One of the main factors that discourage entrepreneurs from starting a business in the Gulf is the taboo of failure. Young men and women worry that if their project is not a success they will be forever labeled as failures rather than pioneers who tried their best. But the truth is that the taboo of failure does not only run in the young. It exists largely because it is not tolerated at the highest levels.
I always believe that each person should be encouraged to do their best. If they aren’t successful in a particular task, they should move on and keep the valuable lessons they gained from their experience.
In the Gulf it is no secret that many investment firms, real estate developers and banks have messed up. These companies over stretched their arms so far that they actually missed their targets and ended up in heavy debt. In some cases these firms had to resort to government bailouts - a term that was never used in the Gulf's dictionary.
So why are these institutions safeguarded from failure? Over 100 financial institutions have been allowed to fail in the US, including some of the most prominent ones, such as Lehman Brothers and Bear Sterns. In the UK, Northern Rock and HBOS are also examples. The same phenomenon can be seen all over the world but rarely in the Gulf.
We must keep in mind one rule of life that will never be changed: taking high risks to secure high returns also has a downside. No government in the world will be able to reverse that rule. When Gulf Bank in Kuwait took unnecessary risks by venturing into the derivatives and options markets - even though one board member who later became its chairman admitted that he had no idea what derivatives are - the bank failed miserably and had to be bailed out to the tune of KWD375 million. Rather than allow the bank to go under or be bought by another financial institution, the chairman stood down in favour of his brother, who, as a board member was witness to the risk taking.
In the UAE one government-owned developer is responsible for most of the owner’s debt and yet no changes have been made at the top. Also, banks across the Gulf have irresponsibly lent over US$10 billion to Maan Al Sanea’s Saad Group. This issue is so sensitive that a war of words broke up between the governors of the central banks of the Gulf via the Arabic media. Each one blamed the others for lack of supervision. Frankly, they are all responsible, but no one is willing to admit failure because this word does not exist in our dictionary.
In another case one Kuwaiti businessman committed suicide after allegations that he misappropriated several million dollars. Compare this with Bernard Madoff who is responsible for a $65 Billion fraud scheme and went about his life casually until his sentencing. In the Gulf you see, failure is taboo.
When a person is at the helm of a job, he may try his best and err. He should be replaced, but, ultimately, life goes on. There is no need to borrow billions of dollars to invest into bailing out failed individuals or the foreign firms they invested in to avoid labeling these investments as failures. After all, investment is a part of life; you can’t win all the battles. Bailing out these banks and investment institutions actually sends the wrong message in some instances. That message is: "You can be irresponsible with the public’s money but the government will jump right in and save you." The correct message should be: "Try your best but if aren’t successful move on with life."
Governments will never be able to secure jobs for all the region's youth in the public sector. Expanding the private sector and encouraging entrepreneurship are the only ways that we will be able to accommodate the aspiring youth of the region and secure the growth that we aspire to. In that process, failure is not uncommon. Not every new business that is started will be a success. By maintaining the taboo of failure, however, we are discouraging people from starting businesses, and that is the real failure of our societies.
How do we in the Gulf expect the young and hesitant entrepreneurs to take risks and start their own businesses when our governments frown upon failure?
*This article first appeared in Moneyworks magazine in the November issue.