Description
On this explanation pertaining to barriers to entrepreneurship majdi hassen.
BARRIERS TO ENTREPRENEURSHIP
Majdi Hassen
Executive Director, Institut Arabe des Chefs d'Entreprises (IACE), Tunisia
Entrepreneurship in context
Hi everybody, my name is Majdi Hassen, I’m assistant professor at Tunis University, and
I will talk about the barriers to entrepreneurship. [Lack of] the following five are the
barriers to entrepreneurship: 1) Social / cultural legitimacy and acceptance; 2) Business
assistance and support; 3) Access to finance; 4) Administrative and regulatory
framework; and 5) Entrepreneurship education and training.
Barriers to entrepreneurship
As far as bureaucratic barriers, entrepreneurs complain about the lack of financing,
compliance costs, and red tape as barriers to starting a new business. For example,
registration procedures and costs can be a major obstacle for entrepreneurship. Doing
Business Database 2008 shows that times needed to set up a limited liability company
can range from two in Australia to 233 in Guinea-Bissau and 694 days in Suriname
among the 178 countries included in the analysis. The number of procedures and steps
involved in the registration process ranges from two in Australia, Canada, and New
Zealand up to 20 in Equatorial Guinea. There are no monetary costs to set up business in
Denmark, but it costs over 10 times the gross national income per capita in Sierra Leone.
Some countries require no minimum capital from start-ups, but in the case of Syria the
capital requirement is equivalent to over 36 times income per capita; in Ethiopia and
Yemen, 20 times.
Corruption and legal barriers
Particularly in developing and transition countries, these procedures are often associated
with corruption and lack of transparency or accountability. In this context, entrepreneurs
get easily tied up in red tape and lose their entrepreneurial enthusiasm. Third point is the
legal factor. Entrepreneurs are discouraged from starting ventures if they are forced to
comply with too many rules and procedural requirements, are expected to report to an
array of institutions, and spend extensive time and money on fulfilling the documentation
requirements. The level of entrepreneurship that develops in a society is directly related
to a society’s regulations and policies governing the allocation of rewards [as detailed by
Baumol in 1990]. Governments can ensure that markets function efficiently by removing
conditions that create entry barriers, market imperfections, and unnecessary regulation.
www.developmentinstitute.org
Page 1 of 4
Property rights
Property rights regulation is one of the main issues in emerging markets. Losing one’s
property is one of the most important financial risks for young people to start a business.
This finding is taken from the Eurobarometer Survey 2004. Property rights are neither
adequately defined nor protected in many countries. Young people without experience
and networks cannot pull strings and are forced to pay bribes to accelerate the process,
putting their young business at risk. Registering property can be a highly time- and costconsuming effort: time needed to register property can range from 2 days in New
Zealand, Sweden, and Thailand, up to 513 days in Kiribati. High levels of corruption,
favoritism, and red tape also show in many other developing countries.
Reforming legal and regulatory systems
Legal and regulatory systems must allow limited liability, protect contracts and
intellectual property rights, allow liberal treatment of bankruptcy, encourage competition
and impose strong restrictions on monopolistic practices. This is one of the basis of a
liberal market. And they must avoid [incentives for the creation of] informal sectors,
especially in emerging markets.
Practical reform measures
The following measures should be considered. The introduction of electronic tax
statements (electronic preparation and submission of tax requirements) is one way to
simplify access and delivery. The Internet offers the chance for more customer-focused
services in new formats, with no waiting in line, shorter transaction times and 24-hours-aday availability. This needs to have a project of e-government and also a legal framework
for electronic and Internet transactions. Simpler methods of accounting when determining
their tax liability let entrepreneurs spend less time pouring over confusing accounting
regulations (or reduces accountant fees), and more time running their businesses.
Political factor
For the growth of entrepreneurship, a political system needs to be built on: freedom of
choice, individual rights, democratic rules, checks and balances of government.
Government must also encourage risky and innovative research and development, but
you need to have the resources to do it. [Other necessary policies include] supporting
incubator programs, freeing trade policy, practicing disciplined fiscal policy, increasing
the availability and productivity of labor – and the main issue in the labor market is how
to improve the availability and productivity of labor force – deregulating industries and
privatizing state-owned enterprises.
www.developmentinstitute.org
Page 2 of 4
Economic barriers to entrepreneurship
As far as economic barriers, we can identify: high degree of inflation, low demand for
products, unavailability of labor – and not just labor, but qualified labor – raw material
inputs, the level of taxation, and difficulties of importing essential inputs are also
particularly relevant for the emergence of entrepreneurship. Also, as new ventures
develop, they face a combination of challenges owing to their small scale, rapid growth,
and the need to establish credibility. Because they operate in imperfect markets, they face
high transaction costs in the markets for finance, labor, technology, and professional
services.
Financial and capital barriers
One of the main issues is the lack of personal savings and resources; the lack of securities
and credibility for debt financing, the lack of business experience and skills (also for debt
financing); strict credit-scoring methodologies and regulations; complex documentation
procedures; long waiting periods of time needed to decide on an application for funding
(and it’s one of the indicators of the competitiveness of banking finance in the country);
the lack of knowledge, understanding, and awareness of start-up financing possibilities;
unfavorable firm characteristics and industry; legal status/form of enterprise; and the lack
of (successful) micro lending/-finance and seed funding if you need microfinance as a
resource for financing.
The education barrier
In education barrier, we start with the general lack of introduction and adoption of
enterprise education; inadequate curricula and study programs; wrong learning methods
(the lack of case studies and other practical works in the classroom); negligence of
students’ personal environment [parents and family members]; lack of trained/educated
teachers; lack of career information and business possibilities; lack of business and
education linkages; and also lack of ICT infrastructure and capability.
Overcoming barriers to entrepreneurship
As far as business assistance and support, I will start with business connections: business
contacts, suppliers, suitable partners and networks; the knowledge of available business
support services; tailor-made business training and advice for young start-ups (very
important to have in the country but the problem is to have the right and competent
person in this organization); trained counselors, development workers and adequate
support agencies (it’s important to have a trained counselor and also a system that can
encourage young entrepreneurs to use the service of this counselor); mentoring
capacities; the workspace and ICT infrastructure (it is very important especially when
you start your business and also when you need workspace before the official launch of
www.developmentinstitute.org
Page 3 of 4
your business); exchange networks, forums and meeting places; and other business
development services.
Just remember what the sentance says by Henry Ford: “A country's competitiveness starts
not on the factory floor or in the engineering lab. It starts in the classroom.”
The views expressed by the author are their own and do not necessarily represent the
views of the Center for International Private Enterprise (CIPE). The Center for
International Private Enterprise grants permission to reprint, translate, and/or use in the
classroom the materials available through the CIPE Development Institute website
provided that (1) proper attribution is given to the original author and to CIPE and (2)
CIPE is notified how and where these materials are used.
Center for International Private Enterprise
1155 Fifteenth Street NW • Suite 700 • Washington, DC 20005 • USA
ph: (202) 721-9200 • www.cipe.org • e-mail: [email protected]
www.developmentinstitute.org
Page 4 of 4
doc_509969637.pdf
On this explanation pertaining to barriers to entrepreneurship majdi hassen.
BARRIERS TO ENTREPRENEURSHIP
Majdi Hassen
Executive Director, Institut Arabe des Chefs d'Entreprises (IACE), Tunisia
Entrepreneurship in context
Hi everybody, my name is Majdi Hassen, I’m assistant professor at Tunis University, and
I will talk about the barriers to entrepreneurship. [Lack of] the following five are the
barriers to entrepreneurship: 1) Social / cultural legitimacy and acceptance; 2) Business
assistance and support; 3) Access to finance; 4) Administrative and regulatory
framework; and 5) Entrepreneurship education and training.
Barriers to entrepreneurship
As far as bureaucratic barriers, entrepreneurs complain about the lack of financing,
compliance costs, and red tape as barriers to starting a new business. For example,
registration procedures and costs can be a major obstacle for entrepreneurship. Doing
Business Database 2008 shows that times needed to set up a limited liability company
can range from two in Australia to 233 in Guinea-Bissau and 694 days in Suriname
among the 178 countries included in the analysis. The number of procedures and steps
involved in the registration process ranges from two in Australia, Canada, and New
Zealand up to 20 in Equatorial Guinea. There are no monetary costs to set up business in
Denmark, but it costs over 10 times the gross national income per capita in Sierra Leone.
Some countries require no minimum capital from start-ups, but in the case of Syria the
capital requirement is equivalent to over 36 times income per capita; in Ethiopia and
Yemen, 20 times.
Corruption and legal barriers
Particularly in developing and transition countries, these procedures are often associated
with corruption and lack of transparency or accountability. In this context, entrepreneurs
get easily tied up in red tape and lose their entrepreneurial enthusiasm. Third point is the
legal factor. Entrepreneurs are discouraged from starting ventures if they are forced to
comply with too many rules and procedural requirements, are expected to report to an
array of institutions, and spend extensive time and money on fulfilling the documentation
requirements. The level of entrepreneurship that develops in a society is directly related
to a society’s regulations and policies governing the allocation of rewards [as detailed by
Baumol in 1990]. Governments can ensure that markets function efficiently by removing
conditions that create entry barriers, market imperfections, and unnecessary regulation.
www.developmentinstitute.org
Page 1 of 4
Property rights
Property rights regulation is one of the main issues in emerging markets. Losing one’s
property is one of the most important financial risks for young people to start a business.
This finding is taken from the Eurobarometer Survey 2004. Property rights are neither
adequately defined nor protected in many countries. Young people without experience
and networks cannot pull strings and are forced to pay bribes to accelerate the process,
putting their young business at risk. Registering property can be a highly time- and costconsuming effort: time needed to register property can range from 2 days in New
Zealand, Sweden, and Thailand, up to 513 days in Kiribati. High levels of corruption,
favoritism, and red tape also show in many other developing countries.
Reforming legal and regulatory systems
Legal and regulatory systems must allow limited liability, protect contracts and
intellectual property rights, allow liberal treatment of bankruptcy, encourage competition
and impose strong restrictions on monopolistic practices. This is one of the basis of a
liberal market. And they must avoid [incentives for the creation of] informal sectors,
especially in emerging markets.
Practical reform measures
The following measures should be considered. The introduction of electronic tax
statements (electronic preparation and submission of tax requirements) is one way to
simplify access and delivery. The Internet offers the chance for more customer-focused
services in new formats, with no waiting in line, shorter transaction times and 24-hours-aday availability. This needs to have a project of e-government and also a legal framework
for electronic and Internet transactions. Simpler methods of accounting when determining
their tax liability let entrepreneurs spend less time pouring over confusing accounting
regulations (or reduces accountant fees), and more time running their businesses.
Political factor
For the growth of entrepreneurship, a political system needs to be built on: freedom of
choice, individual rights, democratic rules, checks and balances of government.
Government must also encourage risky and innovative research and development, but
you need to have the resources to do it. [Other necessary policies include] supporting
incubator programs, freeing trade policy, practicing disciplined fiscal policy, increasing
the availability and productivity of labor – and the main issue in the labor market is how
to improve the availability and productivity of labor force – deregulating industries and
privatizing state-owned enterprises.
www.developmentinstitute.org
Page 2 of 4
Economic barriers to entrepreneurship
As far as economic barriers, we can identify: high degree of inflation, low demand for
products, unavailability of labor – and not just labor, but qualified labor – raw material
inputs, the level of taxation, and difficulties of importing essential inputs are also
particularly relevant for the emergence of entrepreneurship. Also, as new ventures
develop, they face a combination of challenges owing to their small scale, rapid growth,
and the need to establish credibility. Because they operate in imperfect markets, they face
high transaction costs in the markets for finance, labor, technology, and professional
services.
Financial and capital barriers
One of the main issues is the lack of personal savings and resources; the lack of securities
and credibility for debt financing, the lack of business experience and skills (also for debt
financing); strict credit-scoring methodologies and regulations; complex documentation
procedures; long waiting periods of time needed to decide on an application for funding
(and it’s one of the indicators of the competitiveness of banking finance in the country);
the lack of knowledge, understanding, and awareness of start-up financing possibilities;
unfavorable firm characteristics and industry; legal status/form of enterprise; and the lack
of (successful) micro lending/-finance and seed funding if you need microfinance as a
resource for financing.
The education barrier
In education barrier, we start with the general lack of introduction and adoption of
enterprise education; inadequate curricula and study programs; wrong learning methods
(the lack of case studies and other practical works in the classroom); negligence of
students’ personal environment [parents and family members]; lack of trained/educated
teachers; lack of career information and business possibilities; lack of business and
education linkages; and also lack of ICT infrastructure and capability.
Overcoming barriers to entrepreneurship
As far as business assistance and support, I will start with business connections: business
contacts, suppliers, suitable partners and networks; the knowledge of available business
support services; tailor-made business training and advice for young start-ups (very
important to have in the country but the problem is to have the right and competent
person in this organization); trained counselors, development workers and adequate
support agencies (it’s important to have a trained counselor and also a system that can
encourage young entrepreneurs to use the service of this counselor); mentoring
capacities; the workspace and ICT infrastructure (it is very important especially when
you start your business and also when you need workspace before the official launch of
www.developmentinstitute.org
Page 3 of 4
your business); exchange networks, forums and meeting places; and other business
development services.
Just remember what the sentance says by Henry Ford: “A country's competitiveness starts
not on the factory floor or in the engineering lab. It starts in the classroom.”
The views expressed by the author are their own and do not necessarily represent the
views of the Center for International Private Enterprise (CIPE). The Center for
International Private Enterprise grants permission to reprint, translate, and/or use in the
classroom the materials available through the CIPE Development Institute website
provided that (1) proper attribution is given to the original author and to CIPE and (2)
CIPE is notified how and where these materials are used.
Center for International Private Enterprise
1155 Fifteenth Street NW • Suite 700 • Washington, DC 20005 • USA
ph: (202) 721-9200 • www.cipe.org • e-mail: [email protected]
www.developmentinstitute.org
Page 4 of 4
doc_509969637.pdf