The gradual opening of markets while the hunt for a vaccine is still ongoing signals that COVID-19 has become, whether we like it or not, a more or less permanent feature of our lives.
Current events have dealt a hard blow to companies across the region: 70% of companies run the risk of going out of business within six months in Dubai alone, according to a survey conducted by the Dubai Chamber of Commerce. Navigating the aftermath of both the pandemic and the slump of the oil price, and a recession potentially deeper than the Great Depression will be one of the most significant tests of our time.
A market recovery will be hard and slow, and we have yet to discover the full extent of damages incurred (even the stocks are in total flux). Historically, economic downturns have also shed light on multiple market inefficiencies, and today’s crisis is no exception. Founders who are problem-solvers by nature will be quick to identify them and provide solutions that save time or save money in a climate where everyone needs to run lean (more in this piece). Flat6Labs have witnessed a similar phenomenon during 2011 and 2012 (around the time of the Egyptian revolution), where applications to the program doubled per cycle.
But the engine needs to keep on running and SMEs, which contribute in large part to the GDP of MENA markets, are cautiously re-upping operations.
Earlier this month, we co-hosted a discussion on ‘Building in the new normal’ with Flat6Labs, as part of their #StartSmart series. We delved into what current events mean for founders, investors, support organizations, and the wider ecosystem. Below are some of the points that stood out. For the full fireside chat, make sure to watch the video.
It’s not exactly business as usual.
A month into the pandemic, it became clear which sectors were better positioned to weather the storm, such as health tech, food tech / food delivery, and e-commerce more broadly. The transportation sector, which was in a boom pre-COVID-19, saw demand drop almost overnight, and MENA companies in the travel sector were hit the hardest.
At the beginning of the pandemic, some companies may have been reluctant to shift strategies in the face of numerous uncertainties, while others moved very fast to adapt and scope out opportunities to pivot or foster collaboration across sectors relevant to immediate market needs. Critical in these periods of uncertainty is clear communication (with all stakeholders, from the team to the customers) trumps all, as founders identify their path to survival.
The rise of the contact-free economy
How fast we move back to offices will depend on several elements. Adequate health protocols to ensure teams are comfortable heading to, and spending time at, the office, as well as how companies envision work and implement necessary changes are key to how fast or slow we will see the return to the workplace.
Having spent the best of the past three months working from home also highlights a valid point – do teams ‘need’ to spend eight hours or more a day together to do productive work?
A large amount of innovation, or creative thinking, can happen when working together in a shared space, and it is hard to replicate through our current digital tools – something Flat6Labs has also witnessed through its multiple programs. Yet as all industries adopt the cloud, it is clear that the time for strategic remote work has finally come, and people are increasingly confident about the technology available.
However, it’s not a one-size-fits-all situation. Certain functions do not need to be centralized, and companies can benefit from seemingly ‘evaporating’ international boundaries and engage the right talent remotely.
The consensus is that businesses will tend to adopt a balanced approach between on-site and remote work, giving themselves and their teams more flexibility.
The more significant shift will be in employment as we know it (and we’ll be sharing more details on that soon). Today’s massive economic dislocation has resulted in many exiting the labor market. For context, 40 million Americans have already applied for unemployment. A previous such dislocation, the Great Recession, was a boon for sharing economy startups and particularly alternative work / HR tech startups of the like in the rest of the world, but not in MENA.
Unlike in the US, Europe, or Australia, there are no real champion marketplaces or suites of tools in MENA, allowing companies to source and manage an alternative workforce.
This time might be different for the region, which has already witnessed massive layoffs and where a high percentage of jobs in industries that are not recession-proof are vulnerable to reduced hours or furloughs. It will be interesting to see how a more robust alternative workforce market could emerge in MENA and what regulations are put in place to allow for increased work mobility.
The changing face of capital
Private markets will also need to transform and take a more engaged approach. This could translate into creating opportunities in untapped areas and investing in them. The traditional VC model will need to evolve its role as a connector between capital and opportunities beyond blind pool, traditional limited partnerships models, especially as new pools of capitals emerge in the space. Equally important, venture capital funds will need to place meaningful interaction between founders and fund managers at the center of their mission to truly unlock value to portfolio companies.
Reimagining growth models
Countries across MENA have historically had significant economic dependence on the state. With measures in place to diversify economies, particularly in the GCC, the transformation has well been in progress since pre-COVID-19. Still, the pandemic will aggressively accelerate moves made by governments to reduce their country’s dependence on oil, the nation’s reliance on the state (such as for employment), and put in place an improved mechanism to support contributors to economic productivity.
In some of the region’s hubs, like the UAE, companies are mostly based in free zones. Although measures have been put in place to curb the expense, the overall cost of setting up remains relatively high. Dubai is one of the region’s top hubs, with the emirate’s growth mostly attributed to investment in infrastructure and dependence on real estate and retail. This model has fared well in the past but may need to be re-engineered today.
The current commercial rental model may be especially challenging to maintain in the current economic reality where online shopping has become ubiquitous, business spending is being cut, and everything is done on the cloud. In the past, Dubai has demonstrated its resilience by being quick to switch gears and position itself at the center of the new digital frontier.
To emerge strongly in “the new normal”, companies will also have to reimagine their business models and focus on revenue, operations and strengthening the intersection of technology and their offering. Companies that are on the right track have also managed to capture countercyclical opportunities by pushing ahead in segments that might prove to be more viable in the short run and resilient in the long run.
Stephanie Nour is Partner at Nuwa Capital, managing the company’s network and operations.