Is there any hope for Syria’s startups?
It has been 12 years since the civil war in Syria devastated the country and its economy. What was once a promising middle income country with a sharp talent pool, has been ravaged by a war that has cost 300,000 civilian lives, a brain drain that saw millions flee and an economy that is still in ruins. Its currency has been decimated and its inflation rate rose from 4.75 per cent in 2011 to 139 per cent in 2020.
With the imposition of sanctions, Syria’s economy withered further and the country, once an exporter of oil, textiles and agricultural products became the world’s biggest producer and exporter of captagon, an amphetamine drug that has become the drug of choice in the Middle East. The desire to curb the production of captagon was one of the main drivers of the Arab League welcoming Syria back into its fold this week.
The move has instilled some hope among the small segment of Syrian entrepreneurs, who in the absence of global and regional tech players, have built their own solutions for the population. Most entrepreneurial activity regarding Syria was targeted at the Syrian refugees in neighbouring countries. Competitions and organisations like Startups Without Borders, BINA Business Incubator and Jusoor provided financing to Syrian founders based outside of Syria, with little to no help for those inside the country.
A sanctioned nation
In nascent tech ecosystems, it is the retail sector that is targeted for disruption and digitisation initially. Allowing people to purchase goods online is the first step. The way they pay for these goods where there is no fintech infrastructure is with cash on delivery.
Ahmad Nahas founded Syria’s first e-commerce marketplace, Harbuk in 2017, which connects businesses and merchants with consumers. Nahas faced all the typical challenges of building and launching a tech product in a young market alongside the difficulties brought on by the war and the sanctions. Import restrictions have resulted in a lack of access to products and a rise in the cost of goods.
“Syria is not an industrial country that depends on its manufacturing, therefore, most of the products should be imported,” he says. “One of the main challenges is the lack of merchandise in the market, which makes it more difficult to serve our customers properly. However, I believe that in the next upcoming years, this status will change, and we will return to being able to import goods.”
Rania Kinge, the founder of I Love Syria, a fashion and jewellery direct-to-consumer brand, says the sanctions have not only limited her ability to import the materials needed to make her products but have also resulted in the freezing of her accounts and revenues on global e-commerce platforms such as Etsy and eBay.
“Due to the sanctions, we have to transfer the revenue from selling our products abroad through a lengthy process that requires extra fees and much more effort,” Kinge, who runs a fashion designing workshop to support displaced women in Syria, tells Wamda, explaining that every time she needs to transfer money to Syria, she has to find someone travelling to Lebanon, and from Lebanon, she can ask some friends and family members to carry the money in small amounts to Syria.
Besides the sanctions, the lack of infrastructure has also hindered progress. Syrians suffer from a lack of electricity, the internet penetration rate is among the lowest in the region at just 35.8 per cent, and fewer than a quarter of adults have a bank account in the country.
This means for e-commerce players, 99 per cent of the payments are cash on delivery (COD), which brings its own set of challenges.
“Banks have started to issue credit cards only five months ago, and before that, very few people used digital wallets provided by telecommunication companies,” says Kinan Al Zayat, founder of the ride-hailing app Wasilni.
According to Nahas, the Syrian government launched a campaign to encourage people to move to online payments last year.
“We only provided the online payment service to our marketplace three months ago through only five banks in Syria,” he says. “Now there are [only] three private payment gateways for online shopping.”
To tackle the issue of COD, Harbuk launched its own last-mile delivery service to handle order returns, take control of the after-sales service and manage its own cash payments. Harbuk offers its last-mile delivery service to other online sellers too.
But while last-mile delivery has become more common in the major cities, fuelling the growth of e-commerce and food delivery, the sector faces two major barriers according to Al Zayat.
“The first barrier is the country's fuel problem and scarcity of petroleum supplies. The other cause is the embargo imposed on the country's importing, which has resulted in a dearth of imported automobiles on the market,” he says. “The newest car in the streets is ten years old, which requires costly maintenance, therefore, people refuse to work with their own cars.”
Prior to the war, Syria had a decent pool of tech talent, but the subsequent brain drain has made it incredibly difficult for startups to find talent in the country. The most talented developers have already fled, and those who have stayed tend to freelance for overseas companies with salaries that no startup in Syria can offer according to Nahas. So most end up hiring junior developers and training them inhouse.
Another major challenge facing Syrian founders is the lack of capital available to them. There are no institutional investors or angel networks, and there is only one incubator run by alBaraka Bank (Takween) operating in the country.
However, according to founders we spoke with, who preferred to remain anonymous, VCs from Lebanon, the GCC, Turkey and Iran, have found their way to finance Syrian startups, through agents who have connections with the government or powerful figures to smuggle the cash into the country. With no legal frameworks in place, this is a risky process.
Most founders, however, have resorted to using their own savings from years of working abroad, family and friends or small amounts from the UN to support businesses, “which is not a sustainable source to secure the business’ continuity”, says Kinge.
The normalisation of diplomatic ties with the rest of the Arab world may ease some of Syria’s difficulties.
“The evolution of the Syrian economy matters; Syria is geographically larger than Israel, Palestine, Jordan, and Lebanon combined, with nearly double the population of the UAE. The size of the total user market size is difficult for global tech companies to ignore," says Sam Blatteis, the CEO of UAE-based MENA Catalysts, a market expansion enabler firm.
With a thirsty, untapped market like Syria, the risks are high but the return on investment is high too, since there is almost no competition, according to Harbuk’s founder.
Taking a more tempered view is Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.
“Regional diplomatic re-engagement with Syria won’t necessarily open the economic floodgates. Even if the Syrian economy theoretically becomes more open as a result of some manner of regional reintegration on a political level, it’s hard to see the practical demand for investment opportunities in Syria,” he says. "There are the domestic challenges from years of war and then the external sanctions dimension. The degree of political risk associated with the Syrian economy is insanely high.”
But for the founders, there is still a level of hope.
“We are dealing with damaged economic conditions due to years of heavy war casualties and sanctions imposed by the West. We first need a stable economy, then we can take it from there,” says Al Zayat.