The Middle East and North Africa (MENA) startup ecosystem has undergone a remarkable transformation over the past decade, witnessing exponential growth in both the number of startups and the volume of investments. Just over ten years ago, the region had only a handful of companies and investors, with limited risk appetite and innovation. However, today, the landscape has evolved significantly, with diverse startups spanning sectors such as eCommerce, FinTech, and Healthtech. In 2023, the MENA region witnessed significant shifts in venture investment dynamics. On the surface, the USD 4 Bn raised by startups across the MENA in 2023 demonstrated a modest growth of 1.7% YoY, but this belies a more dismal picture for the region. Half of this came from debt financing, which tripled last year to USD 1.77 Bn. Discounting this debt, the total raised by startups amounts to USD 2.3 Bn, a drop of almost 35% compared to 2022. The number of transactions also dropped by 27%, with the worst affected being Egypt, which saw the number of deals halve year on year. Out of all the markets in the region, only three countries saw an uptick in investment - Saudi Arabia, Morocco and Oman. The most active markets remain Saudi Arabia, the UAE and Egypt, which together accounted for 98% of all the investment and 75.6% of all transactions.

On a quarterly basis, the focus has shifted towards the fintech sector, with Tabby and Tamara emerging as prominent leaders. The fourth quarter ended 2023 as the strongest quarter, driven by a USD 100 Mn+ deals by tabby and tamara startups. The region’s latest new unicorns, Tabby and Tamara, have demonstrated the importance of “market need” in order to succeed. Both are providing a payment solution in a part of the world where there is limited access to credit. Globally, Buy Now Pay Later (BNPL) is struggling, with valuations slashed and consumers curbing their spending, but regionally demand for this form of payment is likely to rise. Competition between the two will no doubt increase, especially now that Tabby has relocated its headquarters to Saudi Arabia, where Tamara was founded. It is noteworthy that the UAE historically accounted for the majority of mega deals, that is funding over USD 100 Mn, but last year, it was Saudi Arabia-based startups that accounted for four out of the five mega deals in the region.  

This year marks a pivotal moment for startups across the MENA region as they navigate the challenges of rising global inflation and its impact on consumer purchasing power. Startups are struggling to raise capital. However, in May 2024, the investment value in the MENA region experienced a substantial surge. A total of 40 MENA startups managed to raise USD 282 Mn, which is a staggering 413% increase compared to April's USD 55 Mn.   Over the past few years, Saudi Arabia has worked hard to improve regulations, establish entities to support entrepreneurship and encourage its own population to explore startup opportunities. Despite the challenges that remain - it has performed exceptionally well and has now become the go to destination for regional talent and startups looking to relocate their headquarters or scale beyond their own markets. The pull of Saudi Arabia will strengthen this year, of which the knock-on effect will likely be more enticing government plans from other countries in the region to attract and maintain their own startups. The UAE will maintain its position as a startup hub for the region and it will be probably these two markets that drive the startup sector this year. Moreover, the Sovereign Wealth Funds (SWFs) have also emerged as powerful players in the MENA startup ecosystem. Funds such as the Abu Dhabi Investment Authority and Saudi Arabia’s Public Investment Fund. Their presence, along with the deep commitment of various regional governments to the startup ecosystem, has created an environment of trust and engagement for international venture capital.   Despite the impressive growth and investment in the MENA startup ecosystem, several challenges persist, hindering its full potential. The MENA startup ecosystem faces three main challenges: regulatory complexity, skills shortages, and limited access to funding. While it is uncertain whether these challenges will persist in the long term, it is essential to address them proactively. Regulatory harmonization, skills development programs, and increased availability of early-stage funding sources are crucial for the MENA startup ecosystem to reach its full potential and sustain its growth trajectory. This is precisely what Saudi Arabia is actively striving to achieve in practice.   Looking ahead, startups are inherently driven to environments where they can find ample funding and robust support systems. Given the current landscape, Saudi Arabia stands out as a prime destination for startups in the near future due to its increased investment in innovation and entrepreneurship. This trend is likely to continue unless other regional players, such as the UAE or Egypt, implement strategic initiatives to enhance their attractiveness to startups. These measures could include offering competitive funding opportunities, creating startup-friendly policies, and building stronger support networks. Without such efforts, Saudi Arabia is set to lead the region in becoming the hub for entrepreneurial activity.