Middle East has major growth potential

Businesses looking to emerging rapidly growing markets should check out huge opportunities now presenting themselves in the Middle East. That’s the clear message from author Chris Schroeder in his new book.

Acknowledging concerns about political stability, openness and human rights, witnessed in events such as the Arab Spring, Schroeder says that the region is undergoing another revolution with a new generation of entrepreneurs and foreign direct investors leading the way.

“There’s a tendency to dwell on the problems and to zone in on what’s happening in Damascus rather than Dubai, for example. There’s great instability in many parts of the world but great businesses figure out how to overcome difficulties.”

Schroeder, a US internet entrepreneur, who travelled widely through the region to research business opportunities, admits he was curious but sceptical himself at first about the region. What he discovered surprised him, however. The Middle East, he says, is now a hotbed of local entrepreneurship with talented entrepreneurs overcoming traditional, cultural, legal and societal impediments.

What will also surprise many, he says, is the number of these start-ups that are led by women. The book details many examples of successful female entrepreneurs but Schroeder is anxious to stress the differences across the region with Saudi Arabia and the Gulf states more restrictive than Egypt or the Levant states.

Three forces
Notwithstanding problems in the region – corruption, massive gaps between rich and poor, archaic laws, education and literacy levels amongst them – there is a three-fold hurricane force wind entrepreneurs have behind their back, he says.

First, technology offers an irreversible level of transparency, connectivity and access to global markets and capital. Secondly, this generation of entrepreneurs now benefits from regional and global capital comfortable with political risk; and thirdly, the changing market dynamics, growth and opportunity in the Middle East were in place well before the recent uprisings and will not be contained.

In general, local start-ups fall into three broad categories. Improvisers are enterprises that have adopted models that have already worked in English-speaking countries and which just need to be adapted to local sensitivities.

Problem-solvers are those who see local and regional needs that might previously have been met by governments and which can be turned into businesses while those in the third category, global players, know from the beginning that they are developing unique companies that can reach and have impact in any country.

"Global players are those who are looking at the market and saying that the world is only one click away. Virtual products are utterly borderless. Clear Day, one of the highest paid weather apps in the world, is just one example. This was put together by a bunch of guys in Alexandria in Egypt."

In terms of its attractiveness to Western investors, Schroeder likens conditions in the Middle East to China and India two decades ago as markets opening up that present first-mover advantages. In the case of the Middle East, he says, technology is the driver.

Significant investments
Major players, including Google, Intel, Yahoo, PayPal and LinkedIn, are making significant investments in the region. Taking the time to understand the culture is important and Schroeder notes Google's enlightened policy in Egypt of sponsoring local entrepreneurship through competitions, mentoring and the supply of incubator space.

No area of opportunity generates more excitement in the region than e-commerce. The growing consumer population in the Middle East is spending over $1 billion online and this is expected to double over the next three years. Gaming has historically represented around 40 per cent of online sales with just under a third of online purchases made by women – a low proportion by international standards. With female online activity increasing, the profile of the market is expected to change significantly.

“These are relatively early days in a large consumer market and it’s moving very rapidly. A lot of the e-payment companies have moved in there, which tells you that they are betting on this eco-system growing. PayPal, for example moved in there six months ago and is signing up customers at a much higher rate than they anticipated. When you look at the level of money that’s in Saudi Arabia and the Gulf and a rising middle class generally in the region, the opportunities are very powerful,” he says.

Mobile technology will be a key driver of the economy in the region. Smartphone penetration is expected to reach 50 per cent in many parts of the region over the next couple of years and there are huge opportunities emerging around the development of apps.

Traditional barriers to entry in the Middle East have included the different and at times complex customs and regulations operating in different countries. Schroeder again sees progress in this area on an intra-governmental level. Similarly, traditional patterns of cash on delivery trading are beginning to change as credit card usage takes off.

“We’re going to see some interesting innovations in mobile payments as people become more and more comfortable about using a phone as a wallet,” he adds.

Startup rising, the entrepreneurial revolution remaking the Middle East by Christopher Schroeder is published by Palgrave Macmillan