In­te­grated Ap­proaches for MENA Gov­ern­ments to Boost Startup Growth

Fo­cus on the Kuwait Na­tional Fund for SME De­vel­op­ment

Arabnet - The Quarterly - - Content - By Alexis Bagh­dadi | @Guer­rillawriter

Fo­cus on the Kuwait Na­tional Fund for SME De­vel­op­ment

In­vest­ments in MENA star­tups are grow­ing steadily across the re­gion, with Egypt, Jor­dan, Le­banon, and the UAE record­ing the high­est growths. In­vest­ments in­creased by over 200% in these coun­tries from 2010 to 2012 ac­cord­ing to a re­port by Wamda Re­search Lab ( WRL). Rec­og­niz­ing the role of entrepreneurship in the emerg­ing dig­i­tal econ­omy, MENA coun­tries are spon­sor­ing pro­grams and poli­cies to sup­port it. Ever since it is­sued Cir­cu­lar #331 two years ago, the Cen­tral Bank of Le­banon has in­vested more than $280 mil­lion, ap­proved 6 funds with vol­umes rang­ing be­tween $30 mil­lion and $75 mil­lion, and ticket sizes be­tween $300,000 and $5 mil­lion. In the re­gion, the num­ber of early-stage in­vest­ment and VC firms has al­most tripled since 2008, ac­cord­ing to WRL. New sup­port­ing play­ers are also steadily en­rich­ing the startup com­mu­nity: ac­cel­er­a­tors like Speed@bdd in Le­banon (launched this sum­mer); an­gel net­works; and crowd­fund­ing or P2P lend­ing plat­forms like the Jor­dan-based li­wwa (launched in 2013). Saudi Ara­bia is catch­ing up by sup­port­ing in­cu­ba­tors and ac­cel­er­a­tors like and In­spireu, and ini­tia­tives by the King Ab­dul­lah Univer­sity of Science and Tech­nol­ogy (KAUST) like “New Ven­tures”.

As a rel­a­tive new­comer on the scene, Kuwait stole head­lines when it launched a $7 bil­lion fund to sup­port entrepreneurship this year. Ab­du­laziz Al Loughani, Vice Chair­man and Ex­ec­u­tive Di­rec­tor of the Kuwait Na­tional Fund for SME De­vel­op­ment and the for­mer owner of the food de­liv­ery plat­form Tal­a­bat. com (re­cently ac­quired for a record $170 mil­lion), said they are cur­rently fi­nal­iz­ing their sup­port­ing in­fra­struc­ture, and a web­site is un­der de­vel­op­ment. The com­mu­nity is keep­ing close tabs on the fund’s progress and is an­tic­i­pat­ing the an­nounce­ment of its first re­sults by end-2015.

The Kuwait Na­tional Fund fo­cuses on smart cap­i­tal, ed­u­ca­tion, le­gal frame­work, and mind­set. Most com­pa­nies in the re­gion usu­ally have ac­cess to only one round of fund­ing, even though fol­low-on fund­ing is crit­i­cal to startup growth. Smart cap­i­tal in­volves pro­vid­ing tech­ni­cal and

strate­gic guid­ance for en­trepreneurs by fa­cil­i­tat­ing ac­cess to mul­ti­ple rounds of fund­ing as well as to mar­kets, tal­ent, land, and ser­vices. As the largest pro­curer of the fund, the State of Kuwait will play a sig­nif­i­cant role in that as­pect. For ex­am­ple, the fund has com­mit­ted to se­cure li­censes on be­half of en­trepreneurs within 30 days – fail­ing which it could be sued.

In terms of ed­u­ca­tion, learn­ing know how to run a busi­ness is tra­di­tion­ally hard-earned by slowly climb­ing the cor­po­rate lad­der. But the fast-mov­ing en­tre­pre­neur­ial ecosys­tem re­quires a solid and di­verse set of skills at the on­set. The Kuwait Na­tional Fund seeks to fill that gap and en­gage with stu­dents early on by sup­ple­ment­ing ex­tracur­ric­u­lar and cur­ric­u­lar ac­tiv­i­ties in their pro­gram.

On the le­gal side, the en­tre­pre­neur­ial ecosys­tem re­quires a ven­ture-friendly frame­work to pros­per. This re­quires chang­ing the mind­sets of pol­i­cy­mak­ers, en­trepreneurs, and in­vestors, which can be the most chal­leng­ing task. Al Loughani said the lo­cal mind­set is still stuck in the “buy low and sell high” cy­cle: “They need to un­der­stand that a mer­chant in our day and age also tack­les prob­lems in the com­mu­nity and makes peo­ple’s lives more ef­fi­cient.”

Cre­at­ing a Na­tional Vi­sion for Startup Growth

For Al Loughani, a re­ac­tive stance that sim­ply sat­is­fies public de­mand and meets the cur­rent needs of the mar­ket is not enough. Gov­ern­ments need to have a for­ward-look­ing vi­sion to build a fully in­te­grated en­tre­pre­neur­ial ecosys­tem. Be­fore launch­ing the fund, Kuwait fully in­ven­to­ried and eval­u­ated its re­sources (univer­sity grad­u­ates, skills, sub­si­dies, etc.) and found that by fo­cus­ing on tech­nol­ogy, light in­dus­tries, media, and de­sign, the coun­try would have the best chances of com­pet­ing re­gion­ally. “We re­viewed all the re­gional ini­tia­tives that sup­port entrepreneurship, and were inspired by many parts of their ef­forts,” said Al Loughani. Ad­di­tion­ally, whereas, many coun­tries in the re­gion al­low a lot of strate­gic au­ton­omy for gov­ern­men­tal or semi-gov­ern­men­tal bod­ies sup­port­ing the en­tre­pre­neur­ial ecosys­tem, Kuwait ac­tu­ally con­sol­i­dated all these bod­ies into one cen­tral­ized gov­ern­men­tal agency for that pur­pose.

Care­ful plan­ning is needed be­fore map­ping a strat­egy to en­sure gov­ern­ment-spon­sored sup­port pro­grams suc­ceed. First, gov­ern­ments should lever­age lo­cal and re­gional aca­demics and re­search, as well as the in­puts of prac­ti­tion­ers. These can have a sig­nif­i­cant im­pact in de­ter­min­ing the suc­cess of a cir­cu­lar or pro­gram. Adopt­ing in­ter­na­tional stan­dards and best prac­tices saves time in rein­vent­ing the wheel. Suc­cess­ful pro­grams al­ready ex­ist world­wide and can be adapted to lo­cal con­texts. Kuwait re­cently signed an agree­ment with the World Bank to es­tab­lish ap­pro­pri­ate mech­a­nisms for the cre­ation and growth of SMES. “It’s im­por­tant that we don’t com­pli­cate the de­sign […] Over-en­gi­neer­ing of­ten kills an ini­tia­tive,” said Al Loughani.

Of course, ul­ti­mately, gaug­ing a pro­gram’s im­pact is the true mea­sure of its suc­cess. As Al Loughani puts it: “If you can’t mea­sure it, you can’t man­age it.” Macro KPIS to iden­tify the progress and suc­cess of the pro­gram in­clude the num­ber of com­pa­nies funded and sup­ported, the num­ber of jobs cre­ated by these com­pa­nies (Kuwaiti na­tion­als vs. ex­pats), and the rev­enues, in­clud­ing the net value added to the econ­omy, even if it is min­i­mal with re­la­tion to the GDP.

Part­ner­ing with the Pri­vate Sec­tor to De­sign an In­te­grated Ap­proach

The main con­cern for en­trepreneurs is the bu­reau­cratic has­sle as­so­ci­ated with gov­ern­ment-spon­sored pro­grams. Kuwait was par­tic­u­larly no­to­ri­ous for its red tape, which af­fected the ease of do­ing busi­ness. One of the key chal­lenges for for­eign en­trepreneurs is a law that re­quires a lo­cal part­ner; as for Kuwaitis, they have to en­dure end­less pro­ce­dures, high fees, and a busi­ness at­mos­phere not con­ducive to com­pe­ti­tion. None of this is com­pat­i­ble with a dy­namic startup ecosys­tem. Al Loughani re­ferred to a say­ing com­mon in both Le­banon and Kuwait: “trust the baker with bak­ing your bread.” In other words, let ex­perts do their jobs. Ac­cord­ingly, the pri­vate sec­tor would play a role in im­ple­ment­ing a gov­ern­mentspon­sored SME strat­egy in the most ef­fi­cient and time sen­si­tive man­ner. “This will re­duce bu­reau­cratic pro­ce­dures and elim­i­nate any neg­a­tive con­no­ta­tions usu­ally as­so­ci­ated with gov­ern­men­tal pro­ce­dures,” said Al Loughani.

Tak­ing It Re­gional: The Role of Gov­ern­ments

Along­side coun­tries’ in­di­vid­ual ef­forts, cross-coun­try col­lab­o­ra­tion is pos­si­ble through stream­lin­ing gov­ern­ment ini­tia­tives. Align­ing pol­icy frame­works through­out the re­gion would fa­cil­i­tate ex­changes. For ex­am­ple, up­dated and ef­fi­cient poli­cies re­lated to cross-bor­der trad­ing or pre­ferred pro­cure­ment are nec­es­sary for e-com­merce. The Kuwait Na­tional Fund will set up an in­for­ma­tion cen­ter and cre­ate com­mu­nity events around its tar­get ver­ti­cals to fa­cil­i­tate in­for­ma­tion flow and tal­ent ex­change be­tween coun­tries. “These are low-ly­ing fruit we should take ad­van­tage of for bet­ter col­lab­o­ra­tion within the re­gion,” said Loughani.

Gov­ern­ments in the re­gion should act as cat­a­lysts for star­tups over the next five to ten years, un­til enough depth is cre­ated in pri­vate mar­kets. With­out ini­tia­tives like Cir­cu­lar #331 or Kuwait’s Na­tional Fund, many pri­vate sec­tor ef­forts would never hap­pen, Loughani said. These ini­tia­tives have clear ben­e­fi­cial spillovers into the tech­nol­o­gy­driven dig­i­tal econ­omy. With funds be­com­ing read­ily avail­able, in­vestors are more con­fi­dent about ven­tur­ing in the ICT and dig­i­tal sec­tors, which trans­lates as startup growth.

Ab­du­laziz Al Loughani at Arab­net Beirut Con­fer­ence in March 2015

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