UK’s digital sector faces hurdles
London // After Snap, the parent company of Snapchat, made its stock market debut in the US last week with an eye-popping US$24 billion valuation, people are asking which start-up could become the next billion-dollar tech juggernaut.
Will it come from the prolific tech ecosystem in Silicon Valley, will it be a rising Asian star or even a European business?
A day before Snap’s launch, the UK revealed its own long-awaited digital strategy, which pledges to provide digital skills training for millions of people, teach coding in schools to 45,000 children and which puts Artificial Intelligence and robotics centre-stage.
At a glance:
■ What: A major push to build on Britain’s tech sector success may run into serious roadblocks.
■ Why: Brexit could hit the lucrative fintech industry, among others, and technology skills shortages may worsen significantly.
■ Further reading: Snap’s spectacular IPO
Late last month, 26 new rising stars of the UK tech scene were welcomed into the Future Fifty programme, a UK government-backed initiative that has already helped to produce household names such as the property portal Zoopla and the restaurant takeaway service Deliveroo, both of which also operate in the UAE.
As it happens three of this new cohort – the advertising data firm Blis, the telematics company Trak Global, which deals with the long-distance transmission of computerised information, and Condeco, a software company that specialises in workplace management systems – are already active in the GCC. They follow Deliveroo and MWR Info Security, which also operates in the UAE, as two other Future Fifty companies. A pair of Future Fifty alumni also have a presence in the region: Mode, a mobile payments firm and Unruly, an ad tech firm.
Back in the UK the government has been actively promoting the tech sector for almost seven years. It was in 2010 when the then prime minister David Cameron went to Old Street roundabout on the fringes of London’s financial district and declared that the city’s East End would be transformed into a world-leading tech hub.
Since then the government has been firmly backing measures to improve the climate for tech firms and entrepreneurialism in Britain. It started Tech City UK, which runs the Future Fifty programme and other initiatives such as a digital skills academy, to accelerate and support the growth of the sector.
So far it seems to be working – although as yet the next Snapchat, Airbnb or Uber has not emerged. The UK’s technology sector drew more investment than any other European country in 2016, according to data from London & Partners, the Mayor of London Sadiq Khan’s promotional company. Measuring activity across private equity and venture capital deals, more than £6.7 billion (Dh30.05bn) was invested in UK tech firms in 2016, with London accounting for more than a third of the total.
Regarding tech start-ups, the UK has pulled far ahead of the rest of Europe – accounting for 18 of the 47 unicorns – new businesses valued at more than US$1bn – in Europe, according to GP Bullhound research.
According to Tech City UK, the UK secured £6.8bn of venture capital and private equity investment in 2016 – 50 per cent more than any other European country. The sector has created 1.64 million UK jobs and digital jobs have been growing at double those in the wider economy since 2011. The digital tech industries are worth almost £100bn to the UK economy.
As a country desperate to improve its productivity, average tech salaries in Britain are also high, at £50,663 – 44 per cent more than average non-digital salaries.
The sector is in a strong position but it is not all plain sailing. One of the reasons experts think the UK’s tech sector took off after 2011 was the migration of young, talented, educated Europeans from countries such as Italy, Spain and Portugal, all of which have been plagued by crippling unemployment. These workers with non-specific skills turned up in London looking for jobs and the nascent start-up scene was hungry for staff.
Now more than 13 per cent of the people employed in the UK tech sector are from overseas, a figure that rises to 20 per cent in London. Furthermore, 41 per cent of tech company founders were born or studied overseas, a recent study by the venture capital group Balderton found.
This is why the sector is so concerned about Britain leaving the EU. “The digital tech workforce is more reliant on international talent than the UK as a whole,” says John Davies, a research fellow at Nesta, which analysed nationalities in the UK tech sector. “The difference in London is particularly striking”.
Gerard Grech, meanwhile, the chief executive of Tech City UK, says: “Access to talent is a critical issue for the city’s tech community and Tech City UK is working closely with government to make sure it understands why companies and entrepreneurs need to continue being able to hire highly skilled staff such as data scientists and algorithm engineers from around the world because of their rapid rate of growth. This is in addition to reinforcing a home-grown talent development strategy through universities and specialist colleges.”
Tech City was recently allowed to endorse 50 more visas, a quarter more than usual, because applications have been at record levels since the June referendum to leave the EU.
Another looming challenge for UK tech is the financial, or fintech, sector. Britain is regarded as leading the world in this fast-growing subset of tech companies, which employs 60,000 people in the country already, according to Treasury estimates.
But with Brexit, local and international fintech businesses are extremely worried about the loss of “passporting”, which allows financial services firms to operate across the whole of Europe from an office in London without applying for a licence in each country. It is relied upon heavily by US investment banks which have most of their European staff in London, preferring the city over other financial centres such as Frankfurt.
According to an Ernst & Young report, London is the world’s fintech capital, generating £6.6bn in revenue in 2015.
Eileen Burbidge, one of London’s best known tech investors through her business Passion Capital, acknowledges there are concerns for the sector but she thinks the advantages that made the City of London a natural home for fintech will not just disappear overnight when the UK leaves the EU. Add to that the practical implications of relocating an established financial services business, or creating a new one, in mainland Europe and many will be deterred from moving.
Yet Simon Black, the chief executive of PPRO group, a payment processing firm, said recently he was opening an office in Luxembourg because it was necessary to plan for when passporting ends. He says the growth of his London business will now be slower, as he is forced to put resources into Luxembourg, where he has already hired a managing director.
Only last month the French presidential hopeful Emmanuel Macron was in London trying to lure financial services firms and start-ups to France. The City fears that other European leaders will fight hard to make life tough for the UK’s extremely successful financial services sector.
But finding people with suitable skills is the single biggest challenge the British tech sector faces, according to Tech City UK and many business leaders.
This is where initiatives such as Future Fifty have an even greater responsibility. It is not enough that they help to catapult some very fast-growing companies to international markets and success.
The 26 tech businesses that have joined Future Fifty are in the vanguard of companies that will digitise the British economy of the future.
By becoming household names and expanding into new regions including the Arabian Gulf, companies such as Deliveroo and Trak Global demonstrate the huge potential for every UK tech start-up – whether it is the new Snap or not.
Follow The National’s Business section on Twitter
What: Major push to build on Britain’s tech sector success may run into serious roadblocks.
Why: Brexit could hit the lucrative fintech industry among others and technology skills shortages may worsen significantly.
Updated: March 7, 2017 04:00 AM