30/03/2019 Outside of a few specific locations, such as Tel Aviv or Dubai, the Middle Eastern region may not appear as a hotbed of innovation. If one digs a little deeper, however, one quickly realizes there is no shortage of start-uppers.
Take the example of Cairo, in Egypt: whether they specialise in design, online shopping or healthcare, local start-ups to flourish. Moreover, those who founded them are determined to succeed both within and beyond their country’s borders. They certainly do not shy away from the difficulties and challenges they have to face, but they keep striving on entrepreneurial spirit, see the entire Middle East as their domestic market and are convinced they are the new faces that will help shape the future.
Yara Yassin is a young 26 years old Egyptian woman, from Cairo. She studied product design at the University of Cairo, and, in 2015, along with Rania Rafle, she founded Up Fuse, a start-up specialised in up-cycling discarded plastic materials and making them into bags and suitcases. With a social ambition as well. Over the last three years, Up-Fuse has grown enough to now employ 15 women from a local community. “They are working full time,” says Yara Yassin, “We’re teaching them how to recycle, and providing them with the education they need to become active women and mothers and to, in turn, properly educate their kids.”
Yara’s remarkable achievement did not go unnoticed: in April 2017, Up-Fuse received $50,000 for winning first place in the WeMENA Challenge1, a business competition created by the World Bank and YouNoodle2. Out of nearly 2,000 applicants, the program selected 200 women entrepreneurs providing solutions for improving the livelihoods of people in six countries across the MENA region.
To her, the start-up momentum Egypt is experiencing is above all “a reaction to the drawbacks of working 9 to 5 jobs. There is a lot of young people who want to do something. It is a trend, something fashionable which has developed in reaction to what has been going on in the past. I think it will keep evolving and result in the creation of new ways of working and fostering innovation”.
A Concerted Effort to Promote Innovation
Since 2011, and the Arab Spring, Egypt has remained a middle-income economy, with relatively limited growth in terms of per capita GDP. The country has had to deal with high inflation, public debt, high unemployment rates and the persistence of blatant social inequalities. A 2014 report published by the Egyptian Centre for the Advancement of Science, Technology and Innovation3 stated Egypt ranked 118th out of 148 countries in the World Economic Forum’s global competitiveness Index. On the more specific “innovation” item, the country ranked 120th, while neighbouring Jordan and Israel respectively ranked 53rd and 3rd, and Turkey 50th. Also, whether one considers the quality of scientific research institutions, corporate spending in R&D or the level of cooperation between universities and corporations for research and development purposes, Egypt’s rankings are rather low and behind those of Jordan and Turkey, while Israel seems to be in a league of its own, among the world’s most competitive countries.
In such a challenging environment, serious efforts have been undertaken over the last few years. A 2015-2030 National Strategy for Science, Technology, and Innovation was devised, built on the idea that increasing investment in Science and Technology is the key to sustain growth and improve the quality of life. Plans aimed at raising government spending on R&D to 1% of GDP, vs. 0.68% in 2013. They also aim at generalising international cooperation agreements, like the one signed in 2017 between Egypt and the European Union, setting out the terms and conditions for the country’s participation in the Partnership for Research and Innovation in the Mediterranean Area (PRIMA)4.
In addition to the EU, the United Nations is also stepping in. In January of 2018, it announced the opening of its African Technology Innovation Lab (UNTIL) in Egypt’s Technology Innovation and Entrepreneurship Center (TIEC), which is located in Smart Village, the technology business park on the outskirts of Cairo. The UNTIL will be part of a global network of such labs, and has been designed to train, host and implement technology innovation and to develop innovative technology solutions that address global challenges. “The Egyptian Lab will be focusing on a number of fields and thematic areas related to the education of people with disabilities, prevention of epidemics, medical tourism and waste management for protecting the environment and rationalising water consumption in agriculture. All solutions will be developed using open source software and open data.”5
Is Innovation still Stifled in the Region?
Many centuries ago, the region now known as the Middle East was famed for science. Its mathematicians were those who invented the zero. Today, however, the situation seems to have dramatically changed: in terms of patents filed or academic papers published, the area has fallen behind.
As a matter of fact, according to UNESCO, “while Arab countries do produce a little under 6% of the world’s GDP, government spending on R&D account for less than 1% of global R&D spending. A similar trend can be observed in the corporate world. “Chinese companies, for instance, spend almost four times more than their government, and American ones more than two and a half times. Israeli firms are global leaders, contributing at least three-quarters of the country’s total R&D outlay. By contrast, in much of the Arab world the private sector’s contribution is less than 5%”, says Nazar Hassan of UNESCO6
According to entrepreneurs in the Middle East, there are three main reasons why innovation appears to be stifled in the region. First is the confusion in many countries “between what is needed by tech start-up companies versus “small and medium-sized enterprises” or SMEs. The former requires smaller amounts of capital but flexible legal structures, while the latter tend to be established and profitable enterprises. Governments, especially in the Gulf area, have passed procurement laws, such as requiring governments to have 10 percent or more contracts with SMEs and have granted SMEs exemptions from customs tax for equipment, raw materials, and goods for production purposes. Important as these are, they have no impact on tech-enabled start-up opportunities.”7
Second, governments often focus on creating and enabling businesses with investment capital and support services in “free zones,” with less attention to real legal reform that could help tech-enabled start-ups.
Third, “even where good laws have been put on the books, they have taken an extremely long time to get passed, and their enforcement has been less clear. The Gulf Cooperation Council8 recently passed laws to streamline customs and improve free movement without visas among its union, but they took nearly a decade to pass and acquiring permits can be costly and take months. The ability to freely and cost-effectively move goods and services from outside the union is hampered by the paperwork required and corruption”. The number one issue that held up laws being passed more quickly was the appropriate mechanism for the distribution of customs revenues. It seems established players are unwilling to give up their special privileges, “such as openness to foreign ownership and more competitive real estate pricing,” which work against start-ups. Start-uppers feel they do not talk to people who understand them and care. “They just follow the book exactly and cannot think, don’t want to think. They are not customer service oriented. They are afraid to take any risk. It’s like dealing with robots.”9
So the question is: how to make things change? Loosening trade restrictions would be a first significant step and would help to unleash the massive potential of e-commerce in the area –with almost USD 2Bn spent every year. Encouraging the free circulation of knowledge and ideas would also greatly help. Building webs of connection that would facilitate the transfer of promising technologies from universities and research institution into the start-up and ecosystems would bring considerable value. Expanding opportunities for women, such as Yara Yassin, would also foster entrepreneurship.10
Millenials may be the True Driving Force
Beyond governmental and institutional initiatives, those who will truly boost innovation in the region are Millenials. An August 2017 piece published on Forbes.com11 states that “In MENA alone, 76% of millennials believe that businesses have a positive impact on the wider society.” According to a report produced by HSBC Bank12, 63% of Middle Eastern business owners screening for potential employees are under the age of 35.
It appears Yara Yassin is not alone. Her fellow entrepreneurs can be found in the United Arab Emirates or in Jordan, which hosts Oasis50013, the leading seed investment company and business accelerator in the Tech and Creative Industry in the region. Oasis500 has set itself the goal of “advancing the entrepreneurship and innovation ecosystem in Jordan and the MENA region in general” and has already invested in more than 150 start-ups.
People who share Yara’s appetite for entrepreneurship can also be found in her city of Cairo. One of them is Tamer Taha, who, following his degree in economics at Cairo University, and stints in consulting at the World Bank, decided to create Yomken.com, a start-up which specialises in “crowdsourcing R&D to make it accessible to companies that cannot afford to have R&D departments.” “We started in 2012, just after the revolution,” he says, “with the idea of bridging the gap and linking those who need R&D innovative solutions with those who have the knowledge of R&D. We now have 14 people working in 5 countries, which are Egypt, Jordan, Morocco, Palestine and Tunisia, and we hope we’ll add a sixth one soon.”
“Innovation is our business” Taha continues. “So we are striving to remain agile and to keep up-to-date with the latest technology because we are the ones that warn our clients about the emergence or arrival of those new technologies.”
To him, working with large companies is first and foremost about “long-term trust.” However, he adds, “with time; large companies will need the dynamics of start-ups to keep their innovation going and not become obsolete.” This paves the way for a promising future. “I believe start-ups will keep growing and I believe it is a good thing. Being a job creator rather than waiting for someone to hire you is a confidence booster. But I also see danger: the risk of having your idea, tool or service bought by a big company and the fact that in a developing country such as Egypt, not less than 90% of start-ups fail. And this is not just about losing money. It is about destroying hopes, making people want to leave the country because they will blame their failure on the local economic environment. The start-up buzz is exciting, but it can also sometimes be toxic. Especially in developing countries because the cost is very high and the risks are also very high.”
Cooperation or Incubation?
Amir Barsoum is the Co-founder and CEO of Vezeeta.com, the leading Health Tech startup in MENA, operating in Egypt, Levant and Saudi. He explains: “I actually believe there are three types of start-uppers: the people who have seen an opportunity and are truly passionate about making it happen; the people who do not have any other opportunities and decide to try it, and the people who just find themselves within an innovation ecosystem and want to make a place for themselves. The first ones are the ones I’ll always be happy to see and support.”
As for his motivation for starting his own business, Barsoum explains: “I think I am an entrepreneur to the bone. I do not think corporates are fast enough for me.” When asked about the opportunity of working with large companies, he replies: “I think it depends a lot on the start-up itself, it depends on whether you are an enterprise-based start-up or you’re a consumer-based start-up. It is very tricky, whether you should work with big companies or not. We have walked away from deals with large groups because we thought that this was not healthy for us. And had we not made this decision, our company would not be here today. But at the same time, we signed multiple partnerships with other mega companies, and they are amazing to us.”
“Cooperating with large companies can certainly bring value,” echoes Natalie Ashba, who founded and managed both Dawaya, an online pharmacy, and Top Doctors, a site that helps locate the physicians that fit. “It brings in ideas on how to make your structure a bit more stable. It provides you with additional resources. So, of course, I try to collaborate. Sometimes pharmaceutical companies will use my website as a way to test out new products before they roll them out, and I am OK with that. This idea is to be as flexible as possible because I believe that being flexible and trying new things open up new doors.”
How about being incubated? “Once again, I think it depends on what kind of a start-up you are,” cites Amir Barsoum. “I believe if you are not a network-based start-up, there is a lot of value in being incubated.” “Large corporations-backed incubators are something common in America”, adds Yara Yassin, “but here in Egypt, it is on a much smaller scale. Up-Fuse has actually been incubated by a telecom giant. They gave us money and they sponsored and funded some workshops. But I did not feel there was real proximity between me and them. Generally speaking, however, I believe corporate-funded incubators can be a good solution for start-ups”.
The Long and Winding Road to Open Innovation
Ultimately, even in the face of severe cultural and legal challenges, it seems cooperation, the sharing of ideas and technologies, or even incubation are making inroads in Egypt and the Middle East. Does this mean we are witnessing the emergence of an open innovation culture?
“That would be a dream come true,” says Natalie Ashba. “For now, I am practicing open innovation in an informal manner: I talk to as many people as possible. I talk to doctors, I meet with them, I try to get as much input as I can. I do surveys, interview people. There is a campus here downtown where it is all start-ups. I spend time there, meet with start-uppers, share ideas. If I could do it in a more organised manner, it would be even better. Basically, I’m convinced if you’re stuck within your own organization you are doomed to die.”
Tamer Taha, the founder of Yomken.com, the Arab World’s Open-Innovation platform shared this somewhat blunt opinion: “You are almost issuing a death sentence on your company if you are not innovating. And it seems to me an innovation process where challenges are open to the public to solve is both more cost effective and better in terms of quality. Because instead of getting one idea from within your company and risking a lot by investing in this idea, you get different ideas and you only invest in terms of the value you get.”
Sherif El Rakabawy, the founder of Yoota, a shopping search engine, offers a more “technical” definition of open innovation. “For me, with my technical background, it means contributing to the open source community, which we already do. We build on open source software and we contribute back into the community. If, however, I try to see it from a more business-driven perspective, which implies actual cooperation with other start-ups or larger companies, I believe it is a good idea, but I don’t think we are there yet in Egypt.”
What should be done? In the 2014 Ecasti report14, one of the main recommendations is to “review all laws and policies ,directly and indirectly, affecting innovation in universities, research centres and industry (large and SMEs) in a holistic way to remove obstacles and address any unintended consequences.” In other words, to make it easier to share ideas and promote open innovation ecosystems.
Banking on the Region’s Challenges
The PRIMA cooperation agreement, of which Egypt has been part since November 201715, includes a number of initiatives aimed at using innovation to create jobs that help the environment, to promote food and nutrition security through sustainable agriculture and to combat climate change. Several other innovation-based programs do focus on the resolution of local and regional issues. As an example, in 2013, a Cairo Transport App Challenge16 was launched in 2013, to encourage new thinking and find new technologies that could help unclog Egypt’s roads and reduce the high number of traffic-related casualties. As for the German-sponsored COSIMENA17 (Clusters of Scientific Innovation in the Middle East and North Africa), they aim to foster innovative ideas and solutions to tackle climate change, population growth or water scarcity.
All these programs and initiatives show solving some of the region’s main problems could significantly boost innovation, and the collaboration between private and public players, be they corporations, universities, research centres or governments. For all involved, there is serious food for thought. For current and aspiring young start-uppers in Cairo or Alexandria, there might be hope to build a better future, for themselves and their country. Or to put it in the words of Natalie Ashba, to really “change the face of Egypt.”
3 The Egyptian Centre for the Advancement of Science, Technology and Innovation – 2014 Status Brief
7 Sharpe N.R., Schroeder C.M. (2016) Entrepreneurship and Innovation in the Middle East: Current Challenges and Recommended Policies. In: Haar J., Ernst R. (eds) Innovation in Emerging Markets. International Political Economy Series. Palgrave Macmillan, London
8 The Cooperation Council for the Arab States of the Gulf, originally (and still colloquially) known as the Gulf Cooperation Council is a regionalintergovernmental political and economic union consisting of all Arab states of the Persian Gulf, except for Iraq. Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
14 The Egyptian Centre for the Advancement of Science, Technology and Innovation – 2014 Status Brief