Keeping up or lagging behind? Evaluating the Gulf region as a startup haven

Entrepreneurship has become an inevitable part of social and economic development in several countries across the globe. The GCC is no exception.

A record $1 billion, a 13 percent year-on-year increase, was invested in MENA-based start-ups in 2020, propelled by a massive funding blitz in the first half of the year.

The $150MM Series A investment in EPMG was the biggest in the region in 2020.

In 2020, the United Arab Emirates (UAE) led the Middle East in startup and entrepreneurship maturity. 33 of the region’s 50 highest funded start-ups are based in this country, followed by Saudi Arabia with 7 startups and Egypt with 4. Even the pandemic could not pull back investors from investing in the region.

It is evident that the Gulf region has a nurturing startup environment and its people have brilliant entrepreneurial skills. Their startup industry is scaling new heights. Most of the start-ups and big firms are choosing Dubai as their base. As per the StartupBlink rankings, the UAE and Bahrain featured among the top 100 countries for start-ups worldwide in 2020 while Dubai made it to the top 100 cities’ club. According to The Global Startup Ecosystem Report 2020, Bahrain and Sharjah were among the world’s top 5 fastest growing ecosystems with less than 1,000 startups.

Let us look at the factors responsible for the increasing number of investors day by day.

Inherent advantages:

The Gulf region offers access to the markets of Europe, Asia, Africa, and the Middle East.

Dubai has a world-class infrastructure in terms of travel, buildings, offices, business parks, and other amenities. It boasts of a technology park, Dubai Silicon Oasis, which provides startups with seed capital and advanced support programs. Dubai also has an excellent transportation system.

Although Arabic is the official language of the Emirates, English is fluently used everywhere making it easier to cooperate with foreign markets.

Startups in the Gulf enjoy an advantage that is not prevalent across Southeast Asia: consumer wealth. Most often the GCC is associated with wealthy oil sheiks: UAE, Bahrain, Qatar, Kuwait, and Oman all contain areas populated with some of the highest numbers of millionaires in the world. The online food delivery platform Talabat in Kuwait has the highest order frequency in the world and the second-highest basket size.

Another hero firm is the home-based e-commerce retailer Souq that was once called the Amazon of the Middle East and is now literally so, after being acquired by Amazon last year.

The small population of Bahrain, which is around 1.5 million, is not a barrier to becoming a testbed for various startups. Bahrain’s ideal environment for startups and innovative ventures, and strategic location at the heart of the GCC, are highly favorable for attracting investors.

A huge part of the population of Kuwait is young, enthusiastic, and very consumer-centric. The cost of power, water, land for lease or purchase, and the labor pool is surprisingly low in Kuwait. Both the residential and industrial users enjoy government subsidies on power usage up to 86% of the cost. It also has one of the strongest banking sectors in the MENA region.

Diversity in sectors:

The Gulf region offers business in diverse sectors, for example, e-commerce, analytics, Cleantech, fintech, artificial intelligence, virtual reality and augmented reality. Entrepreneurs also love to explore the Internet of things, robotics, gaming, event management, media, art, travel, tourism, smart cities, etc.

Along with the focus on e-commerce, logistics and creative business ideas are also shown huge interest. Healthcare and education are the emerging sectors in the region and are taken very seriously. Freelancing permits businesses to setup at minimal cost.

Tax and legal framework:

Business Setup in UAE is rising because of very low taxes and therefore a natural choice for the innovators. There are at present 45 Free Zones operating in the UAE where the government provides100% corporation tax and 100% repatriation of capital funds.

With several Free Zones in the Gulf, foreign investors enjoy 100% business ownership. Apart from criminal law, the government has liberalized all the rules to attract more foreign investors.

License, registration, and associated procedure are simple, requiring minimal to no paperwork. Easy access to local currency also helps a lot in business. Visas are also very flexible.

Despite all these vibrant factors, we cannot say ‘mission accomplished for the Gulf region. While it has great potential, the ecosystem is emergent and not well-rounded and robust.

Souq and Talabat are success stories. There are struggle stories too, along with the need for improvement. Certain businesses fail to flourish as they are unable to reach a large part of the population. Many of them do not have access to credit cards is a barrier to the growth of a digital economy.

Although the region boasts of wealth, there remains a shortage of investment in new tech companies. Many angel investors who were wealthy families from traditional businesses, could not align their expectations with young tech firms.

Investors are also wary of Gulf start-ups due to the absence of exit options within the GCC region as well as the limited track record of strategic investors and entrepreneurs.

Businesses in the Gulf region must also provide women a level playing field and create opportunities for them to shine.

Thus, all elements of the startup ecosystem need further development. Successful founders becoming strategic investors and firms that focus on regionalized e-commerce transforming into fundamental world-serving lines of business, would be real signs of development. Progress now happens in a fraction of time. Keep an eye on the Gulf region.