The Middle East and North Africa (MENA) saw a 23% drop in venture capital (VC) funding deployed in 2023, according to a new report, with Bahrain, Qatar and the United Arab Emirates seeing the steepest decreases.
A report by Qatar Development Bank and VC data company MAGNiTT released this week investigated venture investment trends in Qatar and the wider Middle East.
The MENA countries saw capital decline by 23% year-on-year (YoY) in total. In 2023, MENA deals dropped by 34% compared with the same period the previous year.
“As the overall economic conditions remain volatile, interest rates at their highest in more than two decades leading to higher borrowing expenses and creating competition for venture capital investments as safer assets yield greater returns, the overall sentiment across the VC ecosystem is likely impacted,” Farah el Nahlawi, research team lead at MAGNiTT and author of the report, told Al-Monitor.
Qatar saw VC investments tumble by 57% to 43 million QR ($11.81 million), eclipsed only by Bahrain with an 82% drop. The UAE saw a 45% fall while Egypt saw 30% less VC funding in 2023.
“Overall, Gulf countries reported a YoY decline in funding of 14%. However, if we exclude the impact of Saudi Arabia (which saw a 33% YoY increase in funding and therefore skews the average), the Gulf countries reported a 47% YoY retreat in funding,” Nahlawi said.
Asked whether VC investments in the region were likely to pick up in 2024, the expert said it depends on multiple factors. “The region had seen in Q4 2023 and Q1 2024 the announcement of several funds, highlighting the availability of dry powder in the market. But when exactly this will translate into investment in startups is still unclear,” Nahlawi said.
Any interest rate cuts and return of international interest will likely speed up VC investment, she said.
Gulf countries like Qatar are investing in start-up ecosystems. The Gulf state announced a $1 billion “Fund of Funds” at the Web Summit in Doha last month, but Nahlawi said that “only time will tell” whether such investments will translate into an upward trend in VC investment this year. The Qatar Investment Authority’s $1 billion deployment looks to help the country develop a vibrant VC and start-up market.
Between 2016 and 2023, 187 start-ups were founded in Qatar, and there have been 224 venture capital transactions in the country, according to the report.
