What you need to know about the Middle East startup space
The acquisition of e-commerce company Souq.com by Amazon earlier this year made global news, but outside of the Middle-East, very little is known about the startup ecosystem in the region and the digital footprint of the people who live there.
When people think of the Middle-East, oftentimes oil and moments of relative political instability come to mind for those in the West. While I would agree that there are a handful of countries whose economies have grown in past years because of oil, those countries have recently moved away from such dependence by investing in alternative sources of revenue and industries.
“The day the last barrel is taken from the ground is a day we will celebrate.” — HH Sheikh Mohammed Bin Zayed on Twitter
And as for the political instability argument, there are 23 Arab countries, and while there are definitely pockets of political unrest in some of the countries, this should not deter one from noticing the rise of tech across the majority of countries in the greater Middle East North Africa (MENA) region.
What’s exciting about the Middle East startup ecosystem
If you’re working on a startup this year in a developed country, you likely won’t feel the immense pressure to leave and head to Silicon Valley for funding or to acquire new talent. A decade ago, it was almost unheard of for startups in other countries to secure funding in their home countries, and finding the right people to help one build and grow a company was difficult if not impossible.
Many major developed countries across the globe have seen the emergence of startup hubs & neighborhoods rise in recent years. Governments and local VC’s are funding and investing in local startups, and there are many incentives and programs for young aspiring entrepreneurs who want to join or build a startup.
The Middle East is simply no different. Countries like Jordan, Lebanon, UAE, Egypt, Saudi and beyond have all followed this new paradigm shift and we’ve seen new startup ecosystem players from accelerators to incubators and startup programs (see ecosystem map) emerge throughout the region. A number of serious investors and governments in MENA are decidedly putting their money where they see opportunity, and deploying capital into new ventures in the Middle East across various industries from e-commerce, fintech, digital media, transportation and even cryptocurrency.
Fadi Ghandour, Chairman of one of the top MENA VC’s, Wamda Capital, stated last week that he’s heard pitches from over 700 startups in 2016 and is on track to hearing close to 1200 pitches this year. And many of these startups are already making money. Magnitt, a research platform reports that more than half of the startups in the region are generating revenue.
The Middle East is young, talented, connected & passionate
What gives the Middle East tech startup ecosystem a unique advantage is connectedness, the region’s demographics, and the population’s relentless passion to explore new ideas and business ventures. Smartphone penetration in the Middle East is currently at the rate of 80–90%, and these trends are forecasted to move towards a 100% penetration rate by 2020.
The region’s population is highly skewed towards younger demographics. Nearly 68% of the region under the age of 34 and many countries have close to half of their population under the age of 25. For anyone who has spent time in the Middle East, you’ll notice that conversation is an art form in the region and it’s common to find Arabs engaging in that art form at all hours of the day. Small business entrepreneurship is nothing new in the region, and many children of parents who are business owners are taking those skill sets online.
If you take a youthful population and combine it with the high smartphone penetration, you’ll find that people are online and transacting digitally at all hours of the day — even more so than we are in the United States.
As they continue to depend more and more on technology, it is only a matter of time before we see an ever increasing rise of startup technology companies build solutions for the demands of a population.
According to Yousef Tuqan who gave a talk at SxSW earlier this year on how brands are connecting with the digital generation of Arabs, I took the liberty of capturing a few photos from his presentation which proves my earlier point:
According to these stats, Saudi boasts the HIGHEST global penetration on Twitter, and the highest per capita consumption of YouTube globally. The MENA region has double the average global video consumption, and the current demographic trends prove that the interaction with these platforms will only continue to rise.
In fact, there are more YouTube subscribers of what Arabs call “The Arab Trevor Noah” Eysh Elly than Trevor Noah himself. And even Colbert!
Arabs just love a never ending conversation — both offline and online.
With a population of about 350M, the Middle East currently has a GDP of 2.5 billion (source: International Monetary Fund), which surprisingly surpasses GDP’s of countries like India at 2.2 billion.
Below, Fadi Ghandour Chairman of Wamda Capital presented his findings at our annual TechWadi conference. Below, GDP is broken down by individual region in the Middle East: Gulf Countries, Levant, and North Africa.
If you take a look at the overall GDP and population and couple that with investments made in the region, you’ll see that the Middle East is only at the start of an upward trend in the startup ecosystem development. Magnitt, a research house recently tracked that the region has more than 3,000 active startups. The region is full of young and talented entrepreneurs and you can find them online, conversing, transacting, and continuously evolving the technology ecosystem.
While the Souq.com acquisition by Amazon made headlines this year, this should not be viewed as a one-off exit. The MENA region and even firms in Silicon Valley, like 500 Startups are investing in startup technology companies in the MENA region.
Below is the MENA Investment Landscape ecosystem map which provides a snapshot of the types of investment firms active in the region today.
This is only the beginning for the MENA startup ecosystem, and we should expect to see many more acquisitions like the one of Souq.com in the years to come.
Thank you to Fadi Ghanour, Chairman of Wamda Capital , who shared many of his insights and thoughts that contributed to this article. I also want to give credit to Yousef Tuqan from SxSW for insights he shared during his presentation on the digital connection of the Arab World.