he Middle East and North Africa have long been regarded as areas of high geopolitical risk. Yet, ironically, in recent years the riskiest capital of all—venture capital—is increasingly looking to take advantage of the opportunities within the region. While venture capital markets in the United States are experiencing some contraction due to rising interest rates and a general restructuring of the industry, in the Middle East and North Africa there is growing momentum around venture capital as its leaders and people seek innovative solutions to the various problems of the region.
The Middle East and North Africa (defined as the non-Sub-Saharan African countries and the nation-states of the Arab Peninsula), are ancient civilizations rich in natural resources and human capital but have been plagued by seemingly endless conflicts despite the assets that they possess. Problems remain, but the region's growing popularity as a destination for venture capital is a positive sign about the region's future. Venture capitalists don’t invest unless they envision great outcomes. Why are venture capitalists willing to embrace these risks in an already inherently challenging industry? What is the appeal of investing in the Middle East and North Africa? These are questions that we will seek to address in this article.
Without conflict, the Middle East and North Africa have much to offer investors. It has a population of approximately 370 million people. The median age in the region is only 27 years old versus 45 years old in Europe so the population will soon be entering prime consumption years for many essential consumer products. Although there is a strong historical and cultural affinity for good education, the region’s educational institutions are in dire need of reform so as to improve democratic access to the high-quality education that the populations both need and desire.
The same is true for health care. Due to the already hot and dry climate, the region is also on the front lines of the climate change crisis with strong demand for the technologies that will enable its denizens to address issues that pertain to food, water and increased droughts. Fundamentally, this is the core, energy producing area of the world with oil and gas being major exports but the leaders and masses of the countries in the region understand that those resources are finite so they must build industries that will enable their economies to be viable once their resource endowments run out.
Entrepreneurship and venture capital can help to address all of these challenges by facilitating the development of the industries required to overcome issues that pertain to human development, the environment, and the imperative to shift from natural resource-based economies to knowledge-based ones. Towards that end, the region’s leaders have been implementing reforms. Saudi Arabia has announced its Vision 2030 Initiative which seeks to promote economic, social and cultural diversification in the country. Oman has a technology accelerator and incubator known as the Oman Technology Fund along with a venture capital firm—IDO Investments.
However the risks that remain that cannot be ignored. The region is plagued by economic, political and military instability. Although this is changing, the public markets are still relatively underdeveloped which makes it harder for venture capitalists to exit their investments such that they may be forced to hold onto already risky investments longer than they desire.
There is also abundant currency risk since many of the region’s currencies are pegged to the dollar so any changes in the value of the dollar can have an impact on the value of investments—i.e. a strengthening dollar would actually lead to lower returns for venture capitalists invested in the region. This is a critical matter at a time when the overall global financial architecture is in the process of being fundamentally restructured. There is also significant legislative, regulatory and cultural risk.
The Venture Capital Market in the Middle East & North Africa
Annually, about $5 billion in venture capital is invested in the Middle East and North Africa. Considerably less than the $350 billion that was invested in the US across 19,025 deals in 2021. However, what also matters are the trends. Due to rising interest rates, deteriorating economic conditions and a fundamental restructuring of the US venture capital industry, the US is experiencing a dramatic contraction with $170 billion allocated across 15,766 in 2022. The US venture capital market is larger but it is also more mature. In the MENA region, the $4.8 billion invested in 875 deals in 2022 declined to $3.8 billion across 663 deals. This is a significant decline but nowhere near as dramatic as in the US.
The MENA region has much further to grow and that growth will not be constrained by the unrealistic valuations that has increasingly acted to deter venture capital investment in the US. Venture capital investment in the Middle East and North Africa will be driven by the fundamentals of strong demographics and the imperative of addressing critical unmet needs.
So what MENA sectors are in need of venture capital investment? As is the case with much of the developing world, the young populations in the region are largely unbanked which means that they need financial services that can be accessed from the most ubiquitous information technology tool at their disposal—the mobile phone. Fintech is a major area of investment for venture capitalists who are active in the region. This includes digital payment solutions, peer-to-peer lending platforms, and blockchain initiatives. Likewise, an emerging generation of young consumers is hungry to access the e-commerce solutions that are common in developed economies.
This includes online shopping, entertainment and delivery service platforms. According to Wamda, e-commerce startups in the region attracted over $214 million in funding in 2023. In addition, investments in healthtech and edtech startups are also on the rise attracting a combined $140 million in venture capital investment in 2023.
The countries of the Middle East and North Africa are communities that are seeking fundamental, foundational venture capital investments in sectors that are essential to the improvement of human development (health care and education); and that facilitate their own unique versions of capitalism (fintech and e-commerce). What is distinct is that they already have the mobile telephony infrastructure that these services were later adapted to so in that sense they are ahead of the curve.
While it is known generally as the Middle East and North Africa, there are specific localities within it that have emerged as being particularly important for venture capital, namely, Egypt, the UAE and Saudi Arabia. All 3 of these countries recently joined the BRICS+ Alliance so their access to venture capital will likely increase dramatically as they collaborate more both with each other as well as with Chinese investors.
With 110 million people, Egypt has the largest single market of any country in the region and is geostrategically relevant due to its control of the Suez Canal. It is also dealing with a profound water crisis, persistent drought, and food shortages due to climate change so there is strong demand for climatetech in the country. The large and growing population is also in need of edtech due to insufficiently trained teachers and overcrowded classrooms. Masses of unskilled youths are a recipe for crime and unemployment so these problems cry out for the kinds of innovative solutions that entrepreneurs build and venture capitalists finance.
By far the largest single target of Egyptian venture capital investment has been to leverage the mobile telephone infrastructure of the region to provide the superapps that allow consumers to obtain the digital services and products that they seek. Healthtech and fintech also attracted significant investment. Saudi Arabia is unique in that it is not just a destination for venture capital but the largest source of venture capital as well. Saudi Arabia is the leading investor in the region accounting for more deals than the top foreign investors combined in 2023 with a strong focus on fintech, foodtech and e-commerce. The top foreign investors were America’s Techstars (18 deals) and 500 Global (35 deals).
The United Arab Emirates is the most strategically important locale in the emerging venture capital ecosystem in the Middle East and North Africa. The UAE’s Dubai is on a mission to become a global financial hub and it is succeeding. According to the September 2023 Global Financial Centres Index, Dubai currently ranks 21st globally and first in the Middle East and North Africa.
This rise is driven by its livability, world class infrastructure and business friendly policies that promote entrepreneurship and innovation. For example, financial benefits include 100% ownership of businesses, tax exemptions and simplified procedures for licensing and registration. It also has advantages that cannot be replicated such as an ideal trading location at the nexus point between Africa, Asia and Europe.
This will be further reinforced as it expands cooperation with the BRICS+ Alliance. Its success is already evident as Dubai is home to Careem, a ridehailing company that was acquired by Uber for $3.1 billion and the e-commerce platform Souq.com that was acquired for $580 million by Amazon. Dubai-based online real estate portal Emerging Markets Property Group was able to raise $100 million in a Series D round. Dubai is a uniquely open locality in the MENA region as it is both a financial and tourist hub. As a consequence of this openness and intelligent public policy, more than 90% of the funds raised in the UAE since 2017 have gone to startups based in Dubai and the area is gradually becoming a true technopole.
Well-funded companies like Swyl and Vezeeta that began in other areas of the region have also relocated to Dubai to avoid political and economic challenges while positioning themselves to attract more financial investment. Venture capital firms like Hambro Perks, a London-based, early stage-investor that has invested in more than 40 startups are also expanding into Dubai. Likewise, the Liquidity Group, a global financial technology and asset management firm, has made over $300 million in startup investments in the UAE.
Like Saudi Arabia, the UAE is a major investor in fintech which is natural given its goal of transforming Dubai into a global financial hub but the investments in esports/gaming highlight the importance of tourism to the country and its greater degree of openness than other MENA countries. The UAE has also made much larger investments in AI and Deeptech than any of the other venture capitalists in the region.
Overall, the wide diversity of sectors that are attracting investment across the Middle East and North Africa points to a promising future provided that the youth of the region can be properly trained and have their energies focused on capitalizing on these many emerging opportunities.
The Startup Ecosystem in the Middle East & North Africa
There are a number of exciting startups that are gaining traction in the markets of the Middle East and North Africa. A prominent e-commerce business in Saudi Arabia is Sary. Founded in 2018 by Mohammed Aldossary and Khaled Alsiari, this B2B market place has attracted over $112 million in investments from Sanabil Investments, Wafra International Investment, Endeavor Catalyst, VentureSouq, MSA Capital, STV, Raed Ventures, Derayah, and Rocketship.
The value proposition of Sary is that it leverages digital technology to provide a comprehensive and efficient procurement platform customized to the needs of specific grocery retails through a mobile app that enables small business to order their inventory directly from suppliers. It thereby promotes greater efficiency in e-commerce by disintermediating third parties and optimizing the procurement process which in turn allows retails to obtain access to a wider array of products at more competitive prices.
This is the kind of business innovation that venture capitalists love since it can be applied in many different markets across the region and has general economic value. Another B2B e-commerce startup that is based in Egypt is MaxAB, which was also established in 2018 by founders Belal El Megharbel, Mohamed Ben Halim with $102 million in funding from Silver Lake, British International Investment, DisruptAD, BECO Capital, 4DX Ventures, Flourish Ventures, RMBV, IFC, Crystal Stream Capital, Endeavor Catalyst, Endure Capital, Africa Platform Capital, and Rise Capital.
MaxAB provides e-commerce and fintech solutions to retails including a digital marketplace that directly connects small retailers with suppliers while also eliminating intermediaries and streamlining the procurement process as well as a fintech platform to make payments. Using MaxAB, retailers can leverage real-time demand monitoring and sales forecasting tools that optimizes inventory management and ensure that retailers have access to the right products at the right time which lowers the cost of doing business.
Founded in the UAE in 2019 by Tariq Sheikh and Dani Molina Carmona, Postpay is a fintech that has attracted $64 million in venture funding from the likes of Afterpay, Touch Ventures Ltd, IMPACT46, and others. As the name implies, Postpay allows customers to divide payments into multiple installments or use Postpay to facilitate regular payments.
It is integrated with multiple e-commerce platforms so it operates seamlessly. Another UAE fintech startup is YAP. Established in 2021 by Marwan Hachem and Anas Zaidan, YAP has attracted $45 million in venture investment. It is a fintech superapp for both individuals and businesses that allows users to leverage their smartphones to obtain access to myriad services including mobile payments, money transfers, travel booking and advanced spending analytics. The emphasis is on personalization so YAP is a regional pioneer in the use of artificial intelligence algorithms to understand and interpret user preferences and then make customized recommendations based upon that analysis.
Algeria’s Yassir which has garnered $190 million in venture capital is a ride-hailing, delivery and payments platform whose investors include BOND, Y Combinator, DN Capital, Quiet Capital, Endeavor Catalyst, Stanford Alumni Ventures (Spike Ventures), FJ Labs, and others. What makes Yassir unique is that it integrates multiple mobility options into a single platform as users can use it to request a ride, package delivery, arrange logistics for businesses or conduct financial transactions on the same platform. Yassir has also partnered with local businesses to engineer a strong logistics network for the last-mile delivery essential to e-commerce operations.
Top Venture Capitalists in the Middle East & North Africa
There are a number of venture capitalists that have emerged as being particularly active in the Middle East and North Africa. Established in 2010, Middle East Venture Partners is a venture capital firm based in Dubai, United Arab Emirates that provides early and growth-stage funding to companies operating in a wide variety of technology verticals including e-commerce, mobility, new media, enterprise, SaaS, the Internet of things, proptech, edtech and healthtech.
It currently has 52 startups in its portfolio and has made 31 exits from the 123 investments that it has made overall. The venture firm has a strong commitment to ESG (environmental, social and governance) and factors that into its investment decisions by partnering with Capital Concept, an ESG consulting firm:
MEVP has made it a top priority to invest in portfolio companies that strongly align with the United Nations Sustainable Development Goals (SDGs). We strategically focus on investing in profitable and disruptive technology start-ups while actively seeking out businesses that contribute to the achievement of multiple SDGs.
Investments include the Saudi Arabian fintech company HALA; Bahrain’s Rain which is the region’s first regulated cryptocurrency exchange as well as that country’s Eat—a foodtech platform that offers a SAAS table reservation platform for restaurants; and Egypt’s Halan which is the country’s largest non-banking financial services platform.
The Middle East and North Africa are becoming integrated into the global venture capital ecosystem to address long standing challenges regarding human development, finance, ecommerce, climate change and food security. The people of the region who are the product of ancient civilizations have always had enormous talent. As the conflicts that have hampered regional development begin to abate, there is an opportunity for talent to gain access to the entrepreneurial finance required to build strong business that can address the large problems in the region.
Addressing those problems will generate enormous financial rewards to the entrepreneurs and venture capitalists that succeed while producing social rewards as well. The region has promising demographics, an excellent location at the crossroads between Africa, Asia and Europe and the ability to put the capital from its enormous natural resources to good use in building a more knowledge-intensive economy. Now they can develop a MENA-specific venture capital model.
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