Sun, Apr 15, 2012 - Page 11 News List

Startup firms bloom in wake of Arab Spring

By Mirna Sleiman  /  Reuters, DUBAI, United Arab Emirates

A worker unloads boxes at a distribution and operations warehouse at the Aramex head offices and freight and logistics facility at Dubai Logistics City in Dubai’s Jebel Ali town, United Arab Emirates, on Tuesday.

Photo: Reuters

Jordanian entrepreneur Majied Qasem waited three years before arranging outside funding for his startup company, d1g.com, an Arabic social media and content-sharing platform. He finally succeeded in September last year, eight months after Arab Spring uprisings erupted in the region.

The company now has more than 35 million page views per month, with growth in traffic stimulated by online debates about a wide range of political and social issues, Qasem, 40, says.

Like many entrepreneurs in the Arab world, he believes the region’s political and economic upheaval has helped rather than hurt his business, by creating fresh demand for his products, persuading investors to seek new opportunities and making governments more sympathetic to the needs of startups.

“Investors historically targeted well-established companies that had very low risk and provided high returns, but now, after the Arab Spring, investors are pouring the same amounts of money into multiple smaller companies, betting a few of them will see a remarkable success story,” Qasem said. “We’re seeing unprecedented amounts of money paid by investors, governments and development funds to seed startups and small firms.”

The economic damage caused by the Arab Spring has not yet faded. Egypt and Tunisia are coping with waves of industrial unrest as they seek to rebuild their tourism industries and lure back foreign investors. Libya is recovering from a civil war, while sectarian unrest still weighs on Bahrain’s economy. In countries such as Jordan, governments have boosted welfare spending to try to buy social peace, undermining their finances.

However, a positive result of the turmoil is that in some ways, conditions for entrepreneurs are improving, officials and businesspeople say. Previously, startup firms were sometimes discouraged by authorities as threats to small groups of privileged businessmen cooperating with authoritarian regimes. Now they are more often welcomed as tools to create jobs.

Arif Naqvi, group chief executive of Abraaj Capital, the Middle East’s largest private equity firm with more than US$6 billion under management, said one of the most dramatic changes in the region’s economic thinking since the Arab Spring was the realization that smaller firms, not big state-linked ones, would be the engine for growth because they could create more jobs.

“I’m a great believer that the Arab Spring has more in common with the Occupy Wall Street movement, the street riots in London and the food riots in Mumbai than it had with political change,” Naqvi said.

“Mohamed Bouazizi wasn’t sending a political message when he set himself on fire. He wanted to work, to live and to survive,” Naqvi added, referring to the Tunisian vegetable seller whose suicide in December 2010 triggered the upheaval in the region.

Difficulty in obtaining loans from risk-averse Arab banks, which often focus on serving large clients, has long been a major obstacle to setting up businesses in the region. Foreign aid donors such as the EU, the US and multilateral lending bodies have stepped up efforts to fill this gap since last year.

Mouayed Makhlouf, regional director for the International Finance Corp (IFC), a unit of the World Bank, said the IFC had invested US$2.2 billion in the Middle East and North Africa (MENA) since January last year, becoming a significant source of capital for private firms.

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