Start-ups in the Middle East and North Africa (MENA) region secured $35.6 million in funding through 45 deals in June 2023, bringing the total funding for the first half of the year to $1.6 billion, according to a report by Wamda. Although May witnessed a significant rebound in investment activity, there was a 92% decrease in funding compared to the previous month.
The report highlights a notable decline in investment during the first half of the year. When factoring in debt financing, overall investment dropped by more than 21% from $2 billion in 2022 to just under $1.6 billion this year. Without debt, the decline is more substantial at 46%, indicating a significant slowdown in equity investment in the MENA region.
The report attributes the decline in investment to investor hesitancy stemming from various factors such as the consequences of the war in Ukraine, rising interest rates, and global economic growth deceleration. The second quarter of the year was particularly affected, with a 56% decrease in quarter-on-quarter investment and a 30% decline in deal count. Compared to the same period in 2022, Q2 investments in 2023 dropped by a staggering 83%.
Furthermore, the report highlights the growing challenge start-ups face in raising investment, leading many to consider taking on debt. Debt investment in the region increased from $250 million in the first half of last year to $644 million in the same period this year. The rise of buy now, pay later (BNPL) services has played a significant role in driving debt investment, with companies like Tamara in Saudi Arabia and Tabby in the UAE securing large debt rounds. Egyptian start-up MNT-Halan also obtained $140 million in debt from Chimera in 2023.
Saudi Arabia emerged as the top recipient of funding, attracting $25 million across 12 rounds. The UAE followed in second place, with start-ups securing $6 million spread over 20 rounds. Egyptian start-ups ranked third, largely due to Egypt’s trucking marketplace Trella’s $3.5 million funding round. Fintech garnered the most deals, with seven start-ups raising $3 million. However, the food tech sector secured the highest funding, with over $20 million raised across four start-ups, accounting for 56% of the total funding. Other sectors that gained investor attention included logistics, e-sports, and mobility.
Late-stage venture capital activity experienced a slowdown, as well-capitalized start-ups focused on frugality and cash conservation amid a tighter fundraising environment. Seed and pre-seed rounds were not immune to the funding crunch.
June’s fundraising efforts were primarily driven by grants and accelerator funding, enabling nine female-founded start-ups to secure investment, compared to just one in May.
Egypt faced the most significant decline in the number of deals, with a drop of over 50%. The country’s investment landscape relied heavily on a single start-up, MNT-Halan, which raised $150 million in debt last year and an additional $400 million in both debt and equity this year. Excluding MNT-Halan’s rounds, Egypt experienced a 90% decline in funding, from $324 million in H1 2022 to just $31.8 million in the same period this year. The global economic contraction has severely impacted Egypt, leading to a high level of debt at 92% of its gross domestic product (GDP) and an inflation rate of 30.7%. The Egyptian currency has depreciated by 40% against the dollar, prompting Egyptian-founded start-ups to seek opportunities in Saudi Arabia and other countries. In an effort to enhance the start-up ecosystem, the government recently announced a five-year tax exemption plan.
In the UAE, the number of deals dropped by 47%, accompanied by a 21% decrease in funding value. Saudi Arabia experienced a 38% decline in deal count, but funding value remained relatively stable with only an 8% drop, attributed to increased pre-Series A funding in the country.
