Why start-ups in the Middle East are not immune to Trump tariff uncertainty

Venture capital funding might be affected as investors weigh the economic outlook, say experts

Tariffs are expected to weigh heavily on global trade and could lead to an economic slowdown. Victor Besa / The National

The tariff drama that has dominated headlines and rattled markets over the past week is likely to have a limited impact on start-ups in the Middle East, although funding might be affected as investors weigh the economic outlook, according to industry experts.

Start-ups in the Middle East, especially in the Gulf countries, are relatively shielded from any trade war repercussions, unless they are directly dealing with the US market, they said.

“Anything that happens anywhere around the world, because we are such interconnected global economies, you would feel the impact,” said Hanan El Basha, managing director of the Founder Institute GCC and a start-ups mentor and adviser.

“I would say that still within the Mena – and specifically within the GCC region – the impact might kind of be filtered through by the time it gets to you. You will feel the impact, but it's not going to be humongous.”

The announcement by US President Donald Trump on Wednesday of a 90-day pause on “reciprocal tariffs” on all countries except China, eased some concerns on Thursday, with global markets rebounding. The move came after business executives warned of a potential recession caused by the Trump administration's policies and some of the top US trading partners retaliated by imposing import taxes.

However, Mr Trump raised duties on Chinese imports from 104 per cent to 125 per cent after China increased tariffs on US goods to 84 per cent. US officials also clarified that the country is maintaining its 10 per cent tariff on nearly all global imports.

The global tariff situation is definitely affecting start-ups, said Franklin Francis, executive vice president of Carbelim, a climate technology start-up that has operations in the UAE, the US, the UK and India.

“As a clean technology company focused on air purification and carbon capture, we rely on specialised components and materials sourced from various regions. Tariff fluctuations have led to increased costs and procurement delays – particularly for high-precision sensors and parts not readily available in local markets,” he said.

“While the UAE’s infrastructure and support systems provide some buffer, our international operations – especially in the US – face sourcing challenges when trying to procure materials from the Middle East. Despite being a local manufacturer in the UAE, tariffs and export restrictions can complicate and increase the cost of supplying our US team with regionally produced components.”

Hassan Elrakhawy, chief executive of Leedana, an agriculture technology start-up that has operations in the region and globally, also said his company is seeing the impact of the tariff uncertainty.

“Tariffs are making people rethink how fragile things can be. Imagine going to the store and there’s no food. Or an apple costs $250. What if Mexico stopped sending food to the US? Or Canada stopped sending fresh water?” he said.

“People are starting to feel this. In Canada, Egypt and the US, we’ve seen more interest from investors and corporations in having food locally – because some things are just too important to depend on from thousands of kilometres away.”

Mr Francis also stressed that the situation highlights the need for start-ups to adapt by localising parts of their supply chain and exploring bilateral trade solutions.

For UAE-based Circa Biotech, a waste management company that produces sustainable aviation fuel and insect protein, the whole situation has meant looking closely at their future plans.

“Very few start-ups are exporting goods that are manufactured locally and destined to be sold in the US market, so the impact is limited,” said Haythem Riahi, chief executive and co-founder of the company.

“However, start-ups with plans to do so – like Circa Biotech – need to assess the situation better in order to understand the specifics of the products involved and to find a mitigation plan.”

However, for UAE-based electric vehicle company Sulmi, the tariff situation is “actually in our favour”, said its founder Rashid Al Salmi.

“We are an automotive technology manufacturer. So, what we do is not white labelling. We don't get [products from the] US, we actually get it either from China or India,” he said. While it would have been challenging if the company had customers in the US, that is now not the case, he added.

Funding pause

One area of impact could be on funding, especially from venture capital firms that might rethink their strategies in light of the current uncertainty.

Middle East and North Africa start-ups collectively raised $1.9 billion in 2024, down 29 per cent annually, according to data platform Magnitt. Saudi Arabia ranked first ($750 million), followed by the UAE ($613 million) and Egypt ($329 million), it found. “Despite the dip in funding, the number of active investors in Mena rose by 20 per cent, signalling optimism for what lies ahead in 2025,” the report said.

In the Middle East, while the direct impact of tariffs may be less evident, the broader economic repercussions could lead to a decline in start-up funding and a more cautious investment environment, said Swethal Kumar, managing director of Catalyst, a cleantech accelerator and investor that is a joint venture between Masdar City and BP.

“This venture capital may shift towards writing small cheques or may delay investment since these VCs also depend on raising capital from institutional investors who are generally large corporates, so they may have exposure to the US market or may have direct impact of tariffs,” he said.

A key factor for start-ups, especially those in the Gulf region, is the support provided by governments and institutions that are advocating for and supporting the entrepreneurial ecosystems, said Ms El Basha.

“They're the ones putting in the policies and the frameworks and the network to be able to support the entrepreneurs and start-ups in the region, and that in itself gives you a bit of protection against kind of any flooding that comes your way,” she said.

However, VCs have a much bigger view since they are aiming for start-ups to expand outside the region.

“We know the market [in the GCC] is not big enough, but they are looking beyond – we have Africa, and we have South-East Asia, and we have Europe. So, we are in this area, which is kind of a sweet spot for start-ups, that they can use the GCC as a launch pad, they can get the support of the frameworks, the policies, the funding, sometimes the governmental and semi-governmental institutions that are supporting them, and then still be able to cross borders and have some entities backing them, so they're not completely vulnerable to the impact of any [economic crisis].”

Globally, however, the “unknowns are too many” for investors, which could cause stagnation in terms of funding for a lot of small and medium enterprises that are aiming to scale, she added.