The Arab entrepreneurship opportunity

(This is cross posted from Habib Haddad’s blog)

The Middle East and North Africa region is home to 350 Million Arabic native speakers, 65% of which are under the age of 30. While internet penetration is still low at 20% it’s growing at the fastest rate in the world, mobile penetration however is at 80% with about 220M users. The education and health are booming due to the fast population growth. This growth coupled with the wealth of some countries especially in the Gulf is creating significant opportunities that are yet to be explored.

However a large portion of the massive GCC sovereign wealth funds was historically invested in markets like USA, Europe and Asia, but the recent downturn has put pressure to finally look and foster opportunities in the MENA region itself. Governments all over the Arab world are also keen on accelerating entrepreneurship and have been shifting the mindset of their funds towards more early stage deals, hoping to create that ecosystem. The challenge here is that it’s not just a shift of mindset but also a shift in required skills; Investing in startups and SMEs in the MENA emerging market is far from similar to investing in a developed ecosystem where the returns and exits are more or less established.

Incubators are also proliferating in the region aiming to foster early stage entrepreneurship. While I am a big fan of mentorship and truly believe it can add tangible value I am not sure traditional incubators are the answer. Those risk of becoming real-estate projects and can loose the energetic culture that they were set to create in the first place. Great entrepreneurs would want to tap into the contacts that the incubators provide but would graduate when the right time comes. The program/mentorship incubators that were pioneered by the likes of YCombinator and TechStars could work well but it’s important to not forget that the MENA is no Silicon Valley so we should be careful when adapting those concepts in the region. Meydan is one example of a TechStars model that launched in Jordan a few months ago.

One big gap remains in the seed investing with virtually no Angel network. It will require a generation of successful entrepreneurs to exit, make their fortune and turn to angel investing – while adding value – but in the meantime our bet still remains on incubators and on convincing wealthy individuals that investing in people is much more impactful then investing in buildings.

It will require a bit of testing and adaptation until MENA startups, VCs and Angels figure out the best model(s) but it’s important in my opinion to not to try and emulate the Silicon Valley but rather to focus on finding our own competitive edge. Taiwan for example was able to first position itself as a hub of semiconductor manufacturing and it actually did so by leveraging it’s competitive advantage: The Taiwanese Diaspora in working in tech companies in the Silicon Valley. Rwanda is another example of how Government was able to make a transformational change. In just a few years after the 1990 genocide Rwanda ranked 67 in the world bank “ease of doing business” index ahead of many Arab countries. Rwanda also focused on it’s competitive edge and in this case it was Coffee. Now that Rwandan Coffee is selling at a premium price on US shelves, it has created an entrepreneurial revolution back home. Businesses including technology oriented ones are emerging to serve this industry.

Going back to the MENA region I believe the conclusion is that we need to focus on our competitive advantages. Lebanon for example has been a historical creative hub and the birth place of many renown artists. This has pushed Cisco’s CSR arm to invest in fostering a Lebanese creative cluster, an admirable move that could have a long lasting effect.

On the other hand, international companies are also getting interested in the region and have started entering it, mind you each with different strategy. Google for example has set up sales and marketing offices in Egypt and the UAE and have assembled an engineering team in Zurich, Yahoo has acquired Maktoob the largest Arabic portal and Facebook signed a deal with ConnectAds a MENA ad agency to sell ads on its behalf – I will address the benefits of each to the local entrepreneurs in a later post – So while the painting of the entrepreneurship ecosystem hasn’t yet been completed, the MENA market offers a very fertile market, and it’s huge!

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By Habib Haddad; habib AT YallaStartup DOT org, @habibh

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