What’s holding Qatar’s startup community back?

Qatar’s vast oil and natural gas reserves have served the country’s needs well. It was thanks to these fossil fuels that Qatar transformed from an emirate best known for pearl trading and fishing to a country that has one of the world’s highest gross domestic product (GDP) per capita.

While the war in Ukraine continues and Russia’s sanctions are being imposed on Russia have increased demand for Qatar’s gas for the government, it is an uncomfortable reality that these oil and gas resources will run out. The demand for renewable energy will rise to the point where they are no longer available. Qatar, like other GCC states that are oil-dependent, is seeking to diversify its economic activities as set out in the Qatar National Vision 2030.

This roadmap highlights entrepreneurship as a key pillar of Qatar’s knowledge economy. The government has already executed several projects and initiatives to ease the establishment of startups including two free zones regulated and run by the Qatar Free Zone Authority (QFZA), the Qatar Science and Technology Park (QSTP), a technology development hub, and the Qatar Fintech Hub (QFTH), a fintech incubator and accelerator.

The following is an extract from the Qatar Venture Investment report 2020 24 startups raised QAR 22 millions ($6.2 million) in 2020. Fintech was responsible for most of the deals. Wamda’s own research shows that in 2021, 24 startups in Qatar raised $10.2 million of which 16 were funded by accelerator programmes. This represents a 65 percent increase in funds raised but Qatar is far behind other similar ecosystems in the region like Kuwait ($42million) and Bahrain ($43million). It is, however, ahead Oman, Tunisia, and Iraq.

For Abdullah Soomro, founder and CEO of My Book, a money-saving app that launched its services in Doha in 2013, Qatar “is an ideal place to launch a startup”.

“[It]This market is small, making it accessible. You can launch a product that can cover the entire country,” he says. “The competition is not as intensive as it is in the UAE. It’s rare to find a startup taking our approach, which provides us the privilege of building our customer base with no effort.”

One of Qatar’s main strengths is also one its biggest challenges. This market, which has just three million inhabitants, is very small and offers little growth potential.

This isn’t necessarily a bad thing for Safarudheen Farrook, cofounder and CEO at Spendwisor (a fintech company that has been operating in Qatar from 2018).

“When you look at Qatar, you consider it as a research hub, where you can test your technology and business model, then apply them in bigger markets,” he says.

Qatar is being promoted by the government as a platform for startups looking to establish product-market fit in other countries.

“Founders do not think local-wise when they launch a startup in Qatar, they think region-wise, they expand after proving their product success in Qatar,” My Book’s Soomro says. “And that is something the government itself is promoting.”

Difficult regulations

Despite all the positive vibes, Qatar still faces many challenges.

Regulators favor traditional industries and large businesses, and are therefore a major obstacle for investors and startups.

“The thing that needs to be improved is the clarity of regulations and conditions, it might be a little bit difficult for foreigners to navigate the ecosystem from outside Qatar, they need to be here and present, which also needs some research to figure out the type of visa you will need, the correct people to talk to, and of course which type of company you will be,” says Soomro.

For onshore companies, Qatari law requires companies to appoint a local partner who holds 51 per cent of the company’s shares.

“This regulation might scare off the foreign investors for many reasons,” says Paulina Zalewska-Dzieciuchowicz, a corporate structuring and legal manager at PRO Partner Group Qatar, a business formation and support company in Qatar, UAE and Oman, explaining that having a local partner with the majority share has many potential risks.

“This partner could die, he could change his mind whenever something happens to his assets, he might go bankrupt, so many possibilities that raise the concerns and sparks the mistrust of the investors in the Qatari ecosystem,” she adds.

Expats are often subject to difficult regulations when it comes hiring employees. The requirements for visa and work permits are stricter than in other GCC countries. Candidates must complete a lot more paperwork to prove their qualifications for the job, especially if they are chosen for a managerial role.

“Unlike the UAE, where the labour quota is determined upon the size of the office space, the governmental approval on the foreign labour is determined upon many factors, like the job title, the gender of the candidate, the candidate’s academic degree and their nationalities,” says Connor Hayes, the commercial manager at PRO Partner Group Qatar.

There is also a shortage in skills, especially tech talent. To avoid lengthy legal processes, most startups hire remote workers overseas.

“You need a good technical team to launch a successful tech startup, and this requires hunting experienced talent who have worked previously with other successful startups. This concept is missing in Qatar, talent hunting and variety in the employment market is not one of the Qatari market’s best features,” says Soomro, adding that the country needs to open the door for more foreign employment, provide better education and training to young talent, and develop training programmes for technical skills to improve the whole ecosystem.

Qatari citizens can set up a business in a matter hours thanks to the favorable ecosystem.

“Qatar is not turning business away, it welcomes investment from all over the world, however, there are some specific business activities that cannot be performed but by Qatari nationals, but the same regulation applies in the UAE, Oman, and Saudi Arabia,” says Hayes.

Insufficient funding

Although investment has been increasing slowly, funding access is very limited. There are no VCs available in the country. Startups rely mainly on government-backed incubators or accelerators for funding.

“The funding mentality is one of our main issues in Qatar,” says Spendwisor’s Farook. “It has been developing over the years, but still in its infancy.”

Doha Angels, which is the country’s only angel investor network, focuses on backing Qatari citizens.

“In regard to expatriate entrepreneurs, it’s a few years behind the UAE,” says Zalewska-Dzieciuchowicz. “In the UAE there’s a couple of companies that provide angel investment, there’s no such thing currently in Qatar. There aren’t any VCs. Only individual funders. But I do foresee this happening in the near future.”

Qatar’s investment sector is still very young because of the blockade by Saudi Arabia UAE, Egypt, Bahrain and UAE. These markets are where most of the VCs operating in the region are located, and they were the main focus for most of them up to last year. diplomatic ties were restored Qatar remains a dark place for investors. It will take time for regional investors to become acquainted with Qatar’s startups and feel comfortable enough to invest.

Qatar hopes to attract foreign investors and change the global perceptions of Qatar with the FIFA World Cup due to begin in winter this year.

“Qatar is a very high potential market, it’s growing and going fully digital. When we started our research for the best market to launch our business, we found out that Qatar has an internet penetration ratio of almost more than 96 – 97 per cent,” says Jareesh Makannari, co-founder of fish.qa, an online marketplace for fresh fish. “The digital-focused businesses are still nascent and the market is still in need for new verticals and new ideas to serve this small population. However, it won’t remain small with all the tourists expected for the FIFA World Cup 2022, which will flourish all businesses and sectors.”

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