SOURCE: MIT Technology Review - A Different Story from the Middle East: Entrepreneurs Building an Arab Tech Economy
Middle Eastern startups are overcoming cultural and other barriers to tap into a growing local taste for technology, from Bitcoin wallets to digital publishing.
t the end of March, it was announced that the largest e-commerce company in the Middle East and North Africa, Souq.com, would be acquired by Amazon for nearly $600 million. This was unusual: when Amazon enters a new geographic market, it typically does so by launching its existing platform and investing a lot of money to grow it. Instead, Amazon—apparently impressed by Souq.com’s management team, its technology, and its ability to navigate a complicated region—decided on a different strategy.
A week after the announcement, at the Step Conference in Dubai, one of the most popular startup gatherings in the region, it felt as if lightning had struck. Over 2,000 aspiring entrepreneurs filled the arena, standing room only, for a panel with Souq.com founder Ronaldo Mouchawar. Mouchawar, a native of Aleppo, Syria, spent over an hour onstage with his cofounders and lead investor, explaining in painstaking detail what it was like to build an e-commerce giant. In 2005, when Souq.com launched, few in the Arab world were shopping digitally, fewer still were willing to use a credit card online, and examples of successful tech startups were hard to find. Now, Mouchawar underscored to his rapt audience, things were different.
A few months earlier, Careem—the region’s fast-growing ride-sharing company—had been valued by venture capitalists at over $1 billion. To those at the conference, these two recent successes seemed to signal a turning point in the Arab world, made possible by local access to technology and a rising middle class. One young woman, an aspiring entrepreneur taking copious notes on her laptop, told me, “I can do this. I will do this.”
Of course, the challenges in the region remain very real, among them poverty, war, and the breakdown of political and economic institutions. Israel has a well-established technology sector, but in the Arab Middle East—outside the United Arab Emirates and its leading economic center, Dubai—the legal and regulatory system is at best cumbersome to navigate, and more often unpredictable and inconsistent. Historic political disputes and security concerns are issues as well. Educational infrastructure, despite relatively heavy spending, is not adequate for developing a 21st-century workforce.
Yet something encouraging is happening. Everywhere in Dubai, young people gather, checking their smart devices. You can see them walking the sandy corniche by the sea, enjoying the park-like beauty of the recently completed canal, or sitting at any stylish café. Two generations ago it was a small trade and pearling center surrounded by desert, but today this city on the Persian Gulf has grown into a hub from which tech startups with roots across the Middle East look toward rising markets to the east, west, north, and south. Souq.com and Careem are but two of thousands. And, like Amazon, global tech players including Google, Facebook, and LinkedIn have all been expanding their presence here significantly.
The vast majority of the city’s three million residents, including a new generation of young Arab entrepreneurs, were born elsewhere. And they are selling to a wired generation across the Middle East. In nearly every country in the region today, more than half of the population is under 30, according to the United Nations Development Programme. Nearly two-thirds of them will have smart devices by the end of this decade, according to predictions by the global mobile trade association GSMA, a figure already exceeded in parts of the Gulf today but much lower in Egypt and other countries. Immigrant entrepreneurs are using Dubai as a platform from which to reach customers, often leveraging technology, talent, and affordable operations in their home countries while taking advantage of their own knowledge about local markets.
Two decades ago, making it in global technology fundamentally meant selling to America. Now, and increasingly, connected consumers are everywhere—India, Southeast Asia, Africa. Dubai is within a four-hour flight of over one-third of the world’s population. According to the research arm of the Step Conference, Dubai and the rest of the UAE are home to over 42 percent of all startups in the Arab world. The research group Magnitt estimates that of the 60 technology companies acquired in the region over the past five years, most are headquartered in Dubai. In the next year, as much as $1 billion in new venture money is projected to be raised from investors in the region for investment in local startups—a large number for any developing economy, and a big jump from 2016 levels.
Bankruptcies and visas
The UAE’s government has recently made legal changes to encourage entrepreneurship. In 2016, the government enacted its first bankruptcy law. The freedom to fail, learn from failure, and quickly start the next enterprise has been crucial to the Silicon Valley blueprint, but in some parts of the Middle East, cultural traditions around debt and obligations to others had made failure a criminal act: executives could literally serve prison time. And during a time when some in America are fighting any expansion of H1-B visa programs, which allow foreigners to work in the country in specialized occupations, the UAE just announced a new visa offering residency to the best technologists from anywhere on earth.
The Dubai government is embracing technology too. By the end of 2020, all government documentation and interactions will be available on blockchain, a decentralized record-keeping technology that verifies and records transactions securely. By 2019, as part of a strategy to improve efficiency and construction safety while reducing costs, 2 percent of all new construction will have to use 3-D-printed components in order to receive building permits, a number set to increase each year until it reaches 25 percent by 2030. The UAE even has its own space program; it plans to expand satellite efforts and launch the first Mars probe in the Arab world.
Ala’ Alsallal, 31, is one of thousands of entrepreneurs here combining operations headquartered in their home country, in his case Jordan, with an office in Dubai. His startup, the online book market Jamalon (Arabic for “top of the pyramid”), began seven years ago and now offers over 12 million titles, including over 150,000 in Arabic. Amazon, by comparison, has only a few hundred.
Alsallal comes from a modest background. He is one of seven children born to Palestinian schoolteachers whose grandparents had come to Jordan after the formation of Israel in 1948. Such Palestinian refugees represent nearly a third of Jordan’s population, and many live today in refugee “camps” that are really settlements with buildings, electricity, and water, built on the hill locally called the “Jabal.” These communities are cramped, poor, and self-contained. Schools are run down and there are few safe places for children to play, so it is no surprise that both dropout rates and unemployment are staggeringly high.
Alsallal, gifted in math and science, realized that all the traditional paths to success in Jordanian society—medicine, law, and engineering—would be unaffordable and unreachable for him. But he convinced his family to pull together money for the limited online access possible in his community and used that to learn about the broader world of technology. He studied engineering on scholarship at Athens Information Technology (an affiliate of Carnegie Mellon University) and, after two years working in Greece, returned home to Amman, Jordan’s capital, to start his own company.
Amazon had long impressed him, and while the online merchant had a small presence in the region, he was vexed at how hard it was to find books in Arabic online. Sketching out a simple business plan, Alsallal persuaded angel investors and mentors like Fadi Ghandour, founder of the express delivery company Aramex, to give him a few tens of thousands of dollars to begin. (Ghandour is also chairman of the investment firm Wamda Capital, which focuses on this region, and on whose board of advisors I serve.) Last year, Alsallal raised over $4 million more to expand Jamalon’s operations.
In Dubai, he opened the region’s first “print on demand” operation, allowing books to be printed at lower cost for easier shipment in the UAE, across the region, and around the globe. Last spring, when the German publisher OmniScriptum was interested in entering the market, executives discovered that it was cheaper to work with Jamalon than to ship via DHL from Frankfurt to the Middle East. Working with Jamalon on Arabic printing, OmniScriptum is saving 80 percent of the shipping costs it would have paid and benefiting from the market expertise of a local partner, says COO Marc Wegmann.
Over a thousand miles northwest of Jamalon’s Dubai facility, in a building with the simple white façade typical of Amman, is what Alsallal calls “our kitchen in the background.” Tapping into local software talent and taking advantage of lower local salaries, Alsallal has kept his back-end operations—call center, supply-chain management, procurement, and finance—in his hometown. A good software engineer or procurement operator can thrive on $35,000 a year in Amman—a sum that would barely cover the living expenses for two months in Dubai.
Of Jamalon’s 70 employees, 65 are in Amman, and their number is growing. The office walls are painted in the signature light purple of the brand. Desks are simple but equipped with the latest technology. “Operationally, we had to move to Dubai to grow,” Alsallal says, citing laws that encourage shipping and delivering, as well as the city’s advantage in logistics. “But it wasn’t easy culturally. The founding, the history, the connectedness of the team was all in Amman—I hired nearly everyone,” he says. When textbook publishing began to ramp up quickly in Dubai, an “us vs. them” mentality developed. Alsallal brought the small Dubai team to Amman to address the issue. “They worked together, went out together, communicated face to face. Lots of clashes went out the window due to this,” says Alsallal. “The combination of a strong hub in Dubai and operations on the ground in each country is powerful and gives us a significant advantage. There is nothing like [Dubai] in the Middle East—nothing really like it anywhere.”
That dynamic is why Hassan Hamdan, cofounder of Saudi Arabia–based Unifonic, is moving his company and his own residence to Dubai. The cloud communications company, which has revenue reported to be in the tens of millions, is a kind of one-stop shop for mobile marketing, including a particularly popular service that sends millions of messages in an instant. Hamdan is a lanky, eloquent, restless computer nerd who began playing with computers in 1997 as a 10-year-old in Jeddah, Saudi Arabia. By 1998, his family had broadband access to the Internet, and he quickly found communities and forums of like-minded young people who helped him learn English, answered questions on how to code, and taught him how to design.
Hamdan’s business career got its start around 2006, when his brother Ahmed, a student at King Fahd University of Petroleum and Minerals, called him with a problem. He wanted to text the entire student body about an event but could only reach them one at a time, a task that would take hours. Hamdan designed a basic website where one could put in all the students’ data, and messages would be sent out in one shot. People outside the university began to find the website by word of mouth and use it for wedding invitations, family gatherings, and events in their workplaces. “It wasn’t a business yet, because I hadn’t figured out I could charge for it,” says Hamdan. “But thousands were using it. None of us had an idea about Evite or early services in the West, because few of us spoke English. It really took off.”
Shortly thereafter, with Hamdan himself in college in Egypt, the brothers decided to launch a business, recruiting Hamdan’s university classmates to build the technology. In 2010, the brothers got their big break: a contract with Toyota Saudi Arabia, which had learned about their business from an employee who used the tool for wedding invitations. Today they are selling to automakers, financial firms, and many others in a number of countries, including Egypt, Sudan, Qatar, the UAE, Jordan, and Bahrain.
“To reach anywhere in the Arab world, Pakistan, Africa, Southeast Asia, there was only one clear choice for us,” Hamdan says. “In one flight, you can get to India, Kenya, South Africa, Nepal, Pakistan, Singapore, Malaysia, and Indonesia easily.” He pauses. “But what people underestimate about it is the accessibility of talent here from a wide range of nationalities. This global talent offers skill sets unheard of on this side of the world, but also talent that is connected to their homes, speaks their languages. There is a diversity and pool from which you can pick and choose exactly for your expansion needs for any emerging market.”
It surprises many in the West that over 25 percent of startups in the Arab world are reported by the Economist to be founded or led by women. By contrast, tech researcher Crunchbase estimates that number at closer to 17 percent in the United States. Hala Fadel, cofounder of Leap Ventures, a leading venture capital firm based in Beirut, says that as a relatively new field in the region, technology has no legacy of being male dominated, and it embraces a culture of freedom where everything is viewed as possible, including breaking gender barriers. “It is almost the only space where this is possible in the region,” Fadel says. “It is therefore very compelling to women.” Middle-class Arab women who want to work here often have little opportunity, especially since the unemployment rate is high, so many are starting tech or tech-enabled businesses in their own homes.
Ola Doudin founded her company, BitOasis, when she spotted a gap in the financial infrastructure of the region and identified a rising new technology to fill it. Originally from Amman, Doudin studied electronic engineering at the University of Birmingham in the United Kingdom, later training herself to code. She bristled against the Middle East’s educational emphasis on rote learning and memorization, and she sought to push beyond the traditional career paths in government, engineering, or large companies that most parents wanted their kids to follow. In 2015, she began to explore the potential in the region for blockchain technology and cryptocurrencies such as Bitcoin.
In 2015, at a time when more than half the population of the Middle East had access to the Internet but less than 20 percent had bank accounts, something seemed to Doudin to be fundamentally broken. Banks were inefficient and costly and showed little interest in catching up with the digital transformation happening globally. The fast-growing Internet user base was already eagerly looking for alternatives to traditional banking—channels, especially online, that were accessible, instant, global, and efficient. “Bitcoin checks all those boxes and more,” she says. BitOasis, which she founded in 2015, was one of the first Bitcoin wallets and exchanges in the Middle East and North Africa. As of June 2017, it is processing over $60 million per month, and volume has doubled every month.
To Doudin, the advantages of Dubai are obvious: its diverse market, global market reach, melting pot of talent, and young community of entrepreneurs make it an easier place to launch a new product or test a new technology. “It is also a young city with the character of an entrepreneur,” she says. It is “not afraid of taking risks and always trying to push the limits.”
Entrepreneurs like these—the size of the opportunities they are working on and the market dynamic of a rising consumer middle class—have long intrigued me as an investor. But their stories are also a reminder that in rising regions things are often much different on the ground from what we read in the news—that checking our bias can help us understand the challenges and see the potential.
He smiled. “This is less than two-year-old software—last time I loaded this, nothing was here,” he said. “It is only the beginning.”I think back to my most recent ride in a Careem car last year. Even with all my visits to Dubai, the pace of change still astounds—the rapid infrastructure growth, the clip of business dealings, the seemingly infinite number of places to dine and drink, the aggregation of wealth. Careem’s fleet, all clean and efficient Lexuses, is the most reliable way for global executives—for anyone—to get from point A to point B. That day, we were heading to the city’s newest business hub, passing skyscrapers, palm trees, and the buzz of young business executives hurrying across the streets. My driver asked me to look at his dashboard, where his GPS screen displayed the road we were on. Instead of skyscrapers and development, it showed everything around the road as brown desert.
Christopher M. Schroeder is an American entrepreneur and global investor. His book Startup Rising: The Entrepreneurial Revolution Remaking the Middle East was the first to document the rise of tech startups and innovation in the Arab world.
SOURCE: MIT Technology Review - A Different Story from the Middle East: Entrepreneurs Building an Arab Tech Economy