Omar Al Sharif is the director of partner programmes at Wamda
Governments across the Middle East and North Africa (Mena) are eager to transform their economies to address the myriad problems that face them, from rising unemployment rates to economic uncertainty. The majority have outlined economic visions that make them less dependent on oil and will instead create a shift from a consumption economy, to a productive one.
For oil-producing countries such as Saudi Arabia and the United Arab Emirates (UAE), the question that most policymakers are asking is how long can you sustain an oil-reliant economy, and what are our options for diversification? According to the International Monetary Fund (IMF), the growth of oil exporting countries will decrease from 0.6 per cent to 0.4 per cent in 2019.
For oil importing countries such as Jordan and Lebanon where the debt is high, it’s imperative to tackle the slowdown. Economic growth is expected to decline from 4.2 per cent in 2018 to 3.6 per cent in 2019. And pressure from the World Bank and donor countries for reform and restructuring of governmental agencies has been pushing these countries to think of more innovative ways to grow the economy and create new business opportunities that will reduce the deficit and decrease unemployment rates alongside the brain drain to other neighbouring countries.
Although the scale of the economic challenges for both parties might differ, all governments in the region seem to have found a solution in fostering entrepreneurial hubs that help in growing startups and provide a seemingly fast remedy to becoming a more innovative, productive economy which could effectively solve the growing unemployment rate and help spur the economy.
Attracting startups and entrepreneurs has become a mission for many of the region’s countries, with several funds and initiatives like Bahrain’s Waha fund, the National Kuwait Fund, Saudi’s Monsha’at and SMEA, Abu Dhabi’s Mubadala Hub 71, Dubai’s Area 2071, and Lebanon’s Circular 331. Critical gaps in legislation are also being addressed to accommodate new business models and attract foreign startup founders and investors.
But for an ecosystem to flourish, there must be a fundamental contribution from the private sector. The majority of established corporates and institutions in the region are joining the race with corporate venture capital (CVC) arms such as Saudi Telecom Ventures (STV), the UAE’s Majid Al Futtaim Ventures and Saudi Arabia’s Al Tayyar.
But the majority of corporates in Mena are hesitant to explore the entrepreneurial landscape, especially with a fledgling economy. Many of them prefer to focus on stabilising their core businesses and grow their channels and continue to ask, “what is in it for us and how can it improve our business?”.
Several industries and business models are facing significant shifts due to the digitisation and global change in consumer dynamics. These businesses and corporates need new, agile ways to create new business opportunities and to enter new markets. Collaborating with startups seems to be one of the more obvious solutions to the problem, but many corporates remain hesitant.
Some of this hesitance is justified. There is an abundance of entrepreneurial initiatives that ask corporates for substantial monetary contribution to join programmes that have no clear objectives or long term visions to enable the corporates to evolve their business models. Instead many seem more focused on celebrating the idea of entrepreneurship.
So how can corporates contribute effectively and can they truly change the market dynamics? Or is working with startups simply treated as a public relations (PR) and brand positioning stunt?
Globally, the model has and continues to be tested with four main partnership trends emerging that have yielded several success stories.
Co-development and innovation in products is one opportunity where startups can help corporates create new products and expand on their existing offerings. This model was adopted by BMW when they decided to develop their electric cars and formed partnerships with several startups to help them develop the whole experience from the main electrical power train, to add-ons such as creating applications that help in differentiating the user experience.
This is a corporate culture and intrapreneurship model where companies allow their employees to use their resources to develop new technologies and products which they can eventually acquire. Google is one of the most famous examples of this model where they allow their employees to work on individual projects using company resources.
Most the companies in the region are leaning towards the corporate venture model which enables corporates to invest in budding startups allowing them diversify into new markets and business models that they may not have the agility or resources to explore on their own. One regional success story of this approach is STV’s investment in Careem.
The fourth approach is corporate accelerators and incubators, similar to Spain’s Telefonica Wayra model. Telefonica has more than 10 accelerators in as many countries around the world with a portfolio of startups that are valued at about $900 million. The model is simple, Telefonica has the telecommunications infrastructure while startups require help in building their products on Telefonica’s core network. This not only provides prospective clients to the corporate’s network, it also creates new business models that will enable them to grow and expand to new segments and markets.
Other corporates are experimenting with tailored engagement models that include two or more of the aforementioned partnerships, in the hope of getting to startups first and being able to grow their businesses with new innovative business models.
In this age of digitisation, whatever the narrative or business model, it is imperative for corporates and the private sector to shift their mindset and practices to accommodate for new technologies, rapidly changing consumer behaviors and newly introduced sales and marketing channels. Collaborating with startups might be the most agile approach and the fastest route to getting them there.