Guest post by Hala Fadel
(Published courtesy of Chappatte.)
I am a big fan of Chappatte, the Lebanese-Swiss cartoonist who often draws for the New York Times. I find a lot of wisdom in his drawings. When I saw this recent comic above, I thought it illustrated a moonshot opportunity for the Middle East. Current oil prices have put all Arab countries on an equal footing: whether oil producing or not, they are “oil-poor” given current oil prices. The moonshot opportunity is to reach 30% of GDP coming from the digital economy in any Arab country within 10 years. Leaders in these countries should start this process today by priding themselves on being “youth-rich” and investing in sectors that employ their predominantly young and growing population.
The digital clock is ticking. Its pace is exponential. The Internet has reached a scale and level of impact that no business, industry, or government can ignore, and its playground has shifted to emerging markets: almost 70% of Internet users are in emerging markets, compared to only 30% 10 years ago. Like any technological phenomenon, with its scale and speed the Internet presents huge opportunities, which Arab consumers have been quick and enthusiastic to grasp. For instance, the Arab world has the highest video consumption per capita in the world on YouTube and
Yet Arab governments and investors seem to have missed that point. Their spending on the digital economy is close to zero: The digital economy’s share of the combined GDP of Arab countries as of 2015 is a mere low single digit, compared to 33% in the US and 11% in China. As a venture capitalist in the Arab region, I find that it is frustrating to watch the slow pace at which Arab governments and Arab private investors alike are reacting to this phenomenon with oil, real estate and conventional sectors still monopolizing their investments, spending and conversations.
If we are to develop digital and technology sectors in the Arab region, the first step is to invest in such sectors. Below is a table comparing major countries in their venture capital investments as a percentage of GDP in 2014.
Venture Capital Investments As A Percent of GDP In 2014 (Sources: International Monetary Fund, World... [+]
In this table, both the UAE and Saudi Arabia - and all other Arab countries except for Lebanon, thanks to a recent central bank initiative - are lagging far behind in terms of venture capital investment in the technology sectors. In fact they are nowhere.
Even the UAE, which is at the forefront of the entrepreneurship movement in the Arab region, is investing one fifth of what it should when compared to the US, not to mention that part of the existing flow of capital is foreign investment into local funds as opposed to local money being invested in digital sectors. If we include a catch up effect for the past 10 years compared to what the US or European venture capital have been pouring into technology, the UAE should invest a cumulative US$ 10 billion into digital and technology companies today, in addition to US$ 1.2 billion each year – a yearly ticket equal to only 15% of the Dubai Expo 2020 budget.
For Saudi Arabia, the figure is closer to US$ 2.2 billion a year that needs to be invested into technology companies versus only US$100 million today, one twentieth of the amount! Let’s put things into perspective: this US$2.1 billion is equal to a 0.5% movement in the Tadawul, the Saudi stock exchange, or 0.5% of Saudi Aramco’s 2014 revenues - a rounding error by Saudi standards.
How many times do you have the opportunity to create impact and change the course of history with rounding errors? Yet this small amount, which could be a game changer for the region, is not being spent in a sector that appeals to 70% of the people – the population under 30. In the US, 43% of employment relates to the digital sector. With an average 30% youth unemployment rate across the Arab region, the conclusion is clear: Now is the time to invest in the digital sector.
Digital is an exponential force as much as it is an exponential threat if we miss it. For the digital economy to account for 30% of the region’s GDP in 10 years, we need to believe in the talent of our youth. This first step - believing in them and investing in them - will attract foreign investment in turn as follow up rounds. Are there enough opportunities? This chicken-and-egg story starts with putting money toward accelerating the existing movement. There are plenty of opportunities, and if Arab investors and governments start investing, there will be many more.
Take Kaswara Al Khatib, for instance. He was the first to believe there could be a new kind of media production in Saudi Arabia and he launched the leading digital media company in the region, Uturn. Another example: Mona Ataya noticed the region has an incredible birth rate and started her online marketplace selling products for babies and children. Yet another: Wassim Kari has 2 jobs: one to pay the bills as consultant and one as a healthcare entrepreneur.
In Saudi Arabia, Egypt, Jordan, Lebanon and Dubai, hundreds of young men and women are waiting for their innovation to be invested in. These young people did not graduate from our conventional schools, they graduated from the digital economy and their degree is worth more to our region than any school. Their degree is worth our future. I have been tracking them for 9 years now as founder and chair of the MIT Enterprise Forum Arab startup competition, which received over 6,000 applications this year from 20 Arab countries. They are knowledgeable, adaptable, hungry learners, and hard working. They are digital entrepreneurs, agents of peaceful and positive change and carriers of the new values of the Arab region: hard work, openness and learning. Empowering them by investing in their startups is the best constructive use of their energy.
How to invest in them? Arab governments and investors should channel these investments through venture capital firms, not public entities and not large private companies having no experience in venture capital. Technology investment has its own pace and rules, to which public entities or large corporations in the region would have a hard time adapting. The investments should be made across the Arab region, going beyond national stories. Talent, the raw material of the digital economy, is spread out across the region; the investments should be spread as well.
Let’s work together on this moonshot: Put 0.3% of Arab GDP into venture capital to reach to 30% of Arab GDP coming from the digital economy in 10 years. Constructive change can come from investing in Arab innovation in an economic revolution that will benefit the entire region. Over the past 10 years, more than $10 trillion has been spent on construction and infrastructure in the Arab region. Can we invest 0.1% of that in our youth and its economy, the digital economy?
Hala Fadel is a partner at Leap Ventures, a venture capital firm based in Beirut and Dubai, and the founder and chair of the MIT Enterprise Forum of the pan-Arab region, an organization that promotes entrepreneurship and organizes the MIT Arab startup competition.
