As a graduate student at New York University, Alia Mahmoud was penning her master’s thesis about the role of private sector development in post-conflict countries when Tunisia’s revolution began. Although the country wasn’t emerging from a war per se, she noticed similarities with her father’s native Tunisia in transition and post-conflict societies. With the extraordinary circumstances paralleling her interests and work, she planted herself in the capital in June 2011.
Mahmoud says she’s felt welcomed, and in her role as the managing director of the Maghreb Enterprise Development Initiative, affiliated with the Mediterranean School of Business, she dove into research and partnership-building around the entrepreneurial ecosystem in Tunisia. She speaks expertly about the lay of the entrepreneurial land and recently joined Microsoft Tunisia, where she wears two hats — as director of the Microsoft Innovation Center, which incubates tech entrepreneurs and startups — and as the citizenship program manager, where she oversees corporate social responsibility initiatives on youth employability and sustainable development. She is also a member of Global Shapers — an initiative of the World Economic Forum that seeks to mobilize youth to have an impact on their communities.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: How would you describe the entrepreneurial landscape in Tunisia?
Alia Mahmoud: I feel like even just the concept of entrepreneurship is something that is sort of new, in the sense that, even those who are entrepreneurs or have been entrepreneurs never considered themselves entrepreneurs until the whole post-revolution, Arab Spring lingo flowed in from the rest of the world, until all the donors wanted to support entrepreneurship and Arab Spring entrepreneurship and small-medium enterprise development post-Arab Spring.
I think that these people were already working, but were never put in this box of, ‘Oh, you’re an entrepreneur, what are you doing?’ They’re like, ‘I have a company; that makes me an entrepreneur? OK.’ I think also that there was a negative connotation for private sector, for successful private sector actors before, inevitably because it meant in some way that they were in cahoots with the old regime. So now there’s this new wave, ‘I’m an entrepreneur and I have nothing to do with the old regime.’ Meanwhile, the very successful companies from the old regime have sort of been burying their heads, which has created this dynamic where you’re seeing all the newbies being featured a lot more, which is interesting in a way because it gives them an opportunity to shine and it gives them an opportunity to maybe have access to opportunities that they didn’t have before when they were in the shadow of those who were much closer to the regime.
But also the landscape has changed dramatically due to the influence of outside organizations coming in. As I mentioned, whether it’s from the U.S. perspective or a European perspective, developing entrepreneurship in Tunisia during the transition has become one [of] the main goals at the economic level. So whether… they’re working on high-level economic reform, whether it’s with the financial system or the central bank or the stock exchange, on the ground level, everybody is promoting entrepreneurship development. So it’s very quickly become a lingo… every program manager, every person visiting from these international NGOS is looking at entrepreneurship — which I think is good and bad.
Arabic Knowledge at Wharton: What do you mean by the increased interest from outsiders in entrepreneurship development as being "good and bad?"
Mahmoud: Good, in the sense that we should be talking about entrepreneurship. I think it’s a good thing in that I genuinely believe in the role of entrepreneurship in post-conflict countries or in-transition countries. Developing a local private sector that will drive the economic growth of the country, create jobs and hopefully boost innovation, I think it’s extremely important.
But I think it’s bad, in the sense where people come in with a mission to support entrepreneurs, so they’ll go about labeling people as entrepreneurs — maybe that’s not what they need right now, maybe they’re not yet entrepreneurs, maybe it’s just somebody with an idea and that’s fine. But there’s this effort to sort of put everyone in a basket of, ‘Oh, I’m working with entrepreneurs, I’m working with entrepreneurs…’ We don’t really have to call them that; supporting businesses is great, but I think because of the very wide application of the term, it’s starting to lose meaning.
Arabic Knowledge at Wharton: So then, what or whom is an entrepreneur to you? Who’s allowed to be called an entrepreneur?
Mahmoud: To be honest, it depends. I don’t have a very strict definition of it… There are people that like to make the difference between an ‘entrepreneur by necessity’ or ‘an entrepreneur by opportunity.’ So there’s a lot of people who don’t want to consider an entrepreneur the guy who opens a store on the side of the road… There are others that only want to consider entrepreneurs those that are "innovative," which then brings me into a whole other issue that bothers me, which is how people like to define innovation. People come in with different concepts of what innovation is and in Tunisia, there’s still this consideration locally that innovation has to be like a new shiny machine that like flashes or does something new, when really "innovative" can be something that has already been done all over the world, but it’s never been done here.
So, I don’t necessarily think that it’s a bad thing to have a broad definition of entrepreneurship or to want to support entrepreneurs. I just think that people who come to Tunisia and want to do programs with entrepreneurs just need to be careful about the kind of impact that they want to have, and in what way they want to support them, because there are a lot of organizations — they come and they do a program with them and there’s not really a lot of follow-up, there’s not really a lot of support or building of the local ecosystem. They come and they do a competition or they do a program, they do a training session, which is great, and then they leave. But what’s the linkage with the sustainability of that initiative?
Arabic Knowledge at Wharton: How would you describe the existing resources available to entrepreneurs in Tunisia? What infrastructure is already in place?
Mahmoud: Whenever I think about an entrepreneurial landscape, I kind of think about it on three major levels. The first one is education. In Tunisia, there’s a history in the educational system of prioritizing quantity over quality, which means that they wanted to churn out the highest number of graduates in elite fields, whether that be doctors, dentists, lawyers, engineers, all of the above, to be able to say, ‘Look at how highly educated our population is, we have this many hundred-thousand engineers graduating, we have this many doctors.’ Which is not a bad thing, You see the result whenever people used to talk about Tunisia, they used to cite the highly educated middle class population, which is not false. However, you can only grow these sectors so much to be able to absorb all of these engineers; it’s not like we have NASA in Tunisia. What are you going to do with all of these highly educated engineers? And unfortunately, these people were never equipped with any entrepreneurial skills, they were technically equipped to be specialists, but they can’t sit for an interview; they have no idea how to write a CV, how to make a presentation or… how to sell themselves or be creative. It was not part of the educational system.
And so that, for an entrepreneurial ecosystem, is extremely detrimental, because you’re churning out people that don’t have problem-solving skills, critical-thinking skills, the ability to work on a team; all of these things that were not prioritized by the higher education system. Which is why it is remarkable here: you talk to so many startups, who for the life of them, cannot find an office manager [to] manage the schedule, call the meetings, manage travel, pickup phones, be polite and cordial with people who walk in the door, write meeting minutes, share them among the staff, coordinate. You can find an engineer that can code a rocket ship more easily than you can find an office manager.
…In order to have a healthy ecosystem, in order for entrepreneurs to be able to thrive, you need to have a good banking system and also venture capital and private equity. Both of these things are lacking in Tunisia… There are far too few banks that run the show. There should be more banks providing more options and opportunities to entrepreneurs. Getting credit here, like in many other emerging market countries, is a nightmare because it’s a very risk-averse country. Or I should say risk-averse financial sector. You hear nightmare stories from entrepreneurs about just getting a loan, they have to put a house down as collateral, or their parents’ salary, or a piece of land their grandfather gave them, to get a loan.
The reason it’s so hard is because there’s not enough financial services at the early stage. For a startup, for example, it’s hard to get seed funding, the first investor that’s going to take that chance on you, ‘I’m going to give you 100,000 dinars, because I believe in you,’ that doesn’t happen here. There’s very few business angels, there’s very few venture capitalists, that have that sort of financial liberty to be able to make those risk investments. There are a couple of seed funds that have popped up, which is good to see…
What they did here in Tunisia is they started something called SICAR, it’s the French model [société d’investissement à capital risque] which is basically the rough French translation of venture capital. There are about 20 SICARs in Tunisia… there are essentially two different kinds of SICARs: the first one is a bank spinoff, a little agency called the SICAR of the bank, where technically this SICAR is supposed to take riskier investments that don’t necessarily follow the bank’s regulations of the credit requirements.
But the problem is once again, like the teachers, the SICARists are bankers and they were bankers and then they swerved into this spinoff. So they still think like a banker and they still read business plans in the mentality of a banker. And the other problem with SICARs is that… a bank gets a tax write-off for having a SICAR, but they don’t have an incentive based on the success of the companies they invest in, they only have an incentive on the amount of money they invest. So what the SICARS will do is invest, but not necessarily in the best companies, not necessarily in the ones with the highest potential or the highest revenue and then they don’t really follow up, because they don’t really care. ‘Whether you really succeeded or not is fine, it’s just cause we can quote that we invested this much money.’
The other good thing — good and bad — the public sector has more than 15 financial instruments to help entrepreneurs. They’ve been created for all different ways of providing incentives for people to start businesses. They’re good in a way because they work for some entrepreneurs. They’re bad in the sense that there’s too many of them; nobody understands really how they work and nobody knows really who governs them. It’s this other thing that we’ve inherited from the old regime: when something is broken, instead of fixing it, create a new one. So you end up with this multi-layered bureaucracy of nobody knows who is responsible, who started it, and how it works. Which is why if sometimes an entrepreneur wants to take advantage of one of these instruments, they’ll get shuffled around to 12 different offices and end up being so discouraged that they give up. So in theory these instruments are supposed to help them, and in reality, a lot of the times, they don’t.
The one that works and that entrepreneurs generally like is called FOPRODI [Le Fonds de Promotion et de Décentralisation Industrielle]. FOPRODI is an instrument that helps them with their working capital. So a lot of the times in order to get a credit, you need 10% of the credit from your own personal capital. A lot of these entrepreneurs don’t have any money. FOPRODI will give you that 10% of the credit that you’re asking for and once you have the credit, that allows you then to get the investment from a SICAR or another investor. So it sort of helps the entrepreneur fill that hole in the chain of their financing that doesn’t let them get any further, if they don’t have it. So a lot of people say they need to reform FOPRODI and a lot of entrepreneurs say, ‘No, don’t reform it.’ It’s been around for 35 years, it’s helped a lot of people start their own businesses. I think, in terms of finance, that’s sort of what’s holding it back. There are the public finance instruments; they don’t work very well, there’s a nascent venture capital scene, but it’s still not there and then access to credit is very difficult.
In Tunisia, there are 26 pépinières — a loose translation in English for incubator — they’re basically a public structure under the ministry of industry and technology, which is then governed by the agency for promotion of industry and innovation… [It] has this network of 26 incubators in every single governorate (there are 24 governorates, plus two extra in universities). These incubators are supposed to be available to entrepreneurs to be able to help them write their business plan, help them start out… It doesn’t work the way it’s supposed to; they’re badly managed. The people who work there are public functionaries, they have no incentive to see the success of the person walking in the door; their pay doesn’t change; their hours are never going to change; they’re never going to get a bonus if, of the 12 entrepreneurs walk in the door, 7 of them succeed and start their businesses; it doesn’t matter to them, so what’s their incentive to do better?
On top of these 26 incubators, there are 24 business centers, governed by another agency. So [the incubators and business centers] don’t actually communicate. The only difference is that the incubators are supposed to be in the sector of industry and business centers can be in any sector. Then there is something called the ‘spaces for entrepreneurship,’ which is another structure under another agency that is supposed to be a space for training for entrepreneurs. It’s a public space [where] you can come find a mentor, you can get certified in these two specific trainings that say you have entrepreneurship training. On top of that, there’s the vocational and professional training centers, which are governed by another agency.
It’s confusing and completely unproductive. When I first came to Tunisia and I started learning, I thought, ‘Whoa, this is incredible. On paper, they have this and this, it’s amazing.’ And then you start talking to people, you start talking to entrepreneurs, you start talking to people who work there, you start visiting them; you realize, ‘This is not an incubator,’ and the entrepreneur is telling you, ‘I got shuffled between all five of them and ended up with nothing.’
Arabic Knowledge at Wharton: In light of the present economic and politic realities now in Tunisia, is it even a good time to be an entrepreneur? What challenges does the country now face?
Mahmoud: I think that one of the biggest struggles with the economy now, at least related to entrepreneurship, [is] the inability to attract investment right now. On the one hand, you have a deadlocked political system, where the opposition so badly doesn’t want to see the ruling party succeed that they will block economic success to prove that they’re incapable. So even people with maybe some good ideas and maybe some decent economic programs that they could push through, won’t do it, because they don’t want the success to be reflected upon the ruling party. It’s to the point of pettiness where elections are coming up soon, ‘We’re not going to push something innovative and amazing through to boost the economy, because then that’s going to make people think that Ennahda [the ruling party] is succeeding… So there’s this pettiness that governs the political system, that basically leaves everyone in deadlock. It makes nobody want to make a decision, because they don’t want to support the other side.
It’s to the point where it’s become, thus far since the  elections, ingrained that politics is for them [the politicians]. It’s about their success, it’s about their sustainability. It’s not about, ‘Put the people first, put the country first.’ It’s about, ‘What about me and my party? [People ask] aren’t you guys supposed to have the mindset that you’re here to change the country, you’re going to be revolutionary, since you were voted in by the people for the first time? No, they’re already getting comfortable, they’re already behaving as, ‘We’re here, not really showing anything, not showing any results.’
That prevents foreign investors. When they look and they see that the political situation is deadlocked and nobody is making any moves, that prevents foreign investment. People don’t want to invest in a country like that. Plus, they want to wait and see what happens in the elections… So if the political situation can improve, at least in the sense of prioritizing economic development and foreign investment over their petty political problems, I think it could actually get somewhere. But they’re not.
The other problem — the inconvertibility of the dinar — is going to have a detrimental impact as this country grows. The Tunisian dinar is unconvertible, in the sense that, I cannot take my dinar outside of this country. When I leave Tunisia, my Tunisian dinars are completely worthless. I cannot fly to Paris and arrive with 300 dinars and transfer them into euros. I can do it in Tunisia, with difficulty. So that means, what’s the incentive for foreign investors to gain dinars? Why would I invest in a country where my only return on my investment is going to be in dinars? Let’s say I make an incredible investment and I’m a risky investor and I come in from the U.S., and I make a million dinars… then what? How do I get my money out of the country? Nobody is going to take them. Nobody is going to change them. So, in the long-term it’s going to become a bigger and bigger problem, and it’s going to once again prevent foreign investment from coming into the country. Because the only thing you can do with your damn dinars is reinvest in the country, which is OK, I could buy a building, which could then make money; then maybe I could start a bank account that has double currency, which then I could technically bring in my dollars and spend dinars; there’s ways about it in the longer term if you’re an investor that wants to stay, that wants to buy property, that wants to build a factory. But for somebody wanting to come in and invest in companies, invest in entrepreneurs, invest in startups? No way.
The other thing, in terms of the unemployment issue in the economy, is that the hiring and firing policies are ancient. In order to fire someone, there’s an extremely long procedure, something along the lines, once again speaking generally, you have to give them a letter a month in advance with a warning, and then another letter, and then another warning, and then they can’t come to work, it’s like a suspension. The firing process is so unbelievably tedious. And financially for the company, it has to pay when they fire, six months of an employee’s salary after they fire them. It’s like a severance package, but for firing.
So there’s no turnover in the job market, think about it. [For] a new green, motivated, innovative, smart graduate, there’s no opportunity to be recycled in the job market because the useless, old, unproductive worker who has been in the same job for 20 years can’t get fired, because in order for them to get fired it’s a huge financial loss for the company. It’s a disincentive for the company to fire them, then they start rationalizing, ‘Why would I fire them? I should just keep them. It’s not like they’re losing me that much money, they’re just not being very productive.’ So then you end up with an unproductive working population and then a potentially much more productive unemployed population. And unless the labor laws and the labor code changes, guess what? When would a labor code ever change with a deadlocked government? So they go hand-in-hand.
Arabic Knowledge at Wharton: What are you doing in your role at the Microsoft Innovation Center to help facilitate entrepreneurship amidst such conditions?
Mahmoud: The purpose of Microsoft Innovation Centers [MICs] is really to serve as a community center, especially for the populations of universities, students, developers, people who are obsessed with technology, passionate about technology and IT professionals. So the MIC in Tunisia serves two purposes. One is that we have all of our programs for startups, for students, for developers, but at the same time, it’s a professional space where our partners — a Microsoft partner is either someone who sells Microsoft technology or does service to support Microsoft technology — can come and use the center. The nice thing about the MIC in Tunisia is that it really has become a space for startups, not necessarily all MICs, let’s just say it’s not a global mission for all the MICS to support startups. It’s much more about developers and students and technology, people who are obsessed with technology.
What I like about working with the Microsoft Innovation Center is that I can have an impact on the entrepreneurial ecosystem in a narrow way, in a specialized way. You work with people in a specific sector, with specific skills and specific talents that you can complement based on the core business skills of Microsoft. It’s very give-and-take in the sense that: ‘You want to develop software? I have the software you need to develop on. You need expertise in this software? I have the expertise to give you.’ It’s a matching process that makes a lot of sense. It is much harder to do when you’re an NGO. When you’re a company, you have core operational competencies. We are Microsoft, we are an IT company, we are specialists, in such and such technology; you’re a startup, you need that expertise, or you want access to that software, or that tool or that thing that will be able to take you from unknown to having a full-developed product. We can fill in that gap. And I think that’s the remarkable role that companies have to play in developing the entrepreneurial ecosystem in Tunisia. It doesn’t only have to be NGOs providing sort of generic entrepreneurship training. It can be companies that are specialized in HR providing HR tools to a company that needs HR tools to develop.
Arabic Knowledge at Wharton: What are the areas of growth where entrepreneurs could have an impact? For instance, is it in mobile and web applications or is it software or other areas?
Mahmoud: Apps, definitely. If there’s any reflection of the 21st century, it’s the rise of applications and smartphones. Think about the potential of an app. I’m a student and I’m a developer, and I’m really good at developing and I hook up with Microsoft as a ‘Microsoft student partner’ and the guy who mentors me — he’s called the ‘technology evangelist’ at Microsoft, it basically means ‘the geek’ — knows everything about all the technologies, about the coding, about the development, about how you go about it. You match up with him for your final project in your senior year. You code an app, you make an application that’s relevant to people around the world, whether it’s facilitating the access and the use of another Microsoft software — the most interesting thing is when people create an app to make a Microsoft software more easy to use. It sounds funny but that has global implications rather than developing something just for Tunisians, which is also cool. I like seeing local apps where it’s somebody created [a version of] the local card game called rummy — we play a card game in Tunisia called rummy, it’s like gin rummy but it’s a lot more complicated — it’s a very Tunisian thing that nobody else would care about, but Tunisians love it.
Other than that I would say IT definitely, the medical sector, pharmaceutical and tourism, [there’s] so much potential. It’s not necessarily a bad time, as long as you’re not looking for foreign investment. In a way, it almost has a positive impact on developing local investment, because there’s nowhere else to go. If that means a local angel business association creates successful businessmen, which has happened, that’s good. It’s not easy.