The Arab Spring 2.0
How do you say innovation in Arabic? Good question. Innovation is not the first word that comes to mind when thinking of the Middle East and North Africa region, also known as MENA. Openness, space, creativity are some of the necessary building blocks for innovation, which have been lagging behind in MENA in recent years. As a result, it has been quite difficult for Arab entrepreneurs to develop successful ventures in their region.
However, the geographical map of innovation seems to be changing. A couple of days ago I spent a few hours with Middle East entrepreneurs on a New York tour, learning about the U.S. venture industry and sharing their experience as Middle East innovators. I could not resist the excitement in the room. Recent events in the Arab world, commonly known as the Arab Spring, have created an irreversible psychological effect, which encourages the youth to take risks, show leadership, and start ventures, hoping some of them will turn to the next Maktub. The same young people who took over the streets of the Middle East in order to fight for democracy start internalizing that the lack of immediate and available economic prospects represents a void they can and should fill: they have the unique opportunity to create a new generation of creativity and innovation, competing in the global markets of ideas.
The prospects are not obvious. The level of political risk is still quite high and optimism is blended with fear. Can you build a sustainable start up industry while the political environment around you is so vulnerable to extremist movements’ influence?
Yet, it seems that the young entrepreneurs in the Arab World are less worried about the immediate consequences of the political tsunami and are far more concerned about the long term structures that make a venture industry feasible and successful in the Arab World. After all, we shouldn’t forget that it is the governments’ interest to support this new wave of innovation. Eventually, creating the necessary high number of private sector jobs will always be challenging in a region which struggles with poor education, lack of resources, and unstable energy markets.
What is needed to support this industry? First, the best lesson learned from the successful U.S. venture industry is that you cannot succeed without the rule of law and strong institutions. The emerging venture industry should work closely with MENA governments to ensure that local and foreign investors can invest in a stable legal and political environment. Corruption is not an option.
Second, states in the region should adopt smart regulation that supports the industry. Jordan recently reduced the number of days needed to start a business. If you are in the start-up business you know that you always want to be able to get up and running quickly with the right good ideas. Government agencies can also provide export promotion services, mentoring programs for entrepreneurs, and better educational ecosystem. The entrepreneurs are only one part of the story.
Third, in a region where security will always be part of the game, the private sector should decouple business from politics. Israel has managed to do so successfully, building a vibrant venture industry despite ongoing defense and security challenges.
Forth, venture capitalists and innovators have to travel freely between markets to mobilize ideas and capital across borders. Security concerns in and from the region have traditionally led to immigration challenges in the Western world. The U.S. and other European governments should work closely with the MENA leadership to find creative solutions to this ongoing problem.
Fifth, and perhaps most importantly, ventures need long-term capital investments which are in high demand in the region. The Arab world is lacking large multinationals that can invest in small ventures and license their technologies, a phenomenon that has been so successful in the U.S. and European models. Each one of the stakeholders should do its share to help the efforts to bring capital to the region. MENA governments and businesses should make more efforts to tell their story to the world and share the potential of this industry on the global stage. They should adopt U.S.-style marketing when approaching U.S. ventures capital firms. The story is promising and awareness is a key component. International agencies, such as the IFC and OPIC, should continue to support MENA’s private sector on high levels.
And, above all, the world will not bet on the region unless the region itself bets on its own future. It is quite unfortunate that many of the region’s long term investors, especially sovereign wealth funds, systematically neglect the venture industry in the region. While investing in U.S. equities or start-ups may be a safer investment, their commitment to the region should be unprecedented. While investing in local real estate can lead to bubbles and inflation, investing in innovation helps build local champions and the industries of the future.
A wave of optimism and creativity is taking over the Middle East. Once the winds of political change are gone, investors wonder what economic opportunities are ahead of us in the region. Serious attempts to address structural failures in the region could create one of the biggest economic opportunities of our generation. Starting a Pan-Arab Tech Council may be something to think about. MENA innovators will not sit still till that day arrives and will continue building their businesses. The Arab Spring 2.0 is around the corner. Its future is still unfolding.
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