Developing a sustainable, diversified economy sits at the very heart of the UAE government’s long-term strategy. Enabling an environment that fosters innovation and entrepreneurship, particularly in knowledge-based industries such as ICT, is a key focus area.

The UAE, like many Gulf countries, has a tradition of entrepreneurship, and activity levels in this regard remain relatively robust. The Global Entrepreneurship Monitor (GEM) report for 2011 gave the UAE a Total Entrepreneurship Activity (TEA) score of 6.2. This rating is not far off from the ratings of other innovation-driven economies such as Norway and Singapore, although it lags a considerable distance behind other countries such as the United States, Australia, and South Korea.

The UAE’s focus on technology entrepreneurship, however, is relatively low; the same GEM report indicates that only 2.3 per cent of UAE ventures are medium-tech or high-tech, which is the second-lowest proportion among the group of innovation-driven economies.

Technology-related research and innovation, which is a key driver of entrepreneurship, remains relatively limited in the UAE. The World Economic Forum’s recently published ‘Global Information Technology Report, 2014’ ranks the UAE 44th worldwide in terms of the number of ICT patent applications generated per million people, and 39th in the country’s capacity for innovation. With technology-focused research and development still at a nascent stage, a number of institutions—including several universities—are striving to nurture this area of the economy; however, these efforts will likely take considerable time to yield significant results.

Building a sufficiently deep funnel of ideas and incubating them thereafter is critical. With government encouragement and support, universities and research institutions can play a key role in enhancing the pool of ideas. A few private sector technology firms have established innovation centers, but more investment is needed. It is conceivable that with even greater encouragement from the government, such firms could be persuaded to increase their innovation-related investments. More importantly, an orientation toward research and development, especially among university students, needs to be developed.

Venture capital funding is increasingly being made available to local technology entrepreneurs, mainly through government-allied institutions. The ‘Global Information Technology Report, 2014’ places the UAE 10th worldwide in regard to the availability of venture capital. Organisations such as the UAE ICT Fund, the Khalifa Fund, and Dubai SME have launched several programs in this area. However, as there is a scarcity of technological concepts or ideas that promise breakthrough potential, few start-up ventures can draw significant support from prospective financiers.

Some of the international venture capital funds that are active in the region (including those based in Silicon Valley) have set themselves modest targets, with most aiming to invest in just a handful of best-in-class local or regional start-ups. Significantly, a few of these funds are leveraging capital from Middle East investors.

The commercialisation of ideas, such as those generated from university research labs, is often a challenge. The UAE and the wider Gulf region are rapidly growing ICT markets that offer substantial ‘nearby’ market opportunities for new technology products and services. However, nurturing ideas from concept to ‘market-ready’ offerings, and furthermore, developing organisations from start-ups to sustainable businesses based on strong fundamentals, is not an easy task. Incubation services, including the provisioning of infrastructure as well as advisory services, are now more easily available to local entrepreneurs due to the efforts of several government-allied agencies.

The most critical inhibitor to the development of an environment that fosters innovation and enables entrepreneurship is the lack of a sufficiently large national IT workforce. The ICT workforce continues to be dominated by expatriate workers who do not often possess sufficient long-term motivation or incentives to build innovative companies in the country. In order to develop sustainable processes for technology innovation and entrepreneurship, the quality and quantity of local ICT skills must be enhanced.

To this end, government efforts to develop ICT skills are beginning to take shape through various initiatives. As the local ICT skills pool expands, a greater number of innovative technology ideas can be expected to filter through and take advantage of the more conducive environment. The emergence of a handful of breakthrough start-ups could inspire a new generation of local technology entrepreneurs, and provide grassroots impetus for the government’s research and development, incubation, and funding programs.

The UAE is not alone in the region in harbouring such ambitions. Neighbouring countries such as Saudi Arabia and Qatar have also drawn up various programmes to spur local technology innovation and entrepreneurship; however, all these countries face similar challenges, particularly the problem related to ICT skills. The local ICT skills development initiatives, if combined with the promotion of innovation through incubation and a wider availability of funding, could result in healthy competition among the region’s countries over the next few years, and establish the foundation for a truly local, innovative, and sustainable regional technology industry.

The columnist is Group Vice-President and Regional MD for the Middle East, Turkey & Africa at global ICT market intelligence and advisory firm, IDC.