The paradigm shift in technology adoption, funding and startup formation in Southeast Asia gave rise to 6 unicorns and the region gathered more attention around the globe. MENA has an even bigger adoption and excessive investable capital, but fell short of expectations — as always.

There are many reasons why MENA (excluding Israel) lags behind other emerging markets, but there actually is one solution that can solve it all.

SE Asian Unicorns Dominate the Region

Gojek, Sea (ex-Garena), Grab, Traveloka, VNG and Tokopedia are all unicorns that now roam the SEA startup ecosystem’s green pasture with a total valuation of $20B. All of these companies have active operations throughout Southeast Asia but weren’t aggressive in expanding out of it and only Sea pushed outside to grow in Russia.

MENA’s only unicorn, Careem, is the first company to be operational throughout the turbulent region, but still has no other operations outside it.

Is staying regional enough?

Although bigger in terms of population, Southeast Asia (625M people) lacks economic scale ($2.5 trillion) when compared to MENA ($4 trillion and 400M people). These populations are young, hungry, tech savvy, and growing, and with their movement into the middle class, they have access to disposable income that has never been there before.

Uniquely, with about 1.6B people in China and another 1.7B in India, Southeast Asia has access to half of the world’s population and the most exciting markets. MENA has a similar proximity to even bigger markets like Europe, Africa, Russia and India, but unfortunately none of the region’s success stories was able to leverage that potential due to the political climate.

Uniting the Region

With the soon-to-be-established ASEAN Economic Community (AEC), Southeast Asia is having an “EU moment” as countries move towards economic integration, a common market, and a powerful combined unity. SE Asian countries have historically promoted perpetual peace and everlasting amity, that streamlined the cross-border expansion strategies and created regional powerhouses way before the international competitors can enter the territory.

Torn with wars and internal conflicts, MENA is far away from achieving such political stability and progressing towards common goals. Cultural and political barriers, along with tension between almost every nation restricts startups to broaden their markets and limits their potential substantially.

Individuals don’t build great companies, teams do

SE Asian countries are changing regulations and supporting the technology landscape to keep the top talent and even explore ways to attract international talent as the supply of qualified talent is unable to keep up with the demand. The increased quality of life, peaceful culture and future economic opportunities help reverse brain drain.

Given the never-ending conflicts and overall restrictions in lifestyle, MENA is having a hard time to bring quality people and talent is in diaspora.

Money is Opportunistic

SE Asia’s limitless market opportunity encouraged major VCs like Sequoia and 500 Startups to launch focus their funds on the region and more capital followed. Furthermore, corporates have also established to bolster the ecosystem including Rakuten ($200m), zVentures and Singtel ($250M).

SE Asia closed 2016 with $2.6B in total startup funding, which is much larger than the $500M investment volume in MENA (excluding Noon, founded and funded by the Emiratis).

MENA investors poured more than $5B into startups but only less than 10% of that capital was invested into MENA startups and 90% was to international deals mostly from the US. This is due to their strategy of risk diversification and portfolio approach, since the region is home to 3 of the largest wealth funds in the world.

So let’s not come to the conclusion that, there is more capital in MENA, than talent and potential combined!

As local capital escapes abroad, not a single foreign investor was involved in top 10 deals in MENA which is impossible to find anywhere else in the world.

Capital Brings Extra Liquidity

The Middle East had more than $1B in tech exits in both 2015 and 2016, most notably yemeksepeti ($589M) and recently Souq ($580M) were both sold to their international competitors.

In comparison, SE Asia also had two $500M+ exits (Jobstreet and iProperty) along with a lot of acqui-hires by Grab, Carousell, Rakuten and Google, creating liquidity in the startup space.

Alibaba almost acquiring Lazada for $3B is the first home run style exit in the region and more will follow. VNG’s and Sea’s quest for US IPO show that Southeast Asian startups are leading the way to access global public for liquidity.

Unite Around Entrepreneurs

The growth potential is astronomical in SE Asia not because of the young and tech savvy population, but due to the stability of the region and its access to massive adjacent markets.

Similar demographic structure with more disposable income and access to capital in MENA demonstrates even larger potential that has been repressed with the challenging geo-politics. Unable to freely grow cross-borders, startups are deeply affected by the political struggles that created the introverted economies.

MENA policymakers clearly fail in promoting peaceful environments and unlocking the entrepreneurial capacity. Private investors must start investing heavily in the region to grow international businesses that will organically unite the region.

Investing in visionary entrepreneurs is the only way to achieve peace and to create a leading ecosystem in a future with no oil.

A living example already exists in the Middle East, with more than $10B in tech exits in 2016.

Our innovative spirit has been recognized all over the world and, of course, my heart swells with pride when I see how many nations turn to the tiny State of Israel to learn from our bold innovations and to learn how to turn the impossible into the possible. Innovation enables dialogue between nations and between people, it will enable all young people — Jews, Muslims, and Christians — to engage in science and technology equally.
Shimon Peres — President of Israel