With a push from the government to move from oil to innovation, the Middle East today is looking at tech innovation and startups closely. Bahrain’s Economic Development Board and its semi-government organisation Tamkeen are looking to make Bahrain a Middle-Eastern hotbed for startups.
In an effort to push entrepreneurship to the forefront, Bahrain has been hosting the Startup Bahrain Week, organised by Economic Development Board (EDB) of Bahrain and Tamkeen. The small Arab nation has been gearing up to welcome startups, investors and HNIs from across GCC (Gulf Council Confederation) and MENA (Middle East and Northern Africa) regions.
For someone coming from Bengaluru, India, which is a flourishing startup ecosystem, it has been an interesting experience to take in all entrepreneurial activities in the Middle East. Three days in Bahrain and speaking to the startups here, I have realised wherever one goes, funding is the common ground of concern for all.
“Not all startups deserve funding,” says Simon Galphin, Managing Director, EDB. Most startups in the Middle East are in their early stages, and yet, the region already has had an exit, and a big one at that. Souq, a UAE ecommerce startup was acquired by Amazon recently.
A push away from oil
I found the startups in the Middle East to be similar to India, and yet different in many ways. The area has woken up to the reality that oil is not going to last forever. Mohammed Hansari, CEO, Daamino, a fund, and Governor Advisor for Small and Medium Enterprise Authorities, Saudi Arabia, says,
“We need to move where the world is moving. Oil cannot be the only source and push for the economy. The region needs to look at technology and innovation to move where the rest of the world is headed.”
Many now view Bahrain as a breeding ground for startups and entrepreneurs. “It is easy to start a business in Bahrain. Costs in Bahrain are lesser, it is more convenient and talent is cheaper as well. For a developer in Bahrain I would pay BHD 800 a month (about Rs 1.4 lakh), while in Dubai the cost would be AED 25,000 (about Rs 4.4 lakh),” says Amjad Puliyali, Co-founder, GetBaqala, an online grocery startup based out of Bahrain.
A gateway to other markets
According to a MarketsandMarkets report, a number of startups in the Middle East have grown by about 46.2 percent CAGR (compounded annual growth rate) over the past three years. Bahrain, specifically, according to the EDB website, has a strong focus on software development, e-commerce, cybersecurity, healthcare and fintech.
“One of the biggest advantages of stepping up operations in Bahrain is the fact that it acts a gateway to several regions the MENA (the Middle East and North America region), and Europe. Also, it gives you exposure and time to understand and set right the glitches,” says an entrepreneur at Unbound Bahrain.
One of the key benefits of starting up in Bahrain is that over 98 percent of the sectors allow for 100-percent foreign ownership, which other parts of the Middle East don’t. Other benefits include zero taxes, and government initiatives to help startups hire and skill talent.
Tamkeen, for example, is a semi-governmental organisation in Bahrain, established in 2006 under Law Number (57), as part of the country’s national reform initiatives. It is tasked with making the private sector the key driver of economic development.
“Tamkeen helped us acquire talent. We get 70 percent salary support for the first year, 60 percent in the second year and 50 percent in the third year. They help us hire freshers from the University of Bahrain and the support is to help skill them,” says Amjad.
The exit and ecommerce drive
Ecommerce, apart from fintech, was one of the focal areas of discussion and conversation at Unbound Bahrain. What has aided the sector is investments and exits seen in the space. Ritesh Tilhani, Founding Partner, Enhance, a fund based in UAE, says,
It is exits that attract investors. As a region, the Middle East is a growing market; the Valley investors are yet to look at the region the same way they look at Southeast Asia, China or even India. But it is Souq’s exit that got people to look closely at the space. Souq, however, has been operational in the Middle East for close to 10 years now.
For international giants and businesses, startups based out of Bahrain, in particular, and the Middle East, in general, are not the focus. But that is not necessarily a bad thing. “This is especially so as there are other markets like India and China. But this is a good thing for us, as, by the time these companies come here, our homegrown startups can learn and grow,” says Walid Faza, Partner Wamda Capital.
The MENA region has been attracting several investments recently. Kuwaiti Nalbes, an ecommerce platform raised $1.5 million, while international franchise operator Alshaya acquired a stake in Noon, a unicorn ecommerce platform that is being backed by Saudi Investment Fund.
According to an investment report by Magnitt, in the first half of 2017, ecommerce made up 16 percent of the $290-million investment made in the region, with Dubai and Saudi Arabia dominating the market.
Bahrain, too, has a lot going for it, in terms of infrastructure. The internet connectivity and adoption in the country is massive. For a population of 1.3 million, Bahrain has four million phones, most of which are Apple. “Everyone here has an Instagram and Snapchat account, and many run small Instagram stores,” says an entrepreneur at Unbound Bahrain. Besides, it is home to several old businesses and corporates that are looking to invest in startups.
But despite its many obvious advantages, the Middle East is still at a nascent stage for wide-scale entrepreneurship. The market is yet to grow and expand. Bahrain, for one, is a strong cash economy, and many entrepreneurs note that consumers are still wary of online payment methods and transactions. Reports also suggest that a huge barrier for the Middle East is the lack of a unified address system.
This, in turn, creates challenges for last-mile delivery and also forces the use of verification. “We always have an SMS confirmation for all our CoD orders. And the time of delivery for CoD needs to be really quick,” says Mona Ataya, Founder and CEO, Mumzworld, an ecommerce platform of baby and mother products.
Also, consumers in Bahrain still prefer in-store shopping. “People here still like to touch and feel products and then buy,” says Nada Alwi, Founder and CEO, Annanda Online, an online store run out of Instagram that has offline presence in Bahrain, Mumbai and Delhi.
Additionally, many startup founders here lack the corporate world experience. “They have great ideas and plans, but converting them into a viable business is a different ballgame altogther,” opines Walid of Wamda Capital.
Despite its myriad shortcomings, stakeholders believe that the market holds great potential, and many are looking at the Middle East, in general, and Bahrain, in particular, as a gateway to global and developed markets.
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