Mideast start-ups booming, but for how long?
The start-ups that are securing the largest amounts of funding in the region seem to be the ones that cater to a society driven by consumerism...
The Middle East is beginning to see a boom in start-ups. This week, e-commerce website Wadi.com secured $67 million in series-A funding for expansion in the region. This follows news in February of Souq.com securing AED 1 billion ($264 million).
The start-ups that are securing the largest amounts of funding in the region seem to be the ones that cater to a society driven by consumerism. Both these e-commerce websites offer products at a lower price than a regular in-store retailer.
Although each website has something that sets it apart - Souq.com has a long and well-established history, while Wadi.com has a reputation for excellent customer service - it seems entrepreneurs are pinpointing what consumers want most: high-quality products at a discounted price.
It will not be long before even the e-commerce market is saturated. What will happen then is a revival of the technology industry in the region.
Traditionally, investors have focused on tangible investments such as property. However, after the property boom of the 2000s, realtors began to feel the pinch and agents began to shut down. The online industry is fast-paced and adaptable to changes in demand, allowing for greater flexibility and arguably greater sustainable growth.
The Middle East technology industry is finally catching up with its Western counterparts, with the number of funding sources increasing 140 percent from just 20 in 2008 to 50 in 2013, according to Wamda Research. E-commerce and online services account for 28 percent of total funding, according to Wamda.
The Middle East technology industry is finally catching up with its Western counterparts, with the number of funding sources increasing 140 percent from 2008 to 2013Yara al-Wazir
E-commerce is not the only sector of start-ups that is growing. At greater accessibility and everyday usage, mobile and telecom start-ups have seen 4-percent growth in the number of investors.
This is substantial given how quickly the region is gaining access to the internet. In Saudi Arabia alone, internet penetration grew by 22 percent to reach 82 percent between 2012 and 2013, according to market research company IPSOS.
The technology industry also provides opportunities for the unemployed. According to the regional general manager for Uber, 40 percent of its drivers in Egypt were unemployed before the app came along.
However, there are many region-specific obstacles to the growth in the tech industry, such as funding, government regulations and a volatile market.
Funding for tech companies mainly comes from Gulf-based firms and investors such as Sawari Ventures, twofour54, and the Dubai Silicon Oasis Authority. Yet the Gulf’s kafala sponsorship system requires that a company sponsor the residency of expatriates who wish to live in the Gulf. The alternative is to find a local business partner.
Market volatility is not related to demand, but to how regional governments react to growth in technology, specifically mobile apps. In the United Arab Emirates (UAE), for example, apps such as Skype, Viber and Facetime are blocked because they are unlicensed by the Telecommunications and Regulations Authority (TRA).
Worldwide, growing tech companies do not necessarily have actual products, but connect consumers with providers. Alibaba.com sells everything from baby formula to steel, but has no warehouses. Uber does not directly employ drivers or hold them to strict schedules. Food-ordering website Talabat.com does not make any food - it simply connects users with restaurants.
What kind of licenses are these companies expected to obtain in order to operate, and can regional governments shut them down on a whim? The answer depends on what these tech companies can do for the country, not what the country can do for them. If they prove that they can provide sustainable long-term employment and convenient services for citizens, governments are more likely to allow them to operate freely.
One of the greatest challenges entrepreneurs face is that funders do not provide enough support beyond cash. It is not all about the money when it comes to maintaining the tech boom in the region. Donating office space, providing mentorship, and offering meaningful coaching and help that goes with funding is key to maintain this boom, and to maintain the success of the companies.
Yara al Wazir is a humanitarian activist. She is the founder of The Green Initiative ME and a developing partner of Sharek Stories. She can be followed and contacted on twitter @YaraWazir