In MENA’s Maturing Ecosystem dated September 3, 2019, author Chloe DOMAT says that “as the region’s digital startups and fintechs grow and prosper, they must learn to scale, despite a highly fragmented economy.”
Once again this year, the digital economy of the Middle East and North Africa is set to break records. The first half saw $471 million in total funding and 238 deals, according to the latest report from Magnitt, a Dubai-based entrepreneurs’ network. That’s a 66% increase over the dollar volume in the first half of 2018 and 28% more deals.
Digital startups barely existed in the MENA region a decade ago. Now, fintech is a thriving sector embracing hundreds of new companies, jobs and investors. As the ecosystem expands with tens of newcomers each year, funding tickets get bigger and bigger.
“If we look back a few years, a deal at $2 million or $3 million would have made the headlines; today, we have multiple $10 million-plus deals,” says Omar Christidis, founder and CEO of Arabnet, a Beirut-based events and research company specializing in the region’s digital economy. “This is an indicator of the increasing maturity of the market.”
Major deals so far this year have included a $100 million capital injection in Dubai-based Emerging Markets Property Group (EMPG); a $65 million Series A round for Yellow Door Energy, also in Dubai; and $42 million for Egypt’s Swvl, a transportation app.
There is still a disconnect, however, between the growing demand for funds at all levels and the capital currently available to satisfy it, industry insiders say. Money is expected to keep pouring in, as an increasing number of international institutions enter the region. Big names like Endeavor Catalyst (US), Vostok New Ventures (Sweden), MSA Capital (China), Global Founders Capital (Germany) and Kingsway Capital (UK) already make up a third of the Middle East’s investor list.
Aiming to attract even more foreign capital, countries including Bahrain, Saudi Arabia and the United Arab Emirates (UAE) have also started establishing funds of funds.
Funding ($ Mil.)
Yellow Door Energy
For the first time, numbers of local companies are successfully reaching the end of the startup lifecycle and exiting through mergers or acquisitions. In March, Uber bought Careem, a Dubai-based ride-hailing application, for $3.1 billion, in a deal that marked the region’s first unicorn exit.
The pace has only picked up. At least 15 Middle Eastern startups have performed exits since January, including digital fashion platform Namshi, sold to Dubai’s Emaar Malls in February; the purchase by Majid al Futtaim, a Dubai-based shopping mall and retail operator, of Saudi Arabian online grocery store Wadi in May; and EMPG’s purchase of Jumia House, a property portal for Morocco, Algeria and Tunisia, in June.
These exits leave a new generation of former staff members with a lot of means. After Careem’s exit, 75 ex-staffers cashed out over $1 million each. That financial capital, as well as the beneficiaries’ acquired knowledge and expertise, will allow a number of them to start new business ventures.
The Imperative to Scale
While tech companies grow larger, entrepreneurs face new challenges.
“As mature startups move to larger funding rounds and raise interest for acquisitions, they need to scale operations, whether vertically with new business lines or geographically,” says Philip Bahoshy, CEO and founder of Magnitt.
Navigating across the region’s approximately 22 countries, each with its own complexities, is not easy, however. From Morocco to Iraq, Arab states differ dramatically from one another in size, population, wealth, laws, digital infrastructure and business culture.
“Seeing the MENA region as one big market is to a certain extent a misrepresentation because our markets are superfragmented,” says Christidis. “A company that wants to grow from Lebanon into Jordan into Iraq into Kuwait into Saudi Arabia has to enter five separate markets.”
The UAE is clearly driving the game. In the first half of 2019, the Emirates received 66% of the money invested in all MENA startups and captured 26% of the deals, according to the Magnitt report. Dubai has by far the most developed ecosystem, with a concentration of global firms’ regional headquarters, major funding institutions and accelerators.
The UAE, and Dubai itself, have worked to build an advantage. In 2017, the UAE became one of the first countries in the world to appoint a minister of artificial intelligence. Dubai’s Crown Prince Hamdan bin Mohammed bin Rashid al Maktoum has promised that the government will go 100% paperless by 2021.
“The UAE has been leading from the front,” says Amol Bahuguna, head of payments and cash management at Commercial Bank of Dubai (CBD), which just launched a new e-invoicing service. “Everything that has to do with the government is going digital. You have a real top-down approach to innovation and things move fast.”
Much will hinge on how the UAE, and Dubai in particular, manage their response to the current economic slowdown. Recent government data show that real estate, financial services and tourism—the pillars of the economy—are in a slump. In 2018, Dubai also recorded its biggest net loss of jobs since the global financial crisis.
The Emirates have competition, too, from Saudi Arabia, the biggest emerging market in the region with over 34 million people and high purchasing power. The authorities there are keen to diversify their oil-based economy, including promotion of the digital sector.
Riyadh set up a fund of funds to attract foreign investors to support startups. Saudi authorities will invest dollar-for-dollar as a limited partner in any new fund that commits to investing in the kingdom. They have also promised to streamline the licensing process for foreign startups so that they can settle in Saudi Arabia easily.
New Saudi-based funds such as Saudi Telecom’s $500 million ST Ventures, Vision Ventures and Hala Ventures, that have emerged in the past three years, are becoming large players in the regional venture capital game, leading $10 million-plus investment rounds.
On the other side of the MENA map, North Africa is also showing strong digital growth potential. Morocco, Tunisia and Egypt are investing heavily in the development of their own high-tech ecosystems, aiming to become the bridge to Europe and the gateway to sub-Saharan Africa. Tunisia recently passed laws supporting tech innovation; and in September, Tunis will welcome Afric’Up, a large pan-African startup-pitch competition.
Fintech’s “Gold Mine”
Although it hardly shows in this year’s top deals, fintech remains the fastest growing sector within MENA digital economy. In the first half of this year, fintech accounted for 17% of all deals, up 9% from 2018. Interestingly, almost 90% of the total $24 million funding went to early stage startups, underscoring that the sector is still in its infancy.
The data also reveals enormous potential. Arab countries are home to over 380 million people, half of them under age 26. Financial inclusion is among the lowest in the world, with only 52% of men and 35% of women owning a bank account as of 2017. The vast majority of those with bank accounts, however, own a mobile phone (86% of men and 75% of women).
By mid-2018, the whole MENA region, including North Africa, had 381 million unique mobile subscribers, according to GSMA Intelligence, a mobile industry trade body. Smartphones accounted for 52% of all connections and are expected to grow to 74% by 2025.
“These figures highlight the tremendous opportunity,” says Nameer Khan, founding board member of the newly established UAE-based MENA Fintech Association. “The region is literally a gold mine.” The lure for fintech investors and entrepreneurs is the chance to enter an untapped market in which hundreds of millions of users could leapfrog from the cash economy to the digital.
Fintech subsectors widely thought to hold growth potential include insuretech, robo-advisory wealth management and sharia-compliant services. But payment services, not surprisingly, stand out prominently for both the number of startups and the value of deals. Mobile payment, money transfer and lending platforms remain the main focus; while more-sophisticated technologies such as blockchain, the cloud and artificial intelligence still lag.
Egypt’s Fawry is one of the biggest success stories in payments. Launched in 2008, the company raised $122 million; its initial public offering on August 8 sold 36% of its share capital for $97 million. Also attracting notice in the sector are PayTabs, a Saudi Arabian online payment facility that announced in August that it had raised $20 million to support its expansion in the region and into Southeast Asia, India, Africa and Europe; and the Dubai-based peer-to-peer lending platform Beehive, with a total capital injection of $15.5 million as of March 4.
The payment landscape looks to change rapidly, however, as larger players seek their share of the fintech market. Careem, for instance, claims over 30 million users in the region and is currently rolling out its Careem Pay e-wallet. If the service succeeds, Uber-owned Careem could become one of the biggest MENA fintechs.
Digital Banking Multiples
Banks and financial institutions view the fintech surge as an opportunity to outsource innovation and digitization. From simple online banking and mobile applications to investment platforms and e-wallets, most MENA lenders are seeking partnerships with startups. Some have even rolled out fully fledged, branchless digital neobanks, including Emirates NBD’s Liv., Mashreq Neo, and Gulf International Bank’s Meem.
These operate under a conventional lender’s license, however. Since they were developed by traditional banks, they are not industry disruptors, like startups Revolut and N26; rather, they act like new-business verticals, intended to seduce tech-savvy youth and target the unbanked. For a digital banking startup to seriously challenge the major players would be a monumental task.
“Banks in the Middle East are very large; what we are seeing recently is market consolidation, so they are getting even bigger,” says Arabnet’s Christidis. “I don’t think any of the startups really want to take them on, head to head. I’m not sure either that there would be investors ready to bankroll that kind of an investment. Furthermore, I question what kind of industry lobbying bite the banks would put on if they really started seeing that kind of thing emerge.” Christidis believes only an already established player from outside the region would have the financial muscle to give it a chance to compete.
Such a competitor might come from outside the financial sector entirely, however. Abu Dhabi Global Market, a key Emirati financial center, announced in July that it is ready to issue digital-banking licenses to nonbanking firms “with innovative value propositions.”
As this suggests, while the MENA digital economy is developing faster than ever, legal and regulatory frameworks need to adapt for growth to be sustained. Procedures to register a company, licensing and liability laws in case of business failure or bankruptcy are among the key differentiators governments will have to consider as they look to make themselves more competitive.
“Governments are showing concerted interest in building digital ecosystems for their countries,” says Magnitt CEO and founder Bahoshy. “There are still challenges to be overcome, but we can expect success stories to be more frequent, have higher value and have more impact in the coming years.”
AMEInfo Staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.
Over 50% of the population are active internet users, a number that is expected to rapidly increase by the year 2030, as per Admitad’s 2nd annual industry report outlining e-commerce trends in Egypt.
Though only 15% of online users in Egypt shop online, the populous is becoming progressively approachable in online communications
The e-commerce market in the MENA Region is expected to reach $28.5 billion by 2022
“Despite the low rate of internet users currently, we are seeing an exponential growth in the e-commerce market in Egypt” – Artem Rudyuk, Head of Admitad MENA
Admitad MENA, a branch of the Global Affiliate Network Admitad, has released its second annual industry report that has comprehensively researched the increasing growth of e-commerce and online users across Egypt. Although the internet is only used by half the population of Egypt, it is still developing at an exponential rate. In fact, by the number of users alone, Egypt ranks first in the whole MENA region. By the year 2030, the growth of e-commerce in the country is expected to be remarkable – the road map includes improved Internet Networks (5G) and the opening of more than 4000 post offices for logistical convenience to aid this active development.
In a recent report by PHD Egypt, Nour Saleh evidently notes how the Egyptian government is getting involved at all levels to increase awareness of the vast opportunities that digitization can bring to the country overall. As Egypt ventures the translation of their public sector and economy towards a digital platform, the availability of data is voluminous. The country is making prominent efforts to simplify mundane tasks and provide a smooth pathway into a digital era, including encouraging businesses to equip this transformation.
An analysis by Bain & Company estimates that the e-commerce market in the MENA Region is expected to reach $28.5 billion by 2022. As this industry continues to rise, even the small pool of internet users in Egypt is impressively active. Today, a vast majority of Egyptian people rely on social media communities, Facebook being at the top to search for information on goods and where they can find the best deals. Though only 15% of online users in Egypt shop online, the populous is becoming progressively approachable in online communications and are therefore being profoundly influenced by recommendations. Through this conscious endeavour, Egypt is proving that today is the best time to be in the e-commerce market in the MENA Region and advertisers need to start getting ready for an era of digitization.
“Despite the low rate of internet users currently, we are seeing an exponential growth in the e-commerce market in Egypt. As governments get involved and aim to simplify these processes through the addition of updated logistics and easy bank processes, we are already seeing a rise in advertisers penetrating the Egyptian market and expect to see this continue. There is no doubt that more advertisers in Egypt will start to embrace digital transformation very soon and we are seeing many of them jump onto the bandwagon already!” – Artem Rudyuk, Head of Admitad MENA
The Middle East and Africa is poised for major IP
traffic growth, according to Cisco.
Visual Networking Index (VNI) Forecast predicts 4.8 billion Internet users to
be connected globally by 2022 – out of which 549 million will be living in the
Middle East and Africa.
“Cisco Connect: Say Hello to the Future” event on March 12, held at the
Atlantis The Palm resort at the end of Dubai’s iconic Palm Jumeirah, Cisco
celebrated 30 years of the World Wide Web by sharing insights from the VNI
Forecast to predict trends and behaviours evolving in the digital landscape in
the region and globally.
VNI Forecast predicts four key drivers of IP traffic growth in the MEA region
1. A 9% increase in the number of Internet users
number of people using the Internet will grow from 23% of the region’s
population in 2017 to 32%.
features high on the national agendas of most of the region’s countries. Cisco
estimates that the MEA region will have approximately 549 million Internet users
and account for the highest growth rate in IP traffic worldwide, with a 41%
increase from 2017.
2. An increasing number of connections
predicts there will be approximately 2.5 billion devices connected to the
network, equating to 1.4 networked devices per capita in MEA.
devices will drive 91% of regional Internet traffic by 2022. With projected
average mobile network connection speeds to grow by as much as 28%, smartphones
in particular are expected to make up 79% of Internet traffic in MEA, with 1.2 trillion
connected smartphones by 2022. Cisco anticipates the enhanced connectivity to
create new possibilities for AI and machine learning across industries and in
3. Faster broadband speeds
broadband connection speed is a key enabler for IP traffic growth, Cisco
predicts the speeds will increase more than two-fold, from 2017 to 2022.
it is expected that broadband speeds in MEA will increase from 7.8Mbps in 2017
to 20.2Mbps by 2022 – enabling businesses and individuals to operate with
greater speed and efficiency. As this speed continues to increase, large
downloads will go from taking hours to a matter of minutes and eventually,
4. More media-rich content and applications
terms of rich media, data-heavy files and videos are anticipated to make up 81%
of the MEA region’s IP traffic by 2022, up from 65% in 2017.
predicted 16% increase in media-rich Internet traffic can be partially
attributed to the rapid growth of OOT film, television and music streaming
services in MEA. As online gaming also continues to grow in popularity, Cisco
predicts that the region will experience a five-fold increase in Internet
gaming traffic from 2017, making up 1 percent of total IP traffic in MEA by
Commenting on Cisco’s VNI Forecast and the changes predicted to affect MEA,
Cisco Middle East and Africa vice president David Meads said: “It is
undeniable that the Internet is growing at an exponential rate. As governments
continue to invest in infrastructure, a faster and stronger Internet opens the
doors to unprecedented opportunities for individuals and industry alike.”
more. “Digitisation is a critical force for economic growth, so businesses
must adopt a mindset that is proactive, rather than reactive. DDoS attacks can
represent up to 25% of a country’s total Internet traffic while they are
occurring. By implementing the appropriate cyberdefence mechanisms,
organizations can protect themselves throughout the full attack continuum –
before, during and after an attack.”
Meads also added: “With nations such as the
UAE championing innovation, the Internet has, and continues to change our lives
in an infinite number of ways. Recognising the changes that are affecting MEA,
government, policymakers and service providers must continue to unite in their
efforts to create an accessible Internet that is available to the masses,
underpinned by a secure framework to aid sustainable growth.”
According to many studies as well as being consistently reported by the mainstream media of the MENA countries, Start-ups in the region do encounter a host of often debilitating obstacles, particularly in the field of advanced technology acquisition. The authors of these studies note that in other regions, techno entrepreneurs do not generally and / or unlike their MENA counterparts, have that many difficulties in acquiring equipment. Meanwhile, Cloud Computing empowering MENA youth seems to be energising more and more of them to reach for the skies.
This World Bank blog post by Safaa El-Kogali dated August 22nd, 2018 explains how empowering the MENA’s youth through mainly their Smartphone is making some difference. She says:
Can you believe this one device has already replaced 50 devices? Clock, camera, GPS, radio, flashlight, credit card, and USB drive are just a few to name. Data collected from all these 50 “devices” inside your smartphone are not stored on a hard drive or a flash drive but rather on a network of remote servers hosted on the Internet that also manage and process data. This evolution, known as cloud computing, holds transformational value for the future.
Could this easy reach to the “Cloud” bring in the future with less fear and anxiety and above all less difficulty?
When I was your age “checking your mail” meant walking to the post office and collecting letters, “tweet” meant the chirping of a bird, and “cloud” meant rain! Today, we live in a very different world.
Technology is not only changing the demands of the future workforce but also how we prepare today’s students for it; it influences the means but also the ends for education. Technology’s role in the future of work is certain, but how it will be used is yet to be explored and exploited. Now we have a unique opportunity to use technology help deliver better quality education in a more efficient and effective manner. And cloud computing is at the centre of this digital opportunity.
Look at your smart phone. Can you believe this one device has already replaced 50 devices? Clock, camera, GPS, radio, flashlight, credit card, and USB drive are just a few to name. Data collected from all these 50 “devices” inside your smart phone are not stored on a hard drive or a flash drive but rather on a network of remote servers hosted on the Internet that also manage and process data. This evolution, known as cloud computing, holds transformational value for the future.
Cloud computing is changing the way we look at our future because it has the potential to connect billions more people to digital networks. It can dramatically change the way we learn and the way we work. The time is now for us to understand and proactively manage the transition of education services and the future of jobs to the cloud. The opportunities presented by the cloud are particularly relevant to MENA where the challenge of out-of-school children in fragile and conflict areas cannot be addressed by traditional brick and mortar infrastructure. As the future of education and work undergoes a digital transformation, it is critical that we make sure our young people are ready to be a part of this transformation.
It is with this goal in mind that the World Bank recently signed a new US$500 million investment project with the government of Egypt to support their efforts to transform the way education is delivered. The project, which will be implemented by the Ministry of Education and Technical Education, has an ambitious goal to use technology to improve teaching and learning conditions in Egypt’s public education system. It is one of the first projects in the region that is actually moving Egypt’s entire student assessment system to the cloud!
To complement this project, we at the World Bank are pleased to partner with the Ministry of Education and Technical Education in Egypt and Amazon Web Services (AWS) in launching the “Skills for the Future Initiative” (SFI). SFI aims to equip young people in MENA with skills that are critical for the future of work. SFI Cairo brought together 200 young Egyptians enrolled in TVET training programs and 70 teachers in a 2-day event to learn about the essentials of cloud computing. The training was delivered by the AWS Educate team in Arabic. SFI interventions focus on the intersection of skills, technology and youth.
Moving forward, we will be planning additional SFI events in the form of short-term training boot camps to equip young people with technology and 21st century skills. These will include cloud computing skills, soft skills, and other skills that are high in demand in the region. We also plan to target refugee populations for whom SFI skills can be truly transformational.
The youth of MENA are hungry for change, and we need to make sure this change is positive, transformational, and aligned with the future!
In the MENA countries, the role and impact of the Social Media today have no need to be demonstrated; the so-called Arab Spring events have taken care of that. What followed, however, have sadly been outside its grips, all as reported in the regional media.
Per AP Cairo, Egypt’s parliament has passed a bill targeting popular social media accounts that authorities accuse of publishing “fake news,” the latest move in a five-year-old drive to suppress dissent and silence independent sources of news.
The legislation was adopted late on Monday by the staunchly pro-government chamber, though details of the new bill only emerged on today.
Social activism refers to a broad range of activities which are beneficial to society or particular interest groups. Social activists operate in groups to voice, educate and agitate for change, targeting global crises.
Take, for example, environmental groups such as Greenpeace which aim to curb climate change by targeting governments and major manufacturers with poor environmental records. Or the anti-sweatshop movement, which started with a group of activists in the 19th century organising boycotts aimed at improving the conditions of workers in manufacturing places with low wages, poor working conditions and child labour.
The group 350.org, for example, is made up of climate change activists. The group uses online campaigns and grassroots organising to oppose new coal, oil and gas projects. Its aim is to get society moving closer to clean energy solutions that work for all.
Online activism allows activists to organise events with high levels of engagement, focus and network strength. On the one hand, researchers suggest that the anonymity offered by online communication provides the possibility of expressing the views of marginalised minority groups that might otherwise be punished or sanctioned. Online activities reinforce collective identity by reducing attention to differences that exist within the group (such as education, social class, and ethnicity).
The aim of our research was to develop insights that would obtain better outcomes from online activism, targeting some of society’s most important issues. During our study, we collected data from three YouTube cases of online activism. Our findings suggest that online activism delivers a temporary shock to the organisational elites, help organise collective actions and amplify the conditions for movements to form.
The elites fight back
But these initial outcomes provoke the elites into action, resulting in counter measures – such as increased surveillance to track activists. For example, some governmental authorities intensified internet filtering, blocked access to several websites and decreased the speed of the internet connection to slow down social activism. These measures prompted self-censorship among activists and a loss of interest among the public in relation to the cause and contributed to the ultimate decline of social activism over time.
Our study challenged the optimistic hype around online activism in enabling grassroots social movements by suggesting there is a complex relationship between activists and those groups they are targeting, which makes the outcomes very difficult to predict. As different parties with different interests intervene, they either encourage or inhibit activism.
While encouraging actions can take the form of support (such as the thousands of women around the world who posted on social media sharing their stories under #metoo), inhibiting actions may come in the form of information asymmetry (strategies such as filtering and surveillance) from elites.
Inhibiting strategies are not limited to authoritarian organisations. Senior managers may also monitor email correspondence of staff, set up structures and hierarchies for access to organisational information, and use information provided by secretive companies to check the status of their employees (for example, blacklisting workers perceived as trouble-makers).
Online activists should understand that the dynamics of reaching collective action might not necessarily be the result of critical thinking, lifelong learning or other dimensions of civic engagement. Journalist Nicholas Kristoff has talked about how the anti-sweatshop movement “risks harming the impoverished workers it is hoping to help” by causing mass job redundancies. Similarly, our main message is that online activism could prompt reactions that will result in unintended and long lasting consequences for the activists involved.
A common and frequently used approach that risks these types of consequences is to share emotive information through social media. While this is used to inform and capture people’s attention and mobilise as many people as possible, our study suggests that more thought should be put into the consequences of information sharing and what information is most appropriate to be shared.
Activists may need to spend more time and energy to create and share information that is less emotive and help people learn about the underlying causes of problem. For example, the activism videos we have researched and commonly see on the internet are essentially reactive and emotive.
Instead of focusing on the problem and the need for change, activists can share information that explains why and how the current situation has been created and what can be learned for the future. Online activism in such manner can gradually lead to the development of people who are capable of generating new knowledge and wisdom to respond to changing social environments. However, that requires strategic patience and that is often a scarce resource among activists desperate for change.
Shadow economy or as labelled Informal Economy in the North African countries of the MENA region commands, according to the local media, some 30 to 50% of their respective economies. It has historically been taken for a long time as the main cause responsible for economic backwardness of the under-developed countries of the world. These countries’ government in a bid to reduce its importance, were at pains trying to draw sizable segments out of the informal sphere of their economies and insert them into economies that are very often stiffened by red tape and / or lacking capital fluidity.
Meanwhile, advances in technology and its increasing coverage would possibly be working the other way around, meaning towards informalizing further all economies by facilitating amongst many things the easy transfer and exchange of money, etc.
This article of the WEF by Charlotte Edmond, Formative Content is explicit about this phenomenon as witnessed in certain countries. This however would obviously apply all over the world but at varying degrees.
It is the total value of transactions by businesses and individuals that occurs “off the books”. In other words, work done for cash to avoid incurring tax and without following standard business practices.
This could be anything from paying a tradesman or a babysitter in undeclared cash to the illegal wildlife trade, counterfeiting and money laundering.
Untaxed and unrecorded economic activity boomed during the global financial crisis and continues to grow today.
The World Economic Forum’s Global Agenda Council on Illicit Trade 2012-2014 estimated the global shadow economy to be worth $650 billion. While it’s difficult to be sure of the amount of business that bypasses regulators, WEF research from 2015 forecast that the cost to the global economy of counterfeiting alone could reach $1.77 trillion over the course of that year.
A large shadow economy is a cause for concern for governments that miss out on tax revenues. However, it has also been argued that attempting to curb the shadow economy can limit economic growth and hamper innovation.