Lower oil prices will boost formation of tech startups

BECO Capital, a regional Venture Capital firm that invests in technology startups, expects entrepreneurship and VC activity in the Arab region to surge if the global and regional economies continue to slow down. There is a strong positive correlation between a weak economy and a booming tech industry, according to BECO. The economic slowdown is what has allowed technology companies to boom globally and the same is projected to happen regionally.

Dany Farha, Chief Executive Officer of BECO Capital says: “There is no better time to be a tech entrepreneur in the region than now. During these difficult economic conditions, there is a silver lining. It is when economic conditions are challenging that consumers and enterprises look for the most efficient and innovative solutions, and these are provided by technology companies. We should continue to innovate at the early stage and help build amazing businesses in the later ones. Thosecontribute substantially to income, output and employment.History has proved that a weak economy spurs entrepreneurship and innovation.There is no better time to fund SMEs and entrepreneurs than in a downturn.”

He adds: “Higher Unemployment in a slower economy triggers a positive cycle of young pioneering professionals who create their own jobs by starting their own small ventures. It is the reason we witness a rise of new entrepreneurs in France and Spain, where both countries are enduring the industrialised world’s highest unemployment rates.”

Dany Farha explains that despite a difficult second half of 2015, drawn down by slumping oil prices and budget deficits, the region’s tech entrepreneurship landscape continued to move upwards. “The ecosystem is expanding and has witnessed a rise of the digital economy and the emergence of potential regional unicorns”, he affirms.

The GCC governments are trying to replace oil-reliant economies through economic diversification policies, in order to reduce their oil dependence[1]. The UAE, in particular, has seen a lower oil price impact as its successful decade-long diversification strategies are coming to fruition. The non-oil private sector continues to show strong growth. This will further encourage governments to support the SMEs sector, and thus the startup and entrepreneurship environment.

“A weaker economy projects a new perspective in terms of diversification, as it fuels a more entrepreneurial and innovative approach in a tough and competitive work environment. The need to raise the bar on quality and service and to become more efficient and effective tend to inspire new ideas,” explains Dany Farha, adding: “Some of the biggest leaps in technology were made in the second half of the 1980s” when oil prices ranged from US$ 25/bbl to US$ 45/bbl in inflation-adjusted terms. 

“Regional tech startups will thrive over the next couple of years, in an attempt to drive a much-needed higher productivity and efficiency across various industries. Take for example the last recession when Airbnb, Uber and other global unicorns were founded. These companies monetised the need of people in the post-crisis economy. Many disruptive technologies were founded in the ‘New Economy era of the late ’90s’.

“With over 109 players currently investing in the technology startup sector across its various stages, north of US$ 250 million were raised in the last 18 months by regional tech entrepreneurs. More investments in technology and the digital economy, both at private sector and government levels have, and will over the mid to long term, help boost the economy. The growth has been exponential and we expect this trend to continue in 2016. It is the right time for regional tech entrepreneurs to step up and take advantage of the need to diversify the economy and prove they are worth investing in.”

He stresses: “The oil price slump and a weak economy are an opportunity. The tech industry in the region has great potential to grow, driven by the need of diversification and the demand to focus on improving productivity and efficiency. I expect many tech breakthroughs to emerge in the next few years.”

Dany Farha confirmed that, this year, BECO Capital will continue to support budding entrepreneurs and developing technologies. “This is exactly what BECO Capital does; we back promising future technology leaders, through early stage growth financing and expert operational and technical support.”

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