Dubai's tech start-up ecosystem supports economic diversification

Dubai is looking to place itself ahead of global trends by investing heavily in ICT and innovation. With an already highly developed market for ICT products and services, the emirate is seeking to harness the transformative potential of digitalisation to facilitate government-to-government and government-to-citizen transactions, and increase efficiency across a range of industries. While the public investment-driven nature of the sector’s momentum contrasts with the private sector model pioneered by Silicon Valley in the US, the approach is proving to have its own advantages. It is enabling city-wide digitisation through the Smart Dubai initiative and generating successful public-private partnerships, like the ride-hailing platform Careem. In addition, the emirate is leveraging its free zone network to attract international investment, while pursuing policies aimed at developing the start-up ecosystem.

Structure & Oversight

The UAE’s ICT sector is governed primarily at the federal level, with the Telecommunications Regulatory Authority (TRA) responsible for regulation across the seven emirates. The TRA’s primary roles – as defined by Federal Law No. 3 of 2003 – are to regulate the telecoms industry, and enable smart city and e-governance initiatives. In its role as a regulator, the TRA is responsible for ensuring the adequate provision of telecoms services across the country. In addition, it is tasked with developing policy for the sector, encouraging training and development, promoting research, and improving human capital.

Since 2011 the TRA has been tasked with enabling the digitalisation of government entities through initiatives such as M-Government. Launched in 2013 as part of the UAE’s Vision 2021, M-Government aims to make public services available to all residents, at all times, via their smartphone devices. The TRA also monitors the market for unlicensed activities and has the power to block or shut down any such services. It has exercised this authority in recent times, most notably against unlicensed providers of voice over internet protocol.

Telecoms provision in the UAE is subject to a government-owned duopoly consisting of Dubai-headquartered Emirates Integrated Telecommunications Company (du) and Abu Dhabi-based Emirates Telecommunications Group Company (Etisalat). In September 2017 both operators launched subsidiaries specifically targeting a younger market demographic. du operates the Virgin Mobile brand, targeting a more youthful, tech-savvy market than its flagship brand. Meanwhile, Etisalat’s swyp is restricted to those between the ages of 15 and 29, and provides an app as a one-stop point for customer services. The TRA supports innovation in the sector through its ICT Fund, which was launched in 2007 to promote the development of intellectual capital, sector leadership, research into smart solutions and incubation of tech start-ups. The board of trustees of the ICT Fund is made up of key sector stakeholders including private firms, academics, and du and Etisalat – both of which contribute 1% of their annual net profits to the fund. The ICT Fund is chaired by the TRA.

State Innovation

Recent years have seen an increase in the number of governmental bodies responsible for innovation in Dubai and the broader UAE. In early 2017 Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE, and ruler of Dubai, launched the Dubai 10X initiative, which aims to harness disruptive technologies to advance the emirate’s smart credentials a decade ahead of those of other locales. The initiative builds on the Smart Dubai Office, launched in 2015, which was itself an evolution of the Dubai e-Government project, ongoing since 2000. Smart Dubai seeks to turn Dubai into the world’s smartest city by digitising government operations and services. Among its core ambitions are to digitise 100% of all government transactions by 2021 and make Dubai a paperless city.

Meanwhile, Dubai Future Foundation (DFF) acts as an umbrella organisation for a broad range of innovation-focused initiatives grouped under three pillars: imagine, design and experience. The first pillar covers research, forecasting and public education, and includes the Mohammed bin Rashid Centre for Accelerated Research, the Centre for the Fourth Industrial Revolution and the launch of an Arabic-language edition of Popular Science magazine. The second pillar includes Dubai Future Academy, which is tasked with providing training to government officials and private sector professionals to help them harness emerging technologies; Dubai Future Accelerators, an incubator programme aimed at building cooperation between the government and private firms to develop and apply disruptive technologies; and the One Million Arab Coders Initiative, which seeks to expand coding literacy across the Arab world. The last pillar is occupied with the development of Museum of the Future, a project aimed at showcasing the future of science and technology, which is set to open to the public in 2020. In a further move in highlighting the forwards-looking commitment of the country, the UAE established two new ministerial positions: the minister for Cabinet affairs and the future, and the minister of state for artificial intelligence (AI), in 2016 and 2017, respectively. While both are federal initiatives, the location of their headquarters at Emirates Towers – which also houses a number of DFF initiatives – further underlines the central position of Dubai in the UAE’s innovation landscape (see analysis).

Data Protection

Although the UAE’s constitution guarantees the right to privacy, there is currently no specific UAE-wide law that deals in absolute terms with data protection. Dubai is unique in the UAE, however, in that it also has a Dubai Statistics Centre (DSC) Law, which restricts the disclosure of personal information collected through its census and polling work. Dubai also has specific data-protection laws in its various free zones, such as the Dubai International Financial Centre (DIFC) and Dubai Healthcare City. The application of blockchain technology is set to improve the protection of data in the emirate. The Dubai government has set itself a target of having 100% of applicable transactions on blockchain by 2020. Other institutions are also moving forwards with the adoption of this technology. One recent example is DIFC Courts, which announced a partnership with Smart Dubai in August 2018 to establish a Court of Blockchain. This court, the first of its kind, is set to place a range of smart contracts, legal documents and rulings within a blockchain-based network.

Performance

Etisalat is the larger of the two telecoms providers in the UAE, with a revenue of Dh52.4bn ($14.3bn) in 2018 against du’s revenue of Dh13.4bn ($3.6bn) for the same period. This is largely down to the scale of operations undertaken by Etisalat, which holds an international portfolio consisting of 14 markets, and occupy one of the top-two positions in 12 of these economies. With over 141m customers, the firm is among the most valuable of its kind in the MENA region. Within the UAE, Etisalat had a 55.5% share of mobile subscribers and du held a 44.5% market share in the first quarter of 2019, according to the latest industry figures. However, both operators faced challenges in the first six months of 2019, with Etisalat’s revenue decreasing by 1.3% year-on-year (y-o-y) and du’s revenue falling 5.2% y-o-y over the same period. Both companies attributed this performance to a decline in revenue from voice services, particularly international calls. However, Etisalat also highlighted the impact of unfavourable exchange rate movements in the Pakistani rupee and the Moroccan dirham on their international operations, while du cited a fall in handset sales.

Beyond the telecoms market, Dubai is part of a broader regional upsurge in start-up investment. According to data from Dubai-based investment specialists MAGNiTT, total funding for start-ups in the MENA region increased by 66% y-o-y to $471m during the first half of 2019. The UAE was the most active in the region, accounting for 66% of total investment and 26% of all deals. Dubai plays a central role in the UAE’s burgeoning start-up ecosystem, with 50% of all companies registered in the emirate classified as early-stage start-ups. The year’s headline deal originated in Dubai, with Uber acquiring the domestic ride-hailing platform Careem for $3.1bn in September 2019. This marked the largest acquisition in the region since Amazon bought Dubai-based e-commerce company Souq. com for $580m in March 2017. Property Finder – a real estate portal established in the emirate, which operates in eight markets across MENA – attracted the largest share of funding after Careem, securing $120m between the last quarter of 2018 and the second quarter of 2019. US private equity firm General Atlantic was the lead investor in the platform, marking the latest in a series of high-profile investments in global tech companies. In a statement issued in November 2018, Property Finder stated that it planned to use the new capital to invest in product and technology development.

In terms of comparative metrics, the UAE has improved its standing in the Global Innovation Index – which is jointly published by Cornell University, INSEAD and the World Intellectual Property Organisation – rising from 38th out of 129 economies in 2018 to 36th in 2019. The country scored particularly highly in terms of human capital and research (18th), and ICT infrastructure (14th). However, its position in on the index also highlights that the UAE remains more of a site for international investment in innovation than an exporter of technology, with the country ranking 24th globally in terms of innovation input and 58th in output.

Mobile 

The number of active mobile connections in Dubai has grown substantially in recent years, rising by 9.4% from 5.88m in 2017 to 6.35m in 2018, according to the DSC. While the number of fixed-line connections has grown – up 2.2% in 2017 and 1.3% in 2018 – fixed-line telephony continues to be outpaced by mobile connections; there were more than four times as many mobile as fixed lines in 2018. In a move that is expected to stimulate the market, the TRA reduced the cost of cancelling a mobile phone contract in March 2019. While previously consumers had to pay off the remaining months to change operator or move to a new contract, users can now terminate the contract by paying the equivalent of one month’s fees.

5G Technology

One of the most significant developments to take place in the sector has been the introduction of 5G technology. Besides bringing greater speed and capacity, the potential of this technology lies in enabling greater use and application of advanced technology, including the internet of things (IoT) and virtual reality.

With the first networks launched in 2018 and the first 5G-enabled handsets going on sale in mid-2019, 5G is expected to drive innovation-based competition between industry players while accelerating Dubai’s smart city transformation.

In May 2018 Etisalat became the first company to commercially launch 5G in the MENA region, with Expo 2020 coming on-board as the telecom’s first major 5G customer in July 2018. The main site of Expo 2020 – the Dubai Exhibition Centre – became the country’s first 5G-active area, providing a network with speeds 20 times faster than 4G, with virtually zero delay. The low latency of 5G network interactions is crucial to its potential for smart and IoT applications.

While the majority of smartphones do not yet have 5G capabilities, Dubai saw the commercial launch of its first 5G-enabled handset – the ZTE Axon 10 Pro – by both Etisalat and du in May and June 2019, respectively. This was joined by the Huawei Mate 20X 5G in July of the same year. Nevertheless, while the commercial market for 5G technology is developing quickly, it will likely take longer for the broader impact of the technology to be felt. “I think we will see the real commercial impact of 5G in 2020,” Ali Nurcan, senior vice-president of transformation and delivery management at du, told OBG. “However, in terms of the broader applications of 5G – such as industrial automation and advanced machineto-machine communication – we will likely have to wait until 2021 or 2022 to see concrete benefits.”

The number of areas in Dubai with 5G coverage is set to rise, with the two operators competing to establish the most comprehensive networks. In February 2019 du announced that it would build 700 5G-enabled base stations by the end of the year, while Etisalat said it would build 600 during the same period. As of mid-2019 the 5G services provided by the two firms covered areas of Dubai such as the Jumeirah Cluster and the area around Burj Khalifa, though indoor coverage remained limited. The development of this segment is crucial for the market, given the climate-driven concentration of social and business activity indoors. In order to implement the rollout of 5G technology, du announced in July 2019 that it forecast an increase in capital expenditure of up to 74% by the end of the year, to reach between Dh1.6bn ($435m) and Dh1.8bn ($490m).

Digital Services

In line with international trends, digital services such as security, data and cloud solutions have emerged as a major area of growth. With government contracts for digital solutions rising as it pursues its digitalisation agenda, both du and Etisalat are building dedicated digital services divisions and looking to secure strategic positions in the market. However, unlike the telecoms industry, digital services are open to international providers.

Within the ICT sector, the number of competitors has significantly increased in recent years. Understandably, this has placed a downward pressure on prices. Given the level of global infrastructure and expertise offered by players like Microsoft, du and Etisalat are often choosing to partner with foreign firms rather than directly compete. Etisalat signed a number of agreements to implement and deploy AI and cloud-managed solutions in 2018, including a strategic partnership with US tech giant Microsoft to implement its Microsoft Cloud service.

Similarly, in early 2019 du announced partnerships with the international firms Nokia, Affirmed Networks and Mediatek to launch their IoT services. According to a February 2019 statement by du, this will include smart metering, trackers, smart health and industrial IoT applications. These moves should create a broad range of investment opportunities in sectors such as utilities, health, transport and industry, among others.

Internet

There were a total of 633,047 broadband subscriptions in Dubai in 2018, according to the DSC. This marked a 3.7% fall on 2017 but an increase of 1.6% on 2016. The decrease in 2018 can largely be attributed to a drop in the number of business broadband subscriptions, which fell 27% from 123,729 in 2017 to 90,370 in 2018. Meanwhile, residential broadband subscriptions increased in 2018, rising 1.7% to 542,677, up from 533,650 in the previous year.

According to data compiled by Canada’s social media management platform Hootsuite and the UK’s digital marketing agency We Are Social, internet users in the UAE spend seven hours and 52 minutes online each day on all devices. This is above the global average of six hours and 42 minutes, placing the country 10th in terms the global usage. Dubai’s broadband subscriptions represent around one-fifth of the UAE’s total, which stood at 3.02m as of March 2019. The country’s broadband connectivity has grown exponentially in recent years, from 1.07m subscribers in March 2014. In the same period, the number of broadband subscriptions per 100 inhabitants grew from 12.7 to 34.

Tech Development

Medium- and high-tech projects accounted for 43% of foreign direct investment (FDI) projects and 16% of FDI capital in 2018, according to the Dubai FDI Monitor. These projects are an important contributor to employment in the emirate, with 28% of the 24,727 jobs created by FDI in 2018 coming from these sectors. Of the total for 2018, software publishers accounted for 6% of all FDI projects in Dubai. Much of the emirate’s tech industry activity takes place in free zones, which provide infrastructure coupled with tax and duty incentives to attract international investment. Dubai Internet City (DIC) offers non-native entrepreneurs 100% ownership of their company, coupled with a 50-year exemption from both income and corporate taxes. Similar incentive packages are offered to ICT firms in free zones such as Dubai Media City and Dubai Knowledge Park.

Another major free zone in the emirate is the Dubai Silicon Oasis (DSO), home to the Dubai Technology Entrepreneur Centre. The DSO is the largest start-up centre in the MENA region and provides entrepreneurs with the largest co-working space in Dubai. In addition, the DSO offers seed funding, along with other forms of support for new companies. Another outfit offering such services is TURN8, an accelerator programme that provides a Series-A follow-on investment fund oriented towards start-ups operating in robotics, nanotechnology and IoT applications. In addition, IN5, located within DIC, has a strong network of venture capital and angel investors surrounding it, while also housing three further innovation centres, specialising in media, design and technology. ImpactHub Dubai is another co-working and community space, with a pop-up presence in the city’s downtown area, while AstroLabs Dubai offers company set-up and a 24/7 workspace to its members. Two other key outfits for building the start-up ecosphere are Dubai Angel Investors (DAI) and Start-up Grind Dubai (SGD). DAI typically allocates $100,000-250,000 to companies it decides to invest in, with start-ups such as food and beverage service LUNCH:ON, e-commerce site Zbooni and fintech outfit MoneyFellows in its portfolio. SGD, meanwhile, is the local chapter of Google for Entrepreneurs, under the purview of Google for Start-ups, which organises networking and training events throughout the emirate, while also including local outfits into its global membership of over 1.5m entrepreneurs.

Outlook

With rising competition in the emirate’s telecoms market, the rollout of 5G technology is likely to be the next significant driver of growth in the sector. Increased uptake of 5G technology is set to create significant opportunities for international providers of digital services in areas such as security, IoT, data storage and AI. Furthermore, as the suite of innovation-related government bodies founded under DFF and the Smart Dubai programme continue to mature, stakeholders in the sector will be increasingly looking to see whether Expo 2020 can bring further international investment and springboard the sector to the next level.