By Tarek Sultan
Vice-Chairman of the Board, Agility
- Investment is pouring into Gulf startups from domestic and foreign sources.
- Start-up friendly policies, access to funding and the multiplier effect are just a few of the reasons for this growth in investment.
- Powerful local and global economic currents are benefitting the Gulf states.
This is a golden age for startups and entrepreneurs in the six countries of the Gulf Cooperation Council (GCC). Geopolitics, technology, climate urgency and daring national agendas across the region have combined to create what might be the most favourable conditions that small businesses anywhere have ever enjoyed.
Private-sector expansion is the key to national ambitions in all six countries. Increasingly, Gulf leaders will be looking to small business and entrepreneurs as engines of job creation and innovation.
The time is right. The ecosystems that Gulf countries established to nurture, fund and scale digital startups are maturing. Gulf funders — from sovereign wealth funds to venture capitalists to family offices — are looking to write checks to entrepreneurs closer to home. Regulatory fine-tuning is creating new openings for smaller companies that have struggled to compete. Massive infrastructure, energy and technology projects are having a spinoff effect for local businesses and specialized service providers. Finally, powerful currents in Gulf trade, foreign investment, research and e-commerce are all working in favour of SMEs.
Five reasons the time is now for startups and small businesses in the Gulf
1. Funding
Simply put, there’s more money from local and international sources looking to invest in young, innovative Gulf companies.
The Gulf’s sovereign wealth funds have more than $4 trillion in assets under management, a record. They account for more than 40% of global SWF wealth, and their investments comprised 40% of the global sovereign investment total through the first nine months of 2024. Increasingly, Gulf fund managers are looking to invest more at home so that they can drive private-sector growth at the heart of the region’s national strategies.
Saudi Arabia’s Public Investment Fund (PIF) is shifting the balance of its portfolio to focus less on international holdings and more on investment in new industries and projects in the Kingdom. PIF Governor Yasir Al-Rumayyan said in October that the fund will trim its global holdings to 18% of its portfolio, down from 30% in 2020.
In other cases, Gulf sovereign funds are putting money into young companies with innovative ideas that can aid home-country economic diversification. Abu Dhabi’s Mubadala recently invested in Odoo, a Belgian company that offers single-platform software for small and medium-sized companies.
Venture capital investment in the GCC quadrupled from 2017 to 2022 and continues to outpace growth in most other geographies, increasing at a 24% compound annual growth rate. Investment is pouring into Gulf startups in AI, specialized online marketplaces, climate tech, delivery apps, fintech, edtech and investment platforms.
At the same time, overseas funds such as US-based ScienceWerx are putting down new roots in Saudi Arabia and neighboring countries so they can be first movers in AI, biotech, healthtech and other emerging fields. Similarly, Brookfield Asset Management says it is raising at least $2 billion for a new Middle East-focused private equity fund with PIF and other partners.
2. Multiplier effects
The vast majority of small businesses in the Gulf aren’t the kind to attract direct investment from sovereign funds and venture capitalists. But most can expect to be lifted by the “agglomeration” or multiplier effect that flows from the staggering amount of investment and spending across the region, particularly in mega-projects, logistics infrastructure, AI, clean energy and climate adaptation.
In the US, where most of the research on multiplier effects has been done, there is a clear correlation between investment and increased demand for local goods and services; increased productivity; and job creation. The addition of one highly skilled job in an urban area creates 2.5 jobs in other sectors dominated by smaller businesses: construction, food service and other localized roles.
3. Regulatory incentives
Gulf governments are using their policy levers to create new jobs, expand private-sector growth and boost investment. Among all the carrots and sticks being deployed by policymakers are loads of advantages and opportunities that benefit smaller businesses. Some examples:
— In the UAE, where there are nearly 50 economic free zones, operators are competing to create the most business-friendly conditions. The Ajman NuVentures Centre Free Zone, the newest in the Emirates, promises to grant business licenses online in 15 minutes and issue two-year visas for investors within 48 hours.
— In Saudi Arabia, one of the main drivers of growth in the small business sector has been the Kingdom’s sweeping push to make it easier and more attractive for women to join the workforce. Since 2017, the Kingdom has lifted the ban on women driving, introduced anti-harassment laws, expanded female legal autonomy, introduced childcare and transportation subsidies for working women, mandated equal pay and prohibited termination of pregnant women. Today, women own 45% of small and medium-sized businesses in Saudi Arabia. The rate of female participation in the labour force roughly doubled to 35% between 2017 and 2023.
— To create jobs for their citizens, Gulf countries are requiring private companies to meet hiring quotas and maintain a certain percentage of nationals in their workforce. In the UAE, small businesses can qualify for grants, subsidies and reduced fees by taking part in labour force Emiratization.
— Saudi Arabia’s Regional Headquarters Programme, intended to get multinationals to establish their regional head offices in the Kingdom, will add to the multiplier effect by sending global companies in search of Saudi partners for everything from local recruiting to branding, advertising and marketing.
4. Promotion and skills development
Gulf countries are getting better at figuring out what startups and small businesses need. Where non-energy exports used to be negligible, they are now aggressively promoted by the Saudis, Emiratis and other GCC governments.
In Kuwait, which licensed 6,700 new companies through the first three quarters of 2024, the National Fund for SME Development recently launched its Mubader Plus programme, offering workshops, counseling and other assistance to budding entrepreneurs.
Dubai’s Expand North Star, with 70,000 in attendance in 2024, is the world’s largest tech startup and investment event.
5. Powerful tailwinds
Gulf leaders are embracing the post-World War II US innovation model, which uses government money to fund university research that can produce ideas later scaled and commercialized by the private sector. GCC countries are establishing or expanding universities and pushing them to innovate through partnerships with leading international research institutions or alongside Gulf counterparts through platforms such as the Qatar-led My Gulf University.
Trade trends are also working in favour of SMEs. The UK and six GCC countries are nearing completion of a new free trade agreement valued at $73 billion annually. A new FTA with the UK is likely to accelerate economic integration among the six countries, as will Gulf e-commerce, which continues to outpace other regions in annual growth.
Not to be overlooked is the China factor. Chinese companies are looking to the Gulf as the place where they can diversify their manufacturing base, invest in renewable energy and hydrogen production and become EV market share leaders. Chinese investment in Gulf-based AI and tech development is making the GCC a hub for digital transformation and commerce.
For entrepreneurs, startups and small business in the GCC, it’s never been a better time.
This blog was originally published by the World Economic Forum.
