Khaled Lababidi is vice president and general manager of the Middle East, Africa and Turkey, for InCountry – a data residency-as-a-service platform that securely stores and processes data in its country of origin. Prior to InCountry, Khaled worked with Arbor Ventures, a global fintech-focused venture capital firm based in Singapore, with a fund size of $250 million.
Over these past few years, the Middle East and North Africa (Mena) market had positioned itself as a global pioneer in fintech. With the world reemerging from the pandemic more digital than ever, Mena countries are now in a position to leverage years of fintech investment and government planning into rapid growth that could redefine the economies of the region, as long as they don’t let looming regulatory developments impede progress.
With several players in the region in the midst of ambitious decade-long projects to revamp their economic structures, Mena governments have been diligent about staying ahead of the regulatory curve by creating a business-friendly environment that invites investment. Much of the investment that has flowed into the region in the past five years has benefited the fintech sector, and with good reason. Fintech has exponential growth opportunities, is widely marketable, and doesn’t require the physical infrastructure of other industries.
The Covid-19 pandemic demonstrated an innate inability for banks to handle crisis shock on their own, a signal that fintech is not just a trendy sphere, but a legitimate answer to many of the logistical problems society currently faces. Fintech was able to respond to the challenges posed by the pandemic precisely because of its innovative streak – these are agile companies that move in conjunction with market happenings by design, as opposed to the slow-but-steady path of traditional banking institutions. Fintechs have quickly left an impact on the market, and their flexibility and speed will likely allow them to keep growing, even post-pandemic, in a more settled business ecosystem.
The Middle East has long been betting on that success and has created the conditions to attract fintech companies to the region, with those plans starting to pay off massively. Stripe, the online payment company valued at nearly $100 billion despite being founded just 11 years ago, officially announced the opening of an office in Dubai this April--its first in the region. One company does not make a successful plan, of course, but all of the statistical trends show a major advancement on the horizon.
Saudi Arabia’s Financial Sector Development Programme, originally set a goal of three fintech companies within the country by 2021. As of today, there are thirty such companies. The UAE has publicly invested hundreds of millions of dollars in tech and blockchain funding, and has seen partnerships between leading local banks, like First Abu Dhabi Bank and Abu Dhabi Commercial Bank, and upcoming fintech companies. The UAE has historically been an investment hotbed thanks to Dubai and Abu Dhabi, but Saudi Arabia and Bahrain have also cemented themselves as markets to watch thanks to liberal corporate tax regimes and strong support for businesses throughout the pandemic. In 2020, Egypt, the region’s most populous country, secured a record $190 million in venture capital funding, although just 8 per cent went to fintech. The country’s numbers remain low in comparison to its neighbours, but they are on the rise.
This combines into a region bustling with prospects and incoming results, but still fractured in terms of the total ecosystem. Saudi Arabia, the UAE, and Bahrain have led the way to attract fintech investment and innovation, but the countries have not aligned themselves to create a regional coalition that can thrive against other global markets. A significant part of that struggle to dominate the market is simple mathematics, as the individual countries do not have the population necessary to outcompete markets in America, Europe, or East Asia. Saudi Arabia only has about 35 million people, less than 30 per cent of Japan’s population, for example.
How then can Mena better position itself in the fintech world and capitalise on the long-term planning of its governments? By staying ahead of data regulations.
As governments and citizens alike have begun to realise the scope of personal data on the internet, legislation has exploded to deal with the issue. In the past four years alone, the amount of data protection legislation has gone from 67 laws in 35 countries to 144 laws in 62 countries. The pace of regulation is catching up to the pace of fintech innovation itself and does not figure to slow down with dozens of more bills on the horizon around the world.
As yet, Mena does not have a single, unified data protection regulation, a colossal oversight for a region that has planned so well as of late. To be successful in the market, countries need not only set up the positives, but remove the negatives as well.
While the Mena region has done the former and done it well, it now needs to focus on removing obstacles, otherwise its economic planning might not reach the heights the leaders once dreamed of. With data the critical currency of fintech and data regulations now a vital legislative topic, the most logical next step for the Mena market is to establish universal and transparent data protection regulations to remove a major obstacle from their economic path.