The increase in entrepreneurship and start-ups in the region has been happening over the past decade as revealed by Arabian Business in the latest trends shaping the region’s start-up ecosystem
Financial technologies and e-commerce businesses dominated the market in the Web 2.0 wave, while blockchain and cryptocurrencies are slowly growing in the region
In the post-pandemic economy, it feels like start-ups are launching almost daily in unprecedented numbers, but the Middle East entrepreneurial ecosystem has been steadily growing for almost a decade now, explained Walid Hanna, CEO and founder of MEVP, a venture capitalist firm.
Talking exclusively to Arabian Business, Hanna looked back at the evolution of start-ups in the region and the major trends that dominated each phase until today.
What can you tell us about the regional landscape for start-ups in the post-pandemic economy?
The increase in entrepreneurship and start-ups in the region has been happening over the past decade.
We [at MEVP] began our journey back in 2010 and, at that time, we used to see one or two start-ups a week, while now we receive three or four business plans a day, so the multiplier has been enormous in terms of the number of start-ups.
This has been the case post-Covid as well. When the whole ecosystem realised how important technology is during the pandemic, it gave a boost to our portfolio of companies and they grew faster and it also gave a boost to potential entrepreneurs who left their jobs to start their own businesses.
Why do you think fuelled this growth in the pre-coronavirus days?
It’s a natural progression that happened across the US, Europe and China over the past two decades and since there’s always a lag with the Middle East, it’s finally happening here now.
If you look at the penetration rates in internet usage or mobile phone usage, the Middle East has typically been lagging, the exception being countries like the UAE. But, now they’re all catching up.
What are some of the trends you’ve seen among regional start-ups, in fintech and tech in general?
Trends have been evolving over the past decade as well.
Originally there was the Web 1.0 wave, which was only content-based such as browsing the internet for cooking recipes, for example.[Start-ups] were making money, but it was based on reading, there were no interactions or transactions involved.
Then it evolved into Web 2.0, where we saw a lot of financial technologies, e-commerce sites and software-as-a-service for enterprises. We’ve invested in 60-plus companies across those verticals.
We’ve also seen a lot of mobility plays, such as Uber, and we’ve seen that model [replicated] across tuk-tuks, motorcycles, electric scooters and trucks which, in a way, is good for the environment.
Within fintech, we’ve seen a lot of sub-verticals, such as the Buy Now, Pay Later model, which is a big trend at the moment – there are around ten [such start-ups] in the region and we’ve invested in an Egypt-based one. But there are so many other trends within fintech, including micro-lending, SME-lending or treasury solutions; payment solutions in general.
The hype over non-fungible tokens and cryptocurrencies, the whole blockchain business model, has evolved tremendously over the past couple of years and is just starting to pick up in the Middle East. We’ve seen two NFT marketplaces and a couple of blockchain business models. It is still quite limited, although I expect it to grow much faster in the next three years.
How do you identify the companies you will invest in?
Just as they say “location, location, location” for real estate, it is “people, people, people” for start-ups.
If a start-up is at the earlier stages, the best thing you can look at is how investment-ready the business is and how qualified the founders are with relevant experience. We look at how dynamic, hardworking and motivated they are.
We look at the total addressable market and try to understand if it’s big enough and if they are really answering a pain point that is large enough to make serious money. This is because we are not interested in a small niche in a tiny country. For example, if a start-up is trying to solve a small issue in a country like Lebanon and the issue is not the same in Saudi Arabia and the GCC, then we are not interested.
We also look at the business model and the unit economics to see if it is viable, meaning we try to find out if the cost of producing, marketing and selling whatever product is worthwhile. If you look at the cost of acquiring a user and realise that the margin you are making out of this one product is inferior to that, then it is not worth it.
We also look at how robust and scalable the technology itself is and the stack they use. We invest in tech start-ups only.
Growth is key to our assessment of technology companies. We don’t do seed capital so when we invest in Series A, we can already witness a traction behind the start-up. If the traction is interesting, we get interested but if it is not already interesting, we don’t invest.
What are the challenges that remain for entrepreneurs in the region?
It depends on the country. In the GCC, there are no currency risks because they are pegged to the dollar, but if you look at currency in Egypt, they got really hit by the devaluation about three years ago.
There is also a political risk because of the region’s instability and relationship with its neighbouring countries.
Enablers are becoming better and better, but we still have some issues with the banks, for example. Opening up a bank account for start-ups is very challenging across the region. It takes ages and a lot of KYCs.
Five years ago, the logistics were very poor. Even the online payment systems were very poor so it was difficult for start-ups to thrive within that environment. This has been enhanced over the past couple of years but, for some reason, many customers here still want to pay cash-on-delivery and not use credit cards online. Penetration is increasing in terms of card usage but it is still lower than the global average.
Other than that, the ecosystem has evolved well and the enablers have followed. I would say the only challenge that remains is for fintech companies in terms of licence and regulations. Government regulations are making it easier by offering sandbox licences, but other than that, the regulatory framework is quite limited. The process is very slow but will happen one day I am sure.
Exits are happening, but still at a low rate where selling the start-up is difficult. There are more investors from outside the region looking at the region, which is positive, and the big regional conglomerates have also started to acquire start-ups so the trend is good but the numbers are still behind.
We have good start-ups and we want to sell them, but buyers are scarce. We should expand our horizon of buyers towards the global market, such as China or the US.
The following story is about how one country responded to disappointing Doing Business scores to reform its rules and regulations for its own benefit. Would discontinuation of this instrument mean its non-availability to others?
The above image is for illustration and is of iStock.
How one country responded to disappointing Doing Business scores
On September 16, 2021, the World Bank discontinued the Doing Business (DB) report, one of its flagship diagnostic products. This action follows what the World Bank called “a series of reviews and audits of the report and its methodology.”
The DB report, published each year since 2004, was one of the World Bank’s most influential reports in recent years. Every autumn, people around the world would wait eagerly and, in some cases, with some trepidation, for its release. Over time, the reports increasingly attracted the attention of heads of governments who wanted to see their countries do well in the rankings.
When the DB report came out in 2015, the Indian government was disappointed. Soon after taking office in 2014, Prime Minister Modi announced his government’s intention to bring India’s ranking into the top 50 within a few years. Several reforms were carried out in the following months, which the Indian government hoped would put India on a trajectory of rapid annual improvements in the ranking. The 2015 report (officially called “Doing Business in 2016”, since the World Bank always gave the report a forward-looking title) indicated only a modest improvement in India’s rank, from 142 to 130.
The World Bank explained to the Indian government that while several reforms may have been enacted on paper, Indian businesses did not report feeling an impact on the ground. Some responded, “What reforms?”, while others heard about the reforms but had not seen improvement on the ground. The reforms could not be officially recognized until the private sector reported real improvements. The World Bank suggested that the government put in place feedback loops to provide real-time information from businesses on whether the reforms were being well implemented. The government, instead of whining further about the scores, started working on such feedback loops. For several regulatory reforms covered by the DB indicators, it started surveying businesses on whether they felt any reform impact on the ground.
From February 2016 to May 2017, the government carried out a series of business-to-government (B2G) feedback exercises and focus group discussions (FGDs) on how much the businesses were aware of the enacted reforms and their views on the quality of reform implementation. Nine B2G feedback exercises were carried out. Topics covered construction permits (three surveys each in Delhi and Mumbai), starting a business (two surveys), and trading across borders.
The exercises revealed several implementation gaps, some major and some minor. An example is construction permitting. A business survey carried out in Delhi in March 2016 revealed the following implementation issues: a) significant lack of agency coordination—architects still need to obtain approvals from up to 10 different agencies; b) some facilities for online payment were not properly implemented and certain fees were still paid manually; c) very low awareness of the online system among users; d) no way to track the status of an application; e) information lacking on documentary and other requirements. In other words, the reforms had not gone far enough to have impact on the ground.
This feedback exercise helped generate several recommendations to address the deficiencies. These were provided to the Municipal Corporation of Delhi (MCD), and most were acted upon. Follow-up feedback exercises in October 2016 and February 2017 validated these actions while generating additional recommendations for further improvement. A similar effort was made in Mumbai.
The impact of these efforts can be seen in the trends in India’s performance on the “Dealing with Construction Permits” indicator. In the Doing Business in 2016 report, India’s ranked 183 on this indicator. Thirty-three procedures were involved taking 191 days according to the indicators. Two years later, the number of days had come down to 144 with a modest improvement in the rank to 180. The more substantial improvements came the following year when the DB report published in October 2018 indicated a reduction in the number of procedures and days required to 18 and 95 respectively. Still a long way to go but enough to propel India’s ranking on this indicator to 52. While all this improvement cannot be attributed to the feedback exercises alone, it is possible to trace a substantial part of this improvement to actions taken as a result of these exercises.
The Indian government also recognized that the DB indicators did not cover many regulatory interfaces that created problems for businesses and that the indicator measures were based on conditions in just two cities, i.e., New Delhi and Mumbai. Thus, in parallel to its efforts on the DB front, the Indian government embarked on an ambitious regulatory reform program at the state-level covering all states and union territories in the country. A long list of regulatory reforms was identified covering several regulatory areas, and state governments were instructed to carry out the reforms. Called the Business Reforms Action Plan, the program started in 2015.
Progress was monitored through annual indicators that ranked states according to their performance on implementing the reforms. The first such indicators, published in 2015, did not take into account business feedback. However, seeing the usefulness of the feedback exercises carried out as part of the DB program, the government changed the state-level reform indicators in 2018 by making a substantial part of the indicator scores dependent on business feedback.
The powerful demonstration effect of such feedback exercises had touched individual state governments too. In 2018, four state governments, Chhattisgarh, Jharkhand, Orissa, and Rajasthan, expressed an interest in knowing why there was poor uptake of self-certification and third-party certification options provided in business inspection reforms carried out by these states. At their request, the World Bank carried out an independent feedback exercise that could help design corrective actions to improve uptake.
The Indian experience from 2016 onward is a good example of what the DB indicators can lead to if governments use them well. First, the government refocused its attention from reforms on paper to reforms on the ground. Second, it recognized the importance of consulting with the private sector, which knows best where the shoe pinched, and designed corrective actions based on the feedback. This iterative process helped improve reform implementation quality. Third, the government recognized that while the DB indicators were useful, they were not adequate to diagnose the myriad of regulatory issues that businesses all over India faced. Thus, the government embarked on a more comprehensive, state-level, reform program, and, inspired by the power of indicators, underpinned this program by a set of performance indicators. Finally, once the pioneering DB-related feedback exercises proved useful, they created a demonstration effect, first within the central government, which replicated such exercises for the state-level reform program, and then on individual state governments.
Hadi Khatib on AMEInfo of 18 September 2021 came up with this deep statement on the anxiety list for MENA entrepreneurs that is long, as is the one curing it
The anxiety list for MENA entrepreneurs is long, as is the one curing it
A research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region revealed anxiety has several facets in the minds of these leaders. But all of these insecurities have cures.
55% of startup founders said that raising investment has caused the most stress.
More than 95% of entrepreneurs view co-founders as family members and/or friends.
Research finds that entrepreneurs are happier than people in jobs.
EMPWR, a UAE-based digital media agency dedicated to mental health and an exclusive mental health partner for WAMDA and Microsoft for startups, published a research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region.
The research indicated that startup founders undergo higher levels of stress than the rest of the region, with twice the likelihood of developing depression issues.
55% of startup founders said that raising investment has caused the most stress; the pandemic was the second most-cited reason cited by 33.7% of respondents. 44.2% spend at least 2 hours a week trying to de-stress.
Other insights, uncovered by the report, include:
A good relationship between co-founders can help startups navigate the pandemic-hit market. More than 95% of entrepreneurs view co-founders as family members and/or friends
Many entrepreneurs live well below their means to fund their ventures, leading to stress that is detrimental to their health
With only 2% of healthcare budgets in the MENA region currently spent on addressing mental health, the impact of the COVID-19 pandemic on young entrepreneurs and achievers could lead to an economic burden of $1 trillion, by 2030, according to the report.
EMPWR’s MENA partners shared special offers on their mental health services for the region’s entrepreneur community.
From Saudi Arabia:
Labayh is offering the technology ecosystem a 20% discount on their online mental health services for 2 months. Promo code: empwr, with the offer valid until October 29.
O7 Therapy are offering 50% off their online mental health services, for 50 Entrepreneurs in the MENA region. Promo code: Entrepreneur50, valid until December 1, 2021.
From the UAE:
My Wellbeing Lab is offering 20 one-on-one coaching sessions to entrepreneurs that wish to be coached and helped; alongside unlimited access for any entrepreneur to their “Discovery Lab”, a platform that gives entrepreneurs and leaders insights into their mental wellbeing as well as their teams. Promo code: MWL21.
Takalam is offering 10% off for 3 months. Promo code: Impact.
Mindtales is offering the MENA ecosystem 50% off their services for one month. Their App can be downloaded here.
H.A.D Consultants is offering 20 one on one coaching sessions to entrepreneurs. Promo code: HAD_SME01.
Nafas, a meditation app focused on reducing stress, anxiety, and help with insomnia, is offering access to its platform. Register as a user via this link to redeem benefits.
Entrepreneurs’ mixed emotions
Entrepreneurs must grapple with uncertainty and being personally responsible for any decision they make. They likely have the longest working hours of any occupational group and need to rapidly develop expertise across all areas of management while managing day-to-day business.
Work on the economics of entrepreneurship traditionally assumed that entrepreneurs bear all the stresses and uncertainties in the hope that over the long term they can expect high financial rewards for their effort. It’s false.
2. Highly stressful, but…
High workload and work intensity, as well as financial problems facing their business, are at the top of the entrepreneurs’ stress list.
But some stressors have an upside. While they require more effort in the here and now, they may lead to positive consequences such as business growth in the long term. Some entrepreneurs appear to interpret their long working hours as a challenge and therefore turn them into a positive signal.
3. Autonomy is both good and bad
The autonomy that comes with being an entrepreneur can be a double-edged sword. Entrepreneurs can make decisions about when and what they work on – and with whom they work. But recent research into how entrepreneurs experience their autonomy suggests that, at times, they struggle profoundly with it. The sheer number of decisions to make and the uncertainty about what is the best way forward can be overwhelming.
4. An addictive mix
The evidence review confirms that, by any stretch of imagination, entrepreneurs’ work is highly demanding and challenging. This, along with the positive aspects of being their own boss coupled with an often competitive personality, can lead entrepreneurs to be so engaged with their work that it can become obsessive.
So the most critical skill of entrepreneurs is perhaps how they are able to manage themselves and allow time for recovery.
Stress management tips for entrepreneurs
Identify what the actual source of your stress is. Is it tight deadlines, procurement issues, raising capital, managing investors’ expectations, building a talented team, or delay in landing the first sale for your new startup business?
Even if numbering more than a few, break them down because unmanageable tasks look simpler when broken down into smaller segments. Then, list down how you plan to successfully tackle each issue. Meanwhile, exercising multiple times a week has been rated as one of the best tactics for managing stress.
Another technique for handling stress is to take a break. Rest as much as you can before going back to continue with the tasks. It’s also a good idea to reach out to friends, family, and social networks because they are likely to understand what you’re going through and offer words of wisdom and courage.
Stay away from energy-sapping junk food. Eating healthy keeps you fueled for the next challenge. Finally, get enough sleep, and power naps. Sleep helps your body and mind recover.
Hadi Khatib is a business editor with more than 15 years of experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about them. He can be reached at: firstname.lastname@example.org
The pandemic has helped boost digital marketplaces in the region, opines Muhammad Chbib, CEO at Tradeling.
7 November 2020
The pandemic has propelled the use of e-commerce in the region and globally. What are the key trends you have seen? The most significant trend is the growth of homegrown capabilities in e-commerce in the region. Globally, while e-commerce has been recording strong growth – accelerated no doubt by the pandemic – the region has witnessed a transformational growth in the evolution of the digital economy. Not only have our homegrown companies demonstrated strong resolve to meet the needs of the people and support them, we have seen a tremendous amount of entrepreneurship – with new startups entering the market and building their own niche.
The second trend is more consumers warming up to the possibilities offered by e-commerce. While digital commerce was gaining momentum, one of the factors that has stymied its growth in the region is the relatively lower credit card penetration in some markets. There have also been typical concerns associated with conducting everyday business online. However, one thing the pandemic has brought about is the adoption of digital payments and the increased confidence of consumers to shop online and conduct e-commerce transactions.
In the B2B e-commerce space, how high is the penetration in the GCC market? Has it grown significantly this year? While B2B e-commerce was evolving at a slower pace compared to consumer-oriented digital business, this year has witnessed a real transformation. I believe it is a case of supply and demand. What matters is that in the new reality, business customers too want to access products and services easily, quickly and efficiently. We see a growth in the B2B marketplace – here in the UAE – and growing enquiries from across the GCC.
Which are the verticals within the sector where you see most scope for growth? It is really a matter of bringing more options to the customer, whatever the vertical. Customers like to shop around and feel they get value for money and exemplary service. But it is also a matter of sourcing new products and services that aren’t in the region yet.
For those entering the digital B2B industry, what are the main challenges? The main challenges are finding the right talent with expertise and insights into the B2B sector, which is a different terrain compared to B2C e-commerce. An in-depth understanding of the global market is essential in addition to knowledge of the trading dynamics. You must be flexible and agile to overcome any unprecedented situation. It is also a matter of understanding the customer – the B2B customer is very different from the B2C customer.
Our priority is making the customer journey seamless, taking away their pain points and streamlining processes to ensure efficiencies that save them time and money.
Tradeling launched in April, in the midst of the lockdown – how was your experience? Do you have any immediate plans to expand? We created Tradeling during the pandemic to connect regional and global suppliers to MENA-based business demand. Today, we have close to 400 suppliers from over 25 countries with gross merchandising value increasing from zero to a high two-digit million figure in just three months.
The key to overcoming the challenges was to enhance market confidence and we took decisive steps in this regard. Today, we have gone from a team of 40 to nearly 100 people and we continue to hire.
From logistics to financing support to ensuring a fully secure payment gateway, we are the first of our kind B2B platform across the region. This is our USP and this integrated approach to business has enabled us to address the challenges.
Looking ahead, what is the future of digital marketplaces in the region? Digital marketplaces constitute the future of retail and in the new reality, they will record a stronger rate of growth compared to brick-and-mortar retail. But the key for success is to define your own unique niche for the marketplace; increasingly, we see online aggregators trying to capitalise on the opportunity, which will only lead to market fragmentation. What we need is bold, innovative ideas that will help accelerate the momentum of e-commerce growth in the region.COVID-19DIGITAL MARKETPLACEE-COMMERCEGCCTRADELING
An analysis of the results of this year’s WARC Prize for MENA Strategy reveals key takeaways for the region’s marketers looking for growth opportunities, from finding niche audiences in smaller markets to developing more resonant touchpoints.
“As certain MENA markets are already enduring their second wave of COVID-19 and several continue to be buffeted by economic recession, identifying new strategies for growth is vital for brands,” says Lucy Aitken, Managing Editor, Case Studies at WARC.
“In this report, we’ve identified new approaches that this year’s winners have incorporated in their campaigns that can help brands to build strong strategic frameworks that have growth baked in.”
The four key takeaways highlighted in WARC’s 2020 MENA Strategy Report are:
1. Target the frontier markets
Pragmatic solutions that help specific communities in MENA’s frontier markets can be instrumental in driving growth. Empowering marginalised communities, particularly within the region’s smaller markets, can be an effective way to brand-build.
This year’s Grand Prix-winning initiative from Tunisie Telecom helped female farmers access social security via their handsets. The technological innovation instigated by the campaign set the precedent for a new digital government vision.
Melek Ourir, Strategic Planner at Wunderman Thompson Tunisia, advises: “Resist the temptation to ignore smaller markets and audiences that could unlock significant growth for your business.”
2. Unconventional touchpoints can underpin strategy
Identifying new, creative touchpoints strengthens strategy, resonating with or delighting audiences.
Three standout campaigns addressed consumer challenges and were not constrained by where the brands were traditionally ‘allowed’ to be present: clothing retailer Babyshop promoted the long-term health of mothers; cheese brand Puck reclaimed share at breakfast and lunch; and NGO Donner Sang Compter encouraged those who spill their own blood onto the streets in the tradition of Ashura to donate it instead.
Admiring the risks and the rulebreakers among this year’s winners that explored new touchpoints, judge Sunjay Malik, Associate Director, Strategy at PHD UAE, says: “Media mixes are rulebooks that we set ourselves, which over time make us less imaginative and less brave. Long live the rulebreakers, who in challenging themselves inspire us to be better.”
3. Humour: a strategic shortcut to likeability
Making people laugh is one of the most powerful ways to connect and can make your brand distinct from the competition.
Winning brands that used humour include Burger King, which launched a new spicy menu with its Who Said Men Don’t Cry campaign; telco Jawwy, which used entertaining video content to resonate with Saudi youth; and Egyptian telco Etisalat crafting a comic campaign to win customers over to its hybrid offer.
Jury member Shagorika Heryani, Head of Strategy at Grey MENA, says: “There’s always a place for humour – even during a crisis. Smart brands understand the relationship between humour and humanity. Companies know that we buy from brands and people we like. And humour is a shortcut to likeability and authenticity.”
4. Localise to resonate
This year’s winners are a treasure trove of local insight, proving how time invested upfront to unearth strong local insights tends to pay dividends in terms of a robust strategy.
Best-in-class examples include: KFC in Saudi Arabia, which communicated its commitment to locally-sourced chicken by turning all of its brand assets green – the colour of the Kingdom’s flag; and Grand Prix winner Tunisie Telecom, which devised a programme to offer social welfare coverage to female farmers.
WARC’s 2020 MENA Strategy Report can be downloaded here. The full report is available to WARC subscribers and includes chapter analysis of the four themes with views and opinions from the judges; objectives, results and takeaways of the winning case studies, and what these mean for brands, media owners and agencies; and data analysis.
WARC’s Lucy Aitken will deep-dive into using humour as a successful marketing strategy at Lynx Live on 5-7 October in her keynote ‘Humour: the smart shortcut to brand fame’.
The WARC Prize for MENA Strategy is a free-to-enter annual case study competition in search of the best strategic thinking from MENA’s marketing industry. Next year’s prize will open for entries in January 2021.
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