Entrepreneurship could drive Middle East revitalization

The Middle East usually grabs headlines for the wrong reasons. While the Arab world is home to destabilizing conflicts, repressive governments and the worst international refugee crisis in a generation, those issues do not paint a complete picture of the region.

There are other broad economic and social trends taking hold that point to a more positive trajectory of development. Civil society organizations often promote them to counter the typical doom and gloom scenarios for the region.

Among them is a new report on the prospects of economic recovery and revitalization in the Middle East released this week by the Atlantic Council, a Washington, D.C.-based think tank. An important but often overlooked driver is the enabling roles that technology, entrepreneurship and the private sector can play in boosting inclusive prosperity across the Middle East. The convergence of these three areas raises some key issues to consider and an alternative narrative that is shaping the Middle East.

The ‘other’ stories

While many from abroad see the Middle East through constant news cycles of Syria and Islamic State group, more bullish leaders of business and industry say that neither are the defining issues of the day within the region itself. Instead, they say, the more pressing long-term issues are the steep fall in oil prices and boom in the region’s youth population. Combined, they offer opportunities to reorient the economies of the Middle East.

“The oil for the region of the future is its human capital,” Ahmed Alfi, founder and chairman of Sawari Ventures, a Cairo-based venture capital firm, told an audience in Washington, D.C. this week. Human capital in the Middle East is in large supply, particularly from youth.

The Arab world has a population of around 350 million people, more than 60 percent of which is under the age of 25. Employing that large segment in new creative and innovative industries can be a positive disruption for the region’s economies, but also a huge risk if growth stagnates.

An industrial renaissance

New industries are needed to diversify Middle Eastern economies away from the single track of producing hydrocarbons. And by breeding new industries, businesses — and subsequently jobs — will presumably follow. It is here that many business leaders point to encouraging trends emerging from the region’s tech start-up and entrepreneurship scene. For example, e-commerce has been grown exponentially to become a $15 billion industry, mobile data capacity is expected to grow 16 times in the next 15 years and the number of venture capital funds based in the region have doubled in three years. Uber recently announced a $250 million investment in the Middle East.

“Something must be happening in the region if Uber has decided it’s worth investing $250 million,” said Fadi Chandour, chairman of Wamda Capital, a venture capital fund for growth-stage technology companies.

The trends stem from the same proliferation of mobile innovations that are spreading around the world, but are capitalizing on the region’s booming youth. Angel networks are “everywhere,” Chandour noted, and universities are increasingly building accelerators and incubators to scale youth-led startup ventures. Among them is the Riyadh Valley Company run out of King Saud University in Saudi Arabia that offers accelerator and incubator programs for renewable energy and life science initiatives.

“Working for yourself should be an option at a time when the oil and gas prices are going down,” Aysha Al Mudahka, chief executive of the Qatar Business Incubation Center that was established to diversify the domestic economy, told Devex. “The government needs to look to the private sector to support them, as a sign that this is our time.”

Governments, business leaders say, can play an important role in initially funding new ventures and the investment vehicles that launch them, rather than using the current model of massive public employment programs. “The problem with [Middle Eastern] governments is that they focus on job creation, not company creation,” Alfi noted. “The byproduct of successful and growing companies is jobs.”

The challenges ahead

The startup and entrepreneurship culture is an encouraging development, but turning the trend into the norm raises a host of challenges and policy questions for business, government and civil society to address.

Incubators and accelerators give a helpful boost in business education for entrepreneurs. But more systemically, much more basic educational services across the board are sorely needed. At current rates, it’s virtually impossible to build the schools and train the teachers needed to educate the region’s exploding youth population, said Sherif Kamel, founding dean of the American University in Cairo business school. Educational technology is needed to provide a leapfrogging impact.

The funding gap for small and medium-sized enterprises in the region is also significant at around $280 billion. SMEs account for nearly three-quarters of jobs in the region, but only eight percent of loans from traditional commercial banks fund them, Chandour noted.

Culturally, there still needs to be a greater acceptance of the career path of entrepreneurship, particularly for women, said Rana El Kaliouby, chief science officer and co-founder of a consumer analytics startup, who recalled having to initially hide her venture from family when first starting off. And as mobile technologies, social media and entrepreneurial ventures promote more open economies, a big challenge will be how to balance inclusive participation in business with the central authorities of governments.

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