The Middle East needs a technological revolution. Start-ups can lead the way

Dubai 2019

Dubai, United Arab Emirates (Nick Fewings, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Khalid Al Rumaihi, Chief Executive, Bahrain Economic Development Board


Globally, economies with agile ecosystems that are equipped with the infrastructure to support innovation in technology are witnessing a revolution. In order for governments, large-scale multinationals and new start-ups to take advantage of this revolution, the right support systems and regulations must be in place. And the movement of data needs to be low-cost and flexible.

Nowhere is this more apparent than in the Middle East. In 2016, 33% of companies were at an advanced level of digitization, according to PwC, and this is expected to more than double to 72% by 2020. Data centres could be the Gulf’s new refineries.

But it’s not all plain sailing. The Middle East was late to the first, second and third industrial revolutions. This time, it must be ahead of the curve. There are certain common elements to strong entrepreneurial ecosystems. Some of these are within policy-makers’ control, such as reducing bureaucracy and moving government online. Others stem less directly from government action, such as social changes to foster a strong academic base and encourage greater diversity of talent and more women in the workforce. Fortunately in Bahrain, more than 70% of coders are female. But just as important as these changes are actions to create an entrepreneurial environment and provide easy access to funding for start-ups.

Our region has its challenges, including legacy issues such as difficulties in registering businesses, job protectionism, and low investment in research and development (R&D). In the Middle East, countries generally spend less than 1% of their GDP on R&D, compared to the OECD average spend of 2.5%. According to a Strategy & Middle East report, Gulf Cooperation Council (GCC) states could achieve 2.2% growth by increasing R&D spending by 1%.

There are other inhibitors of innovation, including a general lack of skills and training; closed visa policies which restrict entrepreneurship; and complex customs processes. Across the Middle East and North Africa (MENA), intra-regional trade as a percentage of total trade is traditionally much lower than other regions, at just under 10%.

On the other hand, we have a significant advantage thanks to our youthful demographic profile. The region’s median age is under 30, and strong population growth continues. There is no country in the GCC where people under 25 make up less than 30% of the population.

This makes technological revolution both relevant and urgent. Relevant because we have a young, digitally-savvy population with some of the world’s highest levels of smartphone penetration – in Bahrain and the UAE, there are up to twice as many phone subscriptions as people. Urgent because the region suffers from high youth unemployment rates – nearly 30% in many of our countries.

So how can we support start-ups and create jobs? We must reduce the pain points around e-commerce. We also need to embrace open banking, crowdfunding and cryptocurrencies, as well as focus training on digital and data skills and professions. Above all, we need to develop entrepreneurial ecosystems to go into the cloud.

Yet cloud spending in the Middle East “is among the lowest in the world when measured as a percentage of total IT spending”, according to a report by research consultancy Gartner. One of the biggest inhibitors to cooperation is data sovereignty. Governments are fearful of data moving out of their jurisdictions and across borders. Accordingly, Bahrain has just announced a law that is the first of its kind, allowing other countries to “bring their own legal jurisdiction” to Bahrain when they store data with us in the cloud.

All this creates fertile soil for generating start-ups. But how can we encourage them to thrive? Access to funding is crucial. A culture of government spending and subsidies is entrenched. Gulf countries have often deployed their capital abroad rather than at home, and often in real estate, not new technologies. But it’s investment that is needed, not subsidies. Accordingly, Bahrain has set up the $100 million Al Waha Fund of Funds, of which 45% has already been allocated. Start-ups account for 90% of enterprises in Bahrain.

There are further promising signs across the region. It is already home to innovative start-ups and businesses such as Careem and Talabat App. MENA Research Partners says it expects investment in the region’s fintech firms to rise from $150 million to $2 billion, as interest increases in digital offerings from banks and government initiatives, including accelerator programmes.

One example is Lebanon’s Circular 331, which promotes investment of $400 million in start-ups and aims to stop the Lebanese brain drain. If a bank invests in a start-up, it only loses 25% of its investment if the start-up goes bankrupt. This has spurred the creation of new VC funds and accelerators, as well as a broader ecosystem. It has even encouraged some of the talent lost to abroad to return home.

UAE start-ups attracted some $400 million of VC funding in 2017, according to the MENA Venture Report. Jordan has worked hard to make itself the Silicon Valley of the Middle East. With an impressive 25% annual growth in investment technology, its start-up culture has seen several companies develop new apps, such as Abjjad (an Arabic Facebook for bookworms) and social app Friendture.

The region wants to attract foreign direct investment (FDI) that grows new industry clusters. Consider what has happened in Nokia’s hometown, Espoo in Finland. Because of Nokia’s presence, the Espoo Innovation Garden has become the largest innovation community in the Nordic region.

In Bahrain, we are hoping that the new data centre created by Region Amazon Web Services (AWS) will be our equivalent tectonic shift. Nearly 2,500 people signed up for AWS Educate training programmes within a few months, a rate exceeding that in China and India. And there are more jobs to come. Amazon has said they estimate the cloud industry in the Middle East will need 10,000 data scientists.

Could this be a blueprint for the whole region? We hope so. As the “gateway to the Gulf”, Bahrain is committed to fostering dynamic ecosystems that give start-ups across MENA the chance to scale regionally and internationally. At the World Economic Forum for the Middle East and North Africa in April, the 100 best Arab start-ups will come together in Jordan.

It is time for our region’s countries to push harder on their path from carbon economies to knowledge economies. Start-ups are key to the journey.

For to find out more about the 100 Arab Start-ups shaping the Fourth Industrial Revolution, click here.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Draghi’s negative interest rates help Eurozone’s cohesion

How COVID-19 could open the door for driverless deliveries

A new Europe for people, planet and prosperity for all

€5 billion of EU energy efficiency project money spent on “comfort”

2030 development agenda: Major breakthrough for world of work

UN chief saddened at news of death of former US President George H.W. Bush

It is me

Consumer protection: Deal on EU-wide rules for those sold faulty products

Blockchain is not a magic bullet for security. Can it be trusted?

Towards a climate-neutral Europe: EU invests over €10bn in innovative clean technologies

Draghi indirectly accuses Germany of using double standards in financial issues

UN court increases sentence of former Bosnian-Serb leader to life imprisonment

EU-US: A new transatlantic agenda for global change

More unemployment and lower wages to make European workers competitive?

UN chief applauds Bangladesh for ‘opening borders’ to Rohingya refugees in need

The gender gap of medicine in 2018

Turn toxic e-waste into a source of ‘decent work’, UN labour agency urges

Why Trump’s tariffs are good news for US garlic farmers

Lifting the lid on policy decisions across Africa

Homicide kills far more people than armed conflict, new UN study shows

10 things you – and your government – should know about competitiveness in the Fourth Industrial Revolution

Why 2020 will see the birth of the ‘trust economy’

We must work together to build a new world order. This is how we can do it

Digital mental health is here – but how do we ensure its quality?

The collision of these 3 geographies is creating a new world order

Here’s why e-mobility must be at the heart of the green recovery

VAT: EU Member States still losing almost €150 billion in revenues according to new figures

Switzerland: prepare for population ageing to maintain high living standards

First seat projections for the next European Parliament

This NASA-inspired technology converts carbon dioxide into food. Here’s how

Our children’s career aspirations have nothing in common with the jobs of the future

Moves to create a Kosovo army have ‘deteriorated relations’ with Serbia: UN peacekeeping chief

EU adopts retaliative measures in response to US steel and aluminum tariffs

1 in 5 deaths globally caused by fossil fuel pollution, a new study reveals

Mental health: simple ideas that can make a difference

The technologies – and thoughtful collaborations – that can build resilience in the food system after COVID-19

European research priorities for 2021-2027 agreed with member states

Contribution of healthcare professionals towards the 2030 Global Health Agenda

Joint EU-U.S. statement following the EU-U.S. Justice and Home Affairs Ministerial Meeting

UN committed to helping Haiti build better future, says Guterres, marking 10-year anniversary of devastating earthquake

10 months were not enough for the EU to save the environment but 2 days are

Syrian crisis is ‘clearest example’ of foreign investment in terrorism, Deputy Prime Minister says at UN

Coronavirus: the truth against the myths

“Only through energy policy we can trigger competitiveness”. The Sting live from #EBS2015: Energy Union – When will it happen?

‘Signs of hope’ toward a political settlement in Yemen, UN special envoy tells Security Council

EU leaders slammed on anti-tax evasion inaction and expensive energy

Ceasefire holds in Tripoli, but core problems remain, says UN Libya mission chief

Quality education an ‘essential pillar’ of a better future, says UN chief

Stateless Rohingya refugee children living in ‘untenable situation’, UNICEF chief

Quality Education on the table at the European Parliament

The developing world must get ready to adapt its trade to climate change

Five cities short-listed to become the European Youth Capital 2017

Cambodia’s digital currency can show other central banks the way

Eurozone: Statistics don’t tell the whole story

We don’t know how autonomous vehicles will depreciate – and that’s a problem

4 key trends on how COVID has impacted women in business

Final turnout data for 2019 European elections announced

Investors have a role in securing our shared digital future

Parliament demands democratic scrutiny over national recovery efforts

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s