Saudi officials work to create a supportive environment for start-ups

 

The government believes there is an important role for innovation, start-ups, and small and medium-sized enterprises (SMEs) in its push to modernise the economy. In line with this, the Saudi Arabian General Investment Authority (SAGIA) is seeking to do two things: improve the ease of doing business for firms of all sizes, and encourage and support young entrepreneurs to launch start-up companies – both with the hope to enlarge the private sector’s contribution to GDP and generate jobs.

Doing Business

The annual “Doing Business” report published by the World Bank examines the relative cost, time, complexity and legal framework of 10 basic business factors in almost every country and territory of the world. In the 2019 edition, released in October 2018, Saudi Arabia’s overall rank was 92nd out of 190 countries. SAGIA aims to see the country place among the world’s top-20 performers, and moves are being made to accomplish this: according to the report, Saudi Arabia introduced a raft of reforms to improve the ease of doing business in the four categories of getting electricity, protecting minority investors, trading across borders and enforcing contracts.

“This year Saudi Arabia had the largest number of reforms in the region,” Mazin Al Zaidi, head of innovation and entrepreneurship at SAGIA, told local media in October 2018. “For the environment to become healthy, a lot has to be done, and we are working on it. We are heading in the right direction.”

Start-Ups

While working to simplify business procedures for all companies, SAGIA is specifically encouraging local start-ups. An initiative focused in this direction is the TAQADAM Startup Accelerator, run by the King Abdullah University of Science and Technology (KAUST) in partnership with the Saudi British Bank. It offers a six-month intensive programme to help scientists create commercially valuable technologies. Speaking to local media in late 2018 Hattan Ahmed, head of the Entrepreneurship Centre at KAUST, said the initiative was seeing positive outcomes, particularly in energy and artificial intelligence.

One start-up that has been developed through the programme provides laser lights to allow crops to be grown indoors. Another, Sadeem Wireless Sensing Systems, has created what it describes as an “urban real-time flood monitoring system” designed to save lives. The company won an award at the 2017 Gulf Information Technology Exhibition in Dubai. Meanwhile, a company called Cura has launched a health platform that enables patients to consult one of 1600 online doctors using real-time chat and live video calls. Cura has a contract with the Ministry of Health as a telemedicine provider serving an estimated 300,000 citizens through 10 contact centres. In automotive care, Morni is a young firm offering an interactive mobile app that provides roadside assistance in Saudi Arabia and the Gulf.

A number of Saudi Arabian companies appeared in a list of the top-50 start-ups to watch in the Middle East, compiled and published by US business magazine Forbes in early 2018. Sixth on the list was Halayalla, a sports and entertainment booking platform; Near Motion, a customer engagement tool founded in 2015, ranked 26th; and Maharah, a booking app for home maintenance, ranked 34th. Forbes also published a list of 100 Saudi start-ups in 2017. The companies were created by 182 entrepreneurs, of whom 29 are women. They cover 23 different industries, with most based in Jeddah (39), Riyadh (37) and Al Khobar (10).

Banking is a particularly popular area for startups, with financial technology (fintech) solutions often being first provided by non-bank institutions. “The fintech market is growing steadily in Saudi Arabia, with digital payments recording a transaction volume and value that is 17 times higher than the GCC average. It is the perfect environment for fintech start-ups to be successful,” Ayman Alfallaj, CEO of business services company Thiqah, told OBG. Examples of such local providers are PayTabs and PayFort (see Banking chapter).

Composition & Funding

Driving the desire to encourage start-up businesses is the idea that SMEs could make more of a contribution to Saudi Arabia’s growth and development, as they are the engine of the private sector. According to Salman Al Suhaibaney, CEO of Morni, about 10% of companies operating in the Kingdom are large corporates, with the remaining 90% consisting of SMEs. Despite their numerical dominance, SMEs are contributing only a small share to GDP, thus supporting this class of business will do much for economic expansion, he told local media in October 2018.

Al Suhaibaney added that there are still relatively few entrepreneurs in the Kingdom, but there is a concerted effort under way to support high-impact start-ups and to encourage businesses that could expand globally. According to MAGNiTT, a database for start-ups in the MENA region, disclosed funding for Saudi Arabia-based start-ups grew from $18.8m in 2016 to $39.8m in 2017.

Government officials are trying to create a supportive environment for entrepreneurship to attract both innovate ideas and the funding to support them. One way of doing this is through the Saudi Technology Development and Investment Company (Taqnia), which aims to create networks to help individual entrepreneurs. State-controlled companies are also doing their part. In May 2017 mobile operator Saudi Telecom Company said it would set up a $500m venture capital fund – the largest in the country – to invest in tech start-ups.

Innovate Ingredients

A 2018 report by global consultancy OC&C and commissioned by Google titled “Tech entrepreneurship ecosystem in the Kingdom of Saudi Arabia” is part of a series that also looked at Turkey, Russia, South Africa, Nigeria and the UAE. The authors concluded that seven inputs define to what degree tech start-ups will succeed in a given country: financial capital, talent, networks, culture, regulations, ICT infrastructure and market potential. They noted that Saudi Arabia has the largest economy in the region with a GDP of $646bn, of which around 50% comes from the oil and gas sector. The post-2014 oil slump posed a serious challenge to the sustainability of the country’ welfare state, where nearly 70% of the workforce is employed in the public sector. One of the problems that a more entrepreneurial approach hopes to address is high unemployment among women and youth, as the unemployment rate for those aged between 20 and 29 is 29%, according to the report.

The long-term development strategy Vision 2030 makes entrepreneurship a critical lever for finding new sources of economic growth and employment for citizens in the private sector, with resources already being made available. The National Transformation Programme has allocated SR4.4bn ($1.2bn) across nine ministries and government agencies to support start-ups, technology transfer, the empowerment of women and capacity building. While OC&C acknowledges the progress made, it also details shortcomings of the current environment. The ecosystem is described as nascent; contributions from knowledge sectors to the economy are low; there are comparatively few tech start-ups; and very few companies have exited the start-up phase with valuations of over $100m, and none valued at over $1bn. This is expected to change, however, as investments are made over time.

Most start-ups are focused on software-as-a-service offerings and e-commerce – models that have proven successful in many other markets. The tech scene is beginning to show signs of evolution, however. Entrepreneurs out of Thuwal, with many being associated with KAUST, are trying to create a larger variety of deep tech-driven business propositions.

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The Report: Saudi Arabia 2019

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