Bahrain's growing strength in attracting entrepreneurs

A recent survey by Ernst & Young found that 70 percent of young Bahrainis were interested in the idea of starting their own business, twice as many as anywhere else in the Gulf
Bahrain's growing strength in attracting entrepreneurs
Tamkeen has served more than 100,000 Bahrainis and 30,000 businesses.
By Tamara Pupic
Mon 22 Feb 2016 11:25 AM

A stable and strong middle class – a population that is neither poor nor rich by national standards – is a major factor in the development of any economy. It serves as a promoter of educational attainment, a driver of entrepreneurship and innovation, and a source of trust and stability for businesses.

That is where the strength of Bahrain, the world’s smallest Arab state, lies.

“I think that Bahrain is one of the few, actually the only GCC country, that has a prominent local population of people who are 100 percent from Bahrain, who speak English, who are middle class, who are competent in technology, who have good jobs and similar.

“You know, it’s a growing middle class,” explains Nezar Kadhem, founder of Eat, a Manama-headquartered online restaurant reservation system.

“That’s a big advantage to any entrepreneur who wants to try something because by default people are extremely open to new ideas. They are open to entrepreneurship.”

A recent survey by Ernst & Young found that 70 percent of young Bahrainis were interested in the idea of starting their own business, twice as many as anywhere else in the Gulf.

The enterprising nature of Bahrainis has also been proven by the success of The Bahrain Award for Entrepreneurship (BAE). Initiated last year under the patronage of HH Prince Salman bin Hamad Al Khalifa, Crown Prince and Chairman of the Bahrain Economic Development Board (the EDB), it aims to recognise the country’s business leaders.

This year, the BAE has received 255 nominations, an eight percent increase to the previous year’s edition.

The high concentration of opportunity-motivated entrepreneurs is also due to the kingdom’s business-friendly ecosystem.

According to the World Bank’s 2016 Doing Business report, released in late October 2015, Bahrain ranks second in the GCC region and 65th globally out of 189 economies for ease of doing business.

The report reveals that globally Bahrain is ranked ninth for the ease of dealing with construction permits, eighth for the ease of paying taxes, and 25th for the ease of registering a property. In terms of trade across borders, Bahrain is ranked 85th worldwide, and second in the GCC.

Khalid Al Rumaihi, chief executive of the EDB – a public agency tasked with attracting inward investment into Bahrain – explains that the kingdom’s economy offers low operating costs, sound regulation, a competitive taxation system, and 100 percent foreign ownership allowed in most sectors.

However, the position of the government has been that there is always more to be done in support of the next generation of entrepreneurs. “The approach of Bahrain’s government and the EDB has been to first look at the challenges and then to find ways to address them,” adds Al Rumaihi.

“The experiences of many countries have highlighted the importance of SMEs in generating growth and jobs on a scale that in aggregate terms often eclipses the role of larger companies.

“In the Gulf, SMEs account for a lion’s share of the number of companies but often fail to match these indicators in the areas of productivity and high-value job creation. SMEs face particular challenges around funding and mentorship which creates significant headwinds as they try to develop.

“The EDB will look to address these various factors.”

Tamkeen is a semi-government organisation offering educational programmes to educate entrepreneurs at various stages of business development. Since its establishment in 2006, Tamkeen has served more than 100,000 Bahrainis and 30,000 businesses.

“One of the biggest issues facing entrepreneurs, particularly start-ups and small businesses, is the availability of funding,” explains Amal Kooheji, chief operating officer at Tamkeen, adding that it is an issue not necessarily limited to Bahrain, but prevalent worldwide.

In September 2008 Tamkeen launched the Enterprise Financing Scheme to help alleviate the risk associated with new ventures and SMEs. The scheme provides 50 percent of the interest of funding provided by a bank to a business, in addition to providing a 50 percent guarantee to the lending bank.

Kooheji explains that of the 6,250 enterprises that have benefited from the programme to date, 83 percent are classified as small businesses and 16 percent are classified as medium businesses. “While Tamkeen only spent around BHD 20 million ($53 million) in interest and guarantee payments, the resulted provision of more than BHD 340 million ($904 million) through the nine partner banks has been instrumental for the establishment of businesses in Bahrain,” she says.

Tamkeen recently expanded its guidance and consultation services for entrepreneurs, which have mainly been provided in partnership with big consultancy firms, by launching a new platform – Tamkeen’s Advisory Services.

“Another challenge facing businesses, particularly start-ups, is the need for guidance and support, especially if the business is entering an established industry where years of experience are required to be able to compete,” says Kooheji.

“Barriers to entry can be overwhelming for businesses without the proper guidance to be able to overtake them… Tamkeen’s Advisory Services will include business mentoring, which targets enterprises seeking direction and expert advice to improve and grow their businesses through long-term direct interaction with experienced mentors.

“Additionally, businesses requiring more focused and on-the-spot advice will be able to avail business coaching services through the platform.”

Having completed his studies abroad, Kadhem returned to Bahrain in 2013 hoping that the decade ahead would provide multiple business opportunities due to Expo 2020 Dubai and Qatar World Cup in 2022.

However, he worked on Eat only as a side project and started doubting the feasibility of the idea.

Then he met Hasan Haider, CEO and founder of Tenmou, the first business angel organisation in Bahrain. Before long, Tenmou agreed to invest.

BHD 37,710 ($100,000) on the condition that Kadhem would build a product and proved that it had a route to market, demonstrated by at least one customer subscribing or purchasing their product.

That was the beginning of Eat, a restaurant reservation app with a unique table management system, which has grown to become one of the most successful companies in their portfolio.

Haider has also found new ways of supporting local entrepreneurs. Little did he know when setting up Tenmou with Sami Jalal, a prominent Bahraini businessman, in 2011 that a case study on their successful efforts to develop angel investment market in the region would become part of Babson College’s curriculum.

In October 2014, Haider took the position of venture partner at 500 Startups, a Silicon Valley-based venture capital firm, to focus on the Arabic-speaking market out of the firm’s newly-opened office in Manama.

500 Startups went a step further last year by establishing 500 Falcons, a $30 million micro-fund for start-ups in the MENA region, to be led by Haider.

The fund focuses on seed stage investments from $50,000 to $100,000, with the goal of investing in up to 200 companies.

Haider also initiated Angel Investor Summit in 2014 and helped found the MENA Angel Investors Network (MAIN), a collaboration between all the active angel investment groups in the region, a year later.

Al Rumaihi says that these developments, including holding the first-ever PreMoney MENA investor event in Bahrain last year, show that the country has built a supportive business environment.

Another of Bahrain’s strengths is in its ICT sector.

Currently, the country ranks fifth in the world for mobile broadband and eight in the world for internet usage, according to the 2015 WEF Networked Readiness Index. “This, along with the kingdom’s established human capital advantage, where over 70 percent of the ICT sector talent pool in the country are Bahrainis, and the fact that Bahrain has the highest ICT development in the region as per the Global ICT Development Index, ITU, means that the kingdom offers an ideal testing ground for new technologies and ideas,” adds Al Rumaihi.

Recently, the EDB partnered with C5 Accelerate Limited and Amazon Web Services, to launch the region’s first Cloud Accelerator in Bahrain.

The accelerator is aimed at enabling the rapid adoption of cloud technology, which offers many distinct advantages over traditional IT infrastructure, by local and regional entrepreneurs.

While talking to StartUp, Daniel Freeman, CEO of C5 Accelerate Limited, says that Bahrain has a very strong pool of local talent that requires only capital and connectivity to meet the opportunities in today’s global technology marketplace.

“Bahrain was chosen because it combines outstanding human capital with a government that has demonstrated their desire to engage with entrepreneurs and move at the ‘speed of technology’,” he says.

“The kingdom has demonstrated its commitment to developing a world-class environment in which technology entrepreneurs can thrive by tackling key challenges.

“Those include attracting technology sector investment, cutting start-up costs, creating a robust regulatory environment, and attracting, training and retaining human capital.

“This signals a serious statement of intent to establish Bahrain as a regional centre of excellence for cloud computing.”

A cohort of up to ten qualifying businesses will be invited to work from their premises in Bahrain for four months. They will be eligible for funding from the accelerator’s $100 million allied venture capital fund, the Gulf Technology Corporation, which will be managed by C5.

Kadhem’s start-up has thrived also due to the country’s strong ICT sector.

In line with the plan, Kadhem managed to build a functional prototype and get not one but a few clients, including the Gulf Hotel and the Four Seasons Hotel in Bahrain, on board by December 2014. Tenmou and a few silent angel investors agreed to fund another round of BHD 113,130 ($300,000).

The plan for 2015 was for the company to grow in Bahrain and slowly start expanding to Dubai at the end of the year.

However, in April 2015, Zomato, an India-based restaurant search and discovery app, acquired Eat’s US-based competitor and announced its expansion to Dubai. “It was meant to scare everyone, and it did,” says Kadhem who recalls reading about the acquisition  in an article.

With the support of his investors, Kadhem moved to Dubai in June 2015, two months earlier than planned.

Looking back, he considers Bahrain as a good place to start a business for many reasons. “I look at Bahrain as a good platform for incubation and a good platform for seed [stage],” he says.

“Basically, it’s a nice, small, digestible environment that allows any start-up or an entrepreneur to launch something and to reach a large portion of the market very quickly to test their hypothesis.

“Why is this important? Because generally you want to be able to launch your product in a place where generally there are fewer people competing with you. That gives you a chance, an opportunity, people have never tried an app, they don’t have anything to compare it to, and because of that people are more forgiving.

“If you launch it, and fix it and keep on improving it, they promise to keep using it.

When we first launched our product was anywhere close to being perfect, and they were forgiving.

“So I would say that the market is forgiving.”

Kooheji points out to a number of legislative reforms, such as labour market reform, which have been implemented to ensure that the likes of Kadhem set up shop in Bahrain.

“One of the steps are the changes of the Commercial Companies Law to remove minimal capital requirements for the majority of businesses, including foreign companies.

“In addition, investors are now able to receive their commercial registration before approvals provided by relevant local entities,” she adds.

Similarly, Al Rumaihi believes that the country’s competitive advantage is also in the financial services, tourism, and manufacturing, transportation and logistics.

“These all offer opportunities for entrepreneurs to develop scalable and sustainable businesses. For example, in the financial services sectors, we are particularly focused on supporting the development of ancillary services businesses.

“Additionally, in tourism, the kingdom’s hotels and restaurants sector was the fastest growing sector in in 2014, expanding by 10 percent, which demonstrated the opportunities there as well.

“Lastly, the manufacturing, transportation and logistics [sector] is an example of a sector in which Bahrain’s proximity and strong transport links to the GCC market make it an excellent location for meeting a growing demand across the region.”

Talking about opportunities for growth in Dubai, Kadhem says that they have seated 1 million people across all restaurants on the platform.

He adds: “We have more than 30,000 users on the platform and around 100,000 unique visitors across all of our platforms.”

Satisfied with the rate of their growth in the UAE, he concludes by comparing start-up friendliness in Manama and Dubai. “Dubai is in no way forgiving and that makes sense because it’s a metropolitan city, there are many competitors,” Kadhem says.

“In Dubai to start, to launch something that is so premature and early on it’s really hard because almost immediately you’ll face competition.

“I think that the advantage of Dubai is scale. If you have a product that works elsewhere, this is a really good market for you to come and attack the bigger players.

“But it is hard to start here. It is too unforgiving and too expensive. I think we did the right thing to start in Bahrain, prove our concept, raise funding, and then come.”

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