The GCC tech jobs fallacy

This article originally appeared in Gulf News on 31st December 2015

The Middle East’s demographic time bomb is well known.

According to the World Economic Forum, the region of around 370 million people is home to 40 million underemployed youth and boasts the world’s highest youth unemployment rate of 27 per cent.

In the Gulf, the figures are lower, as bloated public sectors have absorbed the stream of graduates pouring out of schools and universities. Over half of the population today is under the age of 30, implying a growing labour force for decades to come.

Overshadowing the facts are low oil prices, resulting in drastically lower government revenues in the gulf states that further aggravate the situation.

There’s a conversation percolating through the region’s private sector that technology is the solution to our employment woes. The technology sector has the capacity to absorb the countless fresh graduates that need work.

A technology literate youth has the opportunity to solve local, even global problems, potentially commercialising their websites, apps and all. You never know, we may even find ourselves home to the next Google or Facebook.

The romantics go so far as to draw parallels with the historical Islamic golden age. Some ultimately see the region becoming a tech oasis that reasserts its place at the cusp of global innovation, thrusting our economies into an era of post-oil prosperity.

Sadly, this narrative carries little weight. Technology, in the software sense, reduces costs, increases efficiencies, but doesn’t create the jobs you may think it does.

Google employs around 55,000 people worldwide, and valued at over $500 billion (Dh1.8 trillion) equates to around $9 million of value per employee. JP Morgan, one of the US’ largest banks for comparison has a value half that of Google’s yet employs over five times as many people, equating to just $900,000 of value per employee.

Wal-Mart vs Twitter

Tech companies exhibit more value per employee, and arguably do more with less.

The comparison doesn’t stop there. Wal-Mart, the biggest private sector employer in the US has 2.2 million employees worldwide, or $90,000 of value per employee. Microsoft has a little less than 120,000 employees and is valued at around $450 billion — that’s $3.75 million of value per employee.

Twitter’s value per employee is around $4 million. Apple employs around 110,000, and is valued at $650 billion, around $6 million of value per employee.

GE, a traditional multinational conglomerate has a more reasonable $1 million value per employee, though still a far cry from that of the tech stars. While these ratios are not the most scientific of measurements for various reasons, the magnitude of the differences is what I find so striking.

A glance at the world’s centre of technology innovation doesn’t offer comfort either. According to recent data from the US Bureau of Labour Statistics, Silicon Valley software publishers employed just 30,000 people.

The biggest employment in the Valley was computer system design, which provided around 100,000 jobs, though more hardware related. Tech, perhaps intuitively, doesn’t look very labour intensive.

Let’s bring the conversation closer to home. Maktoob was started in 1998 as an Arabic language portal and a little over 10 years later was sold to Yahoo for around $160 million. Maktoob started with two employees which grew to 150 at the time of its acquisition, then doubled a couple of years later.

Today that number has been slashed, as Yahoo evaluates selling parts of its struggling business and rationalises costs attributed to its 10,700 staff worldwide. In 2014, Yahoo announced the closure of the Jordan office and Dubai is set to follow.

Next up is Talabat, the Middle East’s biggest tech success story in terms of exit value. Started by a couple of Kuwaiti entrepreneurs in 2004, 10 years after its incredible $170 million sale to Germany’s Rocket Internet, it barely had 175 staff, most of which were expats (not Gulf nationals).

Value accrues to foreigners

Tech, and specifically software companies, create value for their users and wealth for their shareholders; they don’t create much in the way of jobs. Furthermore, the two largest tech exits in the region were to foreign firms.

Future profits generated by these businesses from regional customers will accrue to foreign owners. Post-acquisition, the story appears to be one of consolidating headcount back at headquarters, be it Sunnyvale, California or Berlin.

Both jobs and capital flow out, rather than in.

Tech’s inherent benefit is scalability. You build a piece of software and roll it out to as many users that want it. The cost of providing a software service to the incremental user is close to zero.

Scalability doesn’t create jobs; you’re doing more with the same, or less.

Ford had production lines to achieve manufacturing scale; today Google and the like have the internet.

While tech is no miracle cure for our looming employment crisis it does play a role in driving private sector growth. Perhaps the most powerful contribution it can make is one of inspiration.

Stories of successful technology companies being sold for millions of dollars captivates the imagination of an impressionable youth creating an incentive away from mostly clerical and underproductive public sector employment.

Mubadala stake

Moreover, if a Middle East software revolution can act as a catalyst to get youth to move into hardware or semiconductor research and design, the tech job creation story might have legs. That being said, at the time of writing the Abu Dhabi investment arm Mubadala was said to be exploring the sale of its stake in chipmaker Globalfoundries, presumably cutting short any knowledge transfer strategy that may have existed.

The Gulf states and their people have a long history as risk-takers, be it pearl diving or sea trade throughout East Africa and the Indian subcontinent. It’s disheartening to see this spirt placated by public sector jobs.

If necessity is the mother of innovation, perhaps the unemployment problem needs to worsen before our entrepreneurial spirits are rekindled en masse. We shall find out in due course.