Can Tech Startups Transform The Weak Palestinian Economy - And Ultimately Bring Peace?

Correction: A previous version of this story stated incorrectly that Yafa Energy is an Arab-Israeli company and Sadara Ventures is a private equity firm. Yafa is a Palestinian company and Sadara is a venture capital enterprise.

RAMALLAH, West Bank -- Israel is commonly called a “startup nation.” That’s not a reference to the relative youth of a country founded in 1948, but to the role of technology companies in its thriving economy. After all, tiny Israel has more companies listed on the tech-heavy NASDAQ stock index than any other nation after the U.S. and China.

But it’s not the only startup nation in the Middle East. The other -- which is not even, under international law, a country -- is Israel’s neighbor, Palestine. And that may be one of the keys to peace between Israelis and Palestinians.

No less a figure than U.S. President Barack Obama thinks so. Speaking to students in Ramallah and Jerusalem during his March visit, Obama told Palestinian youth to follow in the footsteps of Israel, which has become a world leader in the high-tech and software sectors.

“Over 100 high-tech companies have found a home in the West Bank, which speaks to the talent and entrepreneurial spirit of the Palestinian people,” Obama said to a large, cheering crowd in Jerusalem.

Figures from the Palestinian Central Bureau of Statistics say that, while the talent may be there, the numbers still aren’t big. In 2010, Palestinian-based companies spent $35 million in research and development. That’s not a negligible sum for a small entity like the Palestinian Authority, but it’s only 0.4 percent of the entire Palestinian gross domestic product for that year, and one-tenth of what Israel spends in percentage every year. (No other nation in the world spends proportionally as much as Israel in research and development.)

The call by the American president was quickly answered last week by the dozens of young men and women who gathered for Startup Weekend in Ramallah. The event was part of a global initiative launched by Startup Weekend, a project sponsored by the U.S.-based Kauffman Foundation, Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT).

The Weekend bills itself as “54-hour events where developers, designers, marketers, product managers and startup enthusiasts come together to share ideas, form teams, build products and launch startups.” Standard fare for San Francisco or Osaka, where similar Weekends were held, but a novelty in the West Bank and in other Arab cities such as Cairo or Oran, Algeria, where future events are planned.

The goal is people empowerment, but that is not easy in a conflict-torn land where politics often trumps the economy. But the Palestinians are making the best of their current situation.

“A big problem always calls for a big solution. So, keep moving ahead, otherwise you are lost,” encouraged Tom Nagle, the network’s “global facilitator,” at the Ramallah weekend, which had its now-mandatory Twitter hashtag. Nagle volunteered as a tutor for Startup Weekend, bringing with him his experience running a Delaware-based software company providing solutions for medical offices. “Our goal is always to connect people and to make them realize that in two days a person can come with a concept, refine it by sharing, consult with others and eventually do it,” Nagle said.

Almost a hundred Palestinians took part, evenly divided among businesspeople, web designers and programmers. One-fourth of participants were women, an important achievement in a context where female participation in the workforce is the lowest in the Arab world.

“I am here to team with good developers,” said Muath Surakji, a 26-year-old graphic designer from Nablus.

Surakji came also to find investors for Oelia Key, an app that provides information by pointing smart phones at QR codes to be placed at popular tourist sites in Bethlehem, Jerusalem and Nablus. He estimates that it will cost about $50,000 to develop.

Echoing the sentiments of other participants, Surakji acknowledged that a lack of experience and encouragement from family and society are significant hurdles when trying to foster new ideas. Another hurdle is the lack of 3G networks in the Palestinian territories, which limits wireless access to the Internet. Israel does not allow access to the necessary frequencies and does not allow the necessary equipment to be imported, claiming security reasons.

Still, there are good reasons for holding a Startup Weekend in Ramallah. One is a growing market for Information and Communication Technology (ICT), targeting millions of Palestinians and Arabic-speakers throughout the Middle East.

In 2012, despite restrictions imposed by Israel on the West Bank and the Gaza Strip, the Palestinian economy grew by almost 6 percent, according to the Palestinian Central Bureau of Statistics. The ICT sector contributes more than 5 percent of the Palestinian economy, up from almost zero in previous years years before, according to a paper published last year by U.S.-based Cisco Systems (NASDAQ:CSCO).

“Compared to other sectors, an ICT startup enjoys the advantage of requiring only a computer and a connection, and the final product can be ‘exported’ directly on the Internet cloud,” said George Khadder, a Palestinian former Silicon Valley product manager who is one of the organizers of SWR.

That ease of distribution is why Khadder thinks tech startups can ultimately help wean Palestinians off money from international donors, which amounts to more than $1 billion per year and without which the Palestinian Authority could not sustain its political and economic infrastructure.

“We want to make something as Palestinians for Palestine, using private funds. Of course, we would need a healthier ecosystem for business,” said Khadder, who recently moved back to his native Jerusalem to become a partner and top executive at Yafa Energy, a company supporting renewable energy initiatives.

“This means embracing the risks of entrepreneurship, a better education and specific regulations by the government, for example to protect intellectual property and to ease conditions to register a private company,” he said.

Despite those constraints, some of the startups that took shape during the weekend event may soon join the ranks of the Palestinian tech sector.

“I have seen very creative and determined people, despite much of their energy and creativity being hampered daily by the Israeli occupation,” said Amal Daraghmeh Masri, a Palestinian businesswoman who runs Ougarit, a marketing and PR company, and served as a mentor to Startup Weekend participants.

“These guys dare to try. This is step one for business,” said Masri, who also runs the Palestine Business Focus magazine.

That’s the attitude displayed by the three winning projects from the weekend: Screen’em, a web service promoting efficiency in online recruitment; Easy Notes, a marketplace for university student notes and a mobile application to crowdsource notes taken in class; and SoMu, a social networking site for composing music.

“Often in the Middle East, people who apply for jobs do not meet the requirements of the position. So we thought about an algorithm, based on keywords in an advertisement for a post, to scan job applications and rank them by relevance to the job. This is a solid idea because it could save time for managers and recruiters,” said Faris Zaher, 26, a member of the team that developed Screen’em.

Nothing new to American recruiters, but a novel concept in the Palestinian Territories.

“I think that in this region there are huge opportunities in the online business, from e-commerce to news and entertainment targeting Arabs, to hotel booking,” he added.

That is why Zaher came up in 2011 with Yamasafer.me, a website for booking hotels in the Middle East. The latest version will soon be released and will cover 22 countries. The project attracted one of the few venture capital outfits active here, Sadara Ventures, a fund created by an Israeli, Yadin Kaufmann, and a Palestinian, Saed Nashef. Since 2008, Sadara Ventures has raised $28.7 million, earmarked for investment exclusively in Palestinian startups.

It’s not a humanitarian expenditure, according to Nashef: it’s good business, and an investment that will produce returns.

“This last event in Ramallah has certainly raised the bar in terms of the quality of ideas and teams. In the long run, this will ultimately translate into a better deal flow for us -- and that's always a good thing.”