The Kingdom of Saudi Arabia, the religious birthplace and spiritual home of Islam, is hoping to kickstart what senior government advisers call a Muslim technological renaissance where the region is reborn as the home of knowledge and skills. As an adviser to one of the kingdom’s ruling princes said: "I have watched an archaic innovation ecosystem- uncoordinated and siloed in labour and finance – become a role model of relative coordination as leaders push across departments in a short space of time to enable an ecosystem to erupt.
"It is the beginning of the Arab renaissance – history will record what has gone on in the past two years and over the next three years is an order-of-magnitude shift to bring back an Arabled technological society. It has captured the mind, soul, energy and bright-eyed enthusiasm of Arabs that have maybe studied at Stanford and want to bring back the entrepreneurial drive to start a company."
Saudi Arabia’s plans are certainly one of the most complete proposals to build an elite education system and join it with government support and existing corporations launching corporate venturing units to fund and develop an innovation ecosystem to provide work and employment for a rising number of the country’s youth.
It is also a change from relying on selling petroleum deposits to fund a social safety net and maintain power among a few elite families.
The scale of the potential upheaval has only started to take effect. Switzerland-based non-profit World Economic Forum’s annual Global Competitiveness Report 2011-2012
put Saudi Arabia in 17th place, and 26th for innovation. The report added: "The country has seen a number of improvements to its competitiveness in recent years, which have resulted in a solid institutional framework, efficient markets and sophisticated businesses.
"Health and education do not reach the standards of other countries at similar income levels. Boosting these areas, in addition to fostering a more efficient labour market (50th), are of great significance to Saudi Arabia given the growing numbers of its young people who will enter the labour market over the next years.
"More efficient use of talent will increase in importance as global talent shortages loom on the horizon and the country attempts to diversify its economy, which will require a more skilled and educated workforce. Last, but not least, the use of the latest technologies can be enhanced."
The demographic consequence of a country growing in population to 33.6 million by 2020 from 26 million is compounded by Saudi Arabia’s relative youthful
pyramid. About two-thirds of the country’s population are under 25 and unemployment for people between 20 and 24 is 30.2%, nearly three times the national average.
To boost education standards and train this workforce for jobs in a knowledge-based economy, rather than one geared just for exploration and production of oil and gas, the country plans to invest in basic and applied research and development (R&D).
Nabil Shalaby, an expert in entrepreneurship and small and medium-sized enterprises at Saudi Arabia’s Development Eastern Province Chamber of Commerce & Industry, in a presentation listed 19 business development and innovation initiatives the country was undertaking as part of its plans to spend over SR32bn ($8.6bn) on R&D.
The allocation will represent 2.5% of the kingdom’s gross domestic product of more than SR1 trillion, up from 0.25% to 0.5% at present.
These science parks, "plastics valleys" and institutes include building King Abdullah University of Science and Technology (Kaust) in 2009 and founding the Princess Noura bint Abdul Rahman University for
women, which is designed to become the world’s largest centre of higher education for women worldwide. The king has also sponsored an initiative through the Higher Education Ministry to pay for 120,000 Saudi students to study outside the kingdom, with 30% of the successful applicants female. Kaust is modelled on the US-based Massachusetts Institute of Technology (MIT) in trying to avoid academic silos forming – it avoids academic departments or tenureship – but building cross-functional teams linked to new energy resources, new catalysts or catalytic reactions for environment and sustainability.
In a paper, Kaust – An Economic Development Model for MENA Research Universities,
Daniel Winfield from RTI International and Terence McElwee from Kaust, said: "Kaust represents a promising new model for the role of research universities in national and
regional economic development.
"Not just an educational institution, Kaust has funded research at more than 40 great universities around the world through its
Global Collaborative Research (GCR) programme, which has not only raised Kaust’s visibility and brand but has also helped attract top faculty and students to Kaust."
In addition, the university is designed with "economic development as a core mission", the paper added. This means "Kaust bundles its patent rights with practical know-how and engineering services in the form of
a ‘product development package’ to enable companies to better quantify risk, reward and time to market," according to Winfield and McElwee.
As well industrial collabora-tion and tech transfer, the Kaust Economic Development division has set up a seed-and-later university venturing fund as part of a broader technology commercialisation
strategy focused on the so-called valley of death that stymies early research discovery from becoming technology and products in the market.
The government-sponsored push to join up contiguous sources of capital to develop innovative ideas into reality has come with the creation of four economic cities by the Saudi Arabian General Investment Authority (Sagia) and, in December, of the Saudi Company for Technological Development and Investment (Taqnia), chaired by prince Turki bin Saud Al Saud, who is also representative of the King Abdulaziz City for Science and Technology (Kacst), which runs the Badir entrepreneurs programme. He said at its inaugural meeting: "By establishing Taqnia, the Saudi government hopes to build a number of companies based on solid industrial bases, creating a knowledge society and real Saudi-based technologies.
"Kacst and other research centres have a lot of R&D services and products ready to be marketed, and that is where Taqnia will come in to make use of the output of those research and related programmes."
Alongside the formal state-sponsored drive to create an innovation ecosystem have come some of the country’s largest companies setting up corporate venturing units. Oil major Saudi Aramco’s unit will launch in the third quarter to complement its local development fund, Wa’ed, and in the past year phone operator STC has committed $50m to a fund managed by France-based venture capital firm Iris Capital, and chemicals company Saudi Basic Industries Corporation (Sabic) set up its ventures team in the Netherlands to invest in start-ups focused on advanced materials and composites, biomass for chemicals and materials,
and alternative energy and clean technology. All the new corporate venturing programmes have effectively global scope but with a purpose of bringing strategic benefits also back to the kingdom.
As Eng Saud bin Majed Al Daweesh, chief executive of STC Group, said in November when it committed to Iris: "The establishment of this fund comes as part of the kingdom’s strategic direction and its drive to transform to a knowledge-based economy by enriching the spirit of both initiative and innovation."
Though Aramco has already had some success with its internal venturing programme, such as oil reservoir simulator software Gigapowers and nanotechnology robotic maker Resbots, Majid Mufti, head of Saudi Aramco Energy Ventures, in February said the unit would act as "a continuous gateway for innovation [to enter Aramco], introduce new technologies we had not previously looked for and provided human resources at the start-ups with ‘skin in the game’ [as it owned equity]".
Mufti said Aramco, which manages the country’s 260 billion barrels of recoverable oil, had two research and development centres for below ground and downstream
work as well as supporting Kaust and the energy and environmental research and policy centre, King Abdullah Petroleum Studies and Research Center (Kapsarc). He said:
"There are many startups being created by experienced people who have worked at oil and services companies, such as Schlumberger,
that know the challenges we are facing but need funding support to help them."
He added: "Aramco is a steward of the country’s natural resource and Energy Ventures is part of a broader transformation going on in a shorter timeframe as by 2020 we want to be a worldleading
integrated energy and chemicals company with greater energy efficiency and use of alternative energy."
This goal meant the corporate venturing unit would invest in three areas – upstream production of energy, downstream use and market demand companies, and
energy efficiency and renewable suppliers, such as in solar power.
While Energy Ventures could invest anywhere, Mufti said it was starting in the US and Europe and wanted to facilitate start-ups deploying or developing in Saudi
Arabia.
As well as direct investments, Aramco is commiting money to venture capital funds and hired Jon Nieman from the US to move to Saudi Arabia to help evaluate
fund managers. Nieman had previously founded consultancy firm Redline Partners and worked in US bankState Street’s private equity consulting group.
Also in February, but in a separate presentation, Fahad Mushayt, vice-president of corporate strategy at STC Group, said the phone operator had set up a ventures
unit as part of its drive to "become the broadband operator of choice offering ubiquitous access and innovative content and applications to all customers". A ventures
operation meant it would see innovation earlier and "provide to STC antenna function to new local and international partnerships to drive its growth strategy domestically
and internationally".
It would also help promote entrepreneurialism in the kingdom. However, although there has been what Mushayt called a "surge of investment for entrepreneurialism"
since 2010 in Saudi Arabia, the base level has been relatively low.
Venture deals have increased from single to double digits from 2006, and fundraising has gone from $100m 2006 back to zero in 2009 and up to $300m in 2010. Outside
the three most recent corporate venturing funds by Aramco, STC and Sabic, there are relatively few venture funds, such as Abraaj Capital’s Riyada Enterprise Development
(RED), which was set up in 2009 with $650m,
Malaz Capital and Accelerator Technology. Most of these funds have a broader Middle East and north Africa focus (often encompassing Turkey and parts of central and
west Asia), although Saudi Arabia also benefits from other regional funds investing in the country.
And there have started to be a number of successful exits, including Peak Games’s purchase of Saudi social gaming company Kammelna Games. But challenges to creating a world-leading innovative
region in Saudi Arabia remain, not least finding and retaining access to highly-qualified people, accessing the global markets, mentoring and a risk culture in a gerontocracy.