To many, startups and those operating in the digital space have been the saviours of the Middle East economy during this pandemic. With lockdown measures shifting daily habits, services offered by those operating in the online world kept essential sectors afloat and those who had previously shunned both startups and the need for digitisation are now fervently embracing them. 

Startups and small to medium-sized enterprises (SMEs) are often viewed as fundamental contributors to the knowledge economy, creators of employment and innovation. According to the International Monetary Fund (IMF), the startup and SME sectors combined contribute up to 40 per cent to gross domestic product (GDP) and up to 50 per cent of private sector employment across the Middle East and North Africa (Mena). 

Initiatives geared towards startups and entrepreneurs were already on the rise across Mena by governments keen to fuel this sector and establish their cities as entrepreneurship hubs. 

“Entrepreneurship is essential to building a strong economy, particularly as technology rapidly shifts the way we live and work. Our leaders recognise that in order to be at the forefront of progress and ensure a better world for future generations, we must be willing to innovate,” says Najla Al-Midfa, the chief executive officer of Sharjah Entrepreneurship Centre, Sheraa.

Government economic plans like Abu Dhabi’s Ghadan 21, Dubai’s Vision 2021 or Saudi Arabia’s Vision 2030 all outline plans to promote entrepreneurship and the knowledge economy, mostly by building ecosystems to facilitate innovation. 

The most successful startup and innovation ecosystems around the world tend to appear organically, typically centred around a university or research institute. In the case of Silicon Valley, this nucleas has always been Stanford University, which continues to churn out great talent and research that feeds into the ecosystem.

Many of the West’s hubs and ecosystems were built on the principle of the Triple Helix framework as outlined in the 1990s by Professors Henry Etzkowitz and Loet Leydesdorff. The framework has academics, corporates, and government as the backbone of the knowledge society and innovation. This theory inspired many governments’ innovation policies, resulting in science and technology parks and eventually ecosystems.

As entrepreneurship has grown worldwide, this helix has developed into a pentagon, adding entrepreneurs and their lifeline – capital to the mix. In the Middle East there is another essential aspect to ensuring the success of an ecosystem and that is the quality of life.

“Several pillars need to be in place in order to establish a startup ecosystem, particularly one that is thriving,” says Al-Midfa. “First and foremost is a strong entrepreneurial culture, one that embraces risk-taking, critical thinking, and resilience, as well as one that allows the freedom to fail without stigma. Entrepreneurship is more than just a career path— it takes a growth mindset and a society that encourages leaps into the unknown, in order to develop an environment that truly facilitates innovation.”

For more than a decade, Dubai, with its robust infrastructure and exceptional power to lure talent from around the world has served as the business hub of the Middle East. It is Dubai that international companies seek out to establish a regional base and it is from this emirate where consumers in the wider Middle East region as well as Africa and Asia are catered to.

“Dubai is built on SMEs and small businesses, but we need to differentiate SMEs from innovation-driven enterprises. We’ve seen from the government’s perspective, the digital economy will be important,” says Abdulaziz Aljaziri, deputy CEO of the Dubai Future Foundation (DFF). “During Covid, the country realised we need to rethink everything we’ve been used to – the industries that have taken us this far, will they be the ones to take us forward?” 

This pandemic has shifted not only the way we go about our daily lives, but the way we do business too. The greater flexibility afforded by the rise in remote working has opened up a global talent pool and has redefined what it means to set up a base. Convincing a startup to set up entire operations in one city will become more difficult as their priorities change increasingly towards greater flexibility. 

“This has definitely forced us to rethink what it means for a startup to be “based” in a particular region, as well as what it means for the future of coworking hubs and the delivery of programmatic offerings. More and more, it seems that it does not in fact matter where the entrepreneur sits, provided they are able to engage with the ecosystem they are interested in,” says Al-Midfa. “Startups will go wherever makes the most sense for them, and are no longer necessarily tied to one specific physical location. The onus is now on us as ecosystem builders and entrepreneurship support organisations to broaden our own scope and adapt to this changing landscape.”

The competition between the region’s hubs  to keep or attract startups has increased and each is navigating this changing landscape in their own way, some have introduced new visas and licenses, others have established new regulations and funds.

Where Dubai forged the path for entrepreneurs in the region, attracting talent and investors, other cities and countries have taken a similar approach and are attempting to overtake the emirate to become the go-to destination for startups; among them are Abu Dhabi, Sharjah, Bahrain, Saudi Arabia, Egypt and Jordan.

“In order for cities, economies and societies to stay relevant, and with the technological shift taking place, you need to stay relevant and up to date. Otherwise you will fall behind and become irrelevant,” says Nader Museitif, senior vice president at Abu Dhabi’s Hub71. “Clearly Covid-19 has accelerated some of those trends, like e-commerce, health and education, but if you do not have the right ecosystem and the right companies and players in that space adapting to those changes and keeping technology accessible to societies, I think economies would suffer as a result, and you will find cities being disrupted by other cities that are focusing on that.”

To be based in the Middle East now relies far more on the lifestyle, on market conditions and a pro-entrepreneurship regulatory environment and among the startups we have spoken to, there are now more receptive regulators in the Middle East than Dubai.

In the second part of this feature we consider Dubai’s standing as the entrepreneurship hub of the Middle East and ask whether it can maintain this status over the coming years.