'We're pouring $60m into Middle East start-ups'
After months of pandemic-induced economic constriction in the GCC and throughout the Middle East, the fog is beginning to lift. The region is now poised to identify new opportunities for growth, to rebuild from the Covid-19 experience.
For corporate leaders and entrepreneurs alike, the sudden shock has highlighted that it is much harder to change the course of a lumbering freighter than a fast-moving frigate. So it may be that one of the best, most dynamic engines of growth available for the region’s economies is entrepreneurial start-ups.
Despite years of stock market successes, many corporate behemoths have struggled to pivot towards new solutions due to legacy considerations, such as physical facilities and an over-reliance on offline technologies. For start-ups, the hallmarks of the crisis – employees working from home, enhanced digitalisation and a shift towards e-commerce – have been just another part of doing business since well before the pandemic took hold.
As the region shifts its focus towards recovering from the pandemic, this agile operating model will become an essential blueprint for firms of all sizes – whether they are run from the bedroom or the boardroom. This is why the Mena start-up scene, rather than being crushed by the pandemic, is thriving. Throughout the region, smart entrepreneurs are racing to develop new solutions across all sectors, including health care, finance and education.
A recent report by MAGNiTT, a data platform for the Mena investment and start-up community, notes that $659 million of capital was invested in the region during the first half of 2020 – a year-on-year rise of 35 per cent. The figure is set to hit $1 billion by the end of the year. The research also suggested a shift in focus to industries that have evolved in the current climate, with Covid-19 acting as a “rapid accelerant of digital transformation and tech adoption in the region”.
None of this ought to be a big surprise. We have seen time and time again that major market slumps in the past 20 years have usually led to big rebounds and surges in innovation – the 2008 financial crash is only the most recent example. As the rest of the US economy reeled from major losses, tech companies emerged the clear winners. From the beginning of 2009 to the beginning of 2020, the Nasdaq rose from a low of 1,300 to near 10,000, driven by stocks such as Google and Facebook. In March this year, Covid-19 caused another brief crash – but the index has since made a remarkable recovery, near doubling in value during the six months to September hitting record highs.
Governments and investors in the Middle East have demonstrated a willingness to devote the resources necessary to turn the region into a global technology hub. There have been exciting start-ups coming out of the region, including a recent swathe of IPOs, successful exits and mega-deals.
Take ride-sharing app Careem, which brought the Uber model to the local market and went on to be acquired for $3.1bn by the very company it sought to replicate. Or Souq, bought by multinational giant Amazon for $580m following years of successful growth. Other major deals during the first half of 2020 included EMPG ($150m), Kitopi ($60m) and SellAnyCar ($35m) according to the MAGNiTT report.
That is why we are launching a $60m fund, based in Bahrain with team members in the Emirates, Saudi Arabia and Egypt, to invest in 120 start-ups over the next three years, with the aim of helping entrepreneurs in the region to build their ideas into the Ubers and Facebooks of tomorrow.
The region is fast becoming one of the world’s top start-up ecosystems, where ambitious entrepreneurs are empowered to bring game-changing concepts to fruition. In Bahrain, for instance, authorities three years ago created Mena’s first “on-shore regulatory sandbox”. The concept allows financial technology firms to test their services for a limited amount of time in a partially deregulated environment. This way, the full potential of a business’s success can be used to inform regulation. This kind of thinking has resulted in Bahrain becoming a logical launchpad for global innovation.
Governments across Mena are providing the sector with record levels of support, with significant results; commercial registrations in Bahrain have seen triple-digit increases in recent months with tender boards across the region awarding tens of millions of dollars in contracts to SMEs.
As of last year, the UAE’s Ministry of Economy estimated that the SME sector represents more than 98 per cent of the total number of companies operating in the UAE and contributes 52 per cent of non-oil GDP – a figure the ministry wants to increase to 60 per cent by 2021.
Meanwhile under Saudi Arabia’s Vision 2030, the Kingdom plans to raise the contribution of SMEs from the current 20 per cent of GDP to 35 per cent. It plans to do this by facilitating their access to funding and encouraging financial institutions to allocate up to 20 per cent of overall loans to them.
For a long time, start-ups have focused on driving forward tech, innovation and digital infrastructure – factors that have become an essential part of doing business for organisations of all sizes during the Covid-19 pandemic. But as larger companies struggle to adjust, agile start-ups are bringing new ideas that are set to deliver growth during the next phase of the recovery. Confidence from private investors and the public sector, plus the anticipated boom in tech-focused market activity, strongly indicates that Mena is primed for more start-up success stories – whether they are unicorns, IPOs or successful exits. Now, as money flows in despite the uncertainty, venture capitalists from across the globe should prepare to get on board for the next wave of regional growth.
Hasan Haider and Sharif El-Badawi are co-founders of +VC, a Mena-based venture capital fund
Updated: October 13, 2020 04:37 PM