In Dubai vs Riyadh, it’s the startups that win

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In a part of the world where unemployment is high and where the private sector is primarily made up of small and medium sized business, it is startups that create new jobs and introduce new levels of innovation. 

Governments across the Middle East region have recognised the importance of entrepreneurs, particularly in the GCC where startups are considered a crucial part of the knowledge economy. 

This recognition has fuelled competition between the region’s main business hubs, with lawmakers scrambling to attract startups and venture capitalists to their cities.

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Dubai, which has long been the business and financial centre of the region, has seen its top spot status wane slightly thanks to the growth and prominence of Riyadh. 

Saudi Arabia’s government has over the past couple of years invested heavily in building up an entrepreneurial ecosystem. It aims to engage not only Saudi founders, but to attract foreign companies and talent too. 

It has launched Jada, a fund of funds, simplified licence acquisition, and backed several venture builders. Dozens of new venture capital firms have emerged in the past couple of years, easing access to finance.  

The strategy is working, with the number of startups and investments flourishing. As the largest economy in the region, Saudi Arabia has an especially strong pull on the rest of the Middle East.

As Wamda has reported, an increasing number of startups based in smaller markets like Jordan, Bahrain and Egypt are relocating their headquarters to Riyadh, encouraged by the pace of change.

Rising competition

This rising competition between the main hubs of the region, namely Riyadh, Dubai and to an extent, Abu Dhabi, has facilitated a friendlier and more agile environment.

It has encouraged development and each location to offer more. While it may cause some frustration between them, it is the startups of the region which benefit.

Jordan’s Hyperpay and Altibbi and Egypt’s Taager and Intella have shifted their offices, much to the ire of the lawmakers in their home countries, who fear an ongoing brain drain. 

In a conference in Amman late last year, Marwan Juma, Jordan’s former minister of information and communications technology, stressed the importance of keeping at least the back office of companies in Jordan, in order to maintain intellectual property in the country. 

But founders should not be constrained in the pursuit of growth and expansion. The regional market is already heavily fragmented. Discouraging startups from scaling can have a detrimental impact on the entrepreneurship sector as a whole. 

There are benefits to brain drains – it just takes a longer time to experience them. 

Both China and India’s startup ecosystems were able to flourish after Chinese and Indian expats who worked in Silicon Valley for companies like Facebook and Microsoft returned home to establish their own companies. 

They benefited heavily from the experience and exposure that can only be afforded in a big market like the US.

This is something that Dubai and Riyadh can offer startups from elsewhere in the region – access to a bigger market, a wider talent pool and greater competition. 

Niche markets

There is also an alternative. Right now the hubs are competing on every level. But they could work towards establishing a niche for themselves, particularly the smaller markets like Jordan and Tunisia. 

It’s an approach adopted by Bahrain, which leads in fintech policy and regulation, offering a test bed for such startups and a launchpad for the Saudi market. 

One of the region’s biggest fintechs, Tarabut Gateway, was founded in Bahrain where it tested product market fit and viability before relocating its headquarters to Dubai. There, it has access to a wider pool of clients in the finance industry.

It may take a while for each market to figure out its niche and create policies for development. But this should be encouraged, because none has the market size or the pockets deep enough to compete with the UAE or Saudi Arabia. 

Triska Hamid is editorial director at Wamda, a Mena ecosystem enabler based in Dubai