The MENA Region as a Hub for Future Innovation

While the Middle East/North Africa (MENA) region might be commercially best-known for its energy exports, insights from our 500 Global Rise Report also show e-commerce and fintech can be two of the first few billion-dollar sectors for Rise economies in the region with more to follow.

Demand from the region’s highly connected youth market is fueling the growth of a range of technology products, but we believe the impact is especially relevant for companies that offer more flexible financial and commercial options with very localized business models. Combined with its robust government incentives and a general regional desire to promote innovation, the MENA region may become one of the most interesting regions for the venture community.

Youth market adoption

Our data shows that among the 30 Rise Economies, Saudi Arabia is No. 6 in population growth. Perhaps this may be a reason the country is making a big bet on its youth in its Vision 2030 plan, which aims to increase economic prosperity, social vibrance and cultural diversity via the nation’s youngest citizens.

New financial tools are finding a place with the country’s massive youth market. I believe the young people of the region expect a certain quality of life, and the rise of “buy now, pay later” apps like Tamara and Tabby have helped empower them to live aspirationally. These apps understood the market dynamics and the emotional needs of its consumers, and managed to communicate its offerings in creative ways.

For example, Tamara is a buy now, pay later (BNPL) app that’s doing well in the saudi, and it became a lifestyle for many young people, we started to see it, and Tabby appeared directly in some of Saudi and UAE retail shops. A young lady in one shop asked me, “Where's your abaya from?” I said, “from a Saudi designer on instagram,” and she said, “I hope they have Tamara and Tabby.” It's becoming an immediate kind of step in the purchasing process for the younger generation.

Another trend that is also trending after those two companies dominated the retail industry and also set the tone in the market and the consumer behavior, which is a more specialized options for BNPL is ones like Ijari which is a rent now pay later startup that caters to a segment that want to reserve the cash for other purchases or even investment options rather than paying the full rent ahead of time. I believe we will start seeing more in medical services and other sectors that never thought or explored this option which allow for many new markets to unlock.

Government incentives

The MENA region has multiple government incentive programs that aim to lower the operational barriers for startups. In this section, we will explain a few non-exhaustive examples to demonstrate different incentive structures in the region. In our Rise Report, we highlight the top countries by state-owned investor AUM. At No. 8 with a total of $1506 (USD B) based on data from Global SWF, Saudi Arabia has leveraged government initiatives as part of their Vision 2030 such as establishing economic cities and special zones like King Abdullah Economic City and the KAEC Industrial Valley, which offer attractive benefits including tax breaks, simplified regulations, and robust infrastructure.. Also as part of Vision 2030, Saudi Arabia’s Ministry of Communication and Information launched the National Transformation Development Program with the goal of transforming the Kingdom into a global technology capital by 2030.

One of the transport program’s 12 initiatives, called Relocate, aims to streamline the process of helping tech businesses move to the Kingdom, providing subsidies, office space, salary subsidies and expense grants to qualifying businesses.

The United Arab Emirates and Qatar are also powering similar initiatives. In Abu Dhabi, officials have launched Abu Dhabi Economic Vision 2030, a plan to transform the emirates' economies. Part of the plan includes a decreasing dependence on oil and a higher reliance on knowledge-based industries. More specifically officials are supporting the accelerator approach for founders in the region.

Qatar’s National Vision 2030 is similarly prioritizing a lesser reliance on oil and a greater dependence on knowledge based industries. For example, the initiative includes support from the Qatar Development Bank, a government-backed bank that provides loans and other financial support to startups and small businesses.

Saudi Arabia and Qatar aren’t the only nations rolling out financial support for technology firms. The UAE is No. 4 of the top countries by state-owned investor AUM, with a total of $2055 (USD B), as cited in our Rise Report based on data collected from Global SWF. In addition to other tech-focused programs, including one that aims to make the country home to 20 unicorns by 2031, the UAE launched a $272.3 million initiative to help tech companies conduct their IPO on its stock market.

In Egypt, the government has expanded support to foreign financiers, including a cash incentive program that entitles investors “to a refund of between 35% and 55% of the tax paid in the corporate tax return on the income generated from the business operations.” There are many elements to create a flywheel of momentum across innovation, supportive investment and collaboration.

Commercial connectivity

What’s exciting is that the 500 Global Rise Report reveals MENA’s regional connectivity, and what it has already meant for ecommerce. Of the 30 Rise Economies, Saudi Arabia ranked top in 4G LTE coverage with 100% coverage, and the UAE ranked top in mobile penetration with 194.7% penetration, as cited in our Rise Report based on data collected from ITU sources.

As a result, the barrier to successful digital commerce has continued to lowered. While I believe there’s lots more for the venture community to be excited about, there is still foundational work to be done.

The need for gender equity

One concern is that, in spite of these accelerating factors, technological growth in MENA will not reach its full potential until female founders are funded at the same level as their non-female counterparts.

Authorities in the region are attempting to address the issue, with increased gender equity being a top-level goal of Saudi Arabia’s Vision 2030. But we have seen many women who are reluctant to take advantage of such opportunities for fear of being singled out or tokenized. Yet many brilliant female founders are paving the way and setting the new narrative for many others to follow and setting a new norm for all women to be part of.

We’re proud to play a part in making some of that progress. As a global VC firm with a strong local presence, we can count ~25% of our global portfolio of more than 2900 companies as founded or co-founded by women. Our 7th and current batch of the Sanabil 500 MENA Accelerator counts 58% of companies with a female co-founder. Additionally, 500 Global’s leadership team and partners are 40% women. This includes myself who was recently promoted to Managing Partner in the region.

This may seem complex to some but we are seeing the change every day with more women in positions of power leading to more women seeking out those same positions. On a generational level, seizing that opportunity means more women will get more opportunities in the future.

There’s no shortage of momentum behind the long arc of technological innovation, and it’s our goal that this same momentum will power greater diversity and equity across MENA for generations to come.

Looking ahead

Nearly every individual and business today – big or small, including your local grocery store, is utilizing technology. The connectivity has happened. The infrastructure is already out there. The value of tech has spread. And it is not going back.

At 500 Global, we believe that a global democratization of technology and corporate innovation may lead to the growth of what we call the Rise Economies. This includes 30 of the fastest-growing countries like Mexico, Malaysia, Indonesia and countries in the MENA region like Egypt, the UAE, and Saudi Arabia. It’s why we’re proud to continue investing in innovators in the MENA region.