x Abu Dhabi, UAEWednesday 17 January 2018

Underdog principle to tackle jobless problem

If investors look to the unconventional and put their money and know-how behind SMEs they have a chance of tackling the youth unemployment blight.

Hannibal's elephant riding Carthaginian army inflicted defeats on the Romans even when heavily outnumbered. Time Life Pictures / Getty Images
Hannibal's elephant riding Carthaginian army inflicted defeats on the Romans even when heavily outnumbered. Time Life Pictures / Getty Images

Pursuing an unconventional strategy has been proven in the past to greatly improve the odds of overcoming seemingly insurmountable challenges. Take Hannibal's army of 50,000 in 216BC for example, which was outnumbered against a Roman force of 86,000, but defeated its stronger opponent by adopting a bold strategy.

This involved deploying his weakest troops in the centre, facing the concentrated thrust of the strongest Roman infantry, while positioning his most experienced troops on the sides, allowing the Carthaginian troops to encircle the Roman infantry and inflict a comprehensive defeat.

We consider such unlikely victories as statistical anomalies. However, the political scientist Ivan Arreguín-Toft analysed wars fought in the past 200 years and found that when the weaker side fought with an unconventional strategy, its winning ratio more than doubled to 63 per cent.

The same lesson can be applied to modern-day challenges. The Middle East and North Africa (Mena) region faces high youth unemployment with 25 per cent of those under the age of 26 being jobless. This high unemployment rate translates into an annual loss of US$40 billion (Dh146.92bn) to $50bn, equal to the GDP of Lebanon or Tunisia. This economic disempowerment was at the heart of the Arab Spring.

Until now, governments and development institutions have relied on conventional strategies to solve the challenge of youth unemployment, with one such approach being to exploit natural resources. This has prevented the emergence of a strong private sector while only increasing reliance on oil and gas, which account for 80 per cent of merchandise exports of Arab countries.

A second approach has been to rely on the public sector as the engine of job creation. However, food price inflation and demographic changes have stretched the resources of governments and they are no longer able to create a sufficient number of jobs.

The third approach has been to utilise foreign aid. Mena has been the largest recipient of development assistance on a per-capita basis, receiving $73 per capita as compared to $49 for sub-Saharan Africa in 2008. This has built dependency rather than developed capacity within the economies.

It is evident that traditional economic models have not delivered, and perhaps an unconventional approach is needed to solve the youth unemployment challenge.

An unconventional approach could be to back innovative business ideas of entrepreneurs - especially emerging enterprises or small medium enterprises (SMEs), According to research by the European Union, a dollar of investment in SMEs creates twice as many jobs as in large corporations.

In sub-Saharan Africa, research shows that enterprises the Abraaj Group has invested in have created jobs and now employ more than 19,000 people. A specific example is Brookside Dairy, a leading Kenyan milk processor, which indirectly supports about 200,000 Kenyans in its value chain.

This strategy can be risky, however, because smaller businesses may be more likely to fail than a more established company.

But if successful, investing in home-grown entrepreneurs that are generating economic wealth fuels a sustainable engine of job creation. This is an unconventional and bold alternative to the existing models that are no longer wholly effective.

Two millennia later and not far from ancient Carthage, now a suburb of Tunis, entrepreneurs such as Dr Alya El Hedda are deploying Hannibal's ingenuity in defeating economic disempowerment. Dr El Hedda left a safe job with the ministry of health to start her own business in 1988. Her generic drug manufacturing business, Opalia, has grown by 15 per cent per annum over the last five years, employs 350 Tunisians and generates foreign exchange through exporting 13 per cent of its turnover. Through Dr El Hedda's efforts and skills, Opalia, with the support of Abraaj since June 2009, has developed 150 generics - a complicated process requiring highly trained human capital and strict compliance with international standards - and been a role model as wealth and job creators.

The ultimate story of an unconventional strategy overcoming a stronger adversary is David's victory over Goliath. Realising that a conventional sword stands no chance against a bigger and stronger opponent, David took the risk of using an unconventional weapon, the slingshot and five smooth stones. Much of the old economic order in the region is geared towards conventional "weapons" to defeat the challenge of youth. Now, more than ever, the unconventional strategy of empowering entrepreneurs through investment in growth enterprises is needed to defeat the Goliath of youth unemployment.


Malik Ahmad Jalal is vice president at the Abraaj Group, a private equity investment company