A New Tech Hub: The Palestinian Territories

It is one thing to build a start-up in Silicon Valley. Quite another to launch in the Palestinian territories, where unemployment is rampant, mobility restricted and armed conflict all too common.

But tech entrepreneurs are accustomed to overcoming difficult challenges. That is how they come up with products and services that change the world. And in the case of Palestinian start-ups and the companies and the projects supporting them, the efforts could sow not just innovation but potentially the seeds of peace.

The foundations are being put into place. Cisco, Google, the Soros Foundations and the Peres Center for Peace, which wants to foster business dealings that could help improve relations between Israelis and Arabs, are all working to that end.

“The ingredients are there to make Palestine into a high-tech hub that can be the engine of the economy,” says Zika Abzuk, Cisco’s senior manager for corporate affairs in Israel. “It is beginning to happen.”

The Palestinian IT sector grew more than five-fold between 2008 and 2010 and now accounts for more than 5% of Palestine’s gross domestic product, according to a white paper commissioned by Cisco, which was published in July. The California-based technology giant, which has yearly revenues that amount to eight times more than the GDP of the Palestinian territories, has invested $15 million in the West Bank since 2008.

In addition to Cisco, other high tech companies and organizations, including the European Investment Bank, have invested a total of $78 million in the Palestinian high tech sector in the past three years, according to the white paper.

Venture money is also now targeting the territories. The Middle East Venture Capital Fund, the first venture capital fund focused on the Palestinian high-tech sector, has secured about $29.5 million to invest in Internet, mobile and software companies based in the West Bank. The European Investment Bank, the first to invest in the fund, was soon followed by Cisco, which committed $5 million, Google, and The Soros Economic Development Fund. And at least one active Israeli angel investor – Jeff Pulver – is now also looking to fund and help start-ups in the territories (see the story on page x).

While the interest is there and the money is arriving, “being in the territories adds to the challenges faced by start-ups,” says Saed Nashef, a software entrepreneur and founding general partner of Sadara Ventures. Nashef co-manages Sadara, which invests through the Middle East Venture Capital Fund, with Yadin Kaufmann, a venture capitalist with experience in the U.S. and Israel. (the two are pictured on Informilo’s home page.) “For example, we have a shortage of senior management talent in the tech industry,” says Nashef. “In any other country this would usually be solved by sourcing talent from abroad, often as returning expats. In Palestine this is a bigger challenge as returning Palestinians are subject to Israeli visa and entry laws.”

Nashef and others in the industry note that restrictions on travel and other measures imposed by Israel, such as a ban on 3G mobile services, limit the growth of start-ups targeting the mobile web. Travel restrictions can turn something as trivial as attending a conference or scheduling meetings into an ordeal, says Tareq Maayah, the chief executive of Ramallah-based EXALT Technologies, which creates mobile and web applications for large multinationals including Hewlett-Packard and Cisco. “Companies also risk not being able to import important equipment needed for their operations,” he says.

Those operating out of the West Bank say the challenges faced by the tech industry are even more pronounced in the Gaza Strip.

Despite these obstacles, start-ups are being launched and the Middle East Venture Capital Fund has made its first investments, pumping $1 million into Yamsafer, an online hotel booking site focused on the Middle East (see box). Nashaf says that Yamsafer is the first institutional early-stage VC round invested in a Palestinian start-up.

He says he believes that several other Palestinian ventures have a bright future: Mixberry Media (audio ads), AnaBasalli (“worship app” and social network for Muslims) and Idevator (social games targeting the Arab-speaking market).

Companies that have already gained traction include ASAL Technologies, one of the leading software and IT services outsourcing companies in Palestine. Its clients include Cisco, Hewlett-Packard and Intel.

The growth of the high-tech sector is being facilitated by a boom in the use of computers, the Internet and mobile phones. Half of Palestinian households have a computer, twice as many as in 2004, according to a survey published in March by the Palestinian Ministry of National Economy and a German government agency. Almost a third of Palestinian households have an Internet connection, more than three times as many as in 2009, and nine out of ten have a mobile phone, compared with seven in ten in 2009.

About 2,500 Palestinians work in the ICT sector and for each job in the industry another three are created in support sectors, according to the Palestinian IT Association, a trade group representing 126 companies. Software outsourcing is the biggest part of the growing sector; telecommunications is another important area. While the ICT sector accounts for 3% of the national workforce, it creates 8% of gross domestic product, according to the Palestinian Bureau of Statistics.

Right now the center of the Palestinian tech sector is Ramallah, with companies also sprouting up in other West Bank cities of Nablus and Hebron. But there are also signs the tech sector has a future in the Gaza Strip. In December Google and Mercy Corps, an American non-profit, jointly organized a Gaza Start-up weekend event, which gave Palestinian youth a place to promote their entrepreneurial ideas. Industry experts were brought in to advise on how to turn those ideas into viable businesses.

Abzuk notes that the Palestinian territories have many of the same characteristics as Israel, which is considered one of the world’s most innovative technology hubs: it is small, has no natural resources and has a high percentage of educated people with an entrepreneurial spirit and culture.

The area is also perfectly placed to provide products and services to the underserved Arabic world. “Most of the companies we’ve seen to date are targeting regional markets,” says Nashef.

EXALT, which does software development for customers in the U.S., Europe and Israel, is exploring doing the same for Arab countries, says Maayah.

Maayah, who returned to Ramallah in 1993 after ten years studying in the U.S., and Nashef, who spent two decades in the U.S., are part of a group of entrepreneurs leading the industry’s growth after returning to the region following a period abroad.

The tech industry in Palestine is getting some support from the Peres Peace Center in Tel Aviv, which works to bring Israelis and Palestinians together through business development, sports, health care and humanitarian initiatives. “On the business development side of things the tech sector has several obvious advantages,” says Edan Raviv, who heads the Peres Peace Center’s business and environment department. “The actual goods or services are borderless,” he says. “In many of our other sectors goods such as textiles are traded across borders and there can be difficulties with check points and security issues. The very nature of the tech sector allows you to overcome many of the security and political challenges of borders, security, checkpoints, access to courts, taxes and customs.”

The Peres Peace Center provides matchmaking, arranging meetings between small delegations of Palestinians and Israeli companies, to discuss business opportunities such as outsourcing.

“We recently took a group of Palestinians to visit a high-tech multinational company where they met with the Israeli CEO and other leading business people from the company,” says Raviv. “There was a fruitful roundtable meeting. One of the things to come out of the meeting was that the Israeli CEO was blown away. He had no idea this sort of opportunity was available on the Palestinian side.”

As promising as the signals are for the tech sector in the Palestinian territories – and potentially for Israeli-Palestinian relations — few in the industry would deny that the road ahead is long and success is far from guaranteed.

“The early indicators are promising, and we believe it’s possible; that’s why we’re investing in Palestinian tech,” says Nashef. That said, “the West Bank is still in the very early stages, and there are a lot of challenges ahead before we can get to anything that resembles a tech hub.”

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