Rapid growth, a young, tech-savvy population and strong local talent are spurring an investment boom in MENA’s technology sector.
The Middle East’s business allure is increasing, with more Western companies investing in and acquiring local technology firms to grow their presence in the region. An estimated $185 million was invested in MENA start-ups last year – a staggering 560% over 2015, according to entrepreneurial platform Wamda. Acquiring an established business gives companies a foothold in the rapidly expanding digital economy, as well as access to invaluable local expertise.
Sweden’s Vostok New Ventures, for example, bought a 10% stake in Dubai-based Propertyfinder Group, the region’s leading real estate website, for $20 million in 2016. “The size of deals will naturally increase because tech companies are getting bigger every year,” said Michael Lahyani, founder and Chief Executive of Propertyfinder. “Look at FANG – Facebook, Amazon, Netflix, Google – their stock prices have all gained more than 25% this year alone. The leading region’s tech businesses are also becoming more valuable each year.”
In a deal described by Goldman Sachs as “the biggest-ever technology M&A transaction in the Arab world,” Amazon agreed to buy Dubai-based online retailer Souq.com for an undisclosed amount in March of this year, toppling an $800 million offer from Dubai’s Emaar Malls.
“With the arrival of Amazon to MENA, the digitisation of retail will spur the digitisation of our economies,” said Dany Farha, Chief Executive of BECO Capital, a Dubai venture capital firm. Farha believes the Souq deal underscores the business opportunity offered by MENA’s large population of young, tech-savvy consumers. Smartphone penetration and social media usage in the region are among the highest in the world. “We are young, educated, connected and relatively well-to-do with a thirst to consume and purchase goods and services digitally,” said Farha.
And yet, the possibilities for digital business in MENA have barely been mined. As Dubai Chronicle reports, only 8% of businesses in MENA have an online presence, compared with 80% in the U.S. by BECO’s estimate. Likewise a mere 1.5% of MENA’s retail sales take place online versus 16% in Britain. Management consulting firm A.T. Kearney predicts the Middle East’s online retail industry will nearly quadruple in size, from $5.3 billion in 2015 to $20 billion in 2020.
One obstacle is the high price of broadband service in the state-dominated telecom sector. Layhani bemoans the lost opportunities this engenders. “Oil-rich countries have long subsidised gasoline and fuel prices – the same should apply to broadband,” he said. “Isn’t tech the new oil?”