BrazilMENA entrepreneurship on the rise as startup scene matures
Entrepreneurship in the Middle East and North Africa (MENA) is on the rise on the back of a buzzing startup ecosystem, according to a report by the MIT Enterprise Forum (MITEF) compiled in collaboration with knowledge partners Roland Berger and Community Jameel.
The report points to a number of factors that are driving the emergence of a vibrant startup ecosystem in the MENA region. For one, the region has a large and young population, with a relatively high level of digital connectivity. In addition, a number of initiatives have emerged in recent years to promote business and social entrepreneurship in the region.
Examples include a recent partnership between the Abu Dhabi Global Market (ADGM), tech ecosystem Hub71 and sovereign wealth fund Mubdala, which have cumulatively pledged $270 million for investments in global startups over the next half a decade – complete with subsidies.
In Saudi Arabia, more than $1 billion has been pledged by the country’s Public Investment Fund (PIF) under the banner of the Jada fund, dedicated specifically to developing entrepreneurship within the market. The authors of the report put the spotlights on a similar initiative in Egypt, where the government has launched an investment arm by the name of Egypt Ventures, which provides funding, office space and mentorship for selected startups over a period of four months.
“It is worth noting that the Egyptian government-led initiatives to boost the local entrepreneurial scene contributed to the recent growth in foreign direct investments to $6.8 billion in 2018, up 60% from its value five years before,” said the report.
Meanwhile, in Beirut, the capital of now recession-hit Lebanon, widespread dissatisfaction on the provision of (mostly government) services has stirred a large startup movement, who are attracting the interests of venture capitalists across the MENA, including wealthy Lebanese diaspora in North America in Europe.
But while Lebanon was on its way to become the largest entrepreneurial hub in numbers of the region, the current financial crisis is predicted to “certainly impact” the momentum this year.
MENA’s startup scene
These varied developments across the Middle East and North Africa have led to impressive numbers for the region’s startup funding landscape. More than 200 startup transactions took place last year.
However, the overall startup funding value of more than $370 million is still lower than the 2018 figure, but this is due to a lower volume of deals in excess of $1 million which is line with broader developments in the funding space as investors have tightened their scrutiny on spending amid a slowing market.
Despite the availability of funding, businesses in the region report that tight spending is a barrier for startups to reach their true potential. Investors are reportedly risk-averse, which makes early-stage funding a less appealing option for many. Many startup founders also report an overall shortage of infrastructure for tangible assets.
Ranking the countries
To better understand nuances of entrepreneurship in the region and variations from one country to the next, the authors developed the Arab Entrepreneurship Maturity Index (AEMI). The index uses certain key indicators to identify the readiness in MENA markets to back early-stage businesses and help them achieve growth.
AEMI is based on six indicators in total. The first is ‘human capital,’ which measures the level of skill and talent management in each MENA market. The second factor to consider is ‘know-how,’ referring to the level of digital advancement and R&D in the countries. ‘Funding’ is the third metric, encompassing availability, maturity and flexibility of funding options.
Number four is ‘business setup,’ highlighting the challenges and costs of setting up a business in the region, specifically regarding regulatory boundaries. ‘Business operations,’ which include the state of intellectual property protection and ease of trade all make up the fifth consideration. Lastly, the state of local infrastructure, which ranges from complex assets to basic necessities such as internet and communications.
Having compared MENA countries against these dimensions, the UAE comes out atop the list, driven by advanced infrastructure, high funding levels and extended government support for businesses. The country has been looking to diversify its economy beyond the oil & gas trade for a number of years now, which has facilitated the advancement of the business ecosystem.
Qatar and Saudi Arabia follow in the rankings in second and third place respectively, each with a score of between 3 and 4 on the AEMI. As mentioned above, the government of Saudi Arabia has pledged more than a billion towards entrepreneurship, while Qatar has a demonstrated track record of being a high growth market, with strong digital adoption and a skilled workforce.
Bahrain and Oman round up the top five, also with scores equal to or more than 3. The remainder of the top 10 spots are held Jordan, Kuwait, Morocco, Lebanon and Egypt. Yemen is the region’s least performing country when it comes to stimulating entrepreneurship.
About the report
The ‘Arab Entrepreneurship Maturity Index’ report was led by Maya Rahal (Managing Director at MIT Enterprise Forum) and Kushal Shah (Senior Partner at Roland Berger). Other Roland Berger consultants that contributed to the report include Peter El Khoury, Hani Katerji, Karim Tabaja, Sherif Ghandour, Tamara Kawash and Mohamed El Kurdi.
