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August 14 2022 4:36 PM ˚
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Has Jordan’s start-up ecosystem cracked?

Business Park
Jordan doesn’t seem to be keeping statistics on how many start-ups, originally established in Jordan, had moved their headquarters and core operations to somewhere else. (Photo: King Hussein Business Park)
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AMMAN — While Jordanian entrepreneurs have the right ideas about tackling the future, their government may not. Some evidence for this can be found in the UAE, Saudi Arabia, Egypt, or the US; it’s where many of Jordan’s best technology minds, their intellectual capital, and businesses have migrated.اضافة اعلان

Good business ideas are location agnostic; they follow the money. Start-ups with good ideas may have hatched in Jordan a decade or so earlier, but eventually their true potential as they grew into big profitable businesses has been realized elsewhere.

The venture capital perspective 

Jordan doesn’t seem to be keeping statistics on how many start-ups, originally established in Jordan, had moved their headquarters and core operations to somewhere else. What we know already is that the numbers are big and that the opportunity lost by Jordan is huge.

Khaldoon Tabaza, founder and managing director of iMENA Group, told Jordan News that entrepreneurs leave because of lack of funding or because Jordan’s ecosystem for start-ups has declined.

“In the last nine years, Jordan lost more than $500 million of funding. This estimate reflects what Jordanian start-ups had raised and spent from venture capitals (VCs) in other markets. This could have happened in Jordan instead to help its economy and its entrepreneurship ecosystem. Add to that more than $1 billion of exit value that many start-ups realized after they were sold to new investors,” Tabaza said.

Start-ups go through phases of creation; first a business idea is generated, then its proof of concept is realized, and then it is funded. When the start-up grows bigger, the founders cash in through exits by selling all or part of their shares at higher stock valuations.

The MENA Venture Investment Report by MAGNITT, a leader in tracking MENA region start-ups VC, reported that 2020 had seen a record $1 billion in start-up investments. In Jordan, according to Tabaza, 2020 accounted for only 3 percent of the volume of regional venture capital and 9 percent of the deals.

“Talent is Jordan’s differentiator, but such talent prefers to follow capital and relocate their business to other tech hubs, resulting in significant loss of both funding and exit proceeds, which would have otherwise circulated back in the local economy.”

Tabaza knows a thing or two about how Jordan’s entrepreneurship space has been developing over the years. His entrepreneurship started in 1996, when he founded Arabia Online, the first online business in the MENA region backed by venture capital.

Tabaza also co-founded Ideavelopers, the first regulated venture capital fund in Cairo in 2001. In 2013, he founded the iMENA VC fund, which has invested in some of the most successful online businesses in Jordan and the region, including the likes of OpenSooq, Jeeny, SellAnyCar, Telr, and others.

Tech hubs

Around the world, winning cities have become synonymous with tech-hubs, attracting high value-added businesses, with spillover effects across all other economic sectors. “This is why Jordan should care about being a regional tech hub,” said Tabaza.

Cities thrive in entrepreneurship for different reasons, but the fundamental drivers are unmistakable: a healthy overall ecosystem that serves entrepreneurs and the availability of smart capital. Jordan today is quite low on these basic requirements but this wasn’t always the case.

“Jordan had lead the evolution of the regional tech industry as early as in 1988 and the early 1990s in terms of capital availability and talent, which created the first generation of regional tech leaders, giving the Kingdom a reputation for being an entrepreneurial (country). By 2012 Jordan's celebrated status ended and its entrepreneurial ecosystem started to decline,” Khaldoon added.

Network effect

Network effect is when an increase in one supply side, start-ups for example, triggers an increase in the supply side of people willing to invest in start-ups; a progressive relationship that leads to a healthy economic growth. “Nurturing a tech industry is the result of the network effects of talent and capital, in which talent attracts capital, and capital availability attracts more talent. Network effect and access to large markets makes the right recipe for the creation of a tech cluster, which is the sector leading now in fundraising,” said Tabaza. 

Since the 1980s, stronger and more sustainable entrepreneurial initiatives in the GCC, coupled with shortage of capital in Jordan, lead to a progressive decline in the volume and number of deals. This took place at a time when the GCC was beginning to see a boom. 

“Local initiatives undertaken, sadly, did not help, as funding initiatives focused on either providing capital only on a matching basis, and/or making commitments to foreign funds and asking them to deploy back in the country,” Tabaza added.

Neither of those approaches worked. “Jordan still lacked a local lead investor to enable such matching funds or lead deals and attract co-investment from regional funds who do not have a presence in Jordan. To-date, much of the committed capital in Jordan remains un-deployed, despite the pressing needs of the industry.”

Jordan needs to do even more than attracting capital and talent to re-ignite the spark. “The solution is to compete on tax efficiency and ease of doing businesses to level the playing grounds (with competing hubs in the region). We need to devise and encourage new strategies of competing globally to access the larger markets, rather than purely position ourselves as a back office for regional or international firms.”

Silver lining

One encouraging trend amidst all the negative indicators in Jordan’s entrepreneurial landscape is that female-to-male ratio for total entrepreneurship activity has shot up from 0.26 in 2016 to 0.59 in 2019.  This progress has shown an improvement of around 127 percent in only three years, according to the Global Entrepreneurship Monitor report, which has rewarded Jordan with a score of 100 out on the scale of 100 in the World Bank’s “Women, Business, and the Law” report.

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