Can startups be a solution for job creation?

Marmore MENA Intelligence

Globally, start-ups have become a raging sensation and mostly commonly, they are equated with tech-startups, which is a flawed presumption. Though there is no precise definition for start-ups, it can be loosely defined as an early stage entities from various sectors working towards innovation, implementation and commercialization of products and services, in most cases supported by technology.

The GCC region too has caught-up with this global phenomenon and has some successful start-up stories to boast about. Start-ups are being projected as forerunners of economic growth through job creation and also pursued as the solution for job creation. However, to what extent this presumption about start-ups holds well is debatable.

Do start-ups create jobs?

Sectors 2012 2013 2014 2015 2016
Total 137,770 6,869 393,267 292,048 142,063
Construction (27,780) (124,608) 99,087 69,313 56,937
Trade & Repair Services 56,312 41,756 80,811 77,402 8,761
Manufacturing 11,156 (2,139) 30,554 (16,527) (423)
Real Estate 44,091 33,795 78,910 41,158 33,716
Transportation 14,243 24,133 38,113 11,223 11,588
Hotels & Restaurants 17,072 21,950 23,677 (3,431) 11,644
Community Services & Others 5,310 6,251 10,833 74,325 7,271
Educational Services & Studies 5,591 2,243 7,859 7,660 7,654
Financial Intermediation 1,690 2,571 5,699 2,240 3,312
Others 10,085 917 17,724 28,685 1,603

Source: Ministry of Human Resources and Emiratisation

Prior to answering the question-if start-ups can be key to the growing concern of unemployment in the region, the effectiveness of start-ups in job creation has to be assessed. The Y-o-Y increase in jobs and establishment in the UAE across sectors most cases has resulted in incremental jobs. It is however obvious, that the growth in the jobs on the account of newer establishments coming into existence has be not been consistent within/across sectors.

For instance, the educational sector employment strength increased by 2,571 employees while 61 new establishments were set-up in 2013. Similar level of job creation was witnessed in 2015 in the financial sector but there were only 20 new establishment set-up.

Increase / Decrease Establishments 2012 2013 2014 2015 2016
Total 7,758 4,066 15,812 13,968 -
Construction 1,086 (478) 2,713 2,090 2,698
Trade & Repair Services 3,369 2,388 5,328 3,517 451
Manufacturing 368 (271) 1,295 (467) 216
Real Estate 1,388 1,489 2,229 452 3,679
Transportation (813) (692) 837 (79) 153
Hotels & Restaurants 934 873 1,154 570 1,329
Community Services & Others 1,052 813 1,082 5,686 703
Educational Services & Studies 109 56 163 536 131
Financial Intermediation 49 61 170 20 159
Others 216 (173) 841 1,643 (1,921)

Source: Ministry of Human Resources and Emiratisation

Contrary to the trend in the financial sector discussed above, in the construction sector 1,086 new establishments were set-up in UAE in 2012, yet, the industry employment strength decreased by 28K. Similarly, the transportation sector witnessed a drop in number of establishments during the years 2012 and 2013, but this didn’t result it drop in the growth in employment, rather the sector employee strength increased by c.30K.

Start-ups a solution for job creation?
Looking at start-ups as a solution for job creation may not be a very wise stand. Based on the employment-established Y-o-Y growth/decline trend across sectors, it is evident that in most cases newer establishments have led to job creation. Though the newer establishments would have led to job creation, in some cases, they have failed to make an impact and the industry on the whole witnessed drop in employment.

The inherent high failure risk of start-ups could cause significant volatility in the job the market. The solution for the job creation should be more stable and consistent and not something which is unpredictable. Moreover, the early stage of start-ups would limit the employment generation, as they tend to run leaner operations to preserve cash and invest it in the business. The employee strength of the start-ups discussed in the table below establish the idiosyncratic nature of start-ups. Depending on the nature of the start-up, a five-member startup could create a much larger impact than a 50-person startup. Therefore, start-ups should be considered as potential source of innovation rather than solution for employment generation.

Name Employee Strength Description Sector Founded
Remitr 50 Money transfer appFinancial Services 2016
Boxit 10Connects consumers with storage facilities Transportation2016
Wing 200 Delivery service Transportation 2016
THE LIST 50 Marketplace for luxury collectibles Retail 2016
Justmop.com 10 On demand home cleaning services Others 2016
Shedd 50 Fashion reseller app Retail 2015
Wrappup 10Smart recorder Others 2015
InstaShop 50 Grocery delivery appRetail 2015
ChefXchange50 Book private chefOthers 2015
ShortPoint 50 SAAS Web design platformOthers 2015

Source: Forbes, LinkedIn

This blog was original published on www.emarmore.com. Marmore MENA Intelligence is a research house focused on conducting Mena-specific business, economic and capital market research. We welcome questions from our readers through email at research@e-marmore.com, or via twitter @marmoremena

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