SMEs account for 90 percent of Bahrain’s enterprises (Image via Wikepedia).
In 2017, Bahrain ranked second in the MENA in terms of Ease of Doing Business, and very good reasons have endorsed this ranking. The number of startups in the country has grown at a compound annual growth rate of almost 50 percent over the past three years, as per the data of the Bahrain Economic Board (EDB). The Kingdom offers entrepreneurs multiple benefits, as well as an attractive regulatory environment. So, what would hold back an ecosystem with similar components from turning into a startups haven?
An inviting market
Khalid Al Rumaihi (Image via EDB).
“We recognize that technological change is disrupting industries and unlocking innovation and entrepreneurship. We choose to see this transformation as a real opportunity for change and are committed to doing everything we can to increase dynamism and competition in our markets,” explained H.E. Khalid Al Rumaihi, chief executive of Bahrain Economic Development Board (EDB), when asked about the drivers behind forging Bahrain to become a regional tech hub. SMEs already account for 90 percent of Bahrain’s enterprises and 30 percent of its GDP. The aim? To see new ideas tested and developed in Bahrain, then rolled out across the region and globally.
Multiple factors attract local or regional startup to establish their businesses there. The country’s small population, that does not exceed 1.5 million people, acts a testbed for startups and an easy-to-consult market validator for products and services.
GetBaqala is an Indian startups that's based in Bahrain (Image via GetBaqala).
Get Baqala, an Indian grocery delivery app, was among the startups that found their way to Bahrain. Amjad Puliyali, cofounder and CEO, told Wamda that Bahrain is a fantastic launchpad for startups. “It’s a small, but very proactive ecosystem, allowing access to the right decision makers both in the industry and the government.” He said that they started GetBaqala with a hyperlocal model [where they picked up and delivered from their partner grocery stores in specific communities], which allowed them to refine their customer interface. But ultimately, this model couldn’t get the right unit economics and margins, so they pivoted to an inventory-driven model. [sourcing directly from brands and sellers and stocking it]. He explained that they are currently buying from 50+ FMCG brands / suppliers - including Unilever, P&G, Pepsi, Coca Cola, Mondelez, etcetera.. and some of their local distributor partnerships include, Aujan Group, Abu Dawood Al Saffar, BMMI, Ahmadi industries. “We also work with local farmers in Bahrain through AlGalia Farms, Central Market in Bahrain, and Farmers Market Bahrain,” he said.
Puliyali explained that though he was well acquainted with the region, having lived for decades in the UAE, the EDB provided a one-stop-shop for everything they needed to set up, “which really gave Bahrain the edge.”
GetBaqala was incubated with Bahrain Development Bank’s Rowad program, where it got access to initial working capital through the Seedfuel program and access to the Global Accelerator Network (GAN), where it got lots of perks like free Amazon Web Services Credits, discounts on number of services such as WeWork, and a coworking space which they will utilize for their Bangalore development office. “We also gained invaluable support from Tamkeen, the Bahrain Labor Fund, which helped us acquire local talent by providing salary and training support. They helped us hire freshers from the University of Bahrain and Bahrain Polytechnic and to upskill them fast.” He added: “We’ve grown quite quickly to a team of 30 with five full-time engineers,” Puliyali explained.
Yallabety, a home cooking sharing network, is another startup based in Bahrain. Ahmed Kamal, founder and CEO, told Wamda that Bahrain is the right country for any startup to launch mainly because of the ease of setting up processes and procedures. “The fact that it is a small market makes it very easy to know who are the entities that could provide you with the kind of support needed, in every possible way.” According to him, Bahrain today acts as a big host to many startups within the GCC region whether initiated from it or easily expanded in.
Kamal, who has also been living in the GCC for a while, felt the ease of doing business in the country. According to him, Bahrain’s market is a melting pot for old and new businesses that are all willing and hungry to grow further. “These companies understand the need to collaborate and support one another to reach better heights. This makes Bahrain a very good space inclusive of a growing business community, where everyone is trying whatever way in order to achieve great results,” he said.
Good business incentives
Bahrain, unlike all regional countries, provides 100 percent foreign ownership in most sectors, a cohesive regulatory environment with no free zones or onshore/offshore differentiation, and a robust legal framework, Al Rumaihi stressed. “This means any regional or international startup can base their operations in the Kingdom and serve the GCC countries with around 30 percent lower administrative and operating costs,” he said, referring to Paytabs, a Saudi-founded payment processing and fraud prevention company, which has based its headquarters in Bahrain to support its growth objectives.
Ahmad Kamal (Image via Yallabety).
The government has also worked on offering good infrastructure at very competitive prices. “We reviewed the telecommunications industry in 2004 and deregulated it, moving from a single operator to over 20 today. This has reduced costs for both businesses and consumers and has encouraged new product development,” said Al Rumaihi. As a result, the United Nations International Telecommunications Union (ITU) ranked Bahrain as first in the region for the fourth consecutive year.
With such a welcoming ground, there was no doubt that many large corporations would set their eyes on Bahrain. Amazon Web Services (AWS) announced plans to launch MENA’s first AWS Region out of Bahrain next year. “We’re clearly on the right track. [...] That being said, we understand that this is an ongoing process and we will continue to work on developing our ecosystem, updating our regulations, and ensuring that startups in Bahrain (local, regional and international) operate in a business-friendly environment that encourages their growth,” Al Rumaihi said.
In line with this, EDB announced a record year for inward investment in 2017, having attracted 71 new companies to Bahrain with investments amounting to $733 million. The investments span key strategic growth sectors, where ICT topped the list, comprising 54 percent of total inward investments.
Besides these two fundamentals (funding and environment), private and public sector stakeholders are working hand in hand to make steady steps. Besides the appealing infrastructure, Private-Public Partnerships (PPPs) had a great impact on the whole ecosystem. “Underpinning Bahrain’s startup ecosystem is a really collaborative approach between the private and public sectors, focused on helping startups flourish by unlocking access to mentors, partners, investors, and region-wide opportunities,” said Al Rumaihi. EDB launched Startup Bahrain, a community initiative that brings together entrepreneurs, corporates, investors, incubators, educational institutions, and the Bahrain government, to promote startup culture. “As a result of these combined strengths, we are seeing rapid growth in Bahrain’s startup ecosystem across a number of sub-sectors, including software development, ecommerce, cybersecurity and fintech,” Al Rumaihi explained, referring to the growing momentum fintech is gaining as a result of these PPPs. “The Central Bank of Bahrain (CBB) understood the need for flexible regulation to allow for innovation, especially in companies that may not have the capacity for full licenses,” he added.
Public sector organizations like Tamkeen (the Kingdom’s Labour Fund) and the semi-governmental ones like the Bahrain Development Bank (BDB) offer grants, loans, guidance, and training programs which are providing startups with the tools needed to accelerate their growth trajectories.
Specializing in hardware, IoT, and fintech
It is for a fact that to found a startup ecosystem on solid grounds, it should start with a strong hosting community. And that’s what Bahrain is trying to have. The ecosystem enjoys six acceleration spaces: C5 Accelerate, CH9, Level Z, Rukn, The Hive, in addition to Brinc, one of the newest addenda. Brinc was first established in Hong Kong in 2014, and in this initiative with Batelco, one of Bahrain’s leading telcos, it is the first incubator in the Middle East to specialize in supporting IoT and hardware-driven startups. The hub will provide entrepreneurs with mentorship, product design, and development guidance, access to manufacturing and exposure to regional and global investors and markets, all in one program. On-site business, manufacturing and distribution experience will be also offered. Suzy Al Zeerah, head of marketing MENA at Brinc.io- IoT Accelerator, told Wamda that the incubator is tech-focused as the mission and the driving force are to make Bahrain the ‘Silicon Valley of the region’. She said that local startups are very active, and they are supported by the Labor Fund in great ways. Brinc has already kicked-off the ramp up for its first cohort, and it aims to officially lunch during this month. Most startups are from Egypt, the UK, and the UAE, and the first cohort will have two to four teams. Though the amount is not announced yet, the incubator will be offering equity-based funding. “The startup culture is really beginning to take-off here. With so many incentives and funding from accelerators, we are seeing a rise of startups regionally shifting here as it’s a cheaper place to live than Dubai and Kuwait for example,” Al Zeerah said.
Fintech startups have the added advantage of a mature sector with global standard regulations as well as varied funding vehicles, around 400 financial services companies. They also have the option of basing themselves out of the recently launched Bahrain Fintech Bay (BFB), one of the MENA’s largest fintech hubs. BFB is a coworking space which brings together fintech startups, incumbent corporations, and other key industry players, including the 28 founding partners, banks, and the CBB. A number of startups has already started leveraging the hub, including US-based RobustWealth, Offrbox and Sigma Ratings, and Jordanian startup Labiba.
Challenges still exist Bahrain Fintech Bay (Image via Bahrain Fintech Bay).
Even though multiple support entities are interacting, some challenges still reside there. “I think capital is a main and universal challenge that startups are facing. But the key is what do you do to solve this? We are focusing on attracting more Venture Capital into Bahrain, along with nurturing a culture of angel investment to build on Bahrain’s successful family investors, and high concentration of high-net worth individuals,” Al Rumaihi said. In line with this, VCs are getting more dynamic in the country, with no less than six parties acting there, including BDB, Tamkeen, Tenmou, 500 Startups, and Seed fuel (Rowad).
The government has also introduced a crowdfunding regulation to help open up new avenues for early stage funding while “encouraging individual investors with more traditional portfolios to be introduced to the startup community,” as said Al Rumaihi.
GetBaqala’s Puliyali said that in terms of accessing capital, the small ecosystem factor came into play and through their contacts, they were able to access funding from around the world. “Our first round of funding came from Silicon Valley-based Social Capital, through their CaaS (Capital-as-a-Service) initiative, and we were the only startup from the GCC to access. We also gained investment from Saudi Arabia-based Manafa VC, and Bahrain Development Bank’s Seed fuel.”
Another challenge would be keeping up with the disruption that tech is exponentially bringing. Al Rumaihi explained that the government is committed to responding to this challenge, and that companies in Bahrain have the advantage of easy access to the relevant entities where they can discuss best practices, highlight their concerns, and directly influence regulation and reform. “The Central Bank of Bahrain is a great example of this. They continuously work with the private sector to find solutions and develop the necessary framework to respond to and enable technological advances,” he added.
What’s coming up?
With so many projects completed, and many others in the pipeline, the country’s ecosystem is about to start reaping positive results.
Al Rumaihi said: “We want to build on the success of platforms such as Bahrain’s regulatory sandbox and Bahrain Fintech Bay, and help streamline the innovation and investment process to enable greater access and new sources of capital.” The country is seeking to further attract skilled youth with bright ideas. It is also paving the way to foster stronger ties with other ecosystems across the region and around the world – particularly in Asia, Europe and the US - to facilitate two-way collaboration across borders, he said. “In the near term, we expect announcements around new funding vehicles, international partnerships with key markets and further regulatory developments that look at key innovation enablers.”