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 / Spring 2014 / Issue 74(originally published by Booz & Company)


Corporate Social Responsibility’s New Role in the Middle East

An urgent need for job growth is spurring an innovative trend in CSR and high-minded commercial initiatives.

In most developed nations, corporate social responsibility (CSR) initiatives center on issues such as environmental sustainability, alternative energy, clean technology, and social welfare. Driving these activities, more often than not, is a company’s desire to appeal to strong consumer sentiment.

But in the Middle East and North Africa (MENA), CSR is becoming something fundamentally different. It is focusing less on catering to consumer attitudes, and more on addressing social and economic challenges that are hindering development, most notably the shortage of jobs.

The scale of unemployment is enormous in the region (as it is in other developing regions with young populations). The Middle East alone must create 75 million jobs by 2020—a 43 percent increase from 2011, according to the World Economic Forum (WEF). Failure to put large numbers of people to work, particularly young people, could have severe consequences in terms of social unrest and lost economic activity, the WEF has said. By contrast, strong and sustained job creation begets more robust economic activity and political stability, creating a virtuous circle of growth.

However, the responsibility for all this job growth should not and cannot be laid at the feet of traditional employers—large private and state-owned companies. Indeed, one structural weakness of many developing countries is their overreliance on relatively few companies to drive the economy and soak up labor. To diversify their economies, make them more resilient, and put more people to work, these countries need more robust activity among small and medium-sized enterprises (SMEs), which form the backbone of economic stability and job creation in the developed world (see Exhibit). In Germany and France, for instance, SMEs account for 60 percent and 61 percent of employment, respectively. Yet in Saudi Arabia and Egypt, SMEs account for only 25 percent and 38 percent of jobs, respectively. In the U.K., U.S., Germany, and France, SMEs contribute a little more than half of GDP, whereas in Saudi Arabia and Egypt the contribution is just 25 percent and 33 percent, respectively.

How Companies Can Help

Both local governments and the private sector in the Middle East increasingly realize they have vested interests in clearing a path for SME creation, and they are beginning to act on those interests. For instance, the Ministry of Labor in Saudi Arabia has identified 36 initiatives, seven under development, as part of its “SME Ecosystem” project. These initiatives include a digital gateway that provides information on requirements for startups in different industries, restructuring the SME funding process, and encouraging the creation of accelerators.

Accelerators, which are becoming more popular in the Middle East, are short-term programs that usually involve some funding, formal training in a managed office space, and access to experts and mentors to help develop ideas.

In recent years, nearly half the governments in the MENA region have implemented regulatory reforms that make it easier to do business, according to the World Bank. These initiatives, and others like them, have yielded some early successes. A report issued by Dubai Internet City and Frost & Sullivan, for example, states that from 2005 to 2011, the number of startups in the MENA region grew eightfold.

Still, the pace of change remains too slow given the scale of the economic and employment challenges facing the region in the coming years—and some large established companies are waking up to this fact. They are starting to design CSR initiatives, as well as some profit-minded ventures, that align with their government’s SME and job creation goals. Much of the companies’ motivation stems from a more rounded understanding of self-interest. All large companies depend on the health of the domestic business environment for their staff and subcontracted work, on top of needing a market for their goods and services. Plus, an SME sector that is creating jobs reduces the pressure on large companies to hire people they don’t need just to reduce unemployment.

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