From the garages of Silicon Valley to the co-working spaces of Dubai, startups mean innovation, disruption and a major contribution to the economy. The World Economic Forum states, “Startups are a catalyst for economic growth both globally and locally”, and notes that the value they create worldwide is almost equal to the GDP of a G7 economy.
So, startups are more than significant – they’re drivers. They don’t just develop new technologies and create disruptive business models. They do lots of the heavy lifting every business environment needs, from creating jobs to encouraging investment. They can trigger the modernisation of entire industries.
How startups affect employment
Worldwide, SMEs represent roughly 90% of businesses and over 50% of employment. Startups, which might be loosely defined as young, high-growth companies, have proved to be an exceptionally dynamic component of the broader SME category. In the UAE specifically, SMEs contribute over 63% to the non-oil GDP, and the government forecasts that there will be over a million SMEs in the country by 2030.
Because of this growing footprint, startups are significant employers and can significantly affect jobs. While there is considerable variation (after all, some startups never employ anyone other than the founder and one or two others), research suggests that, overall, young firms are often more responsible than their older counterparts when it comes to creating new jobs.
But it’s important to remember that startups’ role in job creation goes beyond their immediate workforce requirements. Startups often create demand for a vast array of services – from legal and accounting to logistics and marketing – that, in turn, support employment across a much larger ecosystem. So dozens of jobs can be indirectly supported by a single high-growth startup through partnerships, suppliers, service providers and so on.
The benefits of startup innovation
It’s also in innovation that startups punch above their weight. One study demonstrated that new businesses were more likely to introduce new products and technologies than older ones.
This is not only good for tech enthusiasts but also increases competition and opens up new markets. By innovating and breaking new ground, startups set the benchmark for everyone else, pushing entire industries into the future.
Fintech is a classic example of this phenomenon. Most of the disruption in mobile banking, payment solutions and blockchain tech has been launched by startups. These advancements are transforming global financial service delivery and broadening access to banking, particularly in regions with significant unbanked populations. Startups have forced change in the legacy companies, altering the environment for the better.
Investment
Investing is another crucial peg for economic growth, and again, startups are involved. In Q1 of 2025, we are seeing a notable surge in startup funding across several countries. In the UAE, for example, UAE tech startup funding increased by 865% (from the same quarter the previous year) to $872m. Meanwhile, in the same period, North America’s startup investment hit $82bn thanks to strong enthusiasm for generative AI.
As venture capital pours into startups, it begins a cycle. Capital leads to growth and growth leads to hiring. This in turn means greater spending power among the population which serves to boost the general economy.
Successful exits (whether through acquisition or by going public) can often recycle wealth back into the system. This, in turn, can lead to further funding and entrepreneurship.
This trend is really taking hold in the Middle East. The UAE government has positioned the country as an extremely attractive startup location, offering a low tax environment, world-leading ease of doing business, 100% company ownership, and a busy and supportive startup ecosystem with accelerators and incubators.
Strong in times of crisis
Another reason startups matter to the wider economy is their ability to pivot fast. During recessions or global shocks, startups have the agility to move more quickly and change tack more rapidly than big companies. The COVID-19 pandemic was a textbook case: While many legacy businesses struggled to adapt, startups were rolling out tools for remote work, virtual healthcare and overnight delivery.
This resilience helps economic recovery, builds confidence, and gives countries a group of much-needed problem-solvers in uncertain times. In turn, this enables governments to tackle a number of different challenges more effectively.
Diversification – the UAE example
There is, of course, a major reason behind the UAE’s – and wider GCC’s – interest in startups. It’s part of a wider strategy to diversify the economy away from oil dependence. GCC governments have identified entrepreneurship as one of the foundations for this long-term vision.
The UAE has launched several programmes, including Dubai Future Accelerators, Abu Dhabi’s Hub71 and the Ministry of Economy’s Entrepreneurial Nation 2.0 (which seeks to develop 8,000 SMEs and startups by 2030). These and other programmes provide funding, mentorship and regulatory backing to new businesses across many industries, from AI to clean energy and from healthtech to logistics.
Diversification isn’t just a goal for the future – it’s happening now. In Dubai alone, a growing number of startups are hoping to follow in the footsteps of the well-publicised UAE unicorns such as Dubizzle (digital classifieds), G42 (AI development) and ride-sharing app Careem, which was acquired by Uber. These, and others, are models for generations of would-be entrepreneurs.
None of this happened by accident. Through innovative visions and strategies, not least the ‘We the Emirates 2031’ initiative, the government has established an action plan to transform the country’s social, economic, investment and development landscape, strengthening its position as a global partner and making it an ever-more attractive and influential economic centre.
Balancing the challenges
Of course, success is never guaranteed. Startups have a notoriously low success rate, and studies show that a high percentage will fail in the first five years. They must also deal with challenges around availability of funds and other issues such as talent shortages.
But these are not insurmountable problems. Policy makers and those in the private sector are collaborating in efforts to develop environments where startups can flourish. With startup-friendly visa arrangements and corporate-startup partnerships are on the rise, the world is becoming increasingly startup- and entrepreneur-friendly.
Looking ahead
As we have seen, startups don’t just participate in economic growth – they have the ability to drive it. They can generate jobs, boost innovation, and draw investment while helping to modernise a wide range of industries industries. In countries such as the UAE, startups are at the core of national visions for a post-oil, knowledge-based economy.
As the world faces economic headwinds, climate change and rapid technological change, the importance of startups will become even more critical. Because investing in startup ecosystems is not solely about chasing the next unicorn – it’s about building strong economies ready for the future.
