Middle East 2016: Access to funds remains a challenge

The Middle East is usually in a state of turmoil and this affects all aspects of its countries, not just the economy and technology industry. When it comes to the ICT sector, it will struggle to grow compared with other regions and countries.

Falling oil prices have naturally had an impact on many countries’ economies too. This has affected hiring in the economy in various industries.

Israel remains the exception though. The country has emerged, over the last few years, as a startup powerhouse in several tech sectors with many companies raising large funding rounds and expanding beyond their base cities. These are some encouraging signs for 2016.

In one example, public transit app, Moovit, raised an undisclosed amount from Sound Ventures in November, which will fuel the company’s aggressive expansion into India and China. This all fits into a trend for Israel.

Startups in Israel – which has earned it the moniker “start-up nation” – raised over a billion dollars in funding for the third straight quarter, according to figures released in October. Most strikingly, only 12% of these investments were from Israeli VCs. The bulk of investments have come from international firms including Jeff Bezos’s Bezos Expeditions, Blumberg Capital, and Hong Kong’s Horizon Ventures.

It’s important to note that Israel is something of an outlier in the region. Elsewhere startups can be hampered by the lack of funding options based locally as well as the very real tensions across several countries.

Political unrest and access to funding

What about the start-ups in these struggling regions? Egypt has faced years of instability and political protests. Cairo specifically has shown much promise, owing largely to its young educated workforce but access to funding remains a large barrier as well as government bureaucracy and red tape when it comes to setting up a company.

This may be a barrier but not an insurmountable one. Cairo-based Wuzzuf, an online recruitment platform, has looked beyond its own country for funding and secured investments from American and European partners to the tune of $1.7m, making it the largest funding round for an Egyptian start-up led by international investors. It’s now opened an office in San Francisco to foster its growth.

Securing this funding has very difficult for Wuzzuf. It was founded in 2009 but did not launch its first recruitment site until 2011 and then the Arab Spring happened, placing the young company in a very difficult position to grow.

In 2016 tensions in Egypt may not be as high as they were five years ago but the landscape remains rocky for start-ups in the country and across the MENA (Middle East and North Africa) region.

In Saudi Arabia, the view appears a little more favourable at least in terms of funding and VCs. The government and Riyad Capital (the investment arm of Riyad Bank) run a technology investment fund worth $270m with a particular focus on domestic investments. Most recently, the King Abdullah University of Science & Technology (KAUST) launched its new Innovation Fund, having previously invested in several seed rounds for young Saudi start-ups.

The Innovation Fund of up to $2 million is broad in its search for companies but will invest in ICT start-ups along with biotech, solar energy, and oil and gas. Start-ups will also have access to KAUST’s research facilities.

Availability of funding will be key for Saudi Arabia’s tech start-ups to build out their companies and expand out of the Middle East but business support will be vital too.

Flat6Labs is one such resource. The start-up accelerator is based in Cairo, Jeddah, and Abu Dhabi with a Beirut location in the works, and has provided guidance and support for several start-ups.

Washmen, a start-up from the Abu Dhabi branch of the accelerator, recently landed $400,000 seed funding for its on-demand laundry service app. The CEO and co-founder Rami Shaar is a former Jeddah-based investment banker.

The accelerator’s presence has been felt the most in Cairo as start-ups recover from the Arab Spring. It has housed several start-ups who needed the space and resources like educational platform Nafham.

During the summer the accelerator launched several new demo days and announced its plan for a Lebanon accelerator.

The expansion of support services and networks like this across the Middle East will be a boon for start-ups struggling with their business and financing or lacking the resources to get their start-up off the ground and we’re starting to see more efforts.

Late November saw the launch of UAE’s first clean-tech hub with $50,000 in funding up for grabs. Meanwhile Middle East Venture Partners (MEVP) announced the close of its second “oversubscribed” fund at $32 million. With its offices in Silicon Valley, which complement its MENA presence, it provides potential gateways for local start-ups to enter the US market.

“With the high growth of smartphone users and e-commerce, the GCC [Gulf Cooperation Council] and wider MENA region has become a breeding ground for technology start-ups that require early-stage investments to allow them to grow, succeed and create sustainable businesses,” says Walid Hanna, founder and managing partner of MEVP. “We are particularly excited by transactions in the web, mobile, and digital marketplaces across the region.”

Funding for start-ups is the major hurdle to cross as there is much opportunity in the growth of smartphone use, explains Hanna. The UAE has led the growth of mobile devices with 73% smartphone penetration among users with Saudi Arabia on its heels. Education will be vital too in order to take advantage of this growing user base and encourage more youth into tech careers.

In Egypt, Google is collaborating with MOOC-provider Udacity to train 2,000 people in mobile app development in 2016, with a special focus on Arabic content. Graduates will receive an internationally-recognised certificate.

While there are political tensions in the region, there are no elections on the horizon in 2016. That can of course change at any time but currently no Middle East democracy looks set to endure a power shift that would affect economic policy and in turn the tech economy.


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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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