e]ntrepreneurs are key drivers of economic and social progress. Rapidly growing entrepreneurial enterprises are often viewed as important sources of innovation, productivity, growth and employment’ (World Economic Forum, 2013). In a developed economy, entrepreneurship is expected to be positively related to economic development, as people clear their shift ‘from wage work to entrepreneurial activity’ (Z. Acs, 2006).

Evidently, economic environment plays a fundamental role in the decision making of venture establishment (Suresh & Ramraj, 2012). Environments with needed support to the entrepreneurs to start their own ventures are crucial for their success. Thus, it is important to have an in-place ecosystem that governs and supports entrepreneurs. For the purposes of this study, the entrepreneurial ecosystem is defined as ‘an interdependent set of actors that is governed in such a way that it enables entrepreneurial action’ (Stam, 2014). Entrepreneurship takes place within a ecosystem; more precisely within a community with different actors and surrounding conditions (Stam, 2014).

Various studies and researches have been conducted to explore ecosystems, attempting to measure the suitability of a given environment for its entrepreneurs as well as the economic indicators that matter the most for the vibrancy and growth of entrepreneurs. (Bell-Masterson & Stangler, 2015) The Global Entrepreneurship Monitor (GEM©) is one of the key actors on this front. GEM reports track rates of entrepreneurship across multiple phases of the entrepreneurial activity; assess the characteristics, motivations and ambitions of entrepreneurs; and explore the

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attitudes societies have towards this entrepreneurship (Global Entrepreneurship Monitor, 2016). The GEM report highlights the diverse profile of entrepreneurship around the world, revealing areas that can be addressed through policy and practice (Global Entrepreneurship Monitor, 2016).

The study uses the GEM© as a reference to measure the entrepreneurial ecosystem. Therefore, it defines the ennead of distinctive categories, which are well-known as the GEM National Entrepreneurial Framework Conditions. The latter will be assessed to create a final scoring that adheres to the GEM scoring for the ecosystem in Palestine. Specifically, the study will address the following areas: entrepreneurial finance, government policy, entrepreneurial subsidized programs, entrepreneurship education, research and development transfer, commercial and legal infrastructure, internal market openness, physical infrastructure, and cultural and social norms (Global Entrepreneurship Monitor, 2016). Taking due account of the fact that Palestine is a developing country, entrepreneurship could be a valid indicator of the economic conditions. Aimed at measuring the entrepreneurial ability, this study measures the entrepreneurial ecosystem in Palestine.

As a nascent economy, knowing the current status is essential for policy makers and national strategy creator. Being able to analyze the current situation is important to prioritize the factors that should be worked on, find the gaps that should be addressed urgently and channel the available funds into the most essential actions. Furthermore, the study will provide an answer to some questions that are usually raised by the entrepreneurs and invalidate some of the information that is circulated in the entrepreneurial community especially those in regards to access to finance and governmental regulations. The study is intended to be a basis that future studies can build on to analyze the various factors discussed. Yet the study is still limited in the fact that the sample

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interviewed is limited due to time and geographical limitations and is heavily affected by the current sociopolitical situation in Palestine.

The study will start by analyzing the literature on entrepreneurial ecosystems and the way they are measured as well as defining the nine categories that were mentioned above. The second section will be given over to address the methodology of data collection and analysis and to score each of the nine categories. In the same vein, the second section lays down the methodology to generate a final scoring, combining the scoring of the different categories. The third section moves to the findings derived from the gleaned data, and the scoring generated from the methodology and the data. Finally, the fourth section draws on the shortcomings of the study and the areas that still require further research and conclude by providing a collective analysis summarizing all the findings that have been revealed in the study.

5. Literature Review

1. What is an entrepreneurial ecosystem?

Entrepreneurship has various definitions, but for the purposes of this study, it stands for the process by which opportunities to create novel goods and services are discovered, evaluated and exploited (Shane & Venkataraman, 2007). The success and failure of entrepreneurship can be influenced by many factors, but more evidently the environment play a major role in the venture success according to Suresh et al. and the presence of a supportive environment for new ventures is essential for their success. That environment is what is called the Entrepreneurial ecosystem, and for the purpose of this study defined as ‘An independent set of actors that is governed in such a way that it enables entrepreneurial act’ (Stam, 2014). The entrepreneurial ecosystem emphasizes

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that entrepreneurship takes place in a community of interdependent actors, and stresses out how entrepreneurship is enabled by a comprehensive set of resources and actors (Stam, 2014).

Despite the lack of an exact formula for an entrepreneurial ecosystem creation (Isenberg, 2010), some studies defined a set of factors that can contribute in defining the boundaries of the ecosystem. Isenberg defines nine key principles to building an entrepreneurial system, while the World Economic Forum (WEF) lists eight pillars that can define a successful ecosystem. Each of those pillars has a set of sub-components (World Economic Forum, 2013).

This research will focus on the methodology set by the Global Entrepreneurship Monitor (GEM). GEM defines nine distinctive National Entrepreneurial Framework Condition” (Global Entrepreneurship Monitor, 2016), which will be analyzed in depth in the coming sections.

2. What is GEM©?

Although the importance of entrepreneurship and venture creation has been at under the microscope of study and research for long, the process of venture creation and its variations across regions and nations have been understudied in economic theory up to the 1990s (Barreto, 2013). The interest in the role of entrepreneurship in economic development witnessed an increase in the 1990s, and the need to have comparable international data became a serious issue (Reynolds, Storey, & Westhead, 2007). This led to the establishment of a research initiative by a small group of academic scholars, and there came the Global Entrepreneurship Monitor (GEM) to the scene.

GEM is carried out by a research consortium dedicated to understanding the relationship between entrepreneurship and national economic development (Bosma, 2013). The first report was launched in 1999 and included 10 developed economies. In 2016, it grew to include 65 economies (Global Entrepreneurship Monitor, 2016). Since its inception, it has been a valuable source of

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comparable economic data across a large variety of countries; eventually, it is a source for in-depth academic research and publications (Bosma, 2013). GEM monitors the “entrepreneurial framework conditions” in each country, which will be discussed further in the next section.

3. The GEM framework

One of the main challenges facing the GEM was the harmonization of data collected from a large number of experts with considerable language diversity. To that end, a framework was developed in 2001 as shown in the figure below with the major dependent variable being the economical growth and representing the impact of entrepreneurship on the growth (Reynolds et al., 2005).

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The main focus of this research is on the entrepreneurial framework conditions that are collected using the National Expert Survey. To gain the needed information, the informed

judgment of national experts regarding the status of entrepreneurship in their respective countries (Reynolds et al., 2005). At least four experts from each framework category were interviewed making the sum of at least thirty six experts from each country (Global Entrepreneurship Monitor, 2016). Then data was analyzed using factor analysis to work out the final indices (Reynolds et al., 2005). Data obtained from the National Expert Survey (NES) is then analyzed, and a scoring for each category is calculated using arithmetic mean, since all the surveys are given the same weight. After creating the scoring for each factor, arithmetic mean is taken for the nine factors given each of them equal weights to create the overall scoring of the country (the Palestinian Economic Policy Research Institute, 2012).

4. The Entrepreneurial Framework Conditions

GEM© defines nine distinctive categories, or as called the Entrepreneurial Framework Conditions, viz. Entrepreneurial finance, government policy, entrepreneurial subsidized programs, entrepreneurial education, research and development transfer, commercial and legal infrastructure, internal market openness, physical infrastructure, and cultural and social norms (Global Entrepreneurship Monitor, 2016).

1. Entrepreneurial Finance

In some countries, the capacity to obtain finance may depend on family connections rather than on the willingness to pay a certain interest rate. A successful entrepreneur may, at times, have to have the capacity to operate well in the political arena connected with his economic activities (Leibenstein, 1968). Insufficient finance is always referred to by non-entrepreneurs as the reasons

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why they are not starting a business (Choo & Wong, 2006). This leads to the hypothesis that more accessible finance, the higher the entrepreneurial activities (Levie & Autio, 2007)

2. Government Policy

Regularity issues are cited frequently as one of the main barriers facing entrepreneurship, some studies finding that the regulations, taxes and labor market rigidness together hinder entrepreneurial activities and start-up creations (Choo & Wong, 2006). Studies suggest two ways in which Government policies can affect entrepreneurship (Levie & Autio, 2007). First, complex procedures and delays in obtaining the necessary permits and licenses can reduce new business entry because such delays might cost prospective entrepreneurs a window of opportunity that might not wait such lengthy procedures and formalities. In some studies, a negative relation was found between the number of permits and licenses required and the number of firms opened (Dreher & Gassebner, 2007). Second, unpredictable and strenuous application of procedures increases compliance costs, thus increasing the startup costs and decreasing the company profitability and the possibility of potential growth, and accordingly, it can be said that a more favorable regulatory conditions to profitable entrepreneurial activity, the higher the level of entrepreneurial activity there is (Levie & Autio, 2007).

3. Entrepreneurial Subsidized Programs

Through dedicated governmental programs, governments can facilitate the operation of entrepreneurial firms by addressing the gaps in their resource competency needs (Levie & Autio, 2007), and can support the entrepreneurs by providing subsidies, material and informational support for new ventures (Dahles, 2005). Such programs can reduce the transaction costs of the firms (Shane, 2002) and contribute towards the human capital of the entrepreneur (Delmar &

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Shane, 2003). On the aforesaid grounds, the greater extent and quality of the governmental programs are, the higher the level of the entrepreneurial activity would be (Levie & Autio, 2007).

4. Entrepreneurship Education

Leibenstein suggests in his literature that entrepreneurial education is the most important factor governments should focus on when promoting entrepreneurship, and suggests that, even though not all entrepreneurial traits can be trained, capacity training may be vital to bridge the gap of carrying out the entrepreneurial roles (Leibenstein, 1968). Yet, he emphasizes that general training might not be beneficial, but rather a focused training and education on entrepreneurship. Entrepreneurial education can influence the entrepreneurial intentions by increasing their self-confidence (Ajzen, 1985) and making them more prone to engage in an entrepreneurial activity (Lee & Wong, 2003). Accordingly, the higher the level of specialized entrepreneurial education and training there is in a country, the higher the level of entrepreneurship activity in that country (Levie & Autio, 2007).

5. Research and Development Transfer

Schumpeter emphasized the instrumentality of technological development as a driving force behind entrepreneurial opportunities (Schumpeter, 2013). Leibenstein pointed out that the differential knowledge of technology increases the entrepreneur’s production potential (Leibenstein, 1968). At the national and individual level, technological knowledge results in a competitive advantage over competitors and thus resulting in higher potential ventures as supported by the concept, knowledge spillovers (Z. J. Acs, Audretsch, & Feldman, 1994). Accordingly it can be said that the more accessible the new technologies are to an individual to a country, the higher the rate the entrepreneurial activity is in that country (Levie & Autio, 2007).

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6. Commercial and Legal Infrastructure

The commercial and legal infrastructure are the business services that are necessary for the management of entrepreneurial firms including the availability of subcontractors, suppliers, consultants and legal, accounting, advertising, financial, telecommunication, internet and banking services (Levie & Autio, 2007). Availability of professional services are essential in the overall entrepreneurial process, but more importantly in the management and operation of the firms (Suzuki, Kim, & Bae, 2002). The availability of such services allows the firm to focus on their core business thus increasing their efficiency and profitability. Accordingly, Levie et al. hypothesizes that the greater extent and quality of business and commercial services, the higher the entrepreneurial activity in that country (Levie & Autio, 2007).

7. Internal Market Openness

Studies theorized about the market life cycle effect on the entrepreneurial activity, stating that the activity is more evident in the start of the market life cycle as the demand increases rapidly possibly because of innovativeness and spin-off activities (Klepper, 2002). The GEM model assumes a Kirzner approach where the market change is the originator of the opportunity for entrepreneurial action (Kirzner, 1997). The GEM model divides the internal market openness into two parts, the market dynamics, which focuses on the rapidity of market change and the market openness which deals with the ease of entry into the market leading to the assumption that the more dramatic the shifts in the market are and the easier it is to enter that market the greater the level of the entrepreneurial activity in that country (Levie & Autio, 2007).

8. Physical Infrastructure

Physical infrastructure usually receives the least attention when discussing the entrepreneurial factors. Physical infrastructure such as transportation, land or operating space, and communication

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facilities such as internet, telephone or postal services, are vital for the entrepreneurial success and venture creation (Hansen & Sebora, 2003). To start a business, one usually need an operating space such as an office, equipment and basic services. The availability of such services will encourage startups (Carter, Gartner, & Reynolds, 1996). In some cases, incubators provide those facilities, and thus not only provide the needed infrastructure, but reduce the operational costs for entrepreneurs and thus not only address the startup problems (Bøllingtoft & Ulhøi, 2005) but also eventually lead to venture growth (Carayannis & Von Zedtwitz, 2005). The easier it is to access such facilities in a country, the higher the rate of entrepreneurial activities in that country (Levie & Autio, 2007).

9. Cultural and Social Norms

The results of the researches correlating cultural norms and entrepreneurial activities have been mixed (Levie & Hunt, 2004). According to Smith, Peterson and Schwartz, widely-shared beliefs in given society may mediate between cultural values and the enhancement of a specific behavior (Smith, Peterson, & Schwartz, 2002). It is suggested that on the individual level, the social desirability of entrepreneurial behavior influences individual entrepreneurial intentions (Ajzen, 1985). Positive cultural views toward self-initiative, independence, innovativeness and individual effort will affect this social desirability, and thus affect the entrepreneurial behavior (Levie & Autio, 2007). Another related social determinant is the social legitimation (Etzioni, 1987). National respect for entrepreneurs, and them being more spotted in the media will influence people’s perception towards the social desirability of entrepreneurship and thus influence their entrepreneurial motivations and intent. Levie & Autio suggest that the more favorable the entrepreneurial culture in the country is, the higher the level of entrepreneurial activity within that country (Levie & Autio, 2007)

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6. Methodology

1. The Methodology

For the purposes of the research, a three-step methodology has been used. First, the survey was used as a basis for interviews with national experts. GEM measures the entrepreneurial framework conditions using the national expert survey, which is used as well in this study. The survey is filled using face to face interviews with the selected experts. GEM interviews at least four experts for each of the framework conditions making them a total of at least thirty-six experts. For this study a total of eleven experts where asked to fill the survey seven of which were filled through interviews and three by email due to their presence outside the country in the research time frame. Second, the arithmetic mean was then calculated for each of the group of questions. Finally, the arithmetic mean of all the surveys was worked out to generate the final scoring of the nine framework conditions.

A previous GEM report in Palestine was conducted by the Palestinian Economic Policy Research Institute (MAS) in 2012. The report revealed that government policies, intellectual property rights and entrepreneur education were the main constraints upon the ecosystem. On the other hand, the social image, physical infrastructure and interest in innovation stood to be the main positive conditions (the Palestinian Economic Policy Research Institute, 2012).

The mean of the categories obtained in this study was compared to those of GEM Country Report 2012 to shed the light on any disparities in the results. Finally, the findings were shared with the national experts to receive their feedback. A mesh, in the eleventh hour, was created to visualize the final results.

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2. The Survey

A survey extracted from the official data published by GEM in 2014 was used (Appendix I). The survey is structured to query the experts about their view on the nine entrepreneurial

framework conditions, namely: Access to finance, government policies, government programs, entrepreneurial education, research and development transfer, commercial and professional infrastructure, market openness, physical infrastructure and social and cultural norms. The survey was then forwarded to the experts and the results were collected through interviews whenever possible to obtain further insights on the conditions in question. If the expert was unavailable for an interview due to time constraints or was out of the country, they would complete the survey and send it back via email.

3. The Experts

Experts were selected as a convenient group of participants although this limits the randomness of the data. However, this did not represent a problem because the experts cover various categories and are recognized for their expertise in the Palestinian Territories. The experts were split into six categories: Entrepreneurs, financial Institutes, governmental institutes, university researchers, incubators/accelerators, and local economic experts. Appendix (II)

includes a short biography of each of the experts interviewed.

1. The Entrepreneurs

The sample included two different entrepreneurs, a female established entrepreneur, and a male nascent entrepreneur. The selection was made with a view to covering entrepreneurs in different stages of their entrepreneurial lifecycle as well as gender.

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2. The Financing Companies

For the purposes of the study, two early-stage financing companies were interviewed, namely, Ibtikar Fund, a disruptive fund that invests in innovative Palestinian companies at their earliest stages; and Palestine for Credit and development (FATEN), a debt financing company that mainly funds small and medium businesses. The aim was to assess the level of funding available to startups throughout their life cycle and the constraints and limitations faced in the process.

3. Governmental Institutions

The government established the Higher Council for Excellence and Innovation as an

independent body responsible for the supporting startups and innovation. Two key members on the board of directors of the Council were interviewed to assess the level of government support to the new ventures in Palestine, as well as the constraints and limitations that hinder the work of the Council. Furthermore, an interview with a manager in the Ministry of finance in the

department of public budget was carried to assess the funds the government subsidize for entrepreneurial programs and new venture creation.

4. Universities

An interview with a university scholar at Birzeit University, which stands to be one of the major Palestinian higher education institutions was conducted; of note, the researcher has niche focus on innovation and entrepreneurship. The aim of the interview was to assess the level of entrepreneurial education provided by official universities as well as secondary education institutions.

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5. Incubators/Accelerators

An Expert working at established incubators in Palestine was interviewed to assess the role they play within the entrepreneurship ecosystem in Palestine, the efficiency of the incubation programs and the constraints and limitations facing them.

6. Local Economic Experts

An interview with local experts on the economic situation in Palestine was conducted to obtain a ‘helicopter view’ of the economic situation and the entrepreneurship ecosystem in Palestine. The experts also had a role in verifying the research results.

7. Findings and Discussion

The research shed the light on the current entrepreneurial situation in Palestine highlighting the gaps evident in the entrepreneurial ecosystem. The study showed a huge gap in various factors but more evidently in the Research and development transfer and entrepreneurial education. The research and development transfer scored as low as (2.1) on a nine-point scale which is equal to that of Senegal at the bottom of the ranking. This can be also sensed through all the interviews that were held where all the experts pointed out that the Palestinian universities labs are not well equipped for research and the lack of financial resources available to the universities to undergo such a research, both from the government or the business community. The physical infrastructure scored the highest (6) which is still lower than the reported mean of (6.5). Services such as communication, basic utilities, roads etc. is available with an acceptable quality. For some services, such as communication, the cost of acquiring those services remain high, but with a moderate to low recurring costs.

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According to the 2016 Word bank data, Palestine’s GDP is 13.43 billion US Dollars, which is equivalent to 2951 US Dollars per capita (4.55 Million total population) with a reported inflation rate of 1.2%. Industry forms the main source of income, contributing to 20% of the GDP, while taxes contribute to 5.6% of the total GDP. The levels of illiteracy are low, where 93.9% of those eligible for primary school are enrolled and 84% continue for their secondary school education. The economy nevertheless is still heavily dependent on foreign aids and grants with the government revenues only covering 6% of the total GDP and with net official

development assistance received of 2.4 Billion US Dollars a year(world Bank, 2018).

The table below shows a summary of the results obtained with a comparison to regional economies of Jordan, Egypt and Israel, the mean for Asia, Africa and Europe, and established economies, Netherlands, Germany and China.

Table 1: Comparative Analysis of the results

Access to Finance Government Policies Governmental Programs Entrepreneurial Education Research and Development Transfer Commercial and Legal Infrastructure Market Openness Physical Infrastructure Cultural and Social Norms Overall Score Palestine 3.9 4.2 3.6 3.3 2.1 5.2 3.0 6 4.3 3.96 Jordan 4.06 3.5 3.7 2.59 3.78 4.79 4.55 6.34 4.22 4.17 Egypt 3.92 3.5 3.32 2.38 2.76 3.87 4.57 6.51 4.07 3.88 Israel 4.56 3.23 3.85 3.97 4.34 5.25 3.69 6.19 7.22 4.7 Netherlands 5.52 5.45 5.62 5.63 5.29 5.82 5.92 7.98 6.22 5.94 Germany 4.95 4 5.74 3.5 4.14 5.62 5.18 6.3 4.24 4.85 China 5.52 4.95 4.4 5.24 4.08 4.21 5.71 7.3 5.78 5.24 Asia & Oceania 4.6 4.5 4.4 4.0 4.0 4.8 4.85 6.5 5.2 4.76 Europe 4.4 4 4.5 3.95 4.1 5.2 4.7 6.8 4.3 4.66

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Africa 3.6 4.25 4 3.15 2.9 4.8 4.1 6.2 4.2 4.13

1. Access to Finance

All parties agreed that there is funds available for new ventures to use, mainly through equity funding, but the amount of funds available are not enough for all new ventures. The financing is available from various sources, whether it is governmental institutes (The higher council for Excellence and Innovation) or private institutes (in the pre-seed, seed, and further financing round phases). Banks in Palestine don’t play a major role in financing new firms as they are very risk averse and ask for high collaterals which might not be available for new firms. Mr.

Ghannam adds, that due to the lack of debt financing through banks, microfinancing institutes play a major role since they require lower collaterals that can be provided by the new ventures. Nevertheless, the amounts that can be provided in debt for the new ventures are comparatively low since the overall portfolio for the MFIs in Palestine is limited (lower than 300 million Dollars available through eleven institutes compared to more than seven billion available in banks) (H. Ghannam, Personal Interview, June 2018) a view that is supported by Dr. Omran who argues that banks should step in and implement some entrepreneurial-oriented programs to use the huge reserves they have (Dr. O. Omran, Personal interview, June,2018). Due to the lack of entrepreneurial education, the entrepreneurs plan their ventures without an exit strategy, that is why as part of their work, the funding institutes provide some kind of consultancy and education to new ventures adapting their business plans and value proposition models as well as plan their exit strategies (R. Qawasmi, personal interview, June 2018). IPOs are not an option usually for the new firms, both because of being unable to meet the threshold of entering the market and the unavailability of underwriters or investment banks that can facilitate the process.

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According to Mr. Abed, the main source of financing for most of the nascent entrepreneurs is their own savings, family and friends .Due to the lack of university education concerning idea marketing, most of the entrepreneurs that don’t come through specialized incubation programs do not qualify for the financing options available, and due to the limited funds, they cannot hire a consultant that can provide them with the needed documentation to meet the financing

companies’ requirements (O. Abed, Personal Interview, June 2018). Furthermore, Mr. Abed argues that due to the lack of communication, most of the nascent entrepreneurs don’t know about the local options of financing and opt to contact foreign resources to obtain the needed support as the ones that are well communicated requires more complex procedures that usually the new firms can’t adhere to.

The final score of Palestine for Access to finance is (3.9) which is lower than the global mean (4.1) and rank Palestine 46th equal with Slovenia, Egypt, and Saudi Arabia, Higher than Peru and lower than Spain, Luxemburg, Georgia and Cameroon.

2. Government Policies

The gap in communication is widely evident in this area. While the entrepreneurs and the experts say that the procedures to register a company is time-consuming, and that bureaucracy levels are high, the actual law and the real practice is seamless and fast. According to Dr. Omran, any company can be registered within a maximum of two weeks, and Dr. Samara even

challenges that if you have your papers ready, which are already published on their website, the company registration will be done in less than forty-eight hours (Dr. A. Samara, Dr. S,

Naseredien, Personal interview, June 2018). Dr. Samara argues that this gap is caused by some cultural norms where the entrepreneur has low expectations of the system and is expecting that all the work should be done on his behalf by the system itself, while Dr. Omran argues that the

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reason is that the procedures are not so clear, and the lack of highly qualified legal assistance with affordable prices to the new ventures make the process complicated to the new ventures and take longer than it should. Dr. Naseredien adds, that while she was the minister of ICT, most of the services offered by the ministry of economics have been even automated to help the business community, still it is the typical social image that engulfs Palestine as an under-developed country that is causing that unfair perception of having inefficient procedures.

On the other hand, the laws in Palestine do not protect entrepreneurs. Patent and intellectual property laws are yet to be drafted and enforced causing an anti-trust environment within the ecosystem that hinders the chances of cooperation and puts a big burden on the communication between the players in the ecosystem. According to Dr. Samara, the situation is soon to change, as the initial draft of the law is created and waiting to be approved by the president.

One other legal aspect that minimizes the entrepreneurial intentions is the bankruptcy laws. In its current format, Dr. Omran argues that entrepreneurs would fear the consequences of the failure, and thus would not take the risk of starting a business.

The final scoring for Government policy in Palestine is (4.2) which is equal to the global mean of (4.2) ranking Palestine 33rd equal to Chile, Colombia, Austria and Morocco, higher than Thailand, Slovenia and the USA and lower than Taiwan and Poland.

3. Government Programs

The programs are not only held by the government neither financed by the government. The government has financial issues, it offers any kind of support to the new ventures as long as it is non-financial support (Dr. Samara). The programs are mainly subsidized through international donors and local none governmental organizations. This relationship hinders the efficiency of the

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incubators/accelerators as both work according to the donor’s agendas rather than addressing the actual market needs (Dr. Omar, R. Qawasmi). Dr. Naseredien adds that there are some trials to create incubation programs at the universities, but they are not efficient enough, and most of them are performing the role of educators rather than the intended task of incubators.

Mr. Abdul Raheem emphasizes, that even though the innovation and creativity is on the list of the government priorities, the funds available for the government are usually channeled for other urgent matters. The government relies on civil society institutes that are mainly funded by external donors to play that role (M. Abdul Raheem, Personal Interview, June 2018).

The final scoring of the Government Programs in Palestine is (3.6) which is lower than the global mean of (4.3) ranking Palestine 50th equal with Puerto Rico and Thailand ,lower than Turkey, Jordan and Morocco, and higher than Croatia.

4. Entrepreneurship Education

Universities in Palestine are still only focused on the technical aspects of knowledge. As a result, commercialization, market analysis, idea generation are still not part of the formal

education system (Dr. Omran). That gap is caused by what Dr. Omran has called the ego-system rather than the ecosystem. Different players in the education institutes fail to communicate properly unless they are forced to do so while implementing an external donor financed program, and thus can’t generate the knowledge needed to change the student projects and ideas into some commercial ideas.

That gap is also visible in the business plans presented to the financing institutes according to Qawasmi. They lack growth strategies, market strategies and exit strategies. Dr. Omran also says that this gap can be seen in the individual projects university students present. Even though the

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formal education system lacks the entrepreneurial education, but there is an individual effort from some of the instructors to incorporate that education in their courses, yet those efforts can be seen as an anomaly rather than a formality according to Dr. Omran. Students still lack the ability to define their target customers, the customer channels and build their revenue and cost streams. As being part of the university board, Dr. Omran points out that there are some discussions to improve Entrepreneurial education at the universities but is always faced by the egos of the participants and the lack of financing. In the previous tries to implement a donor financed program, the program was not efficient enough as the program was governed by the donor rather than the market needs a problem that was previously identified as well in the government subsidized programs mentioned above.

The final scoring of the Entrepreneurial Education in Palestine is (3.3) which is lower than the global mean of (4.6) ranking Palestine 62nd, equal with Poland, higher than Iran and lower than Senegal.

5. Research and Development Transfer

This is the gap most evident in the ecosystem. Universities do not have adequate research and development programs, their labs are not well equipped, and there is no financial support neither from the universities, government or private sector to the research and development in the universities. Dr. Omran says that there are research and development facilities at most of the major universities in Palestine, but they are mainly unused, the equipment in them are outdated, and probably they are not functioning well due to the lack of usage. Some immature programs are done in polytechnic universities as requests from the private sector, but still can’t be considered as technology creating researches but more of necessity driven research.

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Dr. Omran sees that as a missed opportunity as he argues that Palestine universities

especially in their engineering and ICT faculties have loads of brilliant students, a potential that is not well exploited and an opportunity that can make a big impact on the future of Palestine.

The final scoring for Research and development transfer is Palestine is (2.1) which is lower than the global mean of (3.8) ranking Palestine 66th equal to Senegal at the bottom of the ranking.

6. Commercial and Legal Infrastructure

Due to the available internet access, consultation from local and global consultants is available for the Palestinian market. The quality of the service comparable to the asking price is the problem. Local consultancy firm don’t offer the needed quality of consultation, both due to the lack of knowledge and the lack of experience in supporting new firms. The firms that can provide the needed knowledge are not affordable for new firms. On the other hand, the legal infrastructure is good and can provide the needed help to new and existing firms with affordable prices.

The final scoring of Palestine for commercial and legal infrastructure is (5.2) which is higher than the global mean of (4.9) ranking Palestine in the 22nd position equal with Kazakhstan, India and Qatar higher than Hongkong, Malaysia, Macedonia, Cameroon, Cyprus, Australia, Bulgaria, Ireland, and South Africa and lower than Israel.

7. Internal Market Openness

The Palestinian market is rather stable due to the sociopolitical situation. The volatility of the market both in consumer goods and business to business is low which offers limited new

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ventures out of the market. Furthermore, the local market is limited due to the political and geographical segregation though currently more opportunities are arising to penetrate regional markets in the MENA region.

The final scoring of the Internal Market Openness in Palestine is (3) which is lower than the global mean of (4.9) and rank Palestine 65th only higher than Senegal and lower than Uruguay.

8. Physical Infrastructure

The physical infrastructure is moderately supportive to the local market. Communication and basic utility are accessible in moderately good quality but the cost of acquiring such services is moderately high. Due to the political situation, high-quality internet access is still limited and the roads, mail and other utilities even though good, but deteriorating heavily. Basic utility access, on the other hand, is available. The basic cost of installing the services is relatively high, but the recurring costs are moderately low and affordable.

The final scoring for the Physical Infrastructure in Palestine is (6) which is less than the global mean of (6.5) ranking Palestine 50th equal with Kazakhstan and the United Kingdom, higher than Turkey and Jamaica and lower than Columbia.

9. Cultural and Social Norms

The society is, in general, supportive to autonomy and individual success but so risk-averse. Stories of personal achievements through individual efforts are pictured in heroism but due to the social conditions, the tendency to follow a low-risk career is preferred. Dr. Naseredien points that this fact is evident through the increasing number of applicants for public jobs each year. Moreover, the society tends to hold the government and the local communities responsible for the individual welfare rather than looking at it as an individual matter.

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Dr. Omran sees that entrepreneurs themselves play a major role in the entrepreneurial

cultural situation in Palestine. Whether it is due to the lack of trust-enforcing laws, or the egos of the entrepreneurs themselves, entrepreneurs tend to preserve the lessons learned from their success stories from the entrepreneurial community in an effort to “save” their success from competition.

The final scoring of the Cultural and Social Norms in Palestine is (4.3) which is lower than the global mean of (4.7) ranking Palestine 59th equal with Puerto Rico, higher than Germany and Jordan and lower than Finland, Spain and Australia.

10. Scorings

A scoring was done using arithmetic mean for the interviews and survey answers collected, the scores show the overall scores are low on most of the factors but are moderate for physical infrastructure, commercial and professional infrastructure, and access to finance. Appendix III shows the overall results and the arithmetic mean of the factors. The overall scoring for the ecosystem in Palestine is (3.96).

8. Limitations

The sample obtained might not be representative of all the players in the entrepreneurial ecosystem in Palestine. The set nevertheless contain national experts recognized in the whole country and the feedback obtained is expected to be thoroughly representative of the overall situation.

Due to the political situation in Palestine, the results obtained are more representative of the west bank rather than the whole country as it was hard to obtain data representing the Gaza strip

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and due to the huge economical gap in both Palestinian territories. It was not possible to obtain feedback from experts on the Gaza strip due to the political situation.

The results are also influenced by the total regional and political conditions resulting from the country still being under occupation, and the current regional and local political and might be not representative for the situation in a different time.

9. Conclusion

This study aimed to measure the entrepreneurial framework conditions as defined by the Global Entrepreneurship Monitor (GEM). Entrepreneurs are considered the key drivers of economic and social progress (World Economic Forum, 2013). Accordingly, the aim was to measure the current situation using the GEM national expert survey to draw conclusions about the current entrepreneurial status in Palestine and give the policy makers a solid base to draw their policies aiming on improving the ecosystem.

The results of the research show that current situation in Palestine is still lacking in many aspects. The scores were low on most of the factors but were moderate for physical infrastructure (5.7), commercial and professional infrastructure (5.4), and access to finance (4.5). Some

projects are starting in Palestine to address the various factors, yet the confidence of their success is low based on the historical experience with the programs that were executed in the past.

The results, moreover, can’t be considered to be representative of all the Palestinian territories, since data from the Gaza strip was hard to obtain due to the political situation. Variations are also evident in various parts of the west bank, though not considered a limitation since most of the entrepreneurial actions are done within some of the major cities.

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To bridge the gaps concluded in the research, the government should start from the basics. Universities should be upgraded both in means of their curricula and labs to support research and development and include idea commercialization for their technical courses. Furthermore, the banking system in Palestine should play a bigger role in supporting new venture creation, both through equity investments and debt financing. Banks in Palestine have a big unused portfolio that can play a major role in improving the overall entrepreneurial ecosystem. One suggestion to do so, is following the steps of some major banks in the world (ABN Amro and ING as examples) by creating a subsidiary that can work as both an incubator and a financer for new ventures.

Entrepreneurs on the other hand, have to take the situation by the scruff of the neck and work on improving their entrepreneurial skills by following specialized courses provided by non-formal education institutes. Furthermore, entrepreneurial community creation for sharing ideas, sharing resources and benefitting from each other’s experiences is advised and can substantially increase the overall prospects of success for new ventures and thus improve the overall economic situation in Palestine.

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11. Appendices

1. Appendix I – The Survey

Financial C F A F S F MF T NFN T MT F S T A T C T D K N A 1 2 3 4 5 6 7 8 9 9 7 9 8 In my country, there is sufficient equity funding available for new and growing firms

In my country, there is sufficient debt funding available for new and growing firms In my country, there are sufficient government subsidies available for new and growing firms

In my country, there is sufficient funding available from private individuals (other than founders) for new and growing firms In my country, there is sufficient venture capitalist funding available for new and growing firms)

In my country, there is sufficient funding available through initial public offerings (IPOs) for new and growing firms Government Policies

In my country, Government policies (e g , public procurement) consistently favor new firms

In my country, the support for new and growing firms is a high priority for policy at the national government level In my country, the support for new and growing firms is a high priority for policy at the local government level In my country, new firms can get most of the required permits and licenses in about a week

In my country, the amount of taxes is NOT a burden for new and growing firms

In my country, taxes and other government regulations are applied to new and growing firms in a predictable and consistent way In my country, coping with government bureaucracy, regulations, and licensing requirements it is not unduly difficult for new and growing firms

Government Programs

In my country, a wide range of government assistance for new and growing firms can be obtained through contact with a single agency

In my country, science parks and business incubators provide effective support for new and growing firms In my country, there are an adequate number of government programs for new and growing businesses

In my country, the people working for government agencies are competent and effective in supporting new and growing firms In my country, almost anyone who needs help from a government program for a new or growing business can find what they need

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In my country, Government programs aimed at supporting new and growing firms are effective Entrepreneurial Education

In my country, teaching in primary and secondary education encourages creativity, self-sufficiency, and personal initiative In my country, teaching in primary and secondary education provides adequate instruction in market economic principles In my country, teaching in primary and secondary education provides adequate attention to entrepreneurship and new firm creation In my country, Colleges and universities provide good and adequate preparation for starting up and growing new firms

In my country, the level of business and management education provide good and adequate preparation for starting up and growing new firms

In my country, the vocational, professional, and continuing education systems provide good and adequate preparation for starting up and growing new firms

R&D Transfer

In my country, new technology, science, and other knowledge are efficiently transferred from universities and public research centers to new and growing firms

In my country, new and growing firms have just as much access to new research and technology as large, established firms In my country, new and growing firms can afford the latest technology

In my country, there are adequate government subsidies for new and growing firms to acquire new technology

In my country, the science and technology base efficiently supports the creation of world-class new technology-based ventures in at least one area

In my country, there is good support available for engineers and scientists to have their ideas commercialized through new and growing firms

Commercial & Professional Infrastructure

In my country, there are enough subcontractors, suppliers, and consultants to support new and growing firms In my country, new and growing firms can afford the cost of using subcontractors, suppliers, and consultants In my country, it is easy for new and growing firms to get good subcontractors, suppliers, and consultants In my country, it is easy for new and growing firms to get good, professional legal and accounting services

In my country, it is easy for new and growing firms to get good banking services (checking accounts, foreign exchange transactions, letters of credit, and the like)

Market Openness

In my country, the markets for consumer goods and services change dramatically from year to year

In my country, the markets for business-to-business goods and services change dramatically from year to year In my country, new and growing firms can easily enter new markets

In my country, the new and growing firms can afford the cost of market entry

In my country, new and growing firms can enter markets without being unfairly blocked by established firms In my country, the anti-trust legislation is effective and well enforced

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Physical Infrastructure

In my country, the physical infrastructure (roads, utilities, communications, waste disposal) provides good support for new and growing firms

In my country, it is not too expensive for a new or growing firm to get good access to communications (phone, Internet, etc ) In my country, a new or growing firm can get good access to communications (telephone, internet, etc ) in about a week In my country, new and growing firms can afford the cost of basic utilities (gas, water, electricity, sewer)

In my country, new or growing firms can get good access to utilities (gas, water, electricity, sewer) in about a month Cultural and Social Norms

In my country, the national culture is highly supportive of individual success achieved through own personal efforts In my country, the national culture emphasizes self-sufficiency, autonomy, and personal initiative

In my country, the national culture encourages entrepreneurial risk-taking In my country, the national culture encourages creativity and innovativeness

In my country, the national culture emphasizes the responsibility that the individual (rather than the collective) has in managing his or her own life

CF: Completely False, AF: Absolutely False, SF: Somehow False, MFT: More False than True, NFNT: Neither True nor False, MTF: More true than false, ST: Somehow True, AT: Absolutely True, CT: Completely True, DK: Don’t Know, NA: Not applicable.

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2. Appendix II – Expert Bios

1. Sam Bahour

Sam Bahour is a Palestinian-American based in Al-Bireh/Ramallah, Palestine and is

managing partner of Applied Information Management (AIM), a consulting firm specializing in business development with a niche focus on start-ups and providing executive counsel.

Bahour was instrumental in the establishment of two publicly traded firms: the Palestine Telecommunications Company (PALTEL) and the Arab Palestinian Shopping Center. He is currently an independent director at the Arab Islamic Bank, advisory board member of the Open Society Foundations’ Arab Regional Office, and completed a full term as a Board of Trustees member and treasurer at Birzeit University. In addition to his presidential appointment to serve as a general assembly member of the Palestine Investment Fund, Palestine’s $1B sovereign wealth fund, Bahour serves in various capacities in several community organizations, including co-founder and chairman of Americans for a Vibrant Palestinian Economy, board member of Just Vision in New York, board member and policy adviser at Al-Shabaka, the Palestinian Policy Network, secretariat member of the Palestine Strategy Group, and a member of the core Local Reference Group of the Ecumenical Accompaniment Program in Palestine and Israel (EAPPI), among others.

Bahour earned his Master of Business Administration degree from the Kellogg-Recanati International Executive MBA, a joint program of the top-rated Kellogg School of Management (Northwestern University) and the Recanati Business School (Tel Aviv University).

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He writes frequently on Palestinian affairs and has been widely published in leading outlets such as the New York Times, the Guardian, Haaretz, Huffington Post, +972 Magazine,

openDemocracy, The Brookings Institution, Al Jazeera America, The Hill, TPM Café, Cleveland's Plain Dealer, Politiken (Denmark), Al Quds Newspaper (Palestine), Le Monde diplomatique (France), Al-Monitor, The Jewish Daily Forward, Counterpunch, Washington Post, Newsweek/Daily Beast, The Japan Times, Boston Globe, Los Angeles Times, and Arab News, among others. He is co-editor of HOMELAND: Oral History of Palestine and Palestinians (1993) and has been on NPR, CNN, BBC, and numerous other radio and TV programs.

Sam may be reached at sbahour@gmail.com. He blogs at www.epalestine.com.

2. Nisreen Musleh

Nisreen Musleh is the Founder and Managing Director of RITAJ Managerial Solutions in Ramallah. She established RITAJ in 2003, during one of the most complex economic and political periods in Palestine. Under Nisreen’s leadership, RITAJ has grown into a market leader in professional training management and translation services. She believes in results-based management and utilizing management tools to achieve tangible deliverables.

Having earned a master’s degree in American Studies, and a BA in English Education, Nisreen went on to complete the Business Executive Program at Wharton School of Business, University of Pennsylvania, Philadelphia, USA, which led her to be a Human Resources Fellow at Coca-Cola Headquarters in Atlanta, Georgia, USA. Nisreen’s unique mix between academic excellence and practical experience, coupled with a burning desire to self-develop, placed her on a solid foundation to serve Palestine’s business community.

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Having started her career in teaching and translation before launching her own business, today, Nisreen is a sought-after businesswoman leader who regularly coaches emerging entrepreneurs in developing their businesses and professional skills as well as being a leading trainer herself. Her own dynamic and diverse career path with a clear focus on economic empowerment through business generation has been recognized both locally and globally.

To contribute to the advancement of corporate leadership and economic development in Palestine, Nisreen completed a full term as a Board Member of the Arab Islamic Bank (AIB) in 2017 and currently serves on the boards of the Palestinian Trainers' Association (PTA) and Americans for a Vibrant Palestinian Economy (AVPE).

As for her engagement with the community, Nisreen has various activities as a mentor, being sought by organizations and individuals. She mentors entrepreneurs and professionals on start-up businesses, business development as well as on career path guidance. The most recent mentoring engagements were with the 2018 Hult Prize Palestine, Future Entrepreneurs and Leaders in Innovation and Technology (FUEL-IT) and Palestine Mentoring Walk and Talk.

Nisreen has been engaged in various international programs which impacted her career, among which were: The Global Ambassadors Program (GAP), a Vital Voices and Bank of America partnership; Middle East Entrepreneur Training (MEET), part of the Middle East Partnership Initiative (MEPI) of the U.S. Department of State; and the Legal and Business Fellowship Program (LBFP), also a MEPI program.

An ardent traveler, Nisreen attributes her broadened horizon and cross-cultural understanding to her global traveling experiences.

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3. Dr. Omar Omran

Omar Omran is currently the Assistant to the Dean of Birzeit University's College of Business and Economics, and a faculty member in the Department of Business Administration and Marketing, teaching courses such as Strategic Management, Strategic Marketing, Marketing Management, and Leadership among others. In addition to teaching and research, Omar is the senior manager for private sector and business development at Agility Management and

Financial Consulting, focusing mainly on market research, business development, business and marketing plans, and feasibility studies among other topics.

In his time at Agility Management and Financial Consulting, Omar has been able to implement solutions on national, sector, and firm levels. Areas include manufacturing of electrical materials, glass, building materials, housing and real estate, labor market needs, strategic plans for research institutions, clothing and textile firms, and service-based firms, including IT, among others. Prior to his current position, Omar also provided consulting services in areas such as logistics and supply chain management to firms in the US, with special emphasis on confectionary and tobacco related products, as well as implementing systems solutions such as Microsoft Dynamics ERP, Retailx (formerly IDS) and other customized solutions based on client needs.

He has also been quite active in the entrepreneurial community mentoring and working with pre-investment and early stage startups here in Palestine. Omar’s activities in this genre also include his participation as a mentor and advisor in events such as StartUp Weekend, Palestine Startup Cup, Garage 48, a founder of StarMeUp, and facilitating a number of panel discussions regarding entrepreneurship and investment.

How the entrepreneurial ecosystem in Palestine would score using the global entrepreneurial monitor index

How the entrepreneurial ecosystem in Palestine would

score using the global entrepreneurial monitor index

1.

Abstract

2.

Preface

3.

Acknowledgment

Table of Contents

4.

Introduction

5.

Literature Review

6.

Methodology

7.

Findings and Discussion

8.

Limitations

9.

Conclusion

10.

References

11.

Appendices