Qataris have committed to investing £5 billion ($7.5 billion) into various sectors in the United Kingdom, including technology. Saudi Arabia has invested billions of dollars into technology companies based in Silicon Valley, most recently its $3.5 billion investment in Uber.
The Kuwait Investment Authority’s funding of technology companies based in Silicon Valley trails behind that of Saudi Arabia’s, but is still substantial and in the order of hundreds of millions of dollars.
The investments made by these countries are made through their respective investment authorities, and it seems that the brains that work at these investment authorities recognize the tech boom is happening and are choosing to invest in it appropriately. Fundamentally however, there is nothing more lucrative than investing in a government’s own population.
According to Dubai SME, investments into SME’s in the UAE create an average of 12 jobs per deal, compared to an average of 4 jobs per investment deal made in the USA, or 6 jobs per deal made in Europe. This data suggests that the job growth return on investment is substantial for the region.
The Middle East and North Africa has the highest youth unemployment rate in the world – with an average of 12 jobs created per investment, startups are providing a whole new industry for job creation, and are potentially the key to getting out of this unemployment rut.
The Middle East and North Africa has the highest youth unemployment rate in the world – with an average of 12 jobs created per investment, startups are providing a whole new industry for job creation, and are potentially the key to getting out of this unemployment rut.Yara al-Wazir
In 2016, the Kuwait Investment Authority (KIA) lead a $165 million investment round into Jawbone, a company that (at the time) made wearable technology. Just over a year later, the company is now liquidating its assets.
This is not a case of taking one failed investment and vilifying it; investments are risky in the base case, and investment authorities must accept risks in order to succeed – I am not expecting this to change.
However, I cannot help but think what could have happened if the $165 million invested in Jawbone was diluted and shared among startups in Kuwait – what are the chances that all of them would have failed within a year?
The Long-term strategy
While government entities have a large role to play in providing opportunities for startups and entrepreneurs, there is also a great deal of responsibility to be held by private investors, known as ‘angels’ in the startup scene. Those who also see value in investing in individuals and startups are slowly replacing the age of investors who see value investing in bricks and buildings.
The UAE has recognized the significance that start-ups can play in the region’s economy, and has helped provide working spaces and support for start-ups through ‘Dubai Start-up hub’, supported by the Dubai Chamber of Commerce and Industry. The startup hub works hand-in-hand with entrepreneurs, venture capitalists, and investors.
According to Dubai Startup Hub, there are 508 startups based in Dubai, eleven incubators, and fourteen active investors, of which three are registered internationally. This is a prime example of the private and public sector working hand-in-hand for overall positive economic growth.
There are key issues with the legal and institutional framework within the GCC countries that are causing hold-up times and concerns by both investors and entrepreneurs. The multiple regulatory entities that exist across the region create ambiguity and concern. Taking Dubai as an example, there are three regulatory entities (DIFC, DED and free zones).
The lack of understanding of the different methods in which these entities work mean that there are numerous investors who prefer investing in companies that are registered abroad.
In countries like Kuwait and Qatar, it is not possible for an expat to legally register 100 percent ownership of a company to his/herself, without a local investor making up 51 percent of the equity for a commercial company – exceptions apply for other industries such as consultancy and manufacturing. This complicates the process of startups expanding to reach out to the wider GCC market.
The GCC has come a long way over the past decade in recognizing the significance of startups. This has in-turn created a new industry for job creation, and has also garnered international attention by companies who are trying to break into the region.
Although the region is somewhat obsessed with international brands and franchising what has been established abroad, there is an incredible amount of value in investing locally. The sooner the public sector recognizes this and strengthens its policies to work hand-in-hand with the private sector, the sooner the region will begin to reap rewards.
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.