What is holding back Qatar's startup ecosystem?

What is holding back Qatar's startup ecosystem?
Doha. Image courtesy of Shutterstock

Qatar’s vast oil and natural gas reserves have served the country’s needs well. It was thanks to these fossil fuels that Qatar transformed from an emirate best known for pearl trading and fishing, to a country that has one of the world’s highest gross domestic product (GDP) per capita.

While the war in Ukraine and sanctions against Russia have increased demand for Qatar’s gas, the uncomfortable inevitability for the government is that there will come a day when these gas and oil reserves will dry up and demand for renewable sources of energy will outstrip that of fossil fuels. Amid this backdrop, Qatar, like the other oil dependent GCC states, is attempting to diversify its economy as outlined in the Qatar National Vision 2030.

This roadmap highlights entrepreneurship as a key pillar of Qatar’s knowledge economy. The government has already executed several projects and initiatives to ease the establishment of startups including two free zones regulated and run by the Qatar Free Zone Authority (QFZA), the Qatar Science and Technology Park (QSTP), a technology development hub, and the Qatar Fintech Hub (QFTH), a fintech incubator and accelerator.

According to the Qatar Venture Investment report 2020, 24 startups raised QAR 22 million ($6.2 million) in 2020, with fintech accounting for the majority of deals. Wamda’s own research shows that in 2021, 24 startups in Qatar raised $10.2 million of which 16 were funded by accelerator programmes. This is a 65 per cent increase in terms of amount raised, but when compared to other ecosystems in the region, Qatar lags far behind other comparable ecosystems like Bahrain ($43 million raised in 2022) and Kuwait ($42 million). It is however, ahead of Oman, Tunisia and Iraq.   

For Abdullah Soomro, founder and CEO of My Book, a money-saving app that launched its services in Doha in 2013, Qatar “is an ideal place to launch a startup”.

“[It] is a small market, which makes it very accessible. You can launch a product that can cover the entire country,” he says. “The competition is not as intensive as it is in the UAE. It’s rare to find a startup taking our approach, which provides us the privilege of building our customer base with no effort.”

One of Qatar’s main strengths is also one its biggest challenges. With a population of just three million, the market is small with little opportunity to scale and grow.

For Safarudheen Farook, co-founder and CEO of Spendwisor, a fintech that has been operating in Qatar since 2018, this is not necessarily a bad thing.

“When you look at Qatar, you consider it as a research hub, where you can test your technology and business model, then apply them in bigger markets,” he says.

The government is attempting to position Qatar as a stepping-stone for startups to test product-market fit before they expand to other countries.

“Founders do not think local-wise when they launch a startup in Qatar, they think region-wise, they expand after proving their product success in Qatar,” My Book’s Soomro says. “And that is something the government itself is promoting.”

Difficult regulations

Despite the positive sentiment, Qatar still faces plenty of challenges that are yet to be tackled.  

Regulations currently favour traditional sectors and large businesses and thus present one of the main hurdles for startups and investors.

“The thing that needs to be improved is the clarity of regulations and conditions, it might be a little bit difficult for foreigners to navigate the ecosystem from outside Qatar, they need to be here and present, which also needs some research to figure out the type of visa you will need, the correct people to talk to, and of course which type of company you will be,” says Soomro.

For onshore companies, Qatari law requires companies to appoint a local partner who holds 51 per cent of the company’s shares.

“This regulation might scare off the foreign investors for many reasons,” says Paulina Zalewska-Dzieciuchowicz, a corporate structuring and legal manager at PRO Partner Group Qatar, a business formation and support company in Qatar, UAE and Oman, explaining that having a local partner with the majority share has many potential risks.

“This partner could die, he could change his mind whenever something happens to his assets, he might go bankrupt, so many possibilities that raise the concerns and sparks the mistrust of the investors in the Qatari ecosystem,” she adds.

Regulations around hiring employees are also a struggle, especially when it comes to hiring expatriates. Visa and work permit requirements are more strict than other GCC countries, it requires a lot of paperwork from candidates to prove that they are qualified for the job, especially if they are selected for a managerial position.

“Unlike the UAE, where the labour quota is determined upon the size of the office space, the governmental approval on the foreign labour is determined upon many factors, like the job title, the gender of the candidate, the candidate’s academic degree and their nationalities,” says Connor Hayes, the commercial manager at PRO Partner Group Qatar.

Moreover, there is a shortage of skills in the country, particularly tech talent. Most startups resort to hiring remote workers abroad to avoid the lengthy legal process.

“You need a good technical team to launch a successful tech startup, and this requires hunting experienced talent who have worked previously with other successful startups. This concept is missing in Qatar, talent hunting and variety in the employment market is not one of the Qatari market’s best features,” says Soomro, adding that the country needs to open the door for more foreign employment, provide better education and training to young talent, and develop training programmes for technical skills to improve the whole ecosystem.

The ecosystem overall favours Qatari citizens who are able to set up a business within a matter of hours.

“Qatar is not turning business away, it welcomes investment from all over the world, however, there are some specific business activities that cannot be performed but by Qatari nationals, but the same regulation applies in the UAE, Oman, and Saudi Arabia,” says Hayes.

Lack of funding

While the amount of investment has increased slowly, access to funding is extremely limited. There are no VCs in the country, startups rely mainly government-backed accelerators and incubators for funding.

“The funding mentality is one of our main issues in Qatar,” says Spendwisor’s Farook. “It has been developing over the years, but still in its infancy.”

Doha Angels is the only angel investor network in the country, but the area of focus for most angels is backing Qatari citizens.

“In regard to expatriate entrepreneurs, it’s a few years behind the UAE,” says Zalewska-Dzieciuchowicz. “In the UAE there's a couple of companies that provide angel investment, there's no such thing currently in Qatar. There are no VCs, just individual funders. But I do foresee this happening in the near future.”

The blockade imposed on Qatar by Saudi Arabia, UAE, Egypt and Bahrain is perhaps one of the main reasons why the investment sector is still in its infancy in the country. Most of the VCs in the region are concentrated in these markets and up until last year when diplomatic ties were restored, Qatar remained a dark void to investors. It will take time for regional investors to become acquainted with Qatar’s startups and feel comfortable enough to invest.

With the FIFA World Cup set to commence in the winter of this year, Qatar is hoping to change global perceptions and attract foreign investors.

“Qatar is a very high potential market, it's growing and going fully digital. When we started our research for the best market to launch our business, we found out that Qatar has an internet penetration ratio of almost more than 96 - 97 per cent,” says Jareesh Makannari, co-founder of fish.qa, an online marketplace for fresh fish. “The digital-focused businesses are still nascent and the market is still in need for new verticals and new ideas to serve this small population. However, it won’t remain small with all the tourists expected for the FIFA World Cup 2022, which will flourish all businesses and sectors.”

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