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Startups in UAE, Saudi and Egypt

by Sandeep Ghosh

By Sandeep Ghosh, Senior Associate, Holborn Assets

Europe, the Far East and USA were traditionally seen as at the vanguard of industry innovation. However, the MENA region’s young, digital-savvy and lateral thinking entrepreneurs have now gained the attention of regional and international financiers for their focus on innovative ventures that are redefining the startup landscape of the region. 

This year, MENA-based startups have attracted investments of over $900 million already, almost matching the total investments gained in 2019 despite Covid-19. This excludes Souq and Careem, the first two Unicorns (companies with valuation of over $ 1 billion) – two seminal success stories that have turbo-charged the startup ecosystem of MENA. 

Magnitt’s 2019 Investment Summary reported that in 2019, Egypt led in securing startup investments covering  25% of all deals, followed by UAE at 23%, and Saudi Arabia in the third place at 12%, although the share of the Kingdom grew the most at 4%. The UAE dominates when it comes to size of funding, accounting for 60% share. Egypt took 14% and Saudi Arabia 9%.

Population sizes and demographics go some way to explain the ratios. Egypt, with 100 million people, has a median age of just 24.3. In a country recovering from political and economic turmoil, where youth have been fatigued by the lack of job stability, they have  one focus – entrepreneurship. 

With media exposure to success stories, the romantic appeal of being your own boss and taking control of your destiny is reason enough to start a business. In 2018, the Global Entrepreneurship Monitor (GEM) reported that 82% of Egyptians perceive successful entrepreneurs as having high social status, while 76% consider it a good career choice, higher than the global average of 61.6%. 

GDP per capita in Egypt is just $3,020 and the economy allows for cheaper business set up costs, and reduced debt in case of failure. Psychologically, this allows some entrepreneurs to pursue their dreams, more than other parts of the region, particularly the GCC, where the stakes are higher. 

Maria Konovalova of NCL Technology Ventures feels that the Arab Spring definitely changed people’s attitude to risk and change. “If tolerance of risk increases, this encourages people to pursue their ideas”.

According to GEM, in 2017 Egypt’s business discontinuation rate was 10.2%. almost four times the figure of 2010. 

Although Saudi has one-third the population of Egypt with a median age of 30, the startup ecosystem is evolving rapidly, partly driven by the government’s encouragement through its Saudi Vision 2030, and also due to acceptance by the people that enterprise is a safety net in an economy looking to diversify away from oil. 

As a result, Saudi Arabia saw a 92% increase in startup investments from 2018 to 2019. The new ‘Fund of Funds’ by the Public Investment Fund (PIF) and the SME funding initiative, Monsha’at are actively focusing on national startup investment. Delivery, transportation and e-commerce sectors received over half the funding, a trend likely to continue or increase post Covid-19. 

The UAE, with the lowest population of 9.5million among the three nations studied here, and highest median age of 32.6, is a powerhouse of startups. Already the home of success stories such as Careem and Souq, with other Unicorns on the horizon, its track record is poised to attract the big players. 

With English widely spoken, the UAE also has the welcoming appeal as a gateway to MENA and foreign investors find this a comfortable entry point. 

Muhammad Chbib, CEO of startup Tradeling explains, “The infrastructure of the UAE is the best in the MENA region. There is also easy access to talent and a strong governance framework. The governmental support to start-ups encourages new ideas.” 

The nation’s world-class infrastructure has enabled Tradeling to multiply its revenue through swift product adaptation during the coronavirus crisis. In October 2019, The Abu Dhabi Sovereign wealth fund Mubadala announced a $250million fund to help tech startups, with other initiatives in the pipeline. 

From a funding angle, foreign VCs find the UAE a supportive and nurturing entry point. NCL Technology Ventures is an early stage VC firm focusing on healthcare startups, with funding ranging from GBP200,000 to GBP1million. 

Maria, their investment analyst in Abu Dhabi says that in the UAE, “there has been a significant push in government mandates for healthcare innovation which makes it attractive for startups to try out here.”

Similar parallels can be drawn with government initiatives in other sectors. She also feels the UAE is speedy in their regulatory approvals which helps cut through red tape. Maria is also positive on Saudi Arabia, due to the “large number of opportunities in market size, money and support available for startups.” 

Overall, the picture is encouraging and optimism abounds. Magnitt reported that last year, the MENA ecosystem saw 31% growth in investments over the previous year, with 27 exits recorded. With the COVID-19 situation now demanding innovation to facilitate the “new normal” way of life, MENA’s inventive vision is poised to see interest pouring in. 

Sandeep Ghosh is a UK qualified independent financial adviser, tax and pension specialist, and author of the best selling book Waking up to Wealth. He is also a contributor to several personal finance publications in the Middle East.

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