Up for Discussion (n): A virtual roundtable.
Let’s play a word association game. When you hear, “Middle East and North Africa,” you think_____?
Just a guess: the words that materialize aren’t “startups,” “innovation,” or “entrepreneurs.”
But maybe they should be.
Serial entrepreneur Chris Schroeder was surprised to find kindred spirits in the Middle East back in 2010, so he decided to write a book, Startup Rising. Even since the book’s August publication date – the situation in parts of the region has spiraled. Schroeder talked about how that’s impacting the entrepreneurial revolution, at a Future Tense dinner this week.
And we asked a group of MENA investors and entrepreneurs – a few characters in his book– to weigh in on whether instability is an opportunity or a liability. Their edited answers are below.
Chris’ book tells a positive story even as negative news about the Middle East continues to dominate American headlines. Are there still opportunities for investors and entrepreneurs in the region despite political tensions and security concerns?
Randa Ayoubi, CEO and Founder of Rubicon:
Below the surface of the dramatic MENA news, there is a huge potential for both entrepreneurship and investors to leverage the technical human resources available throughout the region at rather competitive costs. Many countries in the MENA region also offer investors an enabling environment in terms of laws and regulations that one would not find, for example, in Europe, and investments in startups in the MENA region come at a much lower cost than almost anywhere in the world at this point in time.
The region is home to more than 300 million people. Half are younger than 18, and many have multi-lingual educational backgrounds. A good majority – especially in the Arabian Gulf region – have a relatively high disposable income, and an almost unparalleled opportunity to establish industries and service organizations that can cater to the growing and changing needs of the population.
Omar Christidis, Founder and CEO of ArabNet:
One of the interesting opportunities where we’re seeing Arabs lead is in digital content, especially when it comes to video. Saudi Arabia is the world’s number one consumer of YouTube video per capita in the world. But beyond consumption, Saudi youth are creating smart, funny video content that is garnering massive Arab viewership.
Beyond that, like many other emerging markets, there are great opportunities for localization of successful global business models – from restaurant reviews to crowdfunding platforms.
Dina Sharif, Middle East Task Force Fellow:
A lot of surveys have shown that youth are more inclined to start their own businesses now than to be employees. This is a huge shift in mindset for the Middle East. Traditionally, youth have said they would like a stable, government position. More and more are saying they want to be entrepreneurs or to be a part of the private sector.
Currently, there is a wave of young entrepreneurs who are willing to be angel investors – such as the Cairo Angel Investor Network or the group who started Shekra, which is the first closed crowd financing platform comprised of young angel investors.
The fact that Arab youth are so ‘connected’ is also promising. Chris is right when he says in his book that all of these connected youth will lead to innovation.
May Habib, Founder and CEO, Qordoba:
There are 80 million users online in the MENA region, 40 million online in Iran, and lots of underdeveloped Internet sectors. It’s like the Wild Wild West! The opportunities to create meaningful businesses (money-wise and impact-wise) are tremendous. Still, there are challenges to building value at the rate that startups in developed markets can: When purchasing power is low, that impacts us, too, because it’s correlated with lower credit card penetration, lower data usage, lower discretionary spending, and lower online advertising spending per user. So all of that is contributing to a smaller revenue opportunity than 120 million users would indicate. But this will change. And we will be there when it does.
It’s natural to assume conflict or tension has a stifling effect. But, at the same time, we know that tumult can sometimes spur innovation. What have you seen?
OC: We organized ArabNet Cairo, our first major conference in Egypt, in November 2011, 10 months after the revolution kicked off in Egypt. It was an incredible time: The atmosphere was buzzing with a palpable sense of possibility. It felt like there was an entrepreneurial event or the launch of a new organization or initiative every week.
However, at the same time, big businesses were struggling: The economy was reeling, and brands were cutting marketing and advertising spending – one of the most important revenue sources for digital businesses. It was difficult for us to find sponsors and make the conference financially sustainable. And the situation has worsened since then. Big businesses like banks, real estate developers and local fast-moving-consumer-goods industries, often the drivers of the economy and the biggest clients in many markets, are suffering. That means anyone who depends on them will struggle as well. I believe this will drive many entrepreneurs in the Levant and Egypt to move some or all of their operations to the Gulf countries, where there is greater stability, and where the clients still have serious budgets.
MH: Stifling is an understatement. If there’s no foreign direct investment there’s no economic growth. If there’s no economic growth the purchasing power of our target audience remains limited. Average non-Gulf per capita income (PPP) is $5,000. That’s not a lot of disposable income. Internet and tech companies are not usually selling life’s essentials.
I’m not going to get to the nuts and bolts of it – all of our Egyptian partners basically becoming incommunicado for the past month, or the fact that our top team met today [early August, 2013] to replace each and every Syrian linguist we have in-country (about 90 of them).
So yeah — not really sold on the “innovative solutions” implications of your silver-lining theory. Instability sucks, period.
Youssri Helmy, General Partner at Newbury Ventures:
Yes, Egypt is having a very tough time, but it caught the entrepreneurship bug. Yes, the economy is in slow mode, but as far as my memory goes, doing business in Egypt was never easy for one reason or the other: If it’s not in recession, then it’s in high inflation, and if the local authorities will not over-regulate a business, then the tax authorities will haggle with it indefinitely. All the entrepreneurs I know are thinking regionally, many of them thinking globally. None stopped to complain about the chaos outside the office. Yes, these events are making life harder for millions. But the ones least impacted are the new fast-evolving entrepreneurs.
Christopher Schroeder, author of Startup Rising:
Top-down actions [from governments], and the uncertainty they cause, chills both entrepreneurs and investing. These governments are putting significant weight on what is the greatest opportunity presented to them in my lifetime. Talent and investment has never been more mobile – both will leave.
We do know that some talent has already moved over to Silicon Valley, which raises the question: What can SV learn from places like Amman, Beirut and Cairo – the startup hotspots of the MENA region?
MH: Quite a bit that helps them grow as human beings and citizens of the world. Not that much that helps them make money (yet).
CS: Silicon Valley thinks everyone wants to come there – and many do, if even for a time. But thinking of emerging markets as merely market opportunities for their companies, or ways to outsource cheaply, misses that we are entering a world where innovation will come from many places; where people will look to co-author success in true partnership, and where all players bring unique expertise to the equation.
DS: The only thing Silicon Valley can learn is humility, in the sense that they won’t remain the only hub of tech entrepreneurship forever. There will be other hubs that emerge within emerging markets.
RA: There’s opportunity even in the most uncommon, unlikely of places….and a good opportunity identified in a place that’s under the radar is – usually – of huge potential.