Towards A Vibrant Startup Based IT Sector Ecosystem in The Arab World

18 Apr, 2009

Update: as a result of this post ArabCrunch.NET was developed and launched in private beta to help Arab startups and help the region innovate, continuing ArabCrunch Mission.

In this post I would highlight a few points that I think can help  in creating a vibrant startup-based IT  sector in the Arab world. This came up to me in light of my recent media citation on UAE’s based newspaper The National.

1-Entrepreneurs & Opportunities:

The amount of Arabic content online is very low, most famous websites are forums, this is somehow an opportunity, and we are seeing more and more startups in the region who are going beyond forums. On the other hand, online advertising is less than 1% of total ad spending in the region, and from recent reports and from my talks to major portals in the region, online ad spending is growing, but not at 100% growth.

Arabic Mobile 2.0 also represent an opportunity.  There are few Arabic mobile apps and services, they are mostly silly stuff like ringtones and themes. Today, touch screen iPhone like, WIFI and 3G enabled mobiles are taking a big chunk of the market, for example Nokia 5800 the touch-screen, WIFI, 3G phone is the hottest selling Nokia device in Jordan, as many mobile shops are running out of stock.

Nevertheless the time is gone when start-ups can just copy successful International websites into Arabic and think that’s how the game is going to be. As many global players are localizing their services. Today: facebook, Google, Microsoft and Skype for example all have Arabic versions for most of their services and products. And any Mobile or website player can do that with a little hassle. But some Arabic specific challenges can only be done by Arabs, such as natural language processing (NLP).

However there are many services that need physical local or regional presence and some international startups cannot afford that at this time. So if you are copying them then launch your product quickly, do good marketing and create a large user base, so you can create regional barriers of entry for your International rivals.

But be aware if you are copying an international startup, it does not mean the Arab market will adopt you. A friend of mine who is a geek told me once: The Arab startup should not think I will use his website or service because he is Arabic, I’ll go to the best.

So we need more creative thinking Arab startups, we need startups that think outside the box and come with unique and great ideas that can add value to the end users. At the same time we need ideas that can stand out at the global market place. It does not have to be a break through technology; it might be a simple idea like twitter which is valued today at around $ 400 million.

However, In the web and mobile world I see Global opportunities in semantic web and Mobile 2.0

Most of the current startup projects I saw are in 3 categories: techies doing it alone, part time or full time, or out-sourcing companies is doing it on the side.

To succeed it is not enough to have a great idea, or to be a certified Zend Engineer, you need to execute good marketing & PR strategies in order to gain market share and success. So grow your team and add at least one marketing cofounder who is good, has some good connections and has good technical back ground.

2-Venture Capital and Funding
Venture Capital is a type of funding that an institutional investor offers cash for a startups in exchange for equity, it is a form of funding that is very similar to Mudaraba financing type in Islamic banking, there is no debt and if the startup meets the dust the founders do not pay a dime. VCs typically makes returns via an Initial public offering (IPO) or merger and acquisition (M&A). VCs provide different types of funding at different levels: Seed Money: Low level financing needed to prove a new idea, Startup: Early stage firms that need funding for expenses associated with marketing and product development. And other rounds of funding to grow the company.

The presence of VCs is very important as most startups cannot secure bank loans because they are too small, or in a risky business. In USA, VCs have been the major driving force behind the tech industry, companies like Yahoo and Google would not be here if there was no VC backing, not to mention that most current web startups are VC baked.
So how is the VC seen in the Region?

From my experience I can say VCs in the region are a joke; they are hard to find, and if they do exist they mostly do not invest! However the region if full of wanabe cashless VCs who offer brokering deals and some advice to few investors here and there.
nonetheless this seen is changing a bet with initiatives like Intilaq from Bayt.com, KuvCapital, ICT (growth VC) and older VCs like EFG-Hermes’s Technology Development Fund but these are not enough.

So from how to create a bigger VC industry:

“Gulf sovereign funds have invested trillions in western markets and they lost a lot of that in the current crisis,”  “Why not consider the financial returns and the social capital that would come from investing and help creating a vibrant IT sector in the Arab world?”
On the other hands we have many Islamic banks in the region, why not lobby them to help allocate some of their Mudaraba funds into technology startups?

Some might argue that to create a healthy VC Industry it requires an exit window. Well if the startup idea is global and it become a hit, it can go into an IPO or M&A at a global scale.  On the other hand there are some M&A deals happening in the region, look at Maktoob’s acquisitions in the last few years. Also we can have our own regional IPOs, Optimiza is a Public IT company in Jordan. And as the US IPOs window is kinda currently closed even for US based IT companies, why not all the regional stock exchanges merge into one market? I think it is politics.

So in this current VC seen, my advice to Arab Startups is that you can start from your home like me, and do it part-time or full time if you have enough funds. However at a certain point you will need a VC to grow, if you could not get funding from a regionally VC or Angel investor, go to International VCs or angle investors like what Woopra did, after you have your prototype. (Note that the US economy is really in deep recession as VC’s went down by 50%  this quarter. )

Research and development (R&D)

Breakthrough technologies mostly come from R&D activities inside universities, study & research centers and companies.

R&D in the Arab world is also not visible too. So there should be national and regional funds for R&D. A $ 5 Billion regional fund can be a start. This can be done via a small cut from Oil profits and another cut from each Arab country, which would be a healthy start to finance all the needed money for R&Ds and VCs activity the region.

To be fair Qatar has dedicated 2.8 per cent of its Gross Domestic Product (GDP) to research under Qatar Foundation, currently about 1,500 million US dollars per year. That is great and applauded, however we want to see R&D in every Arab University and country.

Infrastructure:

A-It is lame that we do not get for example an affordable high speed Internet access at around 20 GB speed, which is essential for many businesses specially web based ones. Governments should work with Telecoms in the region to bring the Internet speedup and drive the costs down.

B- Governments are one the largest IT customer, but they mostly buy from Microsoft, Oracle.. etc. Few years ago a very senior executive from a well known US based vendor met with a ruler of an Arab country, that country’s official media said that: they met to foster the IT sector in the country, while the real story is that he got his company a multi million deal with that country’s government, basically a fat sale for him!

Arab governments should 1st buy from regional based IT companies if an alternative is available, and use Open-Source projects rather than property based systems, why: 1st, Open source is much cheaper, more reliable and the support is available online, and we have the regional talent. 2nd, by doing so they support the regional IT sector, 3rd, we are not under the mercy of anyone or any political problem, for example Linkedin blocked Syrian users and also Sudan. 4th, Multinational giants do not invest in R&D in the region; they only have sales and marketing offices, so why reward them with easy cash via their local agents?

I am not against Multinational companies or anyone, we need to work with them in many cases especially in certain areas, for example open source software requires hardware that are supplied by a Multinational giants. Also the Open-source community is a global community so being open to the world is a must, above all our religion teaches us to be good with everyone. Though many countries adopted open-source like Brazil, and many countries in the world favor their local companies.

Awareness:
We need to have a better awareness about Arab startups, entrepreneurship, and help techies understand the business side of the game more. This was one of the reasons why I started ArabCrunch and organized ARABCRUNCH DEMO event.

Conclusion:

“Israel” is called the 2nd Silicon Valley, a small country with Multi billion Dollars in IT exports. This did not happen by itself, there was a big government intervention in partnership with the private sector (I did around 30 page research about the ICT industry in “Israel” when I was at university). Even in USA the US government Invests billions in R&D. so government intervention is a must in the region to help us create a big IT sector that is based on entrepreneurship which is needed for our economic and national security future.

This effort should be a regional collaborative drive not everyone doing it alone, Mohammed Bin Rashid Al Maktoom Foundation is working in that direction. And this should not be between Arabs only but also all Muslim countries and any non-Muslim countries as well, who want to support the efforts. Furthermore it should be done in partnership between the governments and the private sector.

We should not to forget our history and roots,  as the 1st concept of a computer was developed by a Muslim scholar. And as VC started few decades ago, the concept of Mudaraba in Islamic economics was there hundreds of year ago, even some say it was practiced by Arabs before Islam, also the concept of Non Governmental Organizations (NGOs) is in Islam before 1400 years ago called as Waqeef.

Anymore things we need to do? Leave it in a comment.

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  1. Gaith Saqer  |  July 3rd, 2009 at 3:31 PM #

    @all Guys I am sorry this is a long post, but I have to clarify few points here.

    khair: I said “R&D in the Arab world is also not visible too. So there should be national and regional funds for R&D. A $ 5 Billion regional fund can be a start. This can be done via a small cut from Oil profits and another cut from each Arab country, which would be a healthy start to finance all the needed money for R&Ds and VCs activity the region.”

    So this fund is also for R&D why 5 billion, it can be more, but because Arab sovereign funds assets are valued around 2 trillion mostly invested in the west, 5 billion is not a large amount.

    You want some data here you go:
    WEF:
    Number of Patents Registered
    Global competitive index.
    in the USA, 1976-2002
    Yemen 3
    Lebanon 4
    Syria 16
    Jordan 22
    Tunis 23
    Morocco 65
    Kuwait 75
    Egypt 104
    Saudi Arabia 225
    Israel 11,071
    Sweden 26,318
    South Korea 27,298

    Number of utility patents (i.e., patents for invention) granted between January 1 and December 31, 2007, per million population | 2007 global competitiveness index/ World Economic Forum
    RANK COUNTRY/ECONOMY HARD DATA
    1 Taiwan, China………………..270.4
    2 United States ………………..261.7
    3 Japan……………………………260.0
    4 Finland………………………….160.4
    5 Israel ……………………………158.1
    6 Switzerland …………………..141.8
    7 Korea, Rep. …………………..130.9
    8 Sweden………………………..116.6
    9 Germany ………………………109.4
    10 Canada …………………………100.9
    51 Saudi Arabia ……………………..0.8

    Research and development expenditure (% of GDP) http://hdrstats.undp.org/en/indicators/128.html
    HDI Rank Country 2000-2005
    1 Iceland 3.01
    2 Norway 1.74598022358616
    3 Australia 1.70497399344551
    4 Canada 1.93
    5 Ireland 1.21
    6 Sweden 3.74
    7 Switzerland 2.56702710606346
    8 Japan 3.14540285993759
    9 Netherlands 1.84822798236219
    10 France 2.16
    11 Finland 3.46
    12 United States 2.68
    13 Spain 1.10532054929947
    23 Israel 4.46
    33 Kuwait 0.195154797264097
    35 Qatar ..
    39 United Arab Emirates ..

    Researchers in R&D (per million people)
    http://hdrstats.undp.org/en/indicators/129.html
    HDI Rank Country 1990-2005
    1 Iceland 6,807
    2 Norway 4,587
    3 Australia 3,759
    4 Canada 3,597
    5 Ireland 2,674
    6 Sweden 5,416
    7 Switzerland 3,601
    8 Japan 5,287
    9 Netherlands 2,482
    10 France 3,213
    11 Finland 7,832
    12 United States 4,605
    13 Spain 2,195
    14 Denmark 5,016
    15 Austria 2,968
    16 United Kingdom 2,706
    17 Belgium 3,065
    18 Luxembourg 4,301
    19 New Zealand 3,945

    http://oberon.sourceoecd.org/vl=1917787/cl=11/nw=1/rpsv/sti2007/a-4.htm

    You want some data about the US and “Israeli” government involvements in R&D here you go:
    National Science Foundation (NSF) estimates indicate that U.S. spending on research and development (R&D) totaled $368.1 billion (current dollars) in 2007, up from $347.9 billion in 2006.

    >>>In 2007, The (US) federal government conducted $38.6 billion, or 10.5%, (including federal intramural, $24.7 billion, and federally funded research and development centers, $13.9 billion[3]). Other nonprofit organizations performed $15.3 billion, or 4.2%.

    >>>In 2005, Israel had the world’s highest R&D intensity, spending 4.5% of GDP on civil R&D, twice the OECD average. Chinese Taipei and Singapore were the only other non-OECD economies with an R&D intensity above the OECD average.
    20 Italy 1,213

    http://oberon.sourceoecd.org/vl=1917787/cl=11/nw=1/rpsv/sti2007/ga4-2.htm

    >>>>“Isreali” government budget for civilian R&D in 2005 amount to about €770m
    http://cordis.europa.eu/erawatch/index.cfm?fuseaction=ri.content&countryCode=IL&topicID=329&parentID=50
    http://www.nsf.gov/statistics/infbrief/nsf08317/

    >>>Arab countries spend less than 0.2% of their national budgets on science and technology research and development. This is more than ten times less than the amount that developed countries spend.
    The results become clear if we consider the publication of scientific research papers and/or patent registration. Results of research conducted in Arab countries are rarely published in international professional journals. The number of patents produced by Arabs is meager; during the past two decades, South Korea registered in the U.S. over 44 times the number of patents from all Arab countries combined.”Dr. Farouk El-Baz, member of the U.S. National Academy of Engineering,”
    http://www.strategicforesight.com/iwf_farouk_el.htm

    More about “Israeli” Government involvement in the “Israeli” tech industry and the Legal Framework –
    http://globes.co.il/serveen/globes/nodeview.asp?fid=962

    Research & Development Strategy for Information and Communication
    Technology, 2007-2009 in Jordan, has some nice info too http://www.moict.gov.jo/downloads/Jordan_RD_ICT_Strategy_Volume_1-Final%20May%203_07.pdf

    Khair you said “The US government is only giving money to the auto industry to save it from collapse and therefore the collapse of the US economy because millions of people depend on the auto industry for pension and health car” it also is giving 10s of billions to banks, this crises is a proof that markets are not self correcting, it is not just “only giving.” and as you said save “therefore the collapse of the US economy.”

    In 2007, The (US) federal government conducted $38.6 billion, Americans are around 400 million people, Arabs are the same number do not you think 5 billion is not too much? And by the way many Arab governments recognize the lack of R&D activity and funding and the lack of VC funding, you see that in Jordan R&D strategy, also Jordan is gona launch soon a government VC fund, do not you think if there was enough VC they would not launch it? The problem is that every Arab government is having its own initiative for its own country not a pan Arab or pan Islamic one. The regional and pan Islamic work is not a must because we are brothers, but also because it is our future and our national interest that lies ahead.

    Khair you said” There are few VCs in the Arab world, but only a handful of startups got funded by them simply because the rest are no viable. Those VCs are crying out for more deals. If you do your research and talk to them you would know it.” I think I answered you many times before I talked to some VCs in the region and also startups, everyone agrees that VC’s mostly in the region do not invest (specially at seed stage), and actually many are not VCs it is not just there are no viable ideas as they (or you) claim, but because its their mentality.
    I also mentioned in the post the viable idea problems look at section 1-Entrepreneurs & Opportunities where I suggested how entrepreneurs should think, plus when there are R&D funds we’ll have inventions which can be turned into innovation if you know the difference between both. The ecoy-system I proposed is not a final say it is open for discussion and more points to be added and things are interconnected, I Think at the begging of this post I said “In this post I would highlight a few points that I think can help in creating a vibrant startup-based IT sector in the Arab world “ underscore few points.

    Khair you said “I’m not the journalist, so I’m not obligated to support my opinions with data” well if you do not support your opinion with date then do not accuse others of writing “the rants of any frustrated person who blames the microsofts of the world and the governments for everything.” of being “baseless and very superficial this whole article is” and “damaging” “a someone.” And do not through accusations and take words of course.

    Khair you said “opinions are written by 50 year olds” this is a jock, I can give you many example of people who achieved great things or taken higher positions when they were much younger, do you not know that Osama bin zaid lead an army when he was 18? Do not you know that Yang started Yahoo when he was in School? Dell? King Hussein became King when he was 18? ….etc

    “just blogging (as you put it)” no shame in just blogging, this is a specialized blog not a personal blog, do some Googling to understand what blogs are all about. and just look at blogs stats, over 200 million people visits blogs each month.

    “Maybe if you interview or quote some of them to support your views, it would help make this blog more credible and less about just the opinions of Ghaith Saqr, don’t you think?” ya that is coming inshallah, for the VC part. As if you do not think this blog not credible, well I’d not think that the 5 of the top 10 blogs in the world think agree with you. Not to count over a hundred more blogs who cite ArabCrunch as a source for many news.

  2. Yanal  |  July 4th, 2009 at 10:48 AM #

    Wow Gaith, I call this the most perfect response of all times, well say man, well say

  3. Ahmad Khair  |  July 5th, 2009 at 8:11 AM #

    Opinions are written by people with real experience (this is what I meant) “50 year olds” is just a metaphor because in most cases those people have been through and seen alot.

    With regards to the data you provided, it’s really nice to see that you’ve finally done some reading up on the topic and told us what we already know. R&D is really lacking in the Arab World, there’s a ton of research on that in the last 15 years, which is why that specifically wasn’t the disagreement.

    Lack of R&D can be recited by any person with enough time to attend conferences and listen to speaches, so it’s nothing new. The problem here Ghaith is the way you write; you say the obvious, things that you would hear on the street (or in any conference) but then start preaching about how to solve them as if you actually know. There’s no problem in quoting experts and people of knowledge on those proposed solutions, but you don’t. You didnt’t provide a single credible source when you quote you heard or someone told you.

    p.s. the difference between 3,4,and 5 billion is alot, but I can see how that difference may appear trivial to someone who looks at them as simple digits 🙂

    Thank you.

  4. Hiconomics  |  July 12th, 2009 at 12:37 PM #

    Gaith, Ahmad…
    I’m sure most readers will agree that it’s been both enjoyable and informative to see the comments, arguments, challenges and responses flying back and forth with regards to this subject.

    It does seem however that it is turning a little sour and personal and is distracting from the main issues and points of the initial post. Without sounding patronising, I really do think we should focus on combining the talents, thoughts and initiative from all of us and come up with some tangible actions rather than argue over some of the detail.

    Personally, I don’t really care who’s right or wrong. I thought the initial post was timely and brought up some interesting points, and it clearly stimulated some discussion. The fact remains that we are behind, in R&D, Venture Capital, Government Support.. we have a low resource of human capital (although improving rapidly), and lack of experience in management and entrepreneurial approaches.

    It seems futile to argue over how far back we actually are, or how much support we actually need… or even compare ourselves to everyone else. We have our own circumstances and market, and we should combine forces and focus on tackling it.

    I hope my comment is accepted with the good will that is intended and hope I have not caused offense.. I only mean to bring us back to the main points of the topic. Onwards and upwards…

  5. عاجل: عرب كرنش تساهم في نشر التكنولوجيا بإطلاق أول شبكة اجتماعية عربية تتركز حول صناعة التكنولوجيا و الريادة  |  November 10th, 2009 at 5:48 PM #

    […] و اليوم نزف البشرى التي اعلنا عن نيتنا تنفيذها في شهر ابريل الماضي. شكرا لكل من […]

  6. After Getting Funded, ArabCrunch Launches First Online Social Platform in the Arab World focused on Startups & The Technology Industry  |  November 10th, 2009 at 5:55 PM #

    […] social platform was what we the passionate startup community wanted to do when I mentioned back in April that AC will do it, when I wrote about the ecosystem that we need to help grow the tech industry in this region. Here […]

  7. Gaith Saqer  |  January 2nd, 2010 at 3:31 AM #

    salam guys:

    I am happy to inform you as a result of this post ArabCrunch.NET http://arabcrunch.net was developed and launched in private beta around 1 month ago to help Arab startups and help the region innovate, continuing ArabCrunch Mission. 🙂 anyone needs an invite connect me plz

  8. SeoGlobus  |  July 26th, 2011 at 10:50 AM #

    קידום אתרים בגוגל הוא תהליך ארוך ומתיש, החל מבחירת המילים והביטויים בהם אתה רוצה שימצאו אותך.

  9. Wikileaks: Jordanian government officials envision Jordan as the “India of the Middle East” - ArabCrunch  |  September 7th, 2011 at 2:35 PM #

    […] have outlined in 18 Apr, 2009 several points that would help Vibrant Startup Based IT Sector Ecosystem in The Arab World that […]

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