Editor’s Note: This is the third in a three-part series of commentary connected to the release of a joint report by the Middle East Youth Initiative and Silatech on the state of social entrepreneurship and social investment in the Middle East, part of the Taqeem project. This commentary focuses on the United States’ role in promoting social entrepreneurship and innovation through knowledge sharing and new development assistance tools.
Almost a year ago, when President Obama gave a historic speech at one of the most prominent public education institutions in the Middle East, Cairo University, he promised a new thrust of engagement between the United States and Muslim-majority countries. The recent Presidential Summit on Entrepreneurship took this effort another step further by bringing together key changemakers leading the way in business and social development.
The summit was a showcase of public diplomacy. Amid the line-up of speeches and panel discussions, a bevy of partnership initiatives were announced, but perhaps the most significant outcome for delegates in attendance was the motivational recognition by policymakers that entrepreneurs are integral players in development. The United States’ relations with the Middle East and Muslim-majority countries around the world have long been shaped through the lenses of Arab-Israeli conflict, religious extremism, military aid, oil, and nuclear proliferation; hence the Obama administration’s intentional focus on youth, social entrepreneurship, and economic growth may be viewed as a welcomed new tack.
This targeted attention to development and partnership with innovators in Muslim-majority countries dovetails with broader efforts to forge more coherent U.S. policies to promote global development. To be more effective, one thing the U.S. must do is reform the way it manages and implements its foreign assistance. The U.S. administration has taken up this call, with everyone from the Secretary of Defense and the Secretary of State to the head of the U.S. Agency for International Development and President Obama himself explicitly urging new approaches and a fundamental modernization of the U.S. bureaucratic aid infrastructure. Strategic reviews within the executive branch have been propelled by a strong external community of interest, including a crescendo of attention from key foreign affairs leaders in Congress.
This churning discourse within U.S. policy circles provides a significant window of opportunity to make further progress in the direction the Obama administration is taking. New approaches to development and focused efforts that leverage U.S. comparative advantages through partnerships with innovators in key countries and regions around the world are needed to more effectively reduce poverty and suffering, spur opportunity, and foster greater government accountability to citizens.
One emerging and increasingly recognizable approach is social entrepreneurship. Across the Middle East, social and business entrepreneurs have proven to operate effectively in the most complex circumstances, yet their numbers are small and their impact still in need of scale. To date, there is little incentive or opportunity to start one’s own business due to the high consequences of failure and limitations to accessing credit, technical assistance, and policy support. In many countries of the region, the laws and regulations that govern business and civil society – while recently seen as more open – are still somewhat restrictive to the growth of either sector. As a result, communities lose potential gains in innovation, income generation, and broader economic opportunities.
There are three main areas where governments – domestic or foreign – can affect the development of social entrepreneurship: i) creating, supporting, or enforcing the appropriate regulatory framework for the functioning of social enterprises; ii) rewarding successful social entrepreneurs and social enterprises through recognition, procurement and partnership, and iii) developing and sustaining the broader ecosystem for social entrepreneurship.
The U.S. is well-positioned to support efforts in the Middle East to scale up entrepreneurship that yields economic growth and social gains. While technology transfer, networking, and other convening platforms are important milestones in the broader U.S. reengagement effort, there also needs to be an integrated institutional approach for long-term impact. Such an approach would ensure that official development assistance tools and regulatory frameworks governing all sectors related to entrepreneurship encourage or produce complimentary results on the ground.
Two key areas for U.S. engagement toward a more comprehensive institutional approach include:
Transfer of Knowledge
Through technical assistance, the U.S. can transfer knowledge and expertise in legal and regulatory issues to legislators in the Middle East. It can collaborate with regional governments to support dialogues that would bring together policymakers, social entrepreneurs, the corporate sector, social investment funds, and international donors. These discussions can address key priorities such as the introduction of hybrid legal models to encourage social enterprises and an exploration of potential legal models to support the establishment of social investment funds.
These policy dialogues should result in an action plan on how to introduce legal structures that are more conducive for social enterprises and social investment. The U.S. is strategically positioned to be a model of good practice as it is one of the very few countries with a hybrid model to encourage social enterprise development. For example, the low-profit, limited liability company legal form (L3C) is an entity which allows for-profit initiatives that are addressing social problems to accept selected philanthropic funds.
Access to Capital
Through official development assistance (ODA), the U.S. government should aim to i) support incubators and seed funds targeting youth-led social enterprise start-ups, ii) invest or channel aid through financing mechanisms that are specifically designed to replicate programs and activities which have proven successful in reaching base-of-the-pyramid (BoP) markets, as well as encourage other donor countries and organizations to do the same, and iii) elevate the importance of better evaluation measures and clear benchmarks for success.
More generally, U.S. foreign assistance to the Middle East could be more explicitly oriented to reducing poverty and creating economic opportunity. The Obama administration has requested an increase of total bilateral assistance to Yemen of almost 60 percent for fiscal year FY11 as compared to its current assistance package. Yet almost 50 percent of the requested aid is planned for military and security support with a 17 percent decrease in funding for economic growth. In Egypt, where total bilateral assistance amounted to 1.6 billion dollars in FY09, 1.3 billion went toward military aid while only 230 million went to areas ranging from education, social protection, trade and investment, and economic opportunities.
To effect real change, the U.S. will need to both reach social entrepreneurs on the ground as well as stimulate broad-based economic growth through long-range foreign assistance and development policy instruments. In her closing remarks at the Summit, Secretary Clinton announced the Partners for a New Beginning to engage the U.S. private sector in helping advance the development agenda with Muslim-majority countries. This public-private partnership may develop into a successful example of how government can build on the entrepreneurial strength of the private sector to strengthen policy, spur innovation, and deliver better services to communities.
 Department of State, “Congressional Budget Justification: Foreign Operations, Fiscal Year 2011.” http://www.state.gov/documents/organization/137937.pdf.