High-tech start-ups offer an alternative growth engine for the Arab world

The 2011 Arab Spring not only brought winds of political and socio-economic change to the Middle East-North Africa (MENA) region, but it also unlocked an opportunity for the extended Arab world to put in place institutions that are conducive to entrepreneurship and innovation. Taking the cue from this essentially youth revolt, the Arab leadership is working diligently towards creative empowerment of the younger generation in one of the most youthful regions in the world.

According to World Bank data, the MENA region is not only home to the largest youth population on earth but also boasts the highest youth unemployment rate globally, standing at 27.2 per cent in the Middle-East and 29 per cent in North Africa. Very rightly, Arab governments have concentrated on creating an alternative growth engine to offset the dependence on oil, against the backdrop of plummeting prices of crude and continuous developments in the shale energy sector. It is in this context that the decision to appoint the India-born, internationally renowned investment banker Rajeev Misra as the head of the $100 billion Softbank Vision Fund assumes great importance. Jointly promoted by Japan’s Softbank group and Saudi Arabia’s national public investment fund, it is the world’s largest financier of technology start-up.

In fact, the success story of Indian start-ups, dating back to the 1980s, can be an inspiration to Arab nations, whose citizens are employed almost exclusively in the public sector, seeking to explore an alternative path of development through private-sector job creation. Four decades ago, a handful of IT companies put India on the global stage by investing heavily in cutting-edge technology and leveraging the available talent in the country’s predominantly young, English-speaking workforce. Today, the industry employs 4 million people and generates revenue worth $150 million for a developing nation like India witnessing massive expansion of entrepreneurial and technology talent.

There is no doubt that the unique business initiative of pumping billions of dollars into emerging tech firms and an unorthodox market can incentivise the formation of a new growth engine in the Middle-East in the form of a digital economy fuelled by start-ups. A survey by HSBC has found that countries like Saudi Arabia and the United Arab Emirates boast the youngest successful entrepreneurs in the world; 63 per cent of business owners with a turnover of more than $6.5 million in these two countries are under the age of 35. The survey also reveals that Saudi and Emirati entrepreneurs generally launch their businesses at an average age of 26, which is much lower than the global standard.

Starting with education, the regional governments have implemented a host of initiatives with the aim of establishing a knowledge-based economy and developing a robust entrepreneurial culture. Nevertheless, despite taking giant strides to make new-age entrepreneurship and innovation the basis of the Arab economy, the MENA region is still lagging behind Asian countries like China, India, Korea and even Indonesia, where the start-up scenario is much more vibrant and dynamic. So what is holding back the start-up revolution in the Middle East or, for that matter, the entire MENA region?

The basic problem seems to be the lack of people with that particular spark to drive innovation. The world over, internet or technology innovation has been driven by quality engineers. Technologists are the backbone of any digital revolution and without top-notch engineering talents, it is virtually impossible to develop globally competitive and popular technological ventures. This is where the Arab nations must follow a two-pronged strategy. While attracting high quality international talent, through attractive employment terms, liberalised visa requirements and good working conditions in the short and medium term, the region must simultaneously develop a scientific temperament commensurate with the needs of our technology-driven world.

Young technology-savvy talents from the Middle East and beyond have undoubtedly excelled in entrepreneurship, despite growing up in a traditionally conservative environment, but more needs to be done to consolidate the spirit of innovation in Arab society. Fostering technological entrepreneurship is also critical to usher in a digital economy in a region where a risk-averse business culture has flourished for centuries; this is why there seems to be hesitation about funding seed-stage ventures despite no dearth of available capital. For angel investors, raising money from the market to kick-start innovative technological ventures is still difficult. With the International Monetary Fund predicting a 3.4 per cent growth for the MENA economy, the countries of the region need investors who understand the dynamics of a new-age economy very well, so as to tackle the crisis of the youth bulge effectively. The start-up ecosystem essentially thrives on dynamism, so the Arab nations not only need to reform their regulatory framework further, but also put special emphasis on research-based higher education to develop an internet-age entrepreneurial culture.

As one of the top five start-up ecosystems in the world, India could and should play a significant role in igniting a start-up revolution in the MENA region that can help to install a technology driven, knowledge-cum-service based economy capable of solving socio-economic problems that are unique to the region. Most importantly, this effort to kick-start a technological start-up revolution in the Middle East and beyond must encompass Palestine as well, which is also a young society, with youth comprising 30 per cent of the total population. Recent studies have revealed that the private sector is unable to absorb enough of the 2,500 technology graduates leaving its universities every year. While New Delhi is developing a techno park to stimulate the Palestinian technology ecosystem, the Indian IT giants would do well to help Palestinian entrepreneurs build their own niche in terms of IP-based technology products, to make them globally exportable. Since the IT sector accounts for 10 per cent of Palestinian GDP, the Israeli government in Tel Aviv could reshape Palestine-Israel’s destiny by providing an enabling environment for a modern Palestinian tech-ecosystem.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.