This is the fifth in a series of articles about the State of Entrepreneurship, based on Seedstars field experience.
Over the past 3 years, we at Seedstars World have been traveling around Middle East and North Africa (MENA) and the world, aiming at finding the best entrepreneurs, connect them to investors, partners and media and to study each local innovation and entrepreneurship ecosystem in emerging markets.
Although the Middle East and North Africa is facing some challenges like the water scarcity (fresh water availability is expected to drop by 50% by the year 2050) and population density (3% of MENA’s surface area is home to 92% of its whole population), there are obvious opportunities such as the market size (424 million people). There’s room for startups to expand to Arab countries, as long as they adapt the businesses to arabic. Despite the fact that there’s a lot of capital, the investors are still not educated towards online businesses, as they prefer to invest in traditional and offline businesses. But it doesn’t stop startups, that in 2015 reached more than $300 million in exists, in great part due to Talabat.com ($170 million exit).
People in MENA are generally young (approximately 30% of the population is aged between 15 and 29) and have very strong family bonds. Since families have high expectations and failure is still considered unacceptable, entrepreneurship is not perceived as the best career choice.
While travelling across MENA we collected valuable insights on each startup ecosystem, got to know what makes them unique, what are their strengths and what’s still interfering with their development. It led us to develop our own Seedstars Index (SSI):
The Seedstars Index Methodology
We developed the Seedstars Index (SSI) to measure the quality, maturity and future potential of the 54 ecosystems we interacted with in 2015 . The SSI is made up of three pillars:
- Culture: How prevalent is the entrepreneurial mindset in the country? How much is entrepreneurship and risk taking celebrated and promoted?
- Environment: How conducive is the legal, political and financial environment to build and grow companies in that country?
- Opportunity: How possible is it to grow and scale within local and foreign markets?
We believe these three pillars are fundamental in building a successful entrepreneurial ecosystem and, that success is both the desired output and catalyst.
Entrepreneurship in MENA: Results overview
Overall, the weak Culture scores in the Middle East and North Africa are weighing down the region’s performance. The region remains held back by strong cultural barriers and fear of failure. Nonetheless, the support and investment environment in tech startups is on the rise in the MENA region.
Entrepreneurship in MENA: Highlights per country
A few observations and anecdotes that stand out from these results:
Egypt: The only outperforming ecosystem in MENA does a better job in linking its young and well educated population to opportunities in the startup sector. The startup scene in Cairo, Egypt is the fastest growing in the Arab World, despite the political upheavals reigning the country since 2011. Overall, the market is attractive in terms of size (90 million, 40% internet penetration) and the educational background, but raising sufficient amount of money continues to be a challenge for the entrepreneurs.
Iran: They found a way of living under sanctions and that’s why they think locally most of the times. Entrepreneurship is in their blood. Iranians have lots of technoparks, the oldest one is already 17 years old. They have created a couple of tax free zones close to big cities and on islands.
Lebanon: Entrepreneurship is starting to become an accepted career path, brought on by the success of existing entrepreneurs and the recent boom in support for entrepreneurship through accelerators and central bank funding. However failure is still an issue, and bankruptcy laws in Lebanon are still very strict.
Morocco: France has a lot of influence in the country and entrepreneurs see it as the first place to expand their businesses. The infrastructure is all there and new players are being created to increase the quality of the services provided, as the support has historically been given by inexperienced people.
Jordan: Jordan has a handful of well known entrepreneurs who are publicly known, and seen as local celebrities. The central bank is incentivizing banks to extend credit to IT and high tech startups but this program has not been effective. Access to finance remains a big issue in Jordan, and there’s a gap in funding between seed capital and the following rounds. Approximately 40% of the startup founders are female.
Algeria: It’s taking its first steps in creating an active startup scene. The government is investing into creating a network of cyber parks spread around the country. In parallel, the first private co-working space was launched in 2015, and new events are starting to bring together the small but growing tech community in Algeria.