Interpreting Middle East Economic News and Analyzing Market Trends

Middle East high tech startups take off

Silicon-Valley-Middle-East-2013

Source:  Smithsonian.com

The Middle East has been a hotspot for tech start-ups lately.  This growing trend has been overshadowed by all the bad news coming out of the region since 2011.  Don’t expect any competition to Silicon Valley any time soon, but entrepreneurship is catching on in the Middle East in a big way.  Political troubles are only adding more fuel to the trend.

 

 … at one of the most turbulent times in modern Arab history, e-commerce is growing faster here than anywhere else in the world; sales in the Middle East and Africa increased by 70 percent in 2011 and continue to outpace every other regional market.

The spike coincides with a sharp rise in the number of Internet users, particularly Facebook users, in the Middle East and North Africa (MENA). Facebook users tripled from 2010 to 2012, partly because of massive online mobilization for street protests; today, Facebook users total close to 50 million, with an estimated 1 million new users joining every month.

Yet despite the rise, only 90 million people – less than half of the region’s citizens – have become Internet users so far, and only about a third of those currently pay for goods or services online, leaving the sector ripe for growth.

MENA Online users - Booz and Co

Source: The Economist

Young entrepreneurs from Egypt to the Gulf are diving into this opportunity and finding increasing support from a growing ecosystem that includes college entrepreneurial clubs, new academic initiatives, informal meet-ups, high-tech boot camps, an expanding network of angel investors, and a bevy of regional accelerators offering seed funding and office space.

“Five years ago, if you said ‘accelerator’ or ‘incubator’ or ‘angel investor,’ people would think you are speaking Chinese,” said Abdul Malek Al Jaber of MENA Apps at a digital innovation conference in Tel Aviv this month.

A vacuum of traditional jobs

Some see the entrepreneurial wave as part and parcel of the Arab uprisings, in which young people are striving to shape their course not just politically but economically as well.

“If you want to take hold of your future, you want a political, economic, and cultural voice,” says Christopher Schroeder, author of the newly released book “Startup Rising: The Entrepreneurial Revolution Remaking the Middle East.” “It’s just different manifestations of the same sentiment.”

But while a burgeoning population of restless youths is what gives the Middle East much of its digital potential, it also poses a major challenge: The MENA region, which had a workforce of 104 million in 2000, needs to nearly double the number of jobs by 2020 to accommodate fresh graduates as well as those currently unemployed, according to the World Bank.

This group has been pushed toward entrepreneurialism by the lack of jobs, particularly in the private sector.

“It’s scary,” says Usama Fayyad, chief executive officer of Oasis500 in Amman, one of the largest accelerators in the region. “People at a gut level … are basically saying, ‘Look, I have no option for a job. I gotta create my own job.’ And what better way to create your own job than to launch your own business.”

For investors, it may seem less obvious. Why would they be so willing to put their money in a region rocked by the largest political upheavals in half a century?

“When there’s turmoil and disruption, that’s the time to buy,” says Egyptian venture capitalist Ahmed Alfi, who launched the Cairo start-up accelerator Flat6Labs just weeks before the 2011 Egyptian uprising toppled Hosni Mubarak. “That’s the bottom of the market. Egypt has everything going in its favor.”

Read the full story from The Christian Science Monitor.

  

A lot of the startups are coming from countries with political and economic troubles, such as Jordan and Egypt.  The main reason this trend has caught on is because jobs there are not being created fast enough for the young generation.  Thus, this entrepreneurship drive is coming more out of necessity than anything else. 

  

Unlike the wealthy Gulf countries in which the entrepreneurship drive is being pushed by government projects, such as Silicon Oasis in Dubai.  These countries with their high social benefits and guaranteed government jobs make entrepreneurship less attractive and require a lot more work for no guaranteed payout.  This is why the Gulf will continue to lag in this field.

  

If you look at the list of startups in Dubai, for example, you will see that a good number of them are from expats who chose to setup there for the various government incentives.  In Kuwait, due to government restrictions on foreign business ownership, a majority of new startups are in food services or are international franchises.  Not much creativity or innovation there.

  

Another trend that is catching on in the Middle East is crowdfunding.  There are currently three main crowdfunding sites operating in the region; Aflamnah, Yomken and Zoomaal.  Private equity and venture capital have never taken off in the region, mainly because there have been too few startups and small companies as target investments.  However, now that crowdfunding is making inroads, expect PE and VC to follow soon.