The growth of entrepreneurial activity witnessed across most parts of the Middle East and North Africa region (Mena) has recently permeated through to Yemen, with local entrepreneurs muddling through the economic implications of its near decade-old civil war to set the path for the establishment of a local tech ecosystem.

The rise in startup activity in Yemen is a knock-on effect of a relative hike in internet penetration rates, which, coupled with a growth in population has paved the way for the creation of local e-commerce businesses, most of which are concentrated in Sana'a, the capital. 

For the most part, the majority of commercial activities are carried out in a few cities around the country where the impact of the ongoing armed conflict is less pronounced. After Sana’a, other cities like Aden and Taiz are running a close second in terms of having high spending power, lowering literacy rates and an increase in the use of the internet and smartphones.

A recent survey by consultancy firm Kepios states that roughly 73.2 per cent of the 30.2 million population has no access to the internet, which is mainly down to the prevalence of illiteracy, especially in rural areas and border towns, while only 26.7 per cent, amounting to nine million people are active internet users. The research also reports a 2.2 per cent increase between 2021 and 2022.

The recent entry of fourth generation (4G) broadband cellular network technology that has so far covered most parts of the Northern region in the country has also helped drive the emergence of more startups. Moreover, local startups are now piquing the interest of regional investors. Last month, food delivery startup Tawseel raised funding from UAE-based early-stage venture capital (VC) firm, Numu. 

Another startup that also managed to raise funds is Bazzarry, an e-commerce startup that is also in the process of completing a $2.5 million pre-Seed round after almost two years of bootstrapping. The startup was founded in 2020 by Ali and Abdullah El-Habashi.

"We as Yemini entrepreneurs have not benefited from the Covid-19-induced technology boom that occurred in several other Arab countries because our startup ecosystem has not existed before that," says Abdullah Al-Habashi, COO and co-founder of Bazzarry. "Influenced by the growth witnessed in the startup sector in fellow countries, we started to see a remarkable pace of progress being shown in the local entrepreneurial sector. Other factors that came into play include the fact that a large group of local expatriates living in the Gulf area launched high-growth tech companies or have become investors themselves."

The startup culture remains massively lacking in the country. Habashi argues that most emerging businesses in Yemen are not entirely digital-native initiatives, and lack funds or investment groups that can back them from the initial stages of founding upwards. 

"Problem is, there’s a general weakened awareness of the startup genesis itself and how to build a company, scale it, target venture capital investments and exit. That's from the side of startups and investors as well. This kind of knowledge is not commonplace. As a result, many companies find it hard to survive because of the lack of capital and the costs of building an e-commerce startup. There is no connected tech community, everyone is doing business individually," says Habashi.

Similar to other startups in Yemen, Bazzarry’s founders were faced with a litany of challenges from all standpoints when building their startup, including a shortage in human resources and technical talent. Consequently, the founders had to outsource technical support from companies based outside its home market.  

E-commerce 

For Habashi, redirecting the retail experience from offline to online as well as driving mass awareness towards marketplaces in the local retail landscape, was the main reason behind founding Bazzarry. Though challenging, the local market is filled with commercial opportunities, according to Habashi, citing a massive volume of trade in the retail sector.

"We wanted to mimic the e-commerce experience as we see it elsewhere, ensuring every detail is covered. At Bazzarry, we wanted to create solutions to every challenge, starting from storage and warehousing, and distribution, to last-mile delivery," he continues. "From the get-go, our goal was not to make a profit but to encourage the market shift away from transacting offline and build a strong ecosystem of relevant stakeholders, no matter how challenging the economic situation is."

In Yemen, macro-level events trickle down to all parts of the supply chain. Lingering tensions due to political and security issues have caused various import-related challenges including the fact that imports have to be custom cleared twice, once in the Northeast region and once in the Southeast, which results in importers purchasing items at two different prices. This, coupled with poor road connectivity and slow progress of technology infrastructure can result in sluggish performance. 

Further, the growth in the market is stunted due to the weakened purchasing power, which has massively deteriorated, especially after the public sector salaries were suspended since the start of the war.

Yet, the value of the e-commerce market may be estimated to be worth around $1 billion, if that includes small retailers relying on social media apps like WhatsApp and Facebook to sell their products. But to achieve sustainable bottom-line growth, the startup also tends to source its products directly from large importers and brands. To lure them, the startup takes a cut of every sale after the transaction is finalised. 

"Social sellers make up a huge chunk of the retail space, but they don't have enough inventory and mostly don't utilise technology in their operations, and that would have a negative impact on our sales revenues. They are of course part of the target market but now we are inclined to deal with large brands and importers, whom we help in various aspects including product promotion," says Habashi.

The startup said it has so far attracted 17,000 customers, and processed 10,000 orders, and has over 16,000 stock-keeping units (SKUs) on its platform. 

That said, according to Habashi, their product has not fully matured yet, with various aspects ripe for further development. “We try to adopt a ‘grow slow’ approach and not to expand very fast to avoid a quick burnout.”

Fintech

Online payments processed by banks have nearly stopped since the outbreak of the war. Alternatively, mobile wallets are becoming an increasingly popular way to manage financial transactions for startups as well as consumers.

Last year saw the entry of plenty of fintechs offering mobile wallets, which could in turn help spur the growth and popularity of e-commerce.

"Yemeni people no longer use MasterCards or Visas, which was not the case before the war broke out. There are a lot of bank accounts but banks don't provide incentives for customers to encourage them to pay online. So, they prefer cash over bank processes payments, But now there is a growing tendency to use mobile wallets, which now surpasses bank accounts in number," Habashi explains. 

Broadly, payments constitute a major hurdle holding back the evolution of local startups which is mainly due to the fact that the country has two central banks, each issuing the same banknotes but with different exchange rates. As a result, the cost of money internal transfers has gone up.

"The discrepancy in the currency exchange is a formidable challenge, forcing startups to build ad hoc technologies to manage payments effectively. But the payments landscape is set to change for the better with the entry of more startups with e-commerce solutions like us. We have already tied up with a bank so online payments can be included in our payment options along with wallets and cash on delivery. Looking ahead, we are also looking to develop a fintech arm of our own," he adds. 

Investments in the entire startup sector space is likely to tick up in the coming period, as the country is likely to enter an extended round of truce. But in such a volatile business landscape, the range of that growth is largely dependent on how events unfold.