Small online businesses: modernizing Jordan's economy one user at a time
Amman emerges as the city of the most dynamic start-ups in the Arab world, as proven by an annual 25 per cent IT sector growth. Combining political stability, an almost uncensored Internet network and a well-educated population, the country was able to create an environment ideal for start-ups that wish to change the Arab world, one user at a time.
Its start-up ecosystem, created almost entirely at King Abdullah’s initiative, also surfs on the wave of changes that surged in the aftermath of the Arab Spring.
Nur Alfayez, an architect who plays the violin and acoustic guitar, is part of the new generation of Jordanians on which the young Amman ecosystem lies. Realising how difficult it is to order music accessories online, she came up with the idea of launching a shop for musical instruments.
“In the Gulf countries, and even more so in Iran and Saudi Arabia, many people wish to express themselves through music, but Western instruments are not easily accessible,” she explains.
“Our shop should offer a solution to this problem.”
The 28-year-old did not lack vision, but she would have had a hard time establishing Feesheh.com without the incubator Oasis500, where she was admitted with enterprise co-founder Fahed Farraj, who has a passion for the electric guitar.
Like other online shops which came into being as a result of Oasis500, Feesheh.com utilises the platform ShopGo, another start-up stemming from the incubator. This one was launched by Mohammad Ghashim, a Syrian who had to start from scratch after being forced to leave his country in 2011.
Like Feesheh.com, most Amman start-ups take the shape of websites targeting consumers from the Arab world. The majority are online shops or digital media.
This is how Jamalon, the most important online library in the region, was set up in Amman. Another enterprise whose success stirs ambitions in Jordan is the portal Maktoob, which was purchased by Yahoo in 2009 for $164 million. That transaction has in fact played a major role in the transformation of Amman into a city of technological start-up enterprises.
Royal recipe for the Jordanian miracle
“It all started with a very unusual meeting with the King,” recalls Usama Fayyad.
In the wake of Maktoob’s acquisition, he and a dozen other Jordanians were asked by King Abdullah to submit a plan to replicate the success of Maktoob. This meeting was to lead up to the creation of Oasis500, whose executive president today is Fayyad.
The initiative of the King was part of his continuous efforts to modernise Jordan’s economy.
One of the first steps he took after ascending to the Throne, in 1999, was to set up REACH, a national strategy aimed at promoting the emergence of a Jordanian IT industry through initiatives in the field of training, infrastructure and regulation.
Among the measures, the monopoly Jordan Telecommunications was privatised in 2000 to allow for free competition in the sector and to lower prices. The country also carried out reform in its education system, making English and initiation in IT compulsory right from the primary school level. IT courses were also given priority in universities; 31 out of the country’s 33 universities (for a population smaller than Quebec’s) today offer IT in their curriculum.
Since the launch of the initiative, the IT sector witnessed a yearly average growth of 25 per cent. It represents 14 per cent of Jordan’s gross domestic product, compared to only 2 per cent in 2000. Its GDP was $6,000 per inhabitant in 2012.
The informal committee created by the King would meet several times after that.
“One of the rules was that there would be no government participation, closely or remotely,” explains Fayyad, according to whom the King wanted to speed up the process.
Besides, its members were, in majority, coming from the private sector. Mr Fayyad, for one, had just come back from the United States, where he had a fruitful career. The doctor in IT had worked with NASA, Microsoft and Yahoo, where he was vice-president for data between 2004 and 2008.
The first finding of the informal committee was that there was a shortage of financing, and it quickly realised that the creation of a fund would be far from sufficient. Jordan did, indeed, have an abundance of good engineers, but few among them knew how to go about setting up a start-up. This is how the committee reached an agreement that there was need to set up an incubator inspired by Y Combinator of Mountain View, California.
With some adjustments, nevertheless. Contrary to Western incubators, where candidates generally have to apply by e-mail, the entrepreneurs who wish to join Oasis500 have to participate in boot camps.
“This phase would be useless in the United States, but here we have to explain the basics: how to make a presentation to investors, how to present financial statements, what a venture capitalist expects, etc.,” explains Fayyad.
Once the selection process is done, chosen start-ups receive, generally, an investment of $30,000 in exchange for 20 per cent of the shares.
By way of comparison, the Montreal incubator FounderFuel offers 50,000 Canadian dollars in exchange for a 9 per cent participation.
“During the discussions with the King, I insisted that we had to change the country’s culture, as more than half of the population works for the government. The King asked me what that meant. I told him that there was a need to spur the imagination by financing a great number of enterprises. He asked me how many. I answered 500 and he exclaimed: ‘Ah, 500, that’s ok’.”
Oasis500 had from then on a name, and it was thanks to a cheque of $100,000 from the King Abdullah II Fund for Development that the incubator could start its activities.
Private investors took over so well that Oasis500 has today a $7 million capital.
More and more venture capitalists
What started with a simple question by the King has somehow become a society project in Jordan, in which numerous businessmen participate. Many gave in to the lure of venture capital: Oasis has a network of no less than 500 investors, who mainly come from the Gulf.
“With the Arab Spring, one sees more and more Arab capital invested in the Arab world,” explains Fadi Ghandour, who made his fortunes by founding Aramex, a FedEx competitor set up in Amman that got soon listed on Nasdaq. The businessman, who has most notably invested in Oasis500, is not new on the venture capital scene. His first investment? Maktoob.
Rami Al Karmi, who started his career as an entrepreneur by making custom-made computers during his studies in electrical engineering, is part of a wave of investors in Jordanian venture capital that emerged after 2009. After having sold his IT services company, Karmi got training in venture capital at Berkeley University in 2010. He later joined N2V, a Saudi technology holding company that gave him the authority to incubate entrepreneurs in Jordan under the aegis of N2V Labs.
“We created what I call an accelerator without risks, which we invited talented entrepreneurs to join,” explains the businessman.
“They were paid a salary and they could experiment. If we decided to spread their start-up, they could obtain up to 50 per cent of the shares of the new entity.”
As for Nidal Eses, he decided to contribute to the community by founding the first co-working space in Amman, which opened its doors in December 2012. Even though he owns assets in several continents, he dedicates much of his time to ZeeLaunchPad, where he has his office.
So far, he has 29 members, and capacity for a hundred or so. But he wishes to take his time. “What I am trying to do here is not to deal in real estate, but to build a community with a good mix of talent,” he explains.
Changing the culture
According to Nidal Eses, Jordanians are more entrepreneurial than they used to be several years ago.
“People started to accept taking risks and to accept that it is necessary to fail in order to become an entrepreneur,” he explains.
On his part, Karmi believes that Jordanians have still a long way to go in this respect.
“Our culture does not accept failure like in the United States. Here, an entrepreneur is, in the eyes of his relatives, someone who is unemployed. Until today my mother fails to understand why I do not have a job like everybody else…”
The Jordanian legislative framework is somewhat an image of this culture. It does not stipulate that a powerful individual could go bankrupt. Therefore, one thinks twice before taking out a personal loan to finance a business project, because one risks not only having his property and salary seized in case of insolvency but also going to prison.
The banks in the country, however, avoid getting prison sentences, as it is bad for their image and their business, according to different sources.
Despite this cultural heritage, the young Jordanians busy in the technological field do not fear failure anymore. Enjoying the support of the King, who attends Demo Day at Oasis500, the incubator has already amply contributed to legitimising risk-taking. In this sense, it has already honoured its most important promise.
“We had to meet our objective of having 500 start-ups in six years,” maintains the executive president of the incubator, Fayyad, “but who knows, the market could change, I could fail, and this is OK.”
In Arabic, start-up is conjugated in the feminine
While the scarcity of women in the universe of start-ups is an issue in North America, the reality is totally different in Jordan. Indeed, no less than 37 per cent of enterprises incubated by Oasis500 are managed by women. At American Y Combinator, which popularised the concept of enterprise incubator, this proportion is only 4 per cent, which earned it much criticism.
More Jordanian women obtain university degrees than men.
Hiba Mansour, CEO of Sajilni.com, a platform for reserving tickets online, is one of the many businesswomen who gained the trust of Oasis500.
Holder of an IT degree from the University of California, in San Diego, she believes that the importance of the traditional roles in society could be in women’s favour.
“We live in a culture that requires a man to be the breadwinner for the family,” she explains.
“For men, launching a start-up means taking a great risk. Women are less hesitant to take such risk, because earning a salary is not their number one responsibility.”
The Internet is also a powerful emancipation tool for women consumers in the Arab world. For some of them, it is a unique space that offers freedom, where they can express themselves, get information, socialise and do the shopping… without leaving their homes.
For Omar J. Sati, director general of Jordanian investment fund Dash Ventures, the success registered by women entrepreneurs in technology could be tied to that of websites dedicated to women in the Arab world.
“I believe that only women know how to solve women’s problems,” he maintains.
In support of his statement, he gives as example the giant of electronic commerce, set up in Dubai, MumzWorld.com and the site showing video recipes, Zaytouneh.com (in which Dash invested).
For Muslim investors, the money has a smell
Amman tech-entrepreneurs quote more often The Lean Startup than the Koran, and their women colleagues are rarely veiled. However, their investments often come from Saudi investors whose deep pockets enable them to impose their religious convictions.
“One has to conform with Sharia, because one serves users who want one to conform and because one has partners in Saudi Arabia who conform themselves,” explains Muhannad Ebwini, CEO of Gate2Play, a Jordanian start-up that provides a platform for online payment and services of localisation for the video game industry.
Concretely, an enterprise that conforms with Sharia has to ensure that its activities have no connection with certain behaviours proscribed in the Koran, such as gambling, alcohol or interest-bearing loans. These entrepreneurs also have to deal with an Islamic bank. Numerous in the region, these financial institutions do not charge any interest on the sales of their clients and bill service expenses rather than charging interest on the loans they grant.
As a general rule, the big enterprises that conform with Sharia institutionalise this commitment by forming a committee on whose board of directors generally sits a religious figure.
“The committee examines the enterprise’s activities and checks whether they respect regulations pertaining to Sharia; this could become very sophisticated,” explains Ahmad Takatkah, former investment director at N2V, a technology holding company set up in Saudi Arabia that conforms to Sharia.
For a technology enterprise, the criterion of conformity may become a potential obstacle, but it could also yield a competitive advantage.
The online advertising network Net Advantage, which is part of N2V, has become the most important in the region exactly because of its religious considerations.
Editors in the region prefer it to Google Adsense because the American advertising agency may post an ad showing a woman in a bikini, for example.
- Understanding the ripple effect: 8 reasons the US economy has slowed down in Q1 of 2015
- Can Bahrian emerge from the oil price plunge 'stronger than ever'?
- Egyptian stocks plummet as Yemen confict deepens
- UAE sweetens flotation regulations to attract more investment
- Replacing Switzerland? Why Lebanon isn't keeping its banking secrecy a secret