Inside The MENA High Tech Boom Enabling the region's high-tech industry could pivot the region for years to come- empowering Arab businesses, equipping youth with critical ICT skills, and maybe fundamentally alter the region's economic trajectory.
By Sam Blatteis
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
There is a digital Middle East in the making. The region has 180 million internet users, larger than the population of Russia. Over 65 million smartphones were shipped to MENA in 2016, that's more than the UK and France combined. E-commerce in MENA surpassed US$20 billion in 2016, which is now larger than India's. The largest technology fund in the world recently took a significant stake in the most important chip company in the world- and, interestingly enough, neither company was from Silicon Valley. In this global tech deal, Saudi Arabia's state investment fund, the investor, took an $8 billion, 25% stake in British chip supplier ARM. Computer chips made by ARM power iPhones and millions of other mobile devices worldwide, making high tech among the MENA's few booming non-oil growth industries, amid the new economic reality of VAT and government austerity measures.
Technology is thus no longer a vertical of the MENA economy; it is a horizontal enabler of every MENA economic sector, from transportation to education. For the world's largest tech multinationals, regional banks, and garage startups, the Middle East presents a largely untapped, rapidly growing opportunity.
Just three years ago, my conversations among the region's high tech entrepreneurs often focused on countries' bureaucratic obstacles, and how Arab "tech-preneurs" can work around them. But look at the UAE and Saudi knowledge economy agendas today- they are laser-focused on AI, genomics, and blockchain. The Uber-ization of the Middle East, and more importantly, technology writ large, are disrupting numerous industries, including food, transport, financial services, healthcare, real estate, and this is just the beginning. The region's tech industry is growing exponentially and beginning to attract global high-tech investments from Amazon's acquisition of regional e-commerce incumbent Souq.com to Alibaba's new $600 million Tech Town in Dubai -five times larger than the Pentagon- for 3,000 businesses focused on robotics and artificial intelligence. Flagship investments like these are making numerous other companies investment targets from fashion-retailer Namshi.com to e-commerce platform Jadopado recently being acquired by Dubai retail leader Mohammed Alabbar.
$815 million was invested into MENA startups last year, which saw a 70% increase in the value of tech investments in the region. As a result we saw multiple success stories across the UAE, including Careem, Fetchr, and propertyfinder.com. Global VCs are now shifting their primary focus and are becoming open to tieing up with local investors in a bid to continue this new found wave of tech success.
To explore how the world's top international governments are attracting investment into their high tech sectors, we looked extensively first at every digital economy in the world and found a secret- the best ones have five characteristic features that work to their advantage: human capital, infrastructure, small businesses, R&D, and laws. Here is their current state-of-play in MENA:
Human Capital Large shortage of Arab knowledge workers means that countries are still heavily dependent on foreign workers, foreign content, and leave the region as consumers, rather producers of digital content, leaving them largely out of the value chain.
Infrastructure High tech ecosystems require new broadband infrastructure where all businesses - large and small- can compete on a level playing field, where governments treat internet access as what it has become a public utility, and everyone is provided equal quality and speed of web access. Unfortunately, in the Middle East, incumbents still write the rules of the game, where it's "pay-to-play"- companies must pay the telecom companies for unimpeded, quality internet speeds for their products, or see their products' quality and speed downgraded as seen with online video calling in many MENA countries. This type of problem, where the telecom companies decide who wins and who loses presents fundamental conflicts of interest between governments and their long-term social economic plans, because the regulator is on the field (since the governments own the telcom companies) playing ball against new digital businesses.
At the same time, going online can be an expensive matter- for instance, broadband in the UAE is the seventh costliest worldwide at $87.81 a month for a 10 Mbps connection, while the same connection would cost less than $30 in the likes of Germany, France and the UK, for example. On the other hand, the urban-rural infrastructure divide remains a strong obstacle to e-commerce growth too. The lack of roads, infrastructure, logistics, and postal service reliability mean that many e-commerce players simply do not/cannot serve large swaths of the Middle East in outer-lying cities and villages. Though the UAE is the leader in this space, the country's Central Bank notes that the UAE remains a 75% cash-based economy. The UAE has made progress in some of these areas, but there is a lot more we can do to drive a knowledge economy that's worth of the Emirati leaders' forward-thinking vision.
R&D Most Arab countries are producing far too few quality patents per year, partly because governments, which often drive long-term national R&D, remain risk-averse. There still is a reluctance to make bets on exploratory R&D, with only low-risk proven products with near-term go-to-markets commercial plans getting the green signal. There is also a complaint that governments incentivize patents all wrong, and intellectual property rights remain low- a key concern for many bio-science and pharmaceutical companies.
Related: The Future Is Now: The UAE Is All Set To Be A Leading Destination For AI Investment
Small Businesses Many regional banks too risk-averse, don't loan to SMEs let alone tech SMEs, despite the rise of funds in the UAE on the margins Khalifa called for creation of SMEs but got a lot of beauty salons, shisha shops, there's tons of incubators, accelerators, and co-working spaces around the UAE, KSA, Egypt, Qatar etc. but in the UAE it's all foreigners - and in the rest - as long as government salaries and job security are so much stronger in the public sector, the incubators and accelerators won't have the impact that these countries need.
Laws The rise of cybercrime, ISIS, and sectarianism online, are bringing into sharp focus for Arab tech policymakers that their countries' offline laws developed years ago have become simply inadequate for the post-online world, leading to waves of new ICT laws shaping the rules of the game, in the MENA digital economy. But the region's ICT laws are often vague too: some countries when listing banned categories of media websites, list the term "etcetera" to represent a potential, runaway scope of banned websites, leaving unclear where some laws end and others begin. Equally important, new Dubai government rules give power to landlords to rent on platforms like Airbnb, but it's not clear whether it is legal for people to list their property on Airbnb in the other six Emirates.
The road ahead
MENA leaders recognize that tech has become central to post-oil development plans, and have demonstrated this by investing five times more in IT than the U.S government, in proportion to their GDP. They see that modern economies are increasingly built around knowledge. Indeed, from Moore's Law to nanotechnology, the digital economy has become many countries' single most important driver of innovation, competitiveness and growth. The digital economy does not have to eliminate all jobs; in fact,digital businesses can become the job creators of the future. And governments are catching on, embracing technology to transform their countries' economic future, including the UAE, KSA, and Egypt:
UAE The UAE is 20-30 years into the future of its neighbors and has developed arguably the most progressive development agenda of any government in world history. The UAE's vision is to get to the top of the digital pantheon. The government recognizes the central role the knowledge economy plays in the country's future and has sent an unmistakable message: R&D science projects slated for Mars, the building of robotic laboratories in every school, and the creation of the UAE's first NASA-equivalent bring to life the government's expanding commitment to build a world-class high-tech ecosystem. Simply put, from robo-pets to high-speed bullet trains, the UAE has become a magnet of global tech companies, as the country's leadership is already reorienting itself around new knowledge industries, and launching numerous state-powered innovation funds to fuel this future, including a half billion dollar Finance Ministry innovation fund, a Prime Minister's Office quarter billion dollar UAE Future Fund, a Dubai-backed 100m UAE 3D Printing Fund, the Telecom Regulatory Authority accelerator for 100 tech start-ups and more.
Saudi Arabia The rise of Generation Y leaders in Saudi Arabia is undergoing what amounts to no less than a Saudi "Glasnost' and has seen the largest government shake-up in 50 years. The country has recently unveiled plans for a new knowledge economy city, NEOM, slated to be the size of Belgium, powered by robots, drones, and artificial intelligence. Projects like this, we may have dreamed of as youth, but now seem to be coming to life. The government has a blueprint in its 2030 vision to radically transform its economy to begin slowly moving away from a monolithic hydrocarbon culture, driving the single largest foreign investment in Uber, at $3.5 billion, which captured the public's imagination and this is just the beginning. The Royal Court-led Public Investment Fund allocated $50 billion since last year, largely in technology in partnership with Japan's SoftBank. The fund is barreling tens of billions of dollars into foreign asset managers, and its alliance with SoftBank is buying into startups and skyscrapers. A much-hyped listing of oil giant Saudi Aramco has London and New York at its feet. A plan to diversify the economy away from hydrocarbons and open the doors to foreign capital could unleash a torrent of cash. From a connectivity perspective, Saudi Arabia has evolved from low single-digit internet penetration in 2000, to 70% internet penetration with a user base the size of Texas, at 20m users, and among the highest social media usage rates on earth. Saudi youth today live in a wholly different world than that of their parents and the Crown Prince's ambitious plans are clearing the path for them.
Egypt President Abdel Fattah el-Sisi has signaled that reviving the economy is his central priority, and growth is slated to reach 4% this year, faster than most MENA markets. With a consumer market of over 90 million people, 60% of whom are under 30, Egypt has one of the largest populations of prospective online shoppers in the Arab-speaking world. However, Egypt's digital economy is still saddled with a paltry 38% internet penetration, a shortage of ICT jobs, periodic internet blackouts, and a lack of basic infrastructure in rural areas to facilitate e-commerce delivery. This is despite that Egypt has 50,000+ students graduating with ICT-focused degrees annually. Still the country's digital economy has soared 34% the last six years, from $2.68bn in 2011 to on pace to surpass $3.5bn this year, making digital one of the Egypt's economy emerging, prominent industries.
The Middle East digital economy is like an antiquity map makers' term for unexplored areas, "terra incognita," which is Latin for unknown lands. Enabling the region's high-tech industry could pivot the region for years to come- empowering Arab businesses, equipping youth with critical ICT skills, and maybe fundamentally alter the region's economic trajectory.
Related: Future Perfect: A Vision For The Next Decade Of MENA Entrepreneurship Ecosystem
