GTB Article: Opportunities for investment in local Arabic services and apps as internet take-up grows

The total number of Facebook users in the Arab world stood at 45 million at the end of June, which is almost 60% more than the number of users a year ago — 29 million at the end of June 2011.
These numbers, from the Arab social media report of the Dubai School of Government, represent about half of the total number of internet users in the region. Additionally, the Middle East/North Africa region is the world’s fastest growing in terms of internet penetration, and Arabic-speaking internet users have grown at a faster rate than any other language.
This growth is driven by various factors. First, the growth of mobile data through the introduction of 3G in many countries in the region has made the internet more widely available.
The mobile internet has created a competitive market environment for internet access in most countries in the region. In Jordan, for example, the number of internet users grew by around 30% after the introduction of high speed mobile data services.
The Middle East will reach the same level of mobile penetration as most western countries in one of two years.
The Arab Spring and the use of the mobile internet and social media as tools to transfer their message worldwide have drawn a lot of attention to their use.
Despite this enormous growth in the use of internet and social media, the volume of content in Arabic on the internet is still very low.
One fifth of the Arab population are young people between 15 to 24, and 50% are below 24 years old. Arab young people are aware of their collective potential, having witnessed first-hand the people power that they wield and can effectively harness through their use of social media. They are ripe with hope for a brighter future for themselves and their countries, emerging as a young, engaged, socially conscious and extremely tech-savvy segment of the population.

Highly educated

This dynamic group is both innovative and highly educated, and is actively looking to redefine the region’s technological and socio-economic spaces. Many have turned to e-entrepreneurship, hoping to capitalise on the region’s growing reliance on internet, smartphones and mobile phones.
While Arabic is the first language of around 400 million people — 6% of the world’s population — genuine Arabic content represents much less than this in the online world. However, Arabic content is growing extremely fast on media such as Facebook, Twitter and Wikipedia.
The main element that these media have in common is that this content is user-generated and thus adapted to the language, culture and the needs of Arabic-speaking internet users.
Today 85% of the searches in the MENA region are in Arabic, but the results do not reflect the local requirements. There is no platform that addresses the uniqueness of the Arab world.
Given the region’s reliance on the Arabic language and a general desire to support local initiatives and businesses, tapping into the potential of the MENA youth will be instrumental in order for that expansion to be realised.
In a recent study published by AppsArabia in cooperation with Real Opinions, for example, out of 3,000 people surveyed throughout the MENA region, 61% of the smartphone users surveyed preferred applications to be in Arabic.
Localisation is essential if international players are to reach a mass market in the Middle East, as some of them — notably Google, Facebook and Yahoo — have realised after making efforts to penetrate the MENA technology market. Yet the MENA region is difficult to penetrate without the necessary regional fluency — from the language to the culture — and international entrants find this difficult to replicate.
That makes the MENA region’s homegrown talent a necessary player in the development of content and applications for the market.
In light of the Arab Spring — an outcry for socio-economic development and youth employment — addressing the lack of Arabic content will both address socio-economic development and youth unemployment. The World Economic Forum has indicated that a 10% rise in broadband internet penetration will increase GDP growth between one and two percentage points.

Need for reform

To address the need for Arabic content and applications, thus stimulating socio-economic growth and youth employment, there is a need for a stimulation of local content creation, for government support and for an adjustment in the business models.
The opportunities within the MENA region’s content and applications sector are ripe — and the youth of the region are both eager to realise their potential and they are drawn to e-entrepreneurship.
However there is a severe lack of institutional support to allow their entry into this space and ensure viable, sustainable growth of the industry as a whole. In response to this void, a full-scale regional incubator aimed at providing the necessary support and mentorship for youth-run technology start-ups throughout the region needs to be created and funded. Such a fund can help Arab youth e-entrepreneurs engage in content and software development, cloud computing, video streaming, social gaming, mobile and e-financial services, as well as other fields relating to mobile and web applications.
Foreign VC funds are already looking at the region as a good place for tech investments. Amman in Jordan is ranked as the tenth best city in the world to launch a tech startup, according to a 2012 list compiled by Rachid Sefrioui, the founder of Fina Ventures, a California-based venture-capital firm.
It is in the governments’ interest to make sure that the internet sector is developed quickly. The World Bank and the World Economic Forum have consistently ranked Arab countries near the bottom of their lists for their business environment. Governments must actively work to foster an inclusive culture of entrepreneurship as it creates products, services and jobs.
Fostering entrepreneurship and self-employment amongst youth can make a crucial contribution to increasing both national and individual revenues, cutting unemployment rates, driving economic growth, maintaining socio-economic stability. To achieve this, governments and relevant ministries need to facilitate the growth in the e-economy by providing timely legislation, regulation, investment and education that stimulate the use of internet and support the growth of the e-economy.
Arabic content and applications are not new topics and most telecoms operators in the region have been discussing them for a few years now, but the sector has still not developed. Instead of focusing on content and application, operators are still selling access and minutes — since the vast majority of their revenues are generated through these services.
However, by focusing on this only, they run the risk of becoming dumb pipes in the long run.
Another issue for the operators is that they are looking only at their local markets, in their own countries, while the opportunity for Arabic content and applications is regional.

North America-sized market

The economy of scale for the Arab region is similar to that of North America. When addressing 400 million customers with a single language and similar cultural background, it is necessary to cooperate and develop a MENA app store that addresses this whole market.
This MENA app store would provide the developers a single channel that is tailored to the needs of this market. Only when this is realised, will a sustainable business model succeed.
A regional app store where developers can sell their applications would allow operators to use and brand it for their own national operations.
Sustainable business models have to be created for the content business to generate revenues. Nowadays, most of the local content is free, paid through the telecom operators’ bills or through advertisements.
There are two major revenue streams that can drive content and applications business that will enhance the sector and enhance the economic development:
The first is mobile and online advertisements. Advertising through regional TV stations is too expensive for local companies and the other channels are less effective. The online advertisement poses a huge opportunity for the future where better segmentation and localisation will drive revenues upwards.
Estimates show that the digital advertisement market in the region is already worth around $250 million a year and will triple in the next three years.
The second source of revenue is e-commerce, already growing fast in the region. A recent survey of Arab advisors in Jordan showed that the total value of e-commerce in the country grew from a spend of $192 million in 2010, to almost doubling to $370 million in 2011. Predictions for the MEA region show an 88% annual growth in the next few years to reach $3 billion.

Cash payments

The problem however is that the characteristics of the market hinder online payments. In the MENA region 95-99% of payments are in cash and 70% of the population is unbanked. That means there is a need for a regional e-payment solution to perform prepaid transactions online. Most e-commerce sites in the area still use cash on delivery as the main payment method, which is a risky model for future growth.
The mobile entertainment market in the MENA region is expected to rise to $2 billion in 2016, with digital advertisement revenues passing $1 billion and e-commerce forecast to reach $3 billion in the same period. It is evident that addressing the content and applications market in the right way will boost the MENA e-economy.
But only when the industry — investors as well as the governments — focus collectively on addressing much-needed action points will the MENA region be able to benefit both socially as economically from this e-economy development.
This will not only generate revenue for the industry and will create a future for young people in the MENA region and will enhance the education, culture, language and people of the region. It will allow the region to be at the forefront of internet development and e-economy and to achieve its place in the internet world.