DUBAI, United Arab Emirates – A mobile app to track school buses, Arabic cooking videos on YouTube and even a portable bidet are finding support from governments in the Gulf as a slide in oil prices forces states to cull cushy public sector jobs and look to entrepreneurs to plug the gap.
Recent $1 billion valuations of local start-ups Careem, a ride-hailing app, and retailer Souq.com, which was acquired by Amazon in March, have raised interest in the region’s budding entrepreneurship scene. Both companies are headquartered in Dubai, an emirate with futuristic skyscrapers that is working to harness the power of the region’s majority young population with a minister of state for youth affairs who is a mere 22 years old.
Across the Arabian Peninsula, governments — hit hard by a sharp decline in oil prices since 2014 — are competing to attract and keep local entrepreneurs who might provide the region’s next “unicorn,” the industry term for startups that reach a valuation of a billion dollars.
Khaled Talhouni, the managing partner at venture capitalist firm Wamda Capital, says the negative headlines out of the Middle East have tended to overshadow the good, including the growing entrepreneurial spirit.
“There is a huge upswell of entrepreneurial activity happening on the ground, as evidenced by the recent acquisition of Souq by Amazon. And there are hundreds of companies beneath them, following them,” he said.
The Middle East is no Silicon Valley, though. For starters, Talhouni says that unlike the vast single market of the U.S., local entrepreneurs have to grapple with various customs regulations, laws, consumer preferences and norms across nearly two dozen different Arabic-speaking countries to reach the full Middle Eastern market.
Many of the tech startups are finding success by localizing ideas successfully started abroad, from Amazon to Uber.
YallaParking, for example, helps people find and rent parking spots.
“I think it is getting very competitive. What we tend to see, and people that we know, they’re bringing ideas from other places that are not necessarily here yet,” said co-founder and CEO Craig McDonald, a Scottish national who grew up in Dubai. “For example YallaParking: there are big companies around the world that do what we do, but no one was doing it here.”
Local government support for startups has mostly sprung out of a need to create jobs.
According to the World Economic Forum, the Middle East and North Africa needs to create 75 million jobs by 2020 just to keep employment close to current levels. Failing to do so could lead to slow economic growth and the kind of social unrest brought on by the Arab Spring protests of 2011.
“Unfortunately, the governments in general just recognized the importance of the entrepreneurship ecosystem,” said Mohamed al-Ruwais, a partner at STC Ventures, a venture capital fund whose anchor investor is the Saudi Telecom Company.
The kings and ruling sheikhs of the Gulf have so far ridden out the Arab Spring, but demographics and time are forcing governments to look to the private sector where creative startups and savvy entrepreneurs can provide an economic lifeline to future stability.
In one of the starkest examples of this region-wide push, Saudi Arabia’s powerful young defence minister and second-in-line to the throne, Deputy Crown Prince Mohammed bin Salman, is launching a university named after him this fall, in partnership with Massachusetts’ Babson College, focused on business and entrepreneurship training.
In Saudi Arabia, the Middle East’s biggest economy, half of the population is under 25 and around 70 per cent is under 35, representing a rapidly-growing labour force.
The kingdom has launched a plan, called Vision 2030, with goals to shore up its foreign reserves and reform the economy for a new generation of tech-savvy youth. The plan specifically calls for encouraging innovation and improving regulation.
Despite efforts to lower unemployment from 11.6 per cent today to 7 per cent by 2030, unemployment has actually risen to 12.3 per cent this year.
Saudi Prince Saud bin Khalid al-Faisal, who heads the Saudi Arabian General Investment Authority, says part of the reason why the kingdom sponsors the largest scholarship program on earth, with more than 200,000 students studying across the globe, is to give them a good education and expose them to different ideas.
“We also would like them to get bitten by the entrepreneurship bug, basically, so they can come back and start doing their own thing,” he said.
In the kingdom, where Saudi females represent only about 10 per cent of the labour force, Manal Dhod stands out as a female entrepreneur. She quit a good-paying job in the private sector to found Dhad Audio, an Arabic audio book publisher.
“Instead of waiting for someone to bring a solution for me, I decided to be the change, to bring about a change,” she said.
A Saudi government initiative funded her trip to Dubai and her booth at the recent Step Conference for entrepreneurs in Dubai. Another Saudi startup showcasing at the conference, also backed by this initiative, centres on an innovative design for a squirt bottle that functions as a portable and compact bidet for Muslim travellers.
Despite government efforts, the region still lacks a strong regulatory framework and enough accessible early-stage financing for many small businesses to succeed.
Alia Adi, a Syrian entrepreneur with a successful YouTube Arabic cooking network called Basmaty, says a Dubai government-backed initiative to assist startups, called In5, helped her save thousands of dollars on business licensing fees and work visas for employees. But she still faces a key challenge to expanding her business.
“There’s a lot of creativity. I don’t think we are lacking in that sector, but there’s definitely difficulties in terms of finding funding here in the Middle East,” she said.
Talhouni, of Wamda Capital, says the power of entrepreneurship is that it allows individuals to take control of their lives and economic future. That’s particularly relevant in the Gulf countries where, traditionally, the public sector is the preferred choice of work for locals.
“They are not beholden to the state, to anyone,” Talhouni says. “And that’s a very powerful movement that’s emerging in the Arab world.”
Associated Press writer Maggie Hyde contributed to this report.
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