Arab entrepreneurs face digital divide in Israel's start-up tech scene

Amid much fanfare nearly a year ago, Israeli President Shimon Peres inaugurated a technology office park at the edge of Nazareth with the vision of luring technology companies and hundreds of software engineers to Israel’s largest Arab city.

But today, save for a handful of tenants, the office suites are still mostly vacant, underscoring the yawning digital business gap between Jews and Arabs, who are largely excluded from Israel’s start-up success. This is not simply a matter of access to capital and networks, but also cultural omissions, both within the Arab community and in Israeli society.

"We are trying to bridge the entrepreneurship gap. In the Arab sector, we don’t have any investors or success stories," says Fadi Swidan, who runs Nazareth’s government-backed business incubator and a technology accelerator dubbed nazTech. "We have entrepreneurs that have technology skills but we don’t have the experience.’’

Mr. Swidan was speaking on the sidelines of a recent government-run half-day conference in Nazareth for Arab tech entrepreneurs. Behind such initiatives is the idea that if Israel doesn’t empower its highly educated Arab youth, the economy will be the loser.             

The figures are sobering: Arab citizens of Israel, who make up one-fifth of the population, account for only 3 percent of the technology workforce. According to the Office of the Chief Scientist – a division of the Economy Ministry that funds and trains tech companies – less than one percent of its annual budget of $450 million in business research grants goes to Arab-run businesses.

The Nazareth office park was intended to boost that figure and to bring tech jobs closer to Arab communities. Israel’s government has also begun offering more flexible grants and subsidies to Arab entrepreneurs for business consulting and market surveys. 

"For Arabs it is harder in studies, harder to get accepted for jobs. You have to be three times better than a Jew. I’m not debating this," Economy Minister Naftali Bennett told the conference. "Arab high tech is at a tipping point. If we work wisely in the next five years, and we give the correct push, you won’t need our help."

Arabic-language Internet

In theory, Arab Israeli tech entrepreneurs are situated in a sweet spot: they can access Israeli tech know-how and venture capital, and use that to seed start-ups in the rapidly growing Arabic-language Internet.

This is the thinking behind Al Bawader, which was set up four years ago with backing from the government and from Pitango, a veteran investment company set up by Mr. Peres’ son Chemi. Al Bawader has so far raised over $50 million and made investments in seven companies. 

But the challenges facing Arab Israeli techies remain formidable. They include discrimination by Jewish employers, a culture not accustomed to the high-risk world of venture capital; and the sheer distance between Arab and Jewish business circles.

Tally Zingher, a lawyer who has advised Arab Israeli entrepreneurs, said the gap is so big that one of her clients turned to a Jordanian investor instead of those at home. 

“They are totally disconnected from meet-ups and networks,” she said.  “Some of these initiatives will help them. But it’s going to take time. They are at the bottom of the ecosystem.”

Military experience

Another factor: Jewish techies get to tinker with cutting-edge technology while serving in Israel’s military; and establish social connections that pave their way in business after they leave.  

An Arab entrepreneur who graduated from Israel’s prestigious Technion Institute points out that certain military technology units and defense industry companies are essentially off limits to Arab Israelis.

“Everything can be shielded as military. Everything is sensitive. I understand that,” says the entrepreneur, who asked to remain anonymous. “I wanted to study satellite imaging. It has a lot of civilian uses, but here the focus is always on the military. That’s the main roadblock.”

Then there’s bank financing. Rabei Ibrahim, the founder and CEO of BRF Engineering Ltd, one of the few tenants of Nazareth’s new office park, says banks in Nazareth aren’t used to lending to start-ups. And banks in main Israeli cities are not used to handling Arab entrepreneurs.  

Risk and reward

For Israel’s government, another line of attack is to encourage Israeli technology firms to hire Arab tech engineers and to prepare Arab candidates for interviews. This has had limited success so far.

But cultivating Arab entrepreneurs requires something extra: the stomach for risk taking.

That’s a relatively daunting proposition for a population that’s accustomed to small family-run businesses in traditional service and manufacturing industries. Developing a hi-tech entrepreneurial tradition doesn’t happen overnight, says Johnny Ghattas, an Arab telecom expert who mentors start-up entrepreneurs.

“The Arab culture is not the same as the Jewish culture or the American culture,” he says. “You need to find the people willing to take the risk and educate them about the opportunities. Arabs are not less intelligent, or less professional. They need to build up trust with the organizations, and to go for it. And by the way, I don’t have the solution.”