Abu Dhabi, UAETuesday 15 October 2019

World Economic Forum Mena 2019: Jordan becomes a start-up hub to boost economy

Country confronts historically high unemployment ahead of its hosting duties of the World Economic Forum on the Middle East and Africa

Ronaldo Mouchawar, co-founder of Souq and vice president of Amazon Mena, founded Souq in 2005, initially as an auction site linked to internet portal Maktoob. Reuters
Ronaldo Mouchawar, co-founder of Souq and vice president of Amazon Mena, founded Souq in 2005, initially as an auction site linked to internet portal Maktoob. Reuters

As hundreds of business and government leaders prepare to convene at the Dead Sea for the 10th World Economic Forum on the Middle East and Africa, host Jordan is confronting near-record unemployment and a debt crisis. To revive the kingdom’s sluggish economy and trigger growth, the nation is turning its efforts to start-ups.

Investment in the sector in the past few years is already apparent: 27 out of the 100 most promising Arab start-ups being highlighted at this weekend’s WEF conference are Jordanian.

Yet despite backing from royal institutions and telecom giants to create a start-up-friendly ecosystem in the kingdom, bureaucratic government regulations and keeping Jordan’s most promising start-ups from being lured abroad remain obstacles to the kingdom in cultivating the fruits of its start-up policies.

Jordan’s focus on human capital to turn around the kingdom’s economic fortunes is natural. It is, officials here say, the country’s largest resource.

Skilled Jordanian professionals have long played leading roles in developing the health, education, engineering, financial, aeronautical and services sectors in the Arabian Gulf and North Africa, sending billions of dollars home each year in remittances.

Since the early 2000s, Jordanians have played a key role in the founding of leading Arab tech companies such as Souq.com and Maktoob, among others. In 2012, it was reported that three-quarters of online Arabic content originated from Jordan.

With Jordan now suffering from an 18.6 per cent unemployment rate - over a third of whom are aged 15 to 30 and many who are bachelor degree holders - encouraging tech and service start-ups is a job creator for citizens who often shun vocational work.

With government efforts targeting 30,000 jobs annually for the 400,000 unemployed Jordanians nationwide, growing SMEs has become a priority to trigger job creation.

At Oasis500, a tech and creative industries incubator and business accelerator modelled off Silicon Valley backed by King Abdullah, dozens of entrepreneurs were given 10,000 Jordanian dinars (Dh51,790) in seed money and six months of mentorship to turn their idea into a sustainable and thriving business.

At the King Hussein Business Park in Amman, the business-friendly zone offers not only space to leading start-ups but hosts three separate incubators sponsored by telecom giants, including Zain’s Zinc, UMNIA’s Tank and Orange’s BIG.

Even the Central Bank of Jordan has begun supporting and cultivating FinTech start-ups to outsource e-commerce and financial services, and late last year founded a $98 million- Innovation Startups and Small Medium Enterprises Fund (ISSF) with World Bank funding to support 825 projects and 125 start-ups through indirect funding and technical support.

International NGOs and aid groups such as Mercy Corps and USAID are looking to boost employment for women and young Jordanians, and have also begun to funnel money into start-ups.

“Jordan has to continue to change the mindset of youth from searching for a job to starting a business that can create jobs,” says Zeid Nasser, a tech and media industry columnist, observer and founder of MediaScope.

“In the last decade there has been a concerted effort to create a hospitable environment for tech-based start-ups in Jordan.”

The push has given rise to dozens of service industry innovations and app-based SMEs, such as a digital Arab weather forecast service, online Arabic bookseller, an online network to book a GP via App, a wedding planning portal, digital audio books publishing house, and food ordering services.

Yet while the vision at the very top of the Jordanian government is to transform Jordan into an Arab Silicon Valley, the haphazard application of bureaucratic regulations on the ground has slowed SME growth in Jordan.

“Entrepreneurs complain that governmental decision-makers do not see the long-term value of treating start-ups differently and do not have the ability, or will, to truly create specific regulations for them,” said Mr Nasser.

Despite recent initiatives to spur tech ventures, industry experts and entrepreneurs say SMEs and start-ups still lack advocates to lobby the government or parliament for tax or regulatory exemptions.

In Jordan there are no true bankruptcy laws, and debt or a bounced cheque could land an entrepreneur in prison. A 2017 amendment to the Jordan Companies Law introduced by the government lifted protections on limited liability companies, meaning LLC owners’ and managers’ personal property and assets could be on the line in times of liquidity issues.

Recent income tax hikes on businesses, in addition to rising electricity prices, have also become an obstacle to start-ups with limited cash.

Cumbersome tax regulations and auditing procedures, rising income tax, and stiff customs fees and bureaucratic red tape are coupled with exemptions that cater to large banks and corporations. The combination is a heavy burden on start-ups with limited resources.

“The laws and regulations in Jordan are good, but the implementation is sometimes bad,” says Romouz Sadeq, chief executive of start-up Mryati.

Mrayti, a salon service that bring stylists to the home on order via an app, was part of an incubator at Oasis500 and BIG, and Ms Sadeq has grown the company in a few short years to employ 47 Jordanian women in Amman and Irbid.

She said many Jordanian start-ups, hers included, struggle to navigate the business environment and government regulations after the incubator period. While capital and guidance are now abundant at the early development stage for start-ups in Jordan, angel investors and seed investors are few and far between and many start-ups in the kingdom are left to navigate alone.

Some Jordanian entrepreneurs say they “tread water” until an Arabian Gulf or western investor notices their project, leaving questions as to whether Jordan can create a climate to retain its best start-ups.

Souq.com, which was co-founded by Jordanians and started in Amman, eventually relocated to Dubai where it thrived and was sold to Amazon as an Emirati company in 2017.

Maktoob, Jordan’s largest tech success story, which was sold to Yahoo in 2009, shifted its front office to Dubai. It’s back-office in Amman employs 200 people and continues to provide the bulk of its content services.

Local entrepreneurs say investors from the Gulf and even Europe have their eyes on the Jordanian market, looking to see what SMEs survive and thrive in Jordan with hopes of importing the company and its solution to their own country, luring them with investment and a more tax-friendly environment.

“If you grow in Jordan, which has a limited economy, then you can take that winning project to any country and make it truly thrive,” said Ms Sadeq.

“It is an acknowledgement that Jordan is home to highly skilled people and human resources, and if you can make it here, you must truly have a special innovation that can grow anywhere.”

Yet with royal backing, Oasis500 and local incubators courting and grooming entrepreneurs, officials here say Jordan is committed to tapping the potential of human capital for its own.

Updated: April 5, 2019 09:55 AM

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