The GEM report ranks the best nations for starting business. / Global Entrepreneurship Monitor.

An independent and international academic study released this month, has delivered a reality check to widely held beliefs that western economies, Europe and North America, are the most conducive to starting a business.

According to the most recent annual survey conducted by the Global Entrepreneurship Monitor (GEM), based in London, United Arab Emirates (UAE) remains at the top of the list for the third consecutive year, while India is ranked in second place

With Saudi Arabia third, Lithuania fourth and Qatar fifth,four countries in the Middle East or Asia make up the top five for starting a business.  The ’usual suspects’  like France, the US, Germany and the UK do not make it to the top ten and are ranked 12th, 16th, 17th and 22nd, respectively.   

To achieve the ranking, entrepreneurship experts in each of 49 participating countries were asked to provide a score across 13 GEM Entrepreneurial Framework Conditions (EFCs) like government policy, access to entrepreneurial finance,  taxation, bureaucracy, commercial, physical  and professional infrastructure etc, that can enhance or hinder new business creation.

“The ranking is characteristic of a clear eastward shift in the quality of entrepreneurship ecosystems in the past five years, closely mirroring a similar shift in the world’s economic centre of gravity”, suggests Dr. Sreevas Sahasranamam, one of  nine named co-authors of the GEM Global report who represents GEM UK, 

 “Western economies have slipped during the same period,” India-born Sahasranamam told New India Abroad.

GEM report; author’s personal / The GEM report rankings of nations. Right: Co-author Prof. Sreevas Sahasranamam.

Why the shift to the East?

In a paper written jointly with Aileen Ionescu-Somers, lecturer in entrepreneurship, Université de Lausanne and executive director of GEM,  for the Australia-headquartered  global  academic journal, The Conversation  last week, Dr Sahasranamam gives a plausible reason for this ‘Shift to the East.’

“The explanations for the rise of eastern countries include greater government promotion of business creation, more emphasis on entrepreneurship education and changes in how business activity is viewed culturally, “ the paper states.

According to the study, in India, there has been a lot of emphasis on innovation in the country’s New Education Policy, which was introduced in 2020, a nationwide initiative called the Atal Tinkering Lab, which inculcates curiosity and design mindset through science projects, and the popular TV show Shark Tank (called Dragons’ Den in some countries), which has encouraged “dinner-table discussions about things like ‘equity’ and ‘product-market fit’.”

Meanwhile, the United Arab Emirates offers programs that give priority to students and entrepreneurs who excel in STEM fields, such as computer science, blockchain technology, and artificial intelligence.

Dr Sahasranamam explained the fairly recent decline in the business attractiveness of western Europe and the Americas, “The weaker performance of western economies has been very noticeable over the past five years. In 2019, four out of the top ten countries were Switzerland, the Netherlands, Norway and the US. All had lost ground by 2023, with Norway and the US no longer even in the top 15, while Switzerland and Netherlands dropped from being the top two countries to ninth and seventh place respectively.”

“The weakening of business conditions in these economies is potentially explained by the surge in inflation and higher interest rates that they have endured since the pandemic,” he opined.

Where the West excels

When compared to Eastern nations, Western nations like Germany, Switzerland, France, and Norway have more than 30 percent of their entrepreneurs working in the business services sector, the study claims.

“ The situation is quite different among the leading eastern nations in the GEM rankings, where most entrepreneurial activity focuses on consumer services like retail, hotels, restaurants and personal services. These represent 80 percent of businesses in Saudi and over 70 percent  in India, while in the UAE the most recent figure is over 60 percent in 2022. In Saudi and India, business services such as IT and professional services are less than 10 percent of entrepreneurial activity overall, while in UAE the 2022 figure was less than 20 percent.”

“These low numbers matter because companies providing business services tend to have higher margins, greater potential for scaling and greater barriers to entry. So, both in the global east and also in low-income countries, there needs to be more impetus and support for encouraging business services,” the study recommends.

Dr Sahasranamam concluded  by suggesting one area of  possible concern  for  many economies, including India– education:

“Entrepreneurship education needs more attention in most countries. In 31 out of 49 economies, it was rated as the weakest of the conditions assessed in the survey. Without addressing this, many potential new businesses may never come to fruition simply because a generation of schoolchildren grew up unaware that starting a business was an important option for their futures,” he asserted.