MENA-based startups hit by dipping venture capital investments

The MENA region has seen a steep incline in the manifestation of its startup ecosystem over the past decade. The MENA region has a youthful population with almost two-thirds, who are below the age of 30 and are eager consumers of technological products and services. More VC financings have been encouraged through both regional and international investors.

Policies formulated by the government in advance, friendly regulations for start-ups, and funding schemes have boosted the culture of entrepreneurship. Increased internet usage additional drives the need for cutting-edge technology solutions. 

Recent Challenges

while the overall trends seem to be positive, startups based in the MENA region experienced a troubled quarter in venture financing. Funding to startup ventures in the region was significantly reduced in the second quarter of 2023 to a figure of $1.4 billion, which was US $450 million less than the same period of the previous year.

Fintech Leading the Way

In overall, one of the fast-growing sectors for VC investments in the MENA region is the financial technology or fintech sector. They are aware of the opportunities and are already investing in fintech startups in the region. 

Addressing Challenges

The ongoing advancement of MENA’s startup ecosystem is still in its infancy and is hampered by issues such as regulatory heterogeneity and disparities in the level of ecosystem development across different markets. Programs such as he Abu Dhabi Global Market (ADGM) RegLab have been launched to drive innovation and partnership in the area. Furthermore, talent wooing through favorable visa policies, tax incentives, and a strong program of startup support will also be critical for continued future advancement. 

Image Source: Ethnic Media Services  

Digital Payments in MENA

The MENA region is undergoing dynamic changes in the way consumers adopt digital payments. Before the pandemic, the adoption of digital payments in the MENA region was already on the rise significantly. For instance, the United Arab Emirates experienced an annual growth rate of consumer digital payment transactions of more than 9 percent between 2014 and 2019, putting it ahead of the growth rate in Europe.

The pandemic advanced this trend further as practitioners expressed that noncash payments rose by more than 10% across the region due to COVID-19. For example, Saudi Arabia recorded that digital POS transactions have doubled in one year up to January 2021.

More consumers in the MENA region are shifting their preference to the use of digital payments. According to a McKinsey consumer survey, it was found that only 10% of consumers strongly preferred cash while 58% strongly preferred digital payment. It is further assumed that this flight from cash will be enduring, with more than 90 percent of practitioners forecasting that new users will continue to use digital payments and not return to cash.

This region has adopted various new-age payment modes such as tappable HSM mobile wallets, BNPL, payment through biometrics, and payment through wearable tech devices. About 85 percent of the consumers in the MENA have used any of these methods in the past year. The MENA region has become the most dynamic market in terms of digital payments due to the shifting customer inclinations, innovation, and market rules.

Conclusion

However, the MENA ecosystem is still encouraging despite these challenges. Considering the current trends, it aims to deliver 45 unicorns by 2030,  a sign of rising maturity and prominence in the global technology ecosystem.