Building on existing progress to create an environment conducive to entrepreneurship

The best way of using public funds to encourage entrepreneurship has long been a source of debate. Market purists argue that a government’s role is primarily that of an enabler, in that its core focus should be on creating an environment in which capital can flow from investors to new businesses. The classic example of this approach is Silicon Valley, where a confluence of talent, money and innovation attracts thousands of investors each year, all of them hoping to take an equity stake in the next big idea. On the other side of the argument, those with more interventionist leanings hold that the government should play a more prominent role in the process of encouraging start-ups by means of training schemes as well as direct or indirect funding.

This is a model more suited to markets that have yet to establish the kind of momentum seen in more developed entrepreneurial markets. Therefore, any emerging global centre of entrepreneurship is likely to feature an array of incubator programmes, often funded by the government, where promising start-ups are trained, mentored and supported for a defined period of time. Abu Dhabi is one such place, and in the case of the technology sector, government support for specialised zones has begun to attract private investment in some cases.

Incubation

twofour54 has multiple initiatives in place to support business incubation and provide financing and support for young Arabs interested in pursuing a media career. The zone’s investment arm provides financing up to $5m in early-stage or growth-stage companies in the sector, while its Creative Lab initiative provides grant funding of up to $50,000 to community-led media projects. Recently, twofour54 significantly enhanced its status as a centre of entrepreneurship by establishing an entrepreneur scheme. This initiative aims to support Emiratis in developing media businesses as part of an agreement with Flat6Labs. Under the deal, a new incubator, Flat6Labs Abu Dhabi, will aim to launch more than 80 companies over the next four years, with a particular emphasis on areas such as e-commerce, social media and mobile applications. The initiative comes on the back of Flat6Labs’ success in Cairo and Jeddah, and will see programme participants receive basic seed funding, with the possibility of securing a second round of funding from either Flat6Labs or another investor.

Start-up Support

The government has made a more direct attempt to support tech start-ups through the Ibtikari programme of the Khalifa Fund for Enterprise Development. Launched in 2012, this programme aims to bring together entrepreneurs with individuals possessing business, marketing and operational backgrounds, and received 126 business ideas for mobile applications in its first year.

As well as the Khalifa Fund, a number of other government agencies acted in concert to launch the initiative: the Abu Dhabi Department of Development (ADDED) provided the location for the incubator and the regulatory structure that underpinned the programme, while additional support was provided by the ICT Fund. At the end of a two-stage selection process, the programme identified six concepts to be incubated, four of which are now available on the Apple Store as applications. As of the close of 2014 it is entering its second phase.

The Khalifa Fund remains the most significant tool by which the government of Abu Dhabi has sought to implement its start-up strategy. Launched in 2007, the fund works to create a culture of investment and entrepreneurship among Emirati youth, providing a support system for new businesses that encompasses training, development, data and consulting services. In addition, financing is available for viable projects through a number of programmes, including Khutwa, a microfinance scheme that offers loans of up to Dh250,000 ($68,000) for small enterprises; the Bedaya Programme, which supports new small and medium-sized enterprises (SMEs) with loans of up to Dh3m ($816,600); Zeyada, through which early-stage SMEs can apply for expansion loans of up to Dh5m ($1.36m); and Tasnee, a venture that places emphasis on industrial projects requiring larger investments. For each loan, the borrower must provide a down-payment of 10% as a sign of their commitment to the project, while funds are lent at zero interest unless the amount exceeds Dh5m ($1.36m), in which case 3% annual interest is charged.

The government’s commitment to the Khalifa Fund was underscored by its March 2011 decision to double the organisation’s capital from Dh1bn ($272.2m) to Dh2bn ($544.4m), allowing the fund to expand the scope of its services beyond Abu Dhabi and into the other emirates. The total volume of financing supplied by the Khalifa Fund has therefore been significant both to the economy of Abu Dhabi and that of the wider UAE: in 2013 the fund approved 197 projects, up from 139 in 2012, and disbursed Dh138.5m ($37.7m) in loans. In October 2014 the fund announced that it had provided more than Dh1bn ($272.2m) in loans since its foundation in 2007, and approved 842 projects over the same period. Alongside its direct funding activities, the Khalifa Fund’s outreach and training programmes continue to grow. The fund oversaw a total of 126 entrepreneurship campaigns in 2013 and enrolled 1113 new applicants in its various training programmes. Looking ahead, the fund revealed at the close of 2014 that it had signed an agreement with Masdar in order to create opportunities for start-ups in Abu Dhabi’s clean technology sector. The deal will see the organisations combine their efforts to foster greater business development expertise in this emerging area.

Assessing Progress

In June 2014 ADDED published the results of the first Abu Dhabi Innovation Index, which it compiled in collaboration with INSEAD, one of the world’s leading graduate business schools. The report gives a useful snapshot of where Abu Dhabi stands globally, according to an aggregate score based on the index’s 38 indicators. In the global innovation ranking Abu Dhabi came 24th in terms of capacity, placing it first in the wider UAE (26th), and ahead of Saudi Arabia (27th) and large economies such as South Africa, Russia and Brazil; in terms of performance, meanwhile, Abu Dhabi ranked 21st, again ahead of its neighbours, and also outranking Australia, Norway and Malaysia. The report demonstrated the success of government strategy in nurturing the emirate’s capacity for innovation, although there remains room for improvement.

As another method of assessing progress, the Khalifa Fund looks at the environment through the lens of its entrepreneurship and SMEs ecosystem (ESE) framework, a study that examines the interactions that occur between entrepreneurs, SMEs and their environment. While Abu Dhabi, according to the ESE analysis, scores well in areas such as leadership and government, attitudes towards entrepreneurs, proximity of universities and a desire for business ownership, the “availability of facilities” category stands out as an area where challenges remain. According to the ESE, the current situation regarding the “availability of land and facilities” is considered “not supportive”, while provision of incubators is judged as “average, but needs improvement”.

Looking Ahead

With the aim of building on the progress already made towards an environment conducive to innovation, Abu Dhabi remains in the process of fine-tuning its approach at the strategic level. As of the close of 2014, a new innovation governance framework has been submitted to the General Secretariat of the Abu Dhabi Executive Council for consideration. The initiative has been the result of a collaborative effort by ADDED, the Abu Dhabi Technology Development Committee, the Abu Dhabi Education Council, the Khalifa Fund and a number of other stakeholders. When approved, it is hoped that the new framework will allow gaps in the innovation ecosystem, such as those identified by the Khalifa Fund, to be more quickly identified and filled.