Cooperation in innovation can reshape the Middle East - opinion

Can the Start-Up Nation scale-up the region?

THE TEL AVIV municipality is lit up with the word ‘peace’ in Arabic in September. (photo credit: MIRIAM ALSTER/FLASH90)
THE TEL AVIV municipality is lit up with the word ‘peace’ in Arabic in September.
(photo credit: MIRIAM ALSTER/FLASH90)
As 2020 comes to a close, one of the lessons on which we can all agree is - that which seems impossible to fathom one day can become reality the next.
Clearly the COVID-19 pandemic and the ensuing shutdowns of national economies are the most vivid illustrations of this fact of life, but it should be noted that this year also brought more auspicious reminders.
Case in point: the normalization agreements the United Arab Emirates and Bahrain signed with Israel in September. Seemingly out of the blue, nations that adhered to the Arab League’s strict boycott of the Jewish state for 75 years did more than make peace; they initiated genuinely warm relations between the nations.
While some observers have analyzed this watershed development in the context of Israel and the Gulf states’ joint struggle against the mutual threat posed by Iran, it was immediately obvious to thousands of Emiratis and Israelis who instantly began interacting online that the bilateral relationship would rapidly become rich not just on a strategic level, but also in terms of friendship, tourism, and all manners of trade and commercial cooperation.
We believe that among the most significant consequences will be the flourishing of a new Middle Eastern network of innovation-driven economies. Closer commercial ties will afford Israel’s regional allies greater access to one of the world’s leading tech hubs, providing Israel with new local markets in which to implement its solutions. The Gulf states also boast an impressive array of cutting-edge start-ups tackling challenges and seizing opportunities that cross borders. This fusion of talent, capital and technology has the potential to foster an innovation ecosystem greater and more powerful than the sum of its parts.
Until now, Israel, acclaimed as the start-up nation in an eponymous book published a decade ago, has lacked the opportunity to harness its world-renowned prowess in such diverse fields as agritech, mobility, fintech, artificial intelligence and cybersecurity to nurture the larger region’s innovation ecosystem – to the detriment of both the Jewish state and its neighbors.
As I (Thani) observed at a recent conference, “Israel is the capital of innovation and startups. We in the UAE are the scale-up capital. Together, there is no limit to what we can do together.”
Indeed, within two months of the agreement, my (Michael’s) venture fund, Maniv Mobility, became the first fund based in Israel to invest in a UAE-based technology start-up, the kick-scooter sharing platform, Fenix.  And that, of course, is just the beginning. Hundreds of Israelis in the venture, financial, and other business communities have already visited the UAE, and it is now clear that when COVID begins to wane, dozens of flights will ferry tourists and businesspeople between both countries every day.
THE RAPPROCHEMENT comes as the Middle East’s tech landscape is becoming more and more mature. According to research conducted by the start-up data platform MAGNiTT, the Middle East and North Africa region (excluding Israel) enjoyed $704 million in venture capital funding across 564 deals in 2019, compared to just five deals totaling $15 million in 2009.
At the front of the pack is the UAE, home to 26% of all such deals in 2019.
Years ago, UAE leaders announced a goal to aggressively diversify their economy away from its dependence on oil exports. The UAE has already made great strides toward achieving that goal, creating a huge tourism industry, massively expanding its construction and real estate industries, and building manufacturing and services sectors.
Other countries in the region have undertaken similar diversification initiatives, jump-starting innovative solutions in areas like insurance technology, blockchain, digital banking, and more. According to figures cited by the Milken Institute, fintech start-ups in the Middle East and North Africa are forecast to rake in more than $2 billion in venture capital funding in 2022, compared to $80 million in 2017.
As part of its economic diversification strategy, the UAE has put in place myriad programs to support start-ups, providing them with interest-free loans, reduced government fees, and even consulting services. The government also initiated industry-themed zones, permitting like-minded start-ups in similar industries to come together. Success stories include Souq.com, an e-commerce platform that was acquired by Amazon in 2017 for $580 million, and Careem, the rideshare app which came to dominate the region before Uber bought it for $3.1 billion earlier this year.
It has been widely observed that the Israeli and Emirati economies, which are similar in size, are highly complementary, not only creating very large potential opportunities for bilateral trade but also giving start-ups in both countries a greater ability to scale within the region before truly going global.
What started with the UAE, Bahrain, and Sudan (which is also moving toward finalizing a normalization agreement with Israel) is unlikely to end there, as Israel eyes additional deals with other regional players. This will turbocharge the local innovation scene: Home to the world’s largest youth population, the Middle East and North Africa region is brimming with digital natives, making it an ideal market for Israeli solutions and a vital source of human capital for the region’s burgeoning hi-tech industry.
Can the deepening ties between Israel and its new Arab partners fuel new innovation not only on the consumer side, but also in terms of new company formation? Will strengthening business relationships and new commercial opportunities embolden more entrepreneurs in the region, like the founders of Fenix, to pursue their visionary ideas?
The long-term political and economic consequences of this game-changing new development in the Middle East remain to be determined – but the very fact that we’re asking these questions underscores that even in an increasingly uncertain world, positive change can come even to the most turbulent regions.   
To be sure, Middle Eastern leaders still confront instability, threats and unresolved conflicts, but the normalization agreements inked this year – and the promise of more such deals to come – create opportunities for collaboration that were not imaginable before 2020.
Having a front-row seat to this change has been nothing short of invigorating, and we’re only getting started. Building a region known more for disruptive technology than for the types of disruptions typically associated with the Middle East will usher in a new era of creativity, ingenuity, and innovation, dramatically improving the lives of the region’s people, with reverberations across the globe.
Start-up Nation meet Start-up Region.
The writers are Founding Partner at Israeli Venture Capital Fund Maniv Mobility and Deputy Managing Director of UAE-based Oasis Investments, respectively.