How MENA’s entrepreneurs have COVID-19-proofed operations
The current situation is fundamentally different from other crises that the world encountered previously: thanks to the cloud technology the majority of businesses managed to adjust effectively their operations to the global lockdown. Indeed, these abnormal circumstances were a stress-test to the MENA startup ecosystem as well as to industry incumbents: digitization of business models became a major priority overnight, with digital tools driving the value proposition. Within a matter of weeks companies had to define digital transformation guidelines and prepare new growth plans.
To realise how effective the change of paradigm was managed in the region, one needs to assess three parts of its infrastructure: the digital enablers (presence of tech solutions), the readiness of incumbents for transformation, and the availability of the right talent. From the enablers perspective, local tech environment had all the necessary solutions ready: from online payment systems, last-mile delivery to cloud, and hosting for enterprise.
A shift in business models
Second, the market proved to be ready to shift business models: within a few weeks retailers went on e-commerce, adapting to lower margins; schools started using ed-tech, and telehealth services enabled patients to have online consultations. Moreover, the new generation of tech talent is also available across MENA: in addition to a well-educated pool of entrepreneurs, there is an influx of newly graduated students with the necessary skillset for digital transformation. Thanks to the readiness of the infrastructure and the availability of the right talent, we saw surprisingly resilient responses to the crisis, with growth rates of 20x over the months of March/April.
A shift in demand
Indeed, to complete the picture, one needs to take into account the shift in demand: the major impact of COVID-19 is in changing consumer behaviour due to the recession. Although the macro-economic situation with declining GDP and oil prices is not favourable to innovation, companies in MENA seem to be ready to reinvent business models across all industries in the upcoming years.
From the investor's perspective, we take this behavioural shift as a basis for our analysis, trying to identify the sectors and subsectors that are going to be particularly attractive, and revise the ones that will suffer.
For instance, foodtech companies (aggregators, cloud kitchens, reservation apps) have to adjust to the shift in demand. Due to increased unemployment and salary cuts, office lunches are in a sharp decline, and they represent around 60% of revenues for food tech ventures. Having a very price sensitive offering, foodtech will also be impacted by a reduction of the basket size: already thin margins will be reduced even more, quasi-destroying the value chain.
On the other side, utility and productivity tools are more attractive: while you don’t need an office and a 40AED lunch every day, you might need the tools that will automate and optimize your operations. In addition, fintech, insurance, entertainment, telehealth, ed-tech and specific value-driven e-commerce platforms will perform better in the post-COVID period. With the reduced propensity to consume, people would be more inclined to switch from their premium insurance, they will also be attracted to new education models or online healthcare that are less expensive than traditional schools or clinics.
Looking beyond COVID-19
Finally, one must look beyond the COVID-19 lockdown: life will eventually resume. As business mutation will be driven by the recession that follows, tech founders must have faith and strongly believe in their capacity to drive digital transformation taking into account the new normal reality. It’s this belief that will give the force and drive to continue.
An encouraging 33 startup deals took place in May 2020, which was an increase of 93% compared to April. This was largely driven by the Misk500 MENA Accelerator, which graduated its third batch of startups. Discover more details in our May 2020 Dashboard Report.