Struggles multiply for Palestine's startup ecosystem

Struggles multiply for Palestine's startup ecosystem
Gaza, Palestine

Since escalations unfolded in Palestine this month, Gaza-based tech hub and accelerator Gaza Sky Geeks (GSG), has been closely monitoring the impact that the recent bombardments have had on the tech and business landscape.

Work Without Borders, Kuhail Building, Tashkeel 3D, Hanadi Tower, Ghazi Alshawwa Building, Capital Mall, Al Jamal Building, are among business hubs that were recently bombed by Israeli airstrikes in Gaza. Located at the heart of the city, these buildings used to host several freelance companies, startups, as well as ICT companies.

“[There are] at least five to six ICT companies that have been destroyed, each of them has 30 plus employees,” according to GSC. “This is totally unprecedented to us; the electricity is badly damaged. The city’s infrastructure needs to be rebuilt,” says Ryan Sturgill, director of GSG.

The deteriorating situation in Gaza will likely exacerbate the already terrible unemployment situation. According to Nour ElKhouly, community engagement coordinator at GSC, the city’s unemployment rate reached 43-46 per cent in the last quarter of 2020. “The employment situation was already terrible and it is just getting worse.”

Gazans have been struggling under a full siege since 2007, as a result, a lot of them have shifted to remote work as a way to overcome the lack of job opportunities and make a decent living.

“There’s one thing that is really specific to Gaza is that the whole city is now entirely dependent on the gig economy,” adds Sturgill.

GSG launched in 2011 with the vision of helping Palestinians acquire the skills needed to succeed in the job market. The company has since been working on connecting Palestinian freelancers to employers outside Palestine.

Internet connectivity and remote work, as Elkhouly points out, is the main source of income for a lot of Palestinians. But now the city is suffering a nearly constant power shortage, which makes it even more difficult for Palestinans to reach the outside world.

“One of the biggest fears we have is that our freelancers get impacted by the situation, and lose their gigs as some of them would not be able to handle the pressure of having to fulfill tasks or meet deadlines amid this crisis,” says ElKhouly. “Our life has stood still in Gaza, but the world outside keeps going.”

The startup community in the West Bank and across the wider Middle East region have responded by offering to finish work for Gazans working on developer projects so that they do not miss deadlines. Jordan-based healthtech platform Altibbi, is providing two-months free subscription to all Palestinians so that they can talk to a qualified doctor during this time and seek medical advice. 

Funding challenges

The Palestinian ecosystem has been showing signs of progress over the past few years. With a handful of startups managing to raise funds. The scene also boasts some active venture capital (VC) firms, such as Ibtikar fund which has around 21 commitments in Palestine-born startups so far. However, funding opportunities are still limited.

The crippling siege and restrictions on movement in Gaza, for example, have made it difficult for entrepreneurs to travel outside and access funding.

“Many developers are getting opportunities to go outside to pitch their ideas but because of the ongoing blockade, they have not been able to. This undoubtedly has an adverse impact on the entrepreneurial ecosystem in Palestine,” says Abeer Abu Ghaith, founder of Mena Alliance, a for-profit organisation that connects local talent with the European and US markets.

“I myself never saw my team physically, we only meet online,” she says.

While the unstable political situation has taken its toll on the funding landscape in Palestine, Abu Ghaith also highlights that one of the main reasons why the ecosystem is still small is the lack of investor trust in Palestinain founders. 

“Having a sustainable ecosystem requires the availability of risk capital, not only money that comes through donors,” she adds. 

A similar challenge is facing the Palestinian tech community living inside Israel, known as the 48ers. Rabea Zioud, CEO and co-founder of Haifa-based entrepreneurship-focused NGO called Hasoub, says the current events will also impact the 48ers tech community, especially when it comes to funding. 

“What's happening will take us many steps backwards. One of the biggest problems why entrepreneurs are not getting funding here, or it's very hard for them to get funding, is the fact that [Israeli] VCs and angels here do not trust Arab entrepreneurs,” says Zioud.

This lack of funding encouraged Fadi Siwdan to launch Takwin VC, which looks to address this early-stage funding gap and invest in Arab-founded businesses. 

"Lack of trust in Palestinian entrepreneurs has been a long-standing issue," he says.“On one hand, the ecosystem we have is still too small and lacks major success stories, which makes investors a bit weary of investing in Arab-founded startups here. On the other hand, Arabs tend to shy away from taking the risk of starting their own businesses in favor of working at multinationals or regular jobs that are less risky.”

Since its launch in 2015, Takwin has invested in nine startups, including SeismicAI, an earthquake detection system, OlfaGuard, a bio-nanotech food safety startup and West Bank-based automotive startup Imagery. 

The 48ers

But while the current situation will have an impact on investments, it will not have a massive impact on the work of the 48ers according to Dr Mahmoud Kaiyal, founder of medtech startup Wikaya, based in East Jerusalem and the West Bank.

The Palestinian community in Israel comprises about 22 per cent of the population. According to Zioud, Arabs represent two to three per cent of the workforce in the technology sector. 

It has become more common to see research and development (R&D) centres being established within the 48ers community with the number of Arab engineers working in the Israeli tech ecosystem tripling to 6000 according to Dr Kaiyal, who highlights the likes of Microsoft, Apple and Google hiring such talent.

A lot of Israeli and multinational companies outsource their work to Palestinians in the West Bank and according to Dr Kaiyal, they tend to follow and adopt a multinational culture and “tend not to mix politics into what they are doing” and since most of the work is done remotely he adds, “even during much more severe periods, things usually work smoothly”.

Over the past few years, the Israeli government has put into place incentives for companies in the country to hire Palestinians in the 48er community, providing salary subsidies for employees.

“The other [project] is in the entrepreneur ecosystem, which has been growing. More and more programmes are being deployed to support Arab entrepreneurs…[and] we now have significant growth in terms of higher education,” he says. “Today, in the major academic institutions in Israel, between 20-30 per cent of students are Arabs studying tech studies which means that we will start seeing in the next three, four years more entrepreneurs working in these multinational companies and starting their own startups.”

Dr Kaiyal points out that in the 48er community, things are “indirectly political”. The lack of funding is a problem as the Palestinians do not live in the areas of Israel where the tech capital exists. Moreover, 70 per cent of the VC investment that is invested in the country comes from abroad.

“So all the money you see from VCs in Israel is only enough to fund 30 per cent of the demand. We are the entrepreneurs who are still in the early stages of the journey and we are competing with the best of the best in the world on that amount of money and we end up raising almost nothing. For example, in the first quarter of 2021, Israeli startups raised over $5 billion. I think we [startups in the 48er community] raised around $5 million, so it’s nothing.”

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