Dubai, NEOM, Riyadh and the Search for $1b Startups “Unicorns”

Dubai, NEOM, Riyadh and the Search for $1b Startups “Unicorns”

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Startups who become $1 billion business, better known as unicorns, are one of the most interesting business phenomena of today.

Cities worldwide are now competing explicitly or implicitly to become capitals of unicorns as they can transform the whole business landscape and the local economy. Consider what Amazon and Microsoft did in Seattle, or what Google did to Mountain View, which was ranked No.1 on the most happiest cities to work for in the US in 2018.

People would think that Silicon Valley or New York are the capital of these unicorns but the reality is that Beijing is leading the world with 93 unicorns in 2020, followed by San Francisco with 68. Shanghai is third with 47 and the Big Apple came in fourth with 33.

Overall, Chinese cities are outperforming the entire world with five cities among the top 10, with San Francisco, NY, London, Palo Alto and Redwood City trailing their Chinese counterparts.

If we considered countries and not cities, then China is for sure the global leader followed by the US. The difference between these two countries and the rest of the list is astronomical. India, which came third doesn’t even near one quarter of the unicorns in these countries. Interestingly, UK, Germany, and Israel are among top seven nations but they lag behind everyone else.

Looking at it from another angle, Estonia is the world’s no. 1 nation with unicorns, in terms of per capita, with Skype leading the noticeable four unicorns originating in the country.

In the midst of this fierce global competition, the Middle East is trying to have a foothold. The UAE launched Entrepreneurial Nation initiative, which aims to help the country host 20 unicorns by 2031 through a series of public-private partnerships that help entrepreneurs set up in the UAE, Ahmad Al Falasi, Minister of State for Entrepreneurship and SMEs, said this month.

The UAE will also set up a one billion dirhams ($272 million) private equity fund for lending to SMEs based in the country with a focus of some strategic sectors, starting from the first quarter of 2022. Notably, the initiative as Al Falasi stated, will make UAE move from competing regionally to globally.

In Saudi Arabia, the word “unicorn” still isn’t in the dictionary of public officials. The main thinking is still stuck at funding startups and MSMEs (adding M for Micro to SMEs).

I don’t think that Saudi officials are even thinking about global, as none of them have made this a clear global objectives.

Assuming that Saudi Arabia is thinking about global competition, which city will be the hub for these unicorns? What enablers are there for that?

As of today, and we aren’t talking about unicorns yet, Riyadh and Jeddah are lagging behind cities in UAE and Egypt in terms of the amount of funding that goes into startups.

Let me share with you some numbers from Wamda on this for 2020. In July, startups in Middle East and North Africa (MENA) region attracted $632 million in investments, with UAE share at $530 million while Egypt got $70 million and Saudi Arabia attracted $23 million. Moving to August, MENA total is $160 million with UAE ($83 million), Saudi Arabia ($46 million), and Egypt ($18 million). September saw Egypt leading MENA with $162 million out of $338 total, followed by Saudi Arabia ($132 million), and UAE ($42 million). Finally, in October, MENA attracted $150 million with UAE leading again at $112 million, Saudi Arabia at $17.5 million, and Egypt at $8.8 million. I didn’t mention the rest of countries because they barely attract anything according to Wamda’s figures.

I may either have a confirmation bias and selectively looking for numbers that support my argument or the numbers are showing that UAE and Egypt are doing really good.

So looking at this picture where are these cities? Cities don’t create startups and unicorns out of the below. It doesn’t work this way. There must be an ecosystem that give birth to all of these startups.

I’ll share with you my views on this (and remember everyone, I’m the guy from the media with no PhD who should know nothing).

Entrepreneurs are a special breed of their own and their creativity comes either by necessity or by cultural and social influence. That’s why in the US, according to a 2018 study, 55 percent of America’s unicorns, were set up by immigrants. Immigrants don’t have the same privileges as nationals.

In Dubai, the majority of population are expatriates who have no choices when it comes to finding jobs. The public sector doesn’t give them a priority over UAE nationals, so they can only work in private companies. If things go south in these companies, then they need to find a business to start. It’s necessity to survive there as many of those don’t want to go back to their countries and they established their own communities.

Cairo is no different. It’s now full of young and educated Egyptians who can’t think of themselves as government employees. And becoming a business owner is a social trend. So many of them either think of doing business if they have the capital or they search for jobs abroad.

In Saudi Arabia, the culture and the ecosystem aren’t there yet. Majority of young Saudis think about security and getting a job forever. They even want to stay in the same job till they retire. They are risk averse. In recent years there is a trend for some of them to quit their jobs after few years and opening their own businesses. But it’s very rare that start their careers as entrepreneurs. Why should they?! The government is pushing for more jobs. The ministers only speak about jobs. All the top ministries think about attracting Fortune 500 companies or create state-owned businesses with a start-up capital of at least $100 million.

Ok so Dubai and Cairo are leading on startups. What about Saudi cities? I think Jeddah will soon join them on Wamda list because Jeddah’s economy in the coming few years won’t create enough jobs so either innovate and invent or go to Riyadh and elsewhere to find jobs.

The other possible place could be NEOM but that may take a while. NEOM is in a position to become in a league of its own if it follows Estonian model. Companies and people don’t need to reside their in Estonia to be residents, open businesses, and pay taxes. That’s the only way to do it. Actually, that’s the only edge over Dubai as UAE is busy supporting those who are living their but NEOM is a greenfield project.

So far I was mentioning startups but what about unicorns? I don’t think UAE, Saudi, or Egypt have the ecosystem yet to be the birthplace of unicorns. Maybe the UAE is the closest as it accepts immigrants now and give them long-term visas, and it has a plan for unicorns. But as with all big plans in the region, they rarely hit the target. You can’t plan for entrepreneurs they are the product of circumstances and necessity.

• Wael Mahdi is senior business editor at Arab News and co-author of “OPEC in a shale oil world: Where to next?”

Twitter: @waelmahdi

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point of view