Adversity Brings Creativity

The Middle East is characterized by high youth unemployment and political and economic uncertainty, but new business and technology start-ups and young entrepreneurs are providing hope for future generations.

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Barely existent five years ago, the start-up scene in the Middle East and North Africa has grown considerably, with investment from accelerators and venture capitalists spreading across the region. According to an ArabNet business intelligence report on the state of investments in the region, $718 million was invested in tech start-ups in MENA between 2013 and October 2015.

The rise in start-ups has coincided with a tumultuous time in the region, including civil war, political strife and high youth unemployment (21% in the Middle East, 25% in North Africa). Entrepreneurs are offering solutions to many civil problems and a brighter alternative for future generations.

“When people look at the Arab world, they see all the turmoil that we are going through, and they don’t see some of the new, positive things that are being built by exciting start-ups,” says Omar Soudodi, CEO of PayFort, an online payment gateway. “I started [an e-commerce marketplace] in Egypt in 2009, and very soon we had a revolution on our hands—shortages of gas, security and pretty much everything else, no shipping, supply or currency, and it made people very resilient,” says Soudodi. “If you can succeed as an entrepreneur in this region in tumultuous times, you can succeed anywhere.”

PayFort operates in Egypt, Saudi Arabia, UAE, Qatar, Jordan and Lebanon and plans to expand to Kuwait, Oman and Bahrain. Helping local online merchants to sell globally, PayFort is a major supporter of start-ups. It launched the Start program to help small and medium-size enterprises benefit from simplified electronic payment services. “Rather than taking months to go live, to go to the bank and do the compliance, with us it’s a matter of days, and our goal is to make it less than one day,” explains Soudodi. “We provide all the required documents for the legal setup and IDs of the shareholders; we conduct the due diligence for the bank and streamline the integration with all the shopping carts—so it’s more of a configuration rather than heavy integration for start-ups. So, literally, they can go live in days with no annual or monthly fee, just an interchange fee following a three-months’ free period.”


El Alfi, Sawari Ventures: The level of investment should increase five to 10 times to cater to the opportunities available.

Another keen supporter of start-ups, Ahmed El Alfi, co-founder of Abu Dhabibased start-up accelerator program Flat6Labs, chairman of venture capital (VC) firm Sawari Ventures, and founder and chairman of the Greek Campus—a tech valley in the heart of Cairo Egypt—has had a huge impact on the ecosystem in the region but would still like to see increased investment. “The regional VC landscape has improved over the past 12 months, in particular in Lebanon and the UAE,” says El Alfi. “Egypt has witnessed several promising announcements (Sawari, Endure Capital), but these funds should have a bigger impact in 20162017.” Overall, El Alfi says, VC investment in the Middle East is nowhere near commensurate with the scope and size of the talent pool in the region. “The level of investment should increase five to 10 times to cater to the opportunities available.”

El Alfi says Flat6Labs will launch in Tunisia during 2016 and is exploring opportunities in Dubai and other leading cities in the region. “Accelerators are a very important and proven mechanism to expand the pipeline of start-ups, to inspire and motivate the communities in which they operate, and to capture value creation opportunities at the early stages of a start-up’s life cycle.”

With its lack of infrastructure and large population of the young and unbanked, the Middle East, El Alfi says, offers unique challenges when it comes to replicating Western business models for the digital economy. “The way to accelerate this,” he says, “is for local entrepreneurs to innovate localized solutions to [meet] these challenges.”

One such local solution, founded by El Alfi, is Nafham, a free online education platform that provides five-to-15-minute video lessons covering Egyptian, Saudi, Algerian and Syrian curricula. With over 60,000 subscribers on YouTube, PayFort’s Soudodi believes Nafham can solve educational problems at a fraction of the cost it would take the government to attempt to solve them. “It’s important to enable companies like Nafham to scale up quickly to help an entire generation,” says Soudodi.

When people look at the Arab world, they see all the turmoil that we are going through, and they don’t see some of the new, positive things that are being built by exciting start-ups.

—Omar Soudodi, PayFort


A lack of lending, however, has created major opportunities in the alternative lending space. “Egypt has around three million SMEs [small and midsize enterprises], and Saudi Arabia around two million, but banks do not lend to SMEs because of the nature of the amount of loans and the amount of work that is needed to underwrite those loans,” states Soudodi.

He says Arabs do not save money, as many cannot see the advantage of being in the formal economy. “If you look at the loan ratio in the Arab world, you’ll find it’s much lower than Europe and the US. Egypt has 1.5 trillion Egyptian pounds ($190 billion) in all the banks, but less than 500 billion of this is lent to companies and individuals, so it’s around a 40% loan-to-deposit ratio, as opposed to other countries that go up to 70% and 80%.”

This financing gap is creating opportunities. Soudodi says that he now knows of at least seven alternative nonbank lending companies, including liwwa, a lending company from Jordan; cash advance service GreenWallet; BitOasis, a bitcoin platform in the UAE; Egypt’s Feloosy and its goal-focused savings plan; and UAE personal finance app Wally. “All compliment one another and meet certain needs in the region,” he says.

To address a gap in fintech seed capital PayFort is launching an accelerator called Fintech Factory, which Soudodi says will enable start-ups to access its merchants network, banks, legal setups in different countries, offices, know-how and members. Those inducted into Fintech Factory will agree on certain milestones and receive seed capital of up $100,000 in two or three rounds of funding, depending on how quickly they achieve their business planning and milestone objectives. “I’m calling us the plumbers,” says Soudodi, “because we are the ones connecting with all the local payment methods, banks, issuers, regulators. We are laying the foundations and infrastructure, and we hope the next generation of fintech entrepreneurs can come and build on top of what we’re doing.” Such encouragement, coupled with continued smartphone penetration, will empower entrepreneurs to carve a brighter future for themselves.