Digitalisation of industries key to economic growth

“We need an ecosystem in which start-ups are allowed to fail and be incentivised to start all over again in a cost-effective manner,” says Philip Bahoshy, founder and CEO of MAGNiTT.

Sunday 19/05/2019
A passion for entrepreneurship. Philip Bahoshy, the founder and CEO of MAGNiTT.	 (Courtesy of Philip Bahoshy)
A passion for entrepreneurship. Philip Bahoshy, the founder and CEO of MAGNiTT. (Courtesy of Philip Bahoshy)

Born to Iraqi parents, Philip Bahoshy is founder and CEO of MAGNiTT, the largest investment data platform for the MENA start-up ecosystem. He has brought investors, entrepreneurs and corporations together on that platform.

His finance education most likely ignited his passion for data and entrepreneurship. He is a regular adviser to regional governments on local economic strategy.

Having lived for more than ten years in the United Arab Emirates, Bahoshy has been at the forefront of start-up development in the region.

In a conversation with The Arab Weekly over Skype, he passionately shared important information on the entrepreneurship narrative in the region.

The Arab Weekly (TAW): Could start-ups ever become the first factor for economic growth in the MENA?

Philip Bahoshy (PB): “The start-up ecosystem has only been around for a short period. We are still in infancy. We are now seeing an acceleration of start-ups that are growing and scaling their solutions to local problems. The majority of starts are in infrastructure, whether this is in logistics, financial services, health care, education.

“The digitalisation of all industries will be key to continued economic growth regardless whether they come from start-ups. The focus is not on whether people have enough cash in their pocket, the question is whether we have enough digitalisation. Because we have high digital penetration, many of the products are digital products.

“What we should focus on is credit card access for consumers to make purchases online. Historically, there has been a resistance in the region to make credit card payments or use digital wallets. This is an issue that needs to be solved to see the growth in the start-up ecosystem at a mass scale. People are still paying offline for digital services. In the case of Souq.com and Careem, they differentiated themselves from international players by allowing customers to pay in cash for goods and services.”

TAW: Where are we after almost ten years of start-up narrative?

PB: “We are seeing a clear increase in several start-ups as well as investments. The year 2018 saw a record of investments: 409 venture-backed investments in start-ups and $907 million worth of investments in MENA based companies and we are adding to the amount of investments in Souq.com and Careem. We are seeing more investors invest in the region’s companies. Last year, we had 159 investment institutions, which is more than any previous year. The size of investment deals is growing.

“Given the infancy of the ecosystem, start-ups cannot be a silver bullet to youth unemployment. There are, of course, some circumstances in which Careem has succeeded in providing mass opportunities for employment. Start-ups remain net importers of talents whether from outside or inside. The issue of employment needs to be solved from an education and training perspective. That does not mean that start-ups are creators of jobs.

“I do not think the start-up ecosystem has created a new industry. It is solving inefficiencies to already existing industries using technology. Careem made it easier to get a taxi. Souq offered more consumer choices and delivery. Fetchr provided easier access to courier services. PropertyFinder provided a more efficient way of renting and buying apartments. And this is true for the rest of the world.”

TAW: Could we easily replicate the successful exits of Careem and Souq?

PB: “That is a number game. Exits are usually seen as the end of the journey. To be able to see that, we need a much wider base of start-ups created regularly. In the Middle East and North Africa, MAGNiTT tracks 10,000 start-ups from which 100 had an exit. It is not completely dissimilar to other regions. We need to nurture a cost-effective environment, infrastructure and more funding to scale by solving larger issues and problems with teams able to execute on those issues.

“We also need time and patience for these companies to grow. According to our data, a company takes between 7 and 9 years to exit. Many of the top-funded start-ups were founded between 2012 and 2015. It is only natural that the acceleration of exits will come in three to four years, from which we are already seeing the premises.”

TAW: Given the many restrictions in the region, how could we define local start-up success? Does a start-up necessarily have to make high profits to be successful? How could we define qualitative impact, not quantitative?

PB: “In the pure venture space, investors look at scalability and growth across geographical markets as key. The region has different demographics, environments and regulations that start-ups need to overcome to be in a position to scale. In many cases, they are applying many foreign concepts to the region. The challenge with that is that you are not creating pure innovation. I am not saying that as a criticism. In many ways, tailoring a product to the local economy is innovation, too.

“Yet, these companies spend the first years hustling to get over the bureaucratic challenges to be in a position where they can be acquired by international players. If acquisition offers come their way, it is the right of the entrepreneur to take. We do not have a regional developed initial public offering exit market that would allow local people to invest in a company’s dream. To continue growing, start-ups need huge amounts of investments which they may not encounter within the region.”

TAW: What would you advise governments to implement for regional start-up growth?

PB: “We need an ecosystem in which start-ups are allowed to fail and be incentivised to start all over again in a cost-effective manner.

“Second, we need free movement of labour. Talent acquisition is one of the hardest challenges for start-ups that includes hiring and firing the workforce from different geographies. In the technology space, this free movement is extremely important.

“Third, we need easier market access. What characterises the American or Chinese markets is that they have similar regulations across their regional jurisdictions, which is not the case for our region. This hinders scaling through geographies to be of interest to investors. We almost need to encourage a pan-MENA market.”

19