A lot has changed since the World Economic Forum held its first meeting in Jordan in 2003. 16 years ago, the Arab world and the region were coming to grips with the fall of Saddam Hussein’s regime. There was talk of a new Iraq which – according to the Bush administration would usher in stability and change the region for the better. The proposal then was for a Middle East Free Trade Area and a Middle East Partnership Initiative, both tasked with integrating the region’s economies further into the global economy, spurring job creation and raising the standard of living – with the help of the United States.
Meanwhile, around 2003, Facebook was being founded in a dorm room, Apple’s iPods were the latest in technology and Amazon was still basically just an online bookstore. Although an imaginable at the time the catalyst for the region’s biggest transformation since the Iraq War were within these then – fledgling businesses not in the uprisings that swept across the Arab world less than a decade later.
While regional governments primarily focused on geopolitical concerns, their people caught the technology bug. The tech deals speak for themselves: Yahoo’s acquisition of Jordan’s Maktoob, the Naspers purchase of Dubizzle, Amazon buying Souq.com and most recently, Uber snapping up Careem in a 3.1 billion USD deal – the so far largest tech transaction in the region’s history.
While youth unemployment remains an Achilles heel of the Middle East and North Africa, it is the digital revolution that has captivated the young people of the region, and the governments and investors that are embracing it are now reaping the benefits. Indeed, the situation has and is changing in the right direction in our opinion.
The topics of discussion of the World Economic Forum are FinTech, the impact of digitization on the retail sector, blockchain and the Fourth Industrial Revolution (4IR). Innovation is now happening in the Arab world. Ahead of the summit at the Dead Sea, the World Economic Forum, along with the Bahrain Economic Development Board, singled out about 100 Arab start-ups that include everything from a biotech company that uses camel milk to develop antibodies, to one that uses augmented reality to assist surgeons.
The biggest change in our opinion today is that the digital economy is happening, which has brought with it all sorts of new sets of entrepreneurship and building new businesses that are digitally disruptive to the incumbents in the bricks – and – mortar world.
Software engineers, venture capital and incubators were scarce a decade and – a – half back. The landscape today is markedly different. Saudi Arabia’s Public Investment Fund and Mubadala Investment Company are the anchor investors in the 100 billion USD SoftBank Vision Fund.
Saudi Technology Ventures, one of the biggest active venture capital funds in the Mena region, invested close to 100 million USD of its 500 million USD fund in 6 enterprises – 5 of them started in the region – last year. Wamda Capital, which counts the World Bank’s International Finance Corporation as an investor, has closed to 70 billion USD funds. Algebra Ventures and Endure Capital are helping budding businesses in Egypt, which was the fastest growing start-up market in the region last year. The number of investors in Mena start – ups more than doubled in 2018 from 2015, according to Magnitt, a start – up data platform. The key driver like so often has been the growth in success stories. As we see more exits take place that shows success for founders, returns for investors and opportunities for limited partners. More entities are entering the venture space not to miss out ourselves as Inventive Ventures. The increase in start – up financing options like for example crowdfunding has helped to attract talent and spurred the acceleration of businesses, helping them to evolve and grow. We at Calvin · Farel are expecting a whole new generation of entrepreneurs, young people, creating new types of jobs, new types of businesses and this is in our opinion the biggest difference today in the region.
Governments of oil rich countries have shown interest in entrepreneurship as they look to diversify their economies, wean themselves off oil and support youth employment.
At the forefront of the Arab world is the United Arab Emirates (UAE), whose government was arguably a first – mover in the technology space. The country has overhauled its education curriculum to integrate STEM (Science, Technology, Engineering, and Mathematics) to encourage young people to pursue careers in those industries.
Infrastructure development has attracted companies as well as facilitating technology transfer and talent that have helped to promote entrepreneurship as well as incubating start – ups. So it’s no surprise that the UAE leads the region as the bedrock of entrepreneurship. About 35% of all start – ups in the Arab world are in the UAE. Egypt follows with 19%, Saudi Arabia accounts for 10%, Morocco 8%, Lebanon 7% and Jordan 6% according to Magnitt.
Exits and high returns for investors have been the main drivers for the increase in available financing to budding entrepreneurs and disruptive businesses, particularly in digital. Realizing the valuations that digital businesses are getting globally today, most traditional businessmen in the region of the Middle East are seeing it as a possibility of diversification and also where the future lies. Exits recently are becoming more frequent and bigger, therefore investors unsurprisingly don’t want to fall behind, and they want to utilize this movement instead of missing out on these returns.
But the region in our opinion still needs to attract and retain a far bigger talent pool required to catch up to the rest of the world, doing so will produce successful start – ups that bridge the divide with developed economies. Budding disruptive businesses operating across borders also require legal frameworks that allow for unimpeded commercial activity. The present legal framework in Mena still makes it difficult to incorporate in one place and operate across the region. Although financing is more abundant, access to capital markets remains a challenge.
Considering that Careem for example has about the same number of users as Lyft, which went just public and had a valuation about 22 billion USD, the price Uber paid for the Dubai ride – hailing company seems quite cheap. Had Careem gone public, the company may have fetched a lot more than 3.1 billion USD.
Regional stock exchanges of the Middle East in our opinion need to soften their rules, so that companies can easier go public and create exit options other than acquisitions. The largest success of the Internet age becomes successful because they go public. If this step would happen, that would create in our opinion even more of an incentive for digital business to start in the region of the Middle East and growing scale.