Investments in MENA Start-Ups Decline by 21% in H1-2023

Start-ups in THE Middle East and North Africa (MENA) region raised $35.6 million in June 2023 across 45 deals, pushing the half year funding total to $1.6 billion, according to a report from wamda, a platform of programmes and networks that aims to accelerate entrepreneurship ecosystems across MENA.

While May was a bounce back month for investment in the region, there was a 92% decrease month-on-month. However, without Tabby’s $350 million debt financing round announced in May, then this monthly decline falls to 62.5%.

In fact, half year investment (including debt) has dropped by more than 21% from $2 billion in 2022 to a little under $1.6 billion this year. Without debt, this drop is more substantial at 46%, marking a stark slowdown in equity investing in MENA.

“While investor hesitancy was noticeable in the first quarter of this year, following the consequences of the war in Ukraine, rise in interest rates and decline of economic growth globally, it was in Q2 that felt the true impact. Quarter-on-quarter investment was down by 56% and deal count fell by 30%. The Q2 investments this year were down by a staggering 83% compared with the same period in 2022,” the report said.

The report also said that the growing difficulty in raising investment has pushed more start-ups to consider taking debt. The region’s debt investment has risen from $250 million in H1 last year, to $644 million in the same period this year.

“Part of this is down to the continued growth of BNPL with Tamara in Saudi Arabia and Tabby in the UAE taking on large rounds of debt, making fintech the best-funded part of fintech. Egypt’s MNT-Halan has taken on $140 million in debt from Chimera so far this year,” wamda said.

Saudi Top

Saudi Arabia ranked first in terms of the funding value with $25 million across 12 rounds. The UAE was second, with its start-ups attracting $6 million spread over 20 rounds. Egyptian start-ups were the third largest recipients of capital thanks to Egypt’s trucking marketplace Trella’s $3.5 million round.

Sector-wise it was fintech that attracted the maximum deals with seven start-ups raising $3 million, but it was the food tech space that secured the most funding with just over $20 million raised across four start-ups, accounting for 56% of the total raised. Other sectors that gained investor attention were logistics, e-sports, and mobility.

Late-stage venture capital activity witnessed a slowdown, as well-capitalised start-ups continue to be frugal with spending and conserve cash amid a tighter fundraising environment. Seed and pre-seed rounds were not insulated from the funding crunch.

In fact, June’s fundraises were dominated by grants and accelerator funding and it was due to this that nine female-founded startups managed to secure investment, compared to just one in May.

Egypt Worst Hit

In H1 of 2023, the number of deals dropped by over 50%, with the biggest drop seen in Egypt, where there was a 70% decline in the number of deals while the value of investments remained steady with a 9% decline.

However, Egypt’s investment landscape has been propped up mainly by one startup – MNT-Halan, which raised $150 million in debt last year and a further $400 million in both debt and equity this year.

Excluding MNT-Halan’s rounds, Egypt witnessed a 90% decline in funding, from the $324 million it managed to raise in H1 2022, to just $31.8 million in the same period this year. The global economic contraction has hit Egypt hard, crashing its economy into debts that have reached 92% of its gross domestic product (GDP), with the inflation rate standing at 30.7%.

Its currency has dropped 40% against the dollar and increasingly, Egyptian-founded start-ups are seeking better opportunities in Saudi Arabia and elsewhere. In a bid to help improve the climate for start-ups, the government recently announced a five-year tax exemption plan.

In the UAE, deal count dropped by 47%, with funding value falling by 21%. Saudi Arabia’s deal count dropped by 38% but funding value remained steady, dropping by just 8%, down to a rise in pre-Series A funding in the Kingdom, the report said.