Jamal A. Ali - "We went to San Francisco in 2017 looking for them... Now they all have come looking for us." This statement by Ibrahim Ajami, head of the venture capital unit at Emirati investment company Mubadala, encapsulates the remarkable shift in the entrepreneurial venture capital landscape within the region. This change has spurred numerous major American venture capital firms from Silicon Valley and beyond to gravitate towards the Middle East and North Africa (MENA) region, enticed by attractive investment prospects to support startups. This trend has gained momentum against the backdrop of challenging global economic conditions, witnessing one of the worst financing crises of the decade, which has curtailed resources for the venture capital sector worldwide.

Ajami's remark was featured in a report published by the Financial Times last April, highlighting the influx of top venture capital executives into countries like the UAE, Saudi Arabia, and Qatar. Among these investors are industry giants such as Andreessen Horowitz, the world's largest firm in terms of asset value in this sector, alongside prominent firms like Tiger Global and IVP.

To grasp the scale of this transformation, consider that less than a quarter-century ago, in the year 2000, there were over 1,700 venture capital firms in the United States, compared to fewer than 6 in the UAE. Today, the UAE boasts over 500 venture capital funds, benefiting more than 7,000 startups.

Reports from specialized institutions underscore the significant growth that the MENA region has achieved in attracting venture capital to support startups. In 2022, the funding value reached an unprecedented $3.2 billion, an 8% increase from 2021. The UAE led the region, accounting for 37% of these investments totaling $1.19 billion, followed by Saudi Arabia with $987 million (31%). Egypt also demonstrated steady growth, surpassing half a billion dollars for the second consecutive year with $517 million.

This shift reflects a clear response to economic changes and a surge in entrepreneurship in MENA countries. Led by the UAE, Saudi Arabia, and Qatar, these nations have embarked on ambitious economic diversification plans, fostering flexible and dynamic investment environments. They rely on updated regulatory and administrative frameworks to attract investment capital and unlock the creative potential of innovative startups leveraging digital transformation technologies and artificial intelligence.

Examples of systematic government support for startups include the establishment of the Saudi Venture Capital Company (SVC) in 2018, with a capital of $2 billion. The company has supported 43 investment funds and invested in over 700 startups and small to medium-sized enterprises.

In the UAE, over $3.7 billion was allocated within the "Fifty Projects" initiative to enhance economic competitiveness. Half of this amount was earmarked to support Emirati-owned startups. Initiatives extended beyond government entities; for instance, Crescent Enterprises, based in the UAE, doubled its funding for startups to $272 million, following successful investments of $136 million in 32 startups and venture capital funds across the MENA region, the United States, India, and Southeast Asia.

Despite recent indicators of a slowdown in venture capital attraction during the first ten months of 2023, due to various factors including US economic conditions, global inflation, regional stability concerns, and oil price fluctuations, the MENA region remains poised to sustain its upward trajectory in attracting venture capital. This will further solidify its position as an ideal hub for startups and innovative entrepreneurs.

The positive outlook towards startup growth is bolstered by improved investment infrastructure, continuous population and workforce growth, highly productive young societies, elevated education levels, strengthened digital transformation plans, advanced technology deployment in businesses, and robust entrepreneurship support ecosystems with developmental accelerators.

Overall, the economies of the Middle East and North Africa rank among the world's fastest-growing, with World Bank reports identifying six of the world's ten fastest-growing economies in this region. This positions the MENA region as an increasingly attractive investment destination, drawing heightened interest from capital funds seeking promising, diverse, and sustainable investment opportunities.

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