Tech Startups Bloom in Gulf as States Try Breaking From Oil

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The Gulf's Jobless Youth
Graph of unemployment rates in Gulf

(Bloomberg) -- By day, Farah Al Qaissieh is employed at a government agency in the United Arab Emirates. By night, she works as chief executive officer of her fledgling company, Xenia.

Al Qaissieh got there with help from Abu Dhabi, the richest of the seven sheikdoms of the U.A.E. After winning a government entrepreneurship competition, she learned to develop a business plan and got two years of free office space, a trade license and app developers. Discover Dhabi, her mobile application taking users on scavenger hunts of Abu Dhabi tourist spots, will be released this month.

“Many people have amazing ideas, but they’re just too afraid to take that step into entrepreneurship, thinking that they’ll fail,” Al Qaissieh, 25, said in an Abu Dhabi cafe, dressed in a black abaya robe and a headscarf. “If they do fail, that’s still a phenomenal experience because they still took one step further than anyone else.”

The U.A.E.’s leadership declared 2015 the “year of innovation,” reflecting aspirations of the Gulf Arab nations to diversify away from oil. With rising youth populations and declining oil prices, Gulf governments and other groups are funding entrepreneurship programs seeking to wean privileged citizens from a public sector that can’t offer them all jobs.

That’s one reason why local tech startups are making headway in the six countries of the Gulf Cooperation Council, where as many as three-quarters of employed nationals work in the public sector.

The entrepreneurs have to struggle to obtain finance and to overcome regulatory and cultural obstacles in countries where many aren’t ready to shed the government’s safety net.

Regulatory Challenges

“The prevailing system is more inclined to train young Emiratis to become employees, rather than entrepreneurs,” said Abdul Baset Al Janahi, CEO of Dubai SME, a public agency helping small and medium-sized businesses.

Entrepreneurs face changing regulatory requirements from different government entities, Al Janahi said. Startup founders also say their operating environments favor big businesses and franchises rather than small enterprises. Expenses add up with pricey licensing fees and workspace.

Banks perceive startups to be riskier than established companies because they lack corporate governance, financial track records and are headed by inexperienced managers, Rajeev Patel, director of financial advisory at Deloitte Corporate Finance Limited in Dubai, said.

Budget Deficit

Innovation could be key as Gulf nations look to expand their economies beyond oil and reduce public spending. GCC countries will post a combined budget deficit of 7 percent of gross domestic product compared with an average surplus of about 8 percent between 2000 and 2011, according to the International Monetary Fund.

“Across the Gulf, they understand that challenge very much because they cannot absorb all these young talented people into the government anymore,” said Fadi Ghandour, co-founder and vice chairman of Aramex PJSC, a Dubai-based transportation and logistics company. “Not when oil was at $100 and certainly not when oil is at $50 or going below $50.” He’s also executive chairman of Wamda Capital, an entrepreneur-focused venture capital fund.

Crude revenue has allowed the GCC, which includes Saudi Arabia and the U.A.E., to transform deserts into modern cities relying on the expertise and labor of expatriates who make up more than 75 percent of private sector employment in the region.

Job Challenge

The citizens who work tend to go into secure government jobs with generous perks.

“With a rapidly rising youth population,” the IMF said in an October report, “private-sector job creation for GCC nationals has become a challenge, and unemployment could rise in the coming years.”

Tech entrepreneurs from Egypt, Syria, Lebanon and elsewhere have long flocked to the Persian Gulf, which grants stability and access to the Middle East’s largest economies. Dubai-based Souq.com, founded in 2005 by Syrian CEO Ronaldo Mouchawar and two Jordanian colleagues, says it is the largest e-commerce site in the Arab world with more than 30 million visitors a month.

Mobile Companies

Now more Gulf nationals are joining in, said Muhammed Mekki, founder of AstroLabs in Dubai, a startup “accelerator” partnering with Google for Entrepreneurs, an entity of Google Inc. to open a tech hub nurturing new online and mobile companies in April. In the past two years, 58 entrepreneurs who are Gulf nationals have participated in AstroLabs’ startup training programs, he said.

Mohammed Kazim left his government health care job in Dubai after founding Allinque, a website for booking personal assistants, in 2010. In 2013, he also set up Tamashee, selling sandals inspired by traditional Bedouin designs online and at the Dubai Mall. The 31-year-old Emirati pumped his own money into the ventures and learned to navigate red tape. He makes enough money to pay the small staff and business partners who work with him, he said.

“If they ease regulations and cost structure and create some clarity for small businesses, I’m sure you’ll have amazing businesses,” Kazim said.

A few years ago, when Kuwait-based Mohammad Al-Suraye started Dawrat, his online Arabic platform that connects users to trainers and tutors, banks didn’t want to fund enterprises without tangible assets, he said. Instead, the electrical engineer and his partner tapped into their savings, using $30,000 to launch.

Now his site gets almost 25,000 hits a month and his mobile application has had 16,000 downloads, he said.

“We like to create and invent new concepts, this is our hunger,” said Al-Suraye, 32. He’s looking to hire staff.

In Bahrain, Mohammed Toraif had a couple of failed businesses before starting Fish Transporter, a site that delivers area fishermen’s fresh catch. The 30-year-old computer engineer got seed funding from Tenmou, an angel investment firm in Bahrain, and two years later, is reaping modest profits.

Toraif, who said he’s been selected for the Silicon Valley-based 500 Startups accelerator program, said entrepreneurship is still “not part of the culture.”

Saudi Startups

“A lot of my friends told me, ‘you are going to fail,’’ he said. ‘‘I’m capable of running this business and taking it to the next level either regionally or globally.’’

A budding ecosystem is forming to serve increased local interest in Saudi Arabia, the biggest Arab economy, where youth unemployment was close to 30 percent in 2012, according to the IMF.

Flat6Labs, a regional startup accelerator program, has shepherded 16 Saudi-owned companies at its Jeddah branch since 2013, offering investment, mentoring and other aid. They include Sawerly, an online outlet to book photographers, and AyaGames, a mobile gaming studio that develops ‘‘culturally relevant’’ content.

Six more Saudi startups are enrolled in its current program in Saudi Arabia. Qotuf Alriyadah, the foundation that runs Flat6Labs, says 18,000 people have attended its entrepreneurship events in Saudi Arabia over the past two years. The group recently opened a branch in Abu Dhabi, where a handful of Gulf nationals are among a cohort beginning the startup training.

‘‘Many people here have the managerial mindset as opposed to the entrepreneurial mindset. As in, ‘I have a great idea, I’ll start it up, I’ll hire someone to manage it,’” said Al Qaissieh, the founder of Xenia, adding that she’s working on her profit model. “I don’t see myself doing that. I get too attached to the project.”

To contact the reporter on this story: Nafeesa Syeed in Dubai at nsyeed@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Amy Teibel, Mark Williams

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