A reality check looms for Middle East's tech startups 

Al-Monitor Pro Members

Samuel Wendel

Senior Market Research Analyst, Al-Monitor

Nov. 9, 2022

After years of promising growth, MENA’s startups appear set to experience a course correction amid a broader global investment slowdown. Regional venture investment totals sagged notably in Q3 and are likely to continue falling against a backdrop of economic headwinds. Crucially, red flags are flying in Egypt as key startups struggle — most notably Capiter, a B2B e-commerce platform now embroiled in scandal after burning through $33 million in funding in barely a year. It’s a sign that regional startups need to prioritize profitability and fundamentals over aggressive growth as operating conditions worsen. Still, startups in Saudi Arabia and the United Arab Emirates are enjoying significant support, and the sector has matured enough across MENA that it should avoid a catastrophic collapse.

Scenario 1: Startup investment activity in MENA stabilizes in 2023. Despite challenges, ongoing support for startups in Gulf countries, particularly Saudi Arabia, could sustain investor confidence in the region and prop up MENA’s tech ecosystem overall.

Still, it’s too early to tell how far regional startup investors will pull back. Startups in the UAE and Saudi Arabia look positioned to defy broader trends, but entrepreneurs in many MENA markets already face worsening conditions. For them, an investment downturn could cause lasting damage.

Scenario 2: MENA’s startup bubble bursts as investors flee the market en masse. Despite progress, the region’s startup sector is still relatively nascent. The boom times have seen soaring valuations and startups aggressively pursuing growth at the expense of profitability, setting up many for failure as funding dwindles. Investors could sour on the market if more prominent startups like Capiter fizzle and saddle their backers with significant losses, kicking off a sector death spiral amid broader economic challenges.

Yet this seems unlikely. Startups in the UAE and Saudi Arabia still enjoy plenty of support and new funds continue launching. That dry powder will help many local startups survive a downturn in the near term. Plus, MENA now has several successful homegrown tech firms, like Careem, which serve as proof points that will help keep investors engaged.

Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.