After decades of oil-based economic expansion, entrepreneurship has emerged as the new growth engine for the GCC economies, especially in light of oil price volatility and the burgeoning youth population that need plenty of employment opportunities.
These entrepreneurial ventures not only facilitated regional job creation but also assisted the larger economy by offering multiple sources of innovation, increased competition, efficiency and productivity, and economic flexibility and adaptability. Moreover, they formed the bedrock of small-and medium-sized enterprises (SMEs), which in turn, become the kernel for the development of much larger firms.
Since the turn of century, GCC governments recognised the potential of entrepreneurs and invested heavily in creating a fertile ecosystem through reforms in higher education systems (setting up of innovation centers, technology transfer offices, etc.), new and improved investment tools (angel investing, growth equity capital models, and government-backed lending) and conducive business environment (labor reforms, special economic zones, bankruptcy laws, credit scoring, etc).
Given the increasing support from both the public and private sectors, more than 16 startups launched in Mena during 2000-16 have surpassed the $100 million valuation mark, with Souq.com becoming the region's first 'unicorn' with a valuation of $1 billion. This period also marked the inception of over 44 Incubators and Technology Parks, 33 Venture Capital Funders, 8 Angel or Seed Investors and 3 Social Venture Capital Firms across the region. Consequently, the total investments in Mena startups soared to $815 million in 2016, with number of deals growing by a whopping 560 per cent year-on-year. Further, the top 100 Mena-based startups together have raised over $1.42 billion in funding and each startup has raised more than $500,000 individually.
Several startups such as Talabat, Bayt, Careem, Souq, Fetchr, Elevision and HolidayMe, that emerged during this period, have now established a prominent brand, cutting across time, geography and sectors, parting with the traditional acumen of their counterparts. A perfunctory glance at these innovative ventures show a remarkable prowess in developing ideas catering to customer pain points that have been turned into practical companies through solid business models. Not only have the likes of such innovative ventures, disrupted the traditional way things had been operating, they have also harnessed the digital business platforms, in line with the rise of the internet and information age, to drive their revenues, growth and scalability. While some start-ups such as Bayt and Careem have been implied as regional clones to international players like Uber and Monster, they too have infused well-thought value-added customized services, catering to the diverse range of regional nuances. One of the most striking features of the most recent successful ventures in the region, has been the idea to promote technological designs, which in turn has resulted to greater investments into their services, enabling them to compete on a much broader scale, not only across the GCC but also at the international stage.
Most importantly, the regional perception towards entrepreneurship remains high, suggesting a positive outlook for the sector in the coming years. According to Global Entrepreneurship Monitor (GEM), the Total early-stage Entrepreneurial Activity (TEA) in regional countries such as Saudi Arabia, Qatar, UAE, etc. remains comparable to developed innovation-driven economies such as the US and the UK, while regional economies surpass their developed counterparts in entrepreneurial intentions (percentage of 18-64 population who are latent entrepreneurs and intend to start a business within three years).
While entrepreneurship culture is beginning to flourish in the GCC, regional startups are still confronted with more traditional sets of obstacles, such as financial institution lending capacity, enterprises' creditworthiness, and the availability of risk-sharing instruments. A closer look into the GCC entrepreneurial ecosystem reveals that the prescriptive legal and regulatory frameworks often stifle entrepreneurship. Although regional governments in due course are trying to overcome these bottlenecks, they should look to replicate California's 'Silicon Valley' model through industry clustering and the formation of science or technology parks with universities and R&D centers co-located, and venture financiers hovering for deals, mostly supported by government policy. For this, the GCC nations could take a leaf out of Taiwan and South Korea which established R&D institutes to support SMEs, an initiative which led to the growth of companies such as Samsung and HTC from being small-time local manufacturers to the global tech giants they are today. Further, emulating strategies of the West such as creating more funds dedicated to get SMEs and new ventures off the ground and make up for the shortfall of conventional bank financing, will bolster the sector growth. Apart from subsidised financing, introducing more incubators, in addition to the few existing in the UAE, could also deliver mentoring and support to increase chances of business success, as seen in recent and most notable entrepreneurial hotspots such as the US, UK, Brazil, Singapore, and India.
Success stories of regional startups exemplify that the GCC has the potential, skills, and the generic ecosystem to promote innovative ventures that can establish itself amongst the likes of top small businesses which went on to make it big in the global arena. While much needs to be done to create a more conducive business environment for regional entrepreneurs, it is essential that the industry, academia and government continue to jointly support this budding ecosystem. Moreover, policymakers should seek at steering investments in areas such as technology and automation that would help entrepreneurs in high value-added services with an export focus. With the GCC economies trying to nationalize their workforce, higher technology usage and automation will allow for higher productivity gains over time.
Shailesh Dash, founder and CEO, Al Masah Capital is an active Entrepreneur & Fund Manager. Views expressed are his own and do not reflect the newspaper's policy.