Creating a virtuous circle that will have exponential positive impact on the future of the Arab region, both economically and socially, may seem to be a daunting task, but Arab business leaders who converged at DAVOS this weekend to debate global issues for a better tomorrow, may have come closer to a resolve. “Technology” seems to be the magic word and the “digital economy” is the path to many answers.
Dany Farha, Chief Executive Officer of BECO Capital, a regional venture capital firm focused on technology investments in the Arab region, who is attending these intensive discussions says: “If we were to choose one provocative topic from this year’s debates at Davos, for me it would be youth unemployment. This issue of unemployment causes greater disparity between those who have and those who have not, both at an individual and country levels, especially in the Arab region which, at 25% unemployment rate amongst youth, stands to win the top position in the world.”
If unemployment maintains its current rate the Arab region, which is expected to have a population of 598 million in 2050, will have 149.5 million people out of jobs. “A chilling fact,” according to Dany Farha.
He contends that more investments in technology and the digital economy, both at private sector and government levels will, over the mid to long term, help to alleviate the economic, social and political risks associated with youth unemployment. Such investments will help create more jobs and create better jobs. At the moment, The Arab region has circa 10x less than India, 15x less than China, 35x less than Europe and 200x times less than the USA, invested in venture capital per capita per annum.
Dany Farha explains: “Having technology entrenched in our socio-economic system produces multi-dimensional benefits, not least of which are efficiency, transparency and improved quality of life. To me, what is really imposing is the tremendous contribution of technology to employment and GDP growth at the national level.” To prove his point, he gives the city of Cambridge in the United Kingdom, which was famous for being one of the best places you can go to for education, but decided less than a decade ago, to also open up its gates for technology entrepreneurs and investors. Today, the city employs 57,000 people in technology companies that have a combined enterprise value of approximately US$50 billion. To put things into context, one large manufacturing company with a headcount of 50,000 people has a market cap of around US$20 billion.
A closer to home example are ten technology companies based in the Arab region and with which BECO Capital is intimately familiar. With a collective workforce of 2,600 and a combined enterprise value of over US$2.5 billion, generating over US$800m in combined annualized revenues today, these companies either didn’t exist five years ago or, if they did, they were fledgling companies or start-ups employing very few people and generating very little revenues. The technology sector is one of the few sectors that can create this kind of impact this quickly and with modest amounts of capital.
Dany Farha enthuses: “Compounding is a very powerful mathematical characteristic, when all these companies are growing at between 50-150% annually, and more such companies are being built and succeeding today, you can see how US$800 million can get to several billion dollars in annual revenues in just a few years from now, growing their headcounts and enterprise values in similar fashion.”
He asserts: “These technology companies create jobs and are accretive to the economy, again, a unique characteristic of the technology sector. Whilst they can at times be disruptive, they are mostly creating new value and new demand where this demand was not previously being fulfilled by the old world. For the most part, these are white collar jobs which generate an average salary of 5x to 10x that of a blue collar job. This means that the 2,600 workers are the equivalent to 10,000 to 20,000 staff that would typically occupy jobs being created in the old economy of industry and construction. They have a higher purchasing power, buying cars, consumer goods and homes where possible, and support their extended families.”
Dany Farha gives examples of some of the non-disruptive digital businesses that created new jobs, without eradicating an existing one: “Propertyfinder.com may have taken away some of the demand from newspapers, but given the absence of dedicated classified print publications in our region, Propertyfinder.com has allowed consumers to buy, sell and rent property from brokers and developers through a medium that was previously not available to consumers.
“The efficiency to all stakeholders, introduced by such an online offering, has allowed more transactions to be made in the same time frame, thus being accretive to the economy and enabling many more transactions per year,” he explains.
Careem, the limo aggregator, is another example of creating new use cases for consumers who were previously not transporting themselves around their local cities as much until the advent of such an easy, affordable, safe and convenient transport option. Children, teenagers, the elderly and people who needed a driver or a third car, are opting to use Careem’s services when they would otherwise have stayed at home most of the time.
Building a new breed of technology entrepreneurs and investors will be one of the elements that will close the gap of youth unemployment and economic and social inequality in the Arab region.