There are 1361 unicorns in 2023 as compared to 1312 in 2022 in the world. And there are about six unicorns in the Middle East and North Africa – with four in the UAE alone (Careem, Swvl, Emerging Markets Property Group, and Kitopi). So, one thing is clear: MENA countries are failing to produce enough unicorns compared to the size of their economies.
But why is that?
One of the most prominent challenges for startups is access to capital. While there is a growing number of venture capital firms and investors in the region — with funding hitting an astounding $1.6 billion in June 2023 alone, startups often struggle to secure the necessary funding to scale their operations.
Many investors are risk-averse or lack the experience and knowledge to assess and support early-stage companies. This leads to a funding gap, making it difficult for startups to expand and compete globally.
“Access to funding has improved significantly over the last decade; however, it is still a major challenge for local entrepreneurs. While entrepreneurs have access to a variety of VCs, incubators, and angel investors in the market, valuations and funding amounts tend to be lower than those for a similar business launched in the West,” says Bader Ataya, Co-Founder and Chief Growth Officer at Kitopi.
Access to funding can make or break a startup, especially in its early years, says Mudassir Sheikha, Co-Founder and CEO of Careem. “While a great idea and product are essential, securing sufficient funding is necessary for a startup to scale.”
Although global expansions could further a startup’s profitability and global presence, localized strategies are needed to make the business work well in the region. A good example of localized content and adapting to cultural diversity is Careem’s approach to the Saudi market.
“Diversity presents exciting opportunities to stand out among global competitors by working with local talent and developing a deep understanding of cultural nuances. We witnessed this firsthand when we expanded to KSA,” says Sheikha. Although Careem was relatively small and lacked global recognition then, he adds, “We built brand loyalty and outperformed our competitors by staying close to the Saudi customer and understanding their needs.”
Navigating regulatory hurdles can also be particularly challenging in the region. Varying legal frameworks can pose significant obstacles for startups. Startups may encounter lengthy licensing, compliance, and permit processes, which can delay their expansion and increase operational costs.
“Furthermore, due to the diversity of consumers, entrepreneurs will need to conduct extensive research and testing to tailor their offerings to meet varying consumer demands, languages, dialects, and demographics,” says Ataya.
Attracting and retaining top talent is a global concern for startups, but it’s magnified in the Middle East. There is intense competition for skilled employees, and startups may find that they cannot offer enticing financial incentives compared to larger, more established brands.
“Securing and retaining top-tier talent has become a substantial challenge amidst the global magnetism of cities like Dubai, Riyadh, and Doha,” says Ataya. “Startups in these hubs, filled with flourishing businesses from around the world, find themselves in fierce competition with globally renowned blue-chip companies. These startups strive to offer enticing salaries, an appealing work-life balance, and attractive perks to attract and retain exceptional individuals.”
While some cities have rapidly developed tech infrastructure, others need to catch up. Inadequate connectivity, unreliable power supply, and insufficient logistics infrastructure can impede startups’ ability to operate efficiently and scale their businesses.
Sheikha says it’s an opportunity for startups to build those infrastructures from the ground up. “While it was more challenging for market entry, it was far more rewarding to see the impact it creates.”
“Currency fluctuations in some markets in the Middle East can also pose challenges, but none that local startups haven’t navigated with resilience. Overall, the Middle East’s startup ecosystem has come a long way, and its potential continues to shine brightly on the global stage,” adds Sheikha.
MENA startups also face a unique set of challenges when it comes to scaling and achieving global recognition. While the region has seen remarkable progress in its startup ecosystem, these challenges pose significant barriers. Addressing these challenges requires efforts from both startups and governments to create a more supportive environment for their growth, ultimately enabling them to compete on a global stage.
Driven by the rise of emerging sectors like healthtech, edtech, and fintech, the region is predicted to see as many as 100 unicorns by 2030, according to RedSeer Strategy Consultants. And Dubai aims to have 30 unicorns by 2030.
“The region’s future is incredibly bright, and its realization will be accelerated as more regulators, businesses, and communities come together to tackle global issues and foster an environment for innovation,” says Ataya.
The second edition of the World Changing Ideas Summit, to be held on November 2, will discusshow to make the region a global hub for startups. The experts, the biggest startup founders in the region, will delve into challenges and regulations and how easier funding access can help startups achieve scale.
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