UAE and India are now the best places to start a business, but western countries still beat them in one key respect

The United Arab Emirates (UAE) is the best place in the world to start a new business, according to the latest annual Global Entrepreneurship Monitor (GEM) survey. The Arab nation is number one for the third year in a row thanks to a big push by the government into cutting-edge technology in its efforts to diversify away from oil.

Four out of the top five countries in the GEM rankings are in the Middle East or Asia, with India second, Saudi Arabia third and Qatar fifth – the only exception being Lithuania in fourth place. This 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.

The UAE has made particularly steady progress, progressing from fifth on the list in 2019 to the lead ranking. Saudi Arabia has risen from 17th to third, while India is up from sixth to second, having shaken off a pandemic dip in between.

Western economies have slipped during the same period. So why has this been happening and what will matter most in future?

How the survey works

Entrepreneurship is a major driver of global economic growth. It is greatly affected by a country’s regulations, education system, financial institutions and overall culture. By evaluating these variables, you can get a good understanding of the entrepreneurial climate.

GEM captures this each year through a national expert survey that goes out to a range of entrepreneurship ecosystem stakeholders, including business leaders, government officials and academics. This year, 49 countries participated in the survey including most countries in the G20 (with exceptions like Australia that didn’t participate in the most recent survey). From this, GEM produces a rating of 13 different entrepreneurial conditions to create the annual index.

GEM rankings 2019-2023

The 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.

In the UAE, for instance, there have been initiatives such as Projects of the 50, which includes priority visas for entrepreneurs and top students, particularly in areas like artificial intelligence, digital currencies and coding. It also includes pushing national adoption of leading technologies.

The government used Expo 2020 as a campaign to promote the Emirates as an attractive destination for business, as well as changing certain rules to make it easier for foreign investors. Notably, this included allowing for 100% foreign ownership of companies in 2021. The Ghadan 21 business accelerator programme has also been spending AED50 billion (£11 billion) in Abu Dhabi since 2019.

The Saudis are also focused on diversifying away from oil, and entrepreneurship is one of the top priorities in Saudi Arabia Vision 2030. This has seen the national enterprise development agency, Monsha’at, doing things like promoting university startups and fast-growing ventures.

The country has been trying to make it easier for entrepreneurs to access finance through initiatives such as the Saudi Public Investment Fund and Saudi Venture Capital Company, while there has been targeted support for female entrepreneurs.

To attract foreign talent, the Saudi government also approved a new residency scheme in 2019 and an instant labour visa in 2023.

In India, there has been a lot of emphasis on innovation in the country’s New Education Policy, which was introduced in 2020 to raise educational standards across the board. Many school students have also been inspired by a nationwide initiative called the Atal Tinkering Lab, which inculcates curiosity and design mindset through science projects, while the popular TV show Shark Tank (called Dragons’ Den in some countries) has fired up dinner-table discussions about things like “equity” and “product-market fit”.

East v west

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. Incidentally, the UK was ranked 21st overall five years ago and is currently 22nd.

Western economies are still ahead in one important respect, however. When you look at countries like Switzerland, France, Norway and Germany, over 30% of their entrepreneurs are in business services.

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% of businesses in Saudi and over 70% in India, while in the UAE the most recent figure is over 60% in 2022.

In Saudi and India, business services such as IT and professional services are less than 10% of entrepreneurial activity overall, while in UAE the 2022 figure was less than 20%.

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.

It’s also worth pointing out that 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.

Skills imparted through entrepreneurship education such as creativity, innovation, experimentation, a growth mindset, and overcoming the fear of failure will be fundamental requirements in a world where disruptive technologies are evolving at a breakneck pace.