Home » The growing startup ecosystem: The MENA emerges as a global hub

The growing startup ecosystem: The MENA emerges as a global hub

by Mohammad Ghazal

It is no secret that the MENA region will face the brunt of climate change impacts. From heat waves to water scarcity, the crisis is already taking a toll.

But, with climate change at the top of the agenda, the region is witnessing a wave of innovation in everything from agritech to climate tech.

The region’s startup ecosystem is growing, positioning the MENA as a global hub with a sustainability edge and startups are proving to be key change makers.

The evolving startup landscape

When assessing the startup landscape, MENA countries are beginning to appear at the top of global rankings. Israel, for example, ranks third in the global startup ecosystem. More regionally, Tel Aviv, Dubai, Cairo, Riyadh and Abu Dhabi have taken the top five places in the MENA.

Abu Dhabi, specifically, is the fastest-growing ecosystem in the region. It also now ranks sixth fastest globally, having seen a growth rate of 134 per cent.

Alongside the top five, Amman, Casablanca, Tunis, Sharjah, and Beirut have also been identified as rising stars.

Indeed, although Silicon Valley remains on top globally, the region is now emerging as a serious contender, having made significant progress from having 3,000 startups in 2017.

Last year, a report by venture capital firm STV predicted that by 2030, the MENA will produce over 45 startups valued at a minimum of $1 billion. More recently, RedSeer Strategy Consultants projected that by 2030, the MENA will see as many as 300 unicorns and soonicorns emerge.

Startups in the region are also emerging as agents of change, working to solve some of the most pressing challenges facing the MENA.

Pure Harvest, currently operating in the UAE and Saudi Arabia, is working to revolutionise food production and address food security with smart indoor farming. Elsewhere, Brevel, in Israel, is targeting future-proofing the food system, and has created a sustainable microalgae-based protein.

Edama Organic Solutions in Saudi Arabia transforms organic waste into agricultural products for desert agriculture. Egyptian startup TileGreen, meanwhile, is tackling the plastic problem head-on by transforming plastic waste into construction materials.

Building a supportive startup environment

This uptick in entrepreneurship and startup growth has been nurtured by increasingly supportive regulatory environments, tax laws, and government initiatives.

The UAE, for example, launched its Entrepreneurial Nation initiative back in 2021 to stimulate growth in this area. The initiative, part of the UAE’s broader efforts to support and empower startups, equips businesses with the tools they need to grow. Indeed, the country aims to be home to 20 ‘unicorn’ startups worth more than $1 billion in the next decade. Tellingly, last year, it topped the list of best countries for entrepreneurs ahead of both the Netherlands and Finland.

Elsewhere, in Egypt, programmes and initiatives like the StartEgypt programme provide early-stage startups with training and funding. The Technology Innovation and Entrepreneurship Center (TIEC) similarly provides startups with knowledge and financial support. Meanwhile, Access Sharjah Challenge (ACS), by the Sharjah Entrepreneurship Center and endorsed by the UAE’s Ministry of Climate Change and Environment (MoCCAE), was created to support green startups.

From a tax perspective, Egypt’s President Abdul Fattah El Sisi recently announced a five-year exemption for startups. Similar efforts have been made regarding tax relief in the UAE, with the Small Business Relief initiative.

Likewise, Saudi Arabia has introduced a wave of measures to encourage the growth of its startup ecosystem as part of its Vision 2030. Small and Medium Enterprises General Authority (Monsha’at) was founded in 2016, to support this and through the startup and SME forum, Biban, held in March this year, it hosted the Entrepreneurship World Cup. This is described as one of the largest and most diverse pitch competitions and support programmes of its kind.

However, it is Israel that has repeatedly topped the list as the largest and most advanced startup hub in the region. Indeed, the country has the highest concentration of startups per capita. This has been fostered by initiatives such as the Yozma Programme, stretching back as far as 1993, and many subsequent programmes under the Israel Innovation Authority (IIA).

Securing funding

An integral part of startup growth and prosperity is, of course, securing funding, and this has surged in recent years. Back in 2015, entrepreneurs in the region raised only $232 million, but last year, according to Wamda, this ballooned to nearly $4 billion. In the first quarter of 2023 alone, startups raised $1.1 billion. Here, the UAE, Saudi Arabia and Egypt have stood out as the leaders, accounting for 74% of investments in 2022. Investment in Saudi startups, for example, grew by 72% in 2022 to $987 million, a record high.

That being said, while investment in the region has, over the course of the last few years, ramped up quite significantly, research shows that the majority of funding was concentrated in fintech. Indeed, data reveals that in 2022, most of the $70 billion in climate venture capital was funnelled into the US, Europe, and China. Those from within the green startup space have also shared that a degree of hesitancy endures when it comes to regional investors.

Yet, a recent report by PwC revealed that funding in climate tech is growing in the region. It identified that US$6 billion had been invested in climate tech in the MENA since 2013; US$1.6 billion of this was invested in the first half of 2022 and there are currently a total of 98 climate tech startups receiving funding.

Accelerators and incubators are also driving this forward. Whether that’s the PepsiCo Greenhouse Accelerator, the Ma’an Social Incubator (MSI) programme, or the Google for Startups Accelerator: Climate Change, they’re all spurring on the entrepreneurial revolution, with an emphasis on sustainability.

However, as the region’s sustainability startups gain momentum, there are questions about whether Israel’s judicial reforms will knock the country from its top spot in the regional startup ecosystem.

In recent years, the country has received a significant portion of regional startup funding. But recent polls indicate that nearly 70 per cent of Israeli startups have taken “legal and financial steps,” in response to the shakeup. This includes withdrawing cash reserves and relocating their businesses outside of the country. Further, 84 per cent of venture capital investors said they believe the move will have a negative influence on their portfolio companies. Many businesses have also reportedly cited the overhaul as the reason for such a huge drop-off in tech fundraising in the first half of 2023.

Fertile ground for continued startup growth

There’s no denying that the last couple of years have been challenging for startups worldwide. In May, for example, global funding was down 44 per cent from the previous year. Yet, while startup and entrepreneur investments have slumped with a global slowdown, the MENA appears to be bucking the trend.

And indeed, with the MENA holding successive COPs, having an increased regional focus on bolstering food security, and pursuing economic diversification, the startup ecosystem looks like it’s on an upward trajectory. Through this, startups in the MENA are well-positioned to drive the transformation towards the green economy.

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