In a significant shift within the Middle East and North Africa (MENA) region’s business landscape, Saudi Arabia has emerged as the preeminent destination for venture capital funding. In 2023, the kingdom secured investments exceeding $1.38 billion, marking its ascension to the top spot for the first time, as highlighted in a recently published report.
The largest economy in the Arab world, Saudi Arabia, maintained its venture capital momentum by crossing the billion-dollar threshold for the second year running, with investments increasing by 33% from the previous year. This growth, as reported by the startup platform Magnitt, was fueled by four substantial transactions, each exceeding $100 million, predominantly in the financial technology and e-commerce sectors.
Contrastingly, the United Arab Emirates (UAE), which previously led the region in attracting venture capital, experienced a 45% reduction in funding, accumulating $691 million according to Magnitt’s findings.
Despite this downturn, the UAE maintained its stature as the region’s hub for the highest number of deals, with 158 transactions, although this represented a 9% decline from the prior year. Saudi Arabia, while recording fewer deals at 125, marked a roughly 20% decrease from the preceding year.
The final quarter of 2023, however, stood out as a record-setting period, particularly with the buy-now-pay-later platform Tabby and the FinTech company Tamara, both based in Saudi Arabia, securing substantial funding rounds that propelled them to unicorn status, denoting valuations of $1 billion or more.
Magnitt’s report further notes that Saudi Arabia has seen a consistent upward trajectory in growth for five years, supported by governmental initiatives, an appetite for investment, and a growing trend of startups relocating to the kingdom.
Startups have increasingly become integral to driving digital adoption and economic growth, offering consumers accessible and convenient services. Both Saudi Arabia and the UAE are actively nurturing their technological ecosystems, which form essential parts of their strategies to gear up for a future-oriented economy.
Both nations are implementing a range of initiatives to bolster the startup ecosystem, including mentorship programs, market access, and facilitating connections with global investors, all underpinned by robust technological infrastructures provided by public and private entities.
Philip Bahoshy, CEO of Magnitt, highlighted the resilience demonstrated by Saudi Arabia and the UAE, citing Saudi initiatives and the UAE’s growth supported by serial entrepreneurs and early-stage companies using the Emirates as a springboard for regional operations.
In investment rankings, Egypt held on to third place with $378 million, though it saw a 30% decrease in funding. Morocco made a notable leap to fourth place as funding almost tripled to $81 million, while Bahrain dropped to fifth with an 82% decline in investments to $44 million.
The report also detailed deal numbers for these countries, with Egypt ranking third despite a 59% drop in transactions to 69, Morocco climbing to fourth with 28 deals, and Qatar rounding out the top five despite a 42% drop in deal numbers to 26.
Over three-quarters of capital was concentrated in the top five industries, with FinTech and e-commerce leading in both investment amounts, at $1.28 billion and $502 million respectively, and in the number of deals. Following these leaders were the healthcare, education technology, and IT solutions sectors in terms of funding, while enterprise software, transport, and logistics, and healthcare completed the top five in deal count. However, these sectors collectively saw a 40% decline in transactions in 2023.