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Emerging startups in the Arab region - Can they make it big?

Date : 28/11/2017
Author:  Marmore MENA Intelligence

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Development of the start-up sector remains a key focus area for GCC economies, in their efforts to diversify away from Oil and Gas as they are expected to play a crucial role in creating new employment opportunities and helping the economy to flourish. UAE, the start-up hub of the region, has taken several measures such as passing of the bankruptcy law to improve its business environment and encourage SMEs in the country. Saudi Arabia’s PIF (Public Investment Fund) recently set up a USD 1bn fund to invest in Venture capitals and PE firms targeting the SME sector to provide them easier access to capital. While the start-up space in the Arab region is still at a very nascent stage, there have been several promising start-up stories emerging out of the GCC. Hence we take a look at the some of the top start-ups in the region, where they are from and their source of funding.

Arab Region's Top Start-ups
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Top 10 from GCCemerging-startups-in-the-arab-region-fig2.jpgSource: Forbes, Marmore research

UAE – Start-up hub of the GCC
 UAE has been the prime destination for budding start-ups in the Arab region offering a plethora of opportunities for prospective business owners. It is one of the most diversified economies in the GCC and home to some of the most highly valued start-ups in the region like Careem and Fetchr. Prime reasons to it are the measures taken by the government to improve the regulatory and policy frame work to encourage SMEs.
 
Currently, there are over 350,000 SMEs in the country which contribute to 40% of the GDP while employing 72% of the total working population (Bloovo). The proactive steps taken by the policymakers have helped UAE attain the 26th rank in the ‘Ease of doing business index’ for 2017 according to the World Bank and 35th rank in the Global Innovation Index. Also the presence of several startup accelerators and incubators in the country have helped entrepreneurs build on their ideas and get the support necessary to make their business a reality.
 
GCC start-ups – rising global investments
 Investments in MENA start-ups have been seeing an uptrend over the past few years. Funding activity in the first nine months of 2017 (169 deals) have already surpassed the levels seen in the whole of 2016 (164 deals) (MAGNiTT Q317 MENA funding report card). Excluding Souq and Careem, start-up funding in the MENA region for YTD 2017 is at USD 254mn and on course to surpass the 282mn raised in the previous year.
 
The global outreach of GCC startups have also been on the rise, drawing attention from investors worldwide. When profiling the investors of top GCC 10 start-ups from the Forbes list, it is observed that more than half of them are based outside the base country with the majority being Venture Capitals.

Investor Profile - Top 10 GCC Start-ups

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Source: Forbes, Crunchbase, Marmore Research
 

The trend is seen in exits as well with companies based outside the MENA region showing interest to acquire GCC start-ups. Some of the major acquisitions in the past few years include Media.net by China’s Miteno (USD 900mn), Souq by global e-commerce giant Amazon (USD 680mn) and Talabat by US based Rocket Internet (USD 170mn).
 
Fetchr – The next unicorn start-up from GCC?
 Fetchr is one of many emerging start-ups in the region which show immense promise. It is a Dubai based startup founded in 2012, which uses a smartphone’s location tracking capabilities in order to make product deliveries. The lack of clear addresses and postal codes for many areas in the UAE have made traditional deliveries a tedious process. Therefore, by allowing users to geo-locate the pick-up and drop-off points, Fetchr has come up with an innovative solution to make things simpler for package deliveries. Speed and accuracy of deliveries have been improved with the help of their patented technology in a region where getting things delivered could be quite complicated.
 
The logistics start-up has had a stellar year in 2017 as it raised USD 41mn worth funding in May, adding to its existing funds which will allow them to venture into other areas across the MENA region in addition to UAE, Bahrain, Egypt and Saudi Arabia where they are currently present. Fetchr was one of the first companies in the region to be backed by a top tier Silicon Valley Venture Capital as it raised USD 11mn in its Series A funding round backed by New Enterprise associates based out of the US.
 
Providing innovative solutions and understanding the local business landscape have helped Fetchr grow leaps and bounds while there is still scope for scaling up. Learnings from Fetchr’s case is that businesses need to view the pain points of the customer as opportunities and come up with solutions that will make their lives simpler.
 
Can they make it big?
 Although the business environment in the GCC is not the most conducive for start-ups at the moment, steps have been taken by policymakers to encourage the development of SMEs. Considering the need for GCC economies to move away from Oil, more such steps are expected from governments to aid the development of the start-up space. With the emergence of global investments, startup activity has considerably risen in the GCC and going by the trend witnessed in the last decade, GCC start-ups are on the right track and several unicorn start-ups can be expected from the region.


Tags:  Economy, GCC, SMEs, Startups

Ratings:
 Current rating: 0 (3 ratings)

Can startups be a solution for job creation?

Date : 16/07/2017
Author:  Marmore MENA Intelligence


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Globally, start-ups have become a raging sensation and mostly commonly, they are equated with tech-startups, which is a flawed presumption. Though there is no precise definition for start-ups, it can be loosely defined as an early stage entities from various sectors working towards innovation, implementation and commercialization of products and services, in most cases supported by technology.

The GCC region too has caught-up with this global phenomenon and has some successful start-up stories to boast about. Start-ups are being projected as forerunners of economic growth through job creation and also pursued as the solution for job creation. However, to what extent this presumption about start-ups holds well is debatable.


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Source: Ministry of Human Resources and Emiratisation

Prior to answering the question-if start-ups can be key to the growing concern of unemployment in the region, the effectiveness of start-ups in job creation has to be assessed.  The Y-o-Y increase in jobs and establishment in the UAE across sectors most cases has resulted in incremental jobs. It is however obvious, that the growth in the jobs on the account of newer establishments coming into existence has be not been consistent within/across sectors.

For instance, the educational sector employment strength increased by 2,571 employees while 61 new establishments were set-up in 2013. Similar level of job creation was witnessed in 2015 in the financial sector but there were only 20 new establishment set-up.

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Source: Ministry of Human Resources and Emiratisation

Contrary to the trend in the financial sector discussed above, in the construction sector 1,086 new establishments were set-up in UAE in 2012, yet, the industry employment strength decreased by 28K. Similarly, the transportation sector witnessed a drop in number of establishments during the years 2012 and 2013, but this didn’t result it drop in the growth in employment, rather the sector employee strength increased by c.30K.

Start-ups a solution for job creation?
Looking at start-ups as a solution for job creation may not be a very wise stand. Based on the employment-established Y-o-Y growth/decline trend across sectors, it is evident that in most cases newer establishments have led to job creation. Though the newer establishments would have led to job creation, in some cases, they have failed to make an impact and the industry on the whole witnessed drop in employment.

The inherent high failure risk of start-ups could cause significant volatility in the job the market. The solution for the job creation should be more stable and consistent and not something which is unpredictable. Moreover, the early stage of start-ups would limit the employment generation, as they tend to run leaner operations to preserve cash and invest it in the business. The employee strength of the start-ups discussed in the table below establish the idiosyncratic nature of start-ups. Depending on the nature of the start-up, a five-member startup could create a much larger impact than a 50-person startup. Therefore, start-ups should be considered as potential source of innovation rather than solution for employment generation.

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 This article is published in "Marmore Blog"  

Tags:  Economy, Employment, SMES, Startups

Ratings:
 Current rating: 5 (3 ratings)

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