Untapped Innovators — Dubai
As an MBA Candidate at the UCLA Anderson School of Management, I was lucky enough to travel to the United Arab Emirates (UAE) last month to learn about Dubai’s role in the region and in the world. As venture activity continues to increase in Latin America and Europe, we must not forget about the Middle East-North Africa (MENA) region! People in the region have unique problems, and there now exists a thriving support system in Dubai for entrepreneurs building solutions for the future.
Through UCLA Anderson’s Global Immersion Program, I traveled with 40 of my classmates halfway across the world. This trip highlighted the tremendous value gained outside of the classroom during business school. Recognizing the parallels with my investment thesis, I knew I had to take advantage of the opportunity to learn about this startup ecosystem. Just as I did for Puerto Rico, I will cover the unique opportunities and challenges entrepreneurs face when launching a business. I will also examine the state of the market and draw attention to key industries.
The Lay of the Land
The UAE is made up of seven Emirates, but I’ll be focusing on the most populous one — Dubai. Of the 10 million people in the UAE, about 4 million reside in Dubai (that makes it as populous as Los Angeles). While oil continues to account for a significant portion of the UAE’s GDP, Dubai is at the center of the government’s long-term strategy to diversify the economy.
Former UAE vice-president Rashid Bin Saeed Al Maktoum had a bold vision for the Emirate of Dubai, and he was responsible for its transformation from a small cluster of settlements to a commercial hub. In the 1980s, Dubai’s diversification centered around trade and the creation of shipping and logistics centers. Sheikh Rashid worked to develop the economy of Dubai so that it could survive after the end of oil production, and was a driving force behind a number of major infrastructure projects including the Dubai World Trade Center and Jebel Ali Port.
Today, Dubai is an international business hub. When the pandemic forced everything to go online, the UAE was fast to adapt to changing trends. To give you an idea of their digital landscape, 99% of the population has internet access and 93% of the population uses mobile devices to access the internet at least once a day. Dubai’s high internet penetration can be attributed to the availability of 4G at lower price plans. This digital transformation is further evidenced by venture activity. MENA start-ups raised $1.2bn in the first half of 2021, up 64% over the same period a year ago. The UAE led in terms of deal numbers, securing 61% of all investments.
The Experts
We heard from several entrepreneurs and investors during our trip, but I want to highlight a couple that provided key insights into the entrepreneurship landscape in the region.
During our visit to the Dubai International Finance Center (DIFC), we had the pleasure of speaking with Basil Moftah and Yahia Abdel Mageed. Basil Moftah is a general partner at Global Ventures, a Dubai-based, growth-stage venture capital firm. He spoke to us about Venture Capital in the MENA Region, common challenges entrepreneurs face, and current trends.
When we heard from Yahia Abdel Mageed, Senior Officer, The Dubai International Financial Center (DIFC), he highlighted the support offered to entrepreneurs and the exciting fintech environment in Dubai.
Key Industries
Fintech
Home to a third of the fintech firms and over half of the fintech investments, the UAE’s fintech ecosystem is among the most dynamic sectors driving growth in the MENA region. DIFC’s FinTech Hive offers accelerator programs for Fintech startups, supported by a $100 million DIFC FinTech Fund that has so far invested in four Fintech companies.
Smart Logistics
The logistics industry comprises more than 14% of Dubai’s GDP and this sub-sector is forecasted to grow at a rate of 4% through to 2022. Dubai was named among the world’s top 5 shipping hubs according to the International Shipping Centre Development Index. District 2020, home to the World Expo, will soon be home to Siemens’ global logistics headquarters and DP World will support learning and capacity building in logistics to fuel the ecosystem with talent and research.
Frontier Technologies
Dubai offers growth opportunities for investors across future-oriented sectors, driven by long-term strategies focused on AI, blockchain, 3D printing, and IoT. For instance, 25% of Dubai’s buildings will use 3D printing by 2030, and the world’s largest 3D printed building is already built here. The progressive government initiatives have enabled experimental concepts like the world’s first autonomous flying taxi, Volocopter, and Hyperloop One.
Key Benefits
Strategic location
Dubai is one of the world’s most open economies and is strategically located at the confluence of Asia, Africa, and Europe. This allows companies to think globally and expand their footprint. The emirate and its advanced air and shipping links as well as its wide network of free zones make it an attractive base for companies wishing to participate in global value chains.
Existing success stories
As shown by recent acquisitions, Dubai has shown that startups can launch and scale in this market. Rideshare firm Careem was acquired by Uber in a $3.1 billion deal and the e-commerce platform Souq.com by Amazon for $580 million. These stories put Dubai’s startup ecosystem on the map and made it clear that unicorns can be built in the desert.
Business-friendly environment
The emirate maintains a leading position in the region for ease of doing business as well as conducive regulatory frameworks. The UAE federal government has ambitions to enhance legislation and make doing business in the country more time and cost-efficient. Among the business-friendly incentives is the UAE golden card permanent residency system for expat investors and a 5-year visa for entrepreneurs. Even further, in 2018, the UAE finally permitted 100% foreign ownership of companies for the first time. This was up from a 49% cap on foreign ownership of a company’s share capital.
Key Challenges
Talent
Even with the region’s growth in recent years, the public interest is still developing. That is, working for a startup is not yet considered a viable career choice. Instead, these people prefer to work at a larger corporation. To make it easier for employers to hire and retain talent, Dubai offers visa incentives for high-value talent — five years for post-study residence & tech startup owners; and 10 years for specialists in STEM fields and for investors. In 2020, the UAE launched a new Remote Work Visa Program that allows people to live in the emirate for one year, and in 2021 the UAE decided to grant Emirati citizenship to investors, scientists, professionals, and creative talents. While Dubai is not without challenges, key stakeholders are hard at work to make life easier for entrepreneurs.
Cultural Differences
One of the main problems that a foreign entity faces while starting a business in Dubai is understanding its culture and business traditions. Due to Islamic values, there are cultural challenges that affect daily life and business. Dubai business culture is all about networking and you need to make yourself known on a personal level before you can form a business relationship.
For example, you should know the Islamic religion and values before entering the market. Some of the social norms are related to the employees, local holidays, cultural norms, working days and hours, etc. The UAE has stringent and different norms, so it is essential to have a thorough and proper understanding of it.
Closing Thoughts
The emirate provides many unique incentives and advantages, including its strategic geographic location enabling companies to expand their global reach, world-class infrastructure, investor-friendly environment, and attractive free zones. To add to that, economic indicators remain strong with the city’s fast-growing population and high internet penetration.
Dubai’s entrepreneurial ecosystem has matured and evolved considerably in recent years. Now, as evidenced by the growing number of incubators, accelerators, and investment funds, it is a hotbed for startup activity. What will be the next unicorn to come out of the desert?
Key References
- Startup Genome — Dubai
- Startup Panorama — A viewpoint on the UAE’s entrepreneurial landscape
- Dubai Startup Outlook 2021
- UAE Internet Statistics
My VC Journey is far from over, and I’ll continue to share my learnings. If you’re interested in staying updated, follow me here on Medium and on Twitter @darrensvision
