Saudi Arabia becomes Mena's top market for venture capital funding with $1.38bn in 2023

Investments were driven by four mega deals across the financial technology and e-commerce sectors, Magnitt says

The skyline of the King Abdullah Financial District in Riyadh. Saudi Arabia has been aggressively developing its technology ecosystem. Bloomberg

Saudi Arabia has become the top market for venture capital funding in the Middle East and North Africa for the first time, attracting more than $1.38 billion of investment in 2023, a new report has shown.

The Arab world's biggest economy recorded a billion-dollar figure for the second consecutive year, as venture capital investments surged by a third year-on-year, according to start-up platform Magnitt in its Mena Venture Investment Summary for 2023.

This was driven by four mega deals, or investments worth at least $100 million, across the financial technology and e-commerce sectors, it said.

Funding in the UAE, the former leader in Mena, declined 45 per cent annually to $691 million, Magnitt said.

However, the Arab world's second-largest economy still remained the region's top destination for deals with 158 – a 9 per cent fall year-on-year – compared to the kingdom's 125, an annual decline of about 20 per cent.

The fourth quarter of 2023 also ended up as the best quarter ever, with the mega rounds of Saudi Arabia-based buy-now-pay-later platform Tabby and FinTech Tamara – helping both secure unicorn status, or start-ups with a valuation of $1 billion or more.

“Saudi Arabia has seen five consecutive years of growth. All indications from government, investment appetite and start-up migration to the kingdom indicate a continued growth as the leader in the region,” Magnitt said in the report.

The role of start-ups has expanded continuously over the past few years as a driver of digital adoption and growth, enabling consumers to access services with convenience.

Both Saudi Arabia and the UAE are aggressively promoting and developing their technology ecosystems, which are key pillars of their digital-focused agendas to prepare for the economy of the future.

Both countries have implemented a number of initiatives to push forward with this agenda, seeking to support the growth of the start-up network.

These include mentoring, providing access to the market and global investors, and allowing them to tap into the robust technological infrastructure provided by government and private companies.

“Saudi Arabia and the UAE emerged with resilience,” Philip Bahoshy, chief executive of Magnitt, wrote in the report.

The kingdom was driven by the aforementioned initiatives, while the UAE's momentum was underpinned by the rise of serial entrepreneurs and early-stage companies using the Emirates as a regional launch pad, he said.

Egypt remained at third place in investments with $378 million, down 30 per cent. Morocco moved four spots up to fourth as funding nearly tripled to $81 million, while Bahrain fell one spot to fifth as investments slid 82 per cent to $44 million.

Egypt, the Arab world's most populous nation, was also third in terms of deals, but that was down one spot – swapping places with Saudi Arabia – as transactions fell 59 per cent year-on-year to 69.

Morocco was also fourth in deals, moving up three spots with 28, which was down 3 per cent from a year ago. Rounding out the top five was Qatar, which fell one spot as transactions retreated 42 per cent to 26.

More than three-quarters of the deployed capital was concentrated on the top five industries, Magnitt said.

FinTech and e-commerce were first and second in both funding – $1.28 billion and $502 million, respectively – and number of deals – 101 and 60, respectively. Healthcare, education technology and IT solutions came in next for funding.

For the number of transactions, rounding out the top five were enterprise software, transport and logistics, and healthcare. The top five sectors here, however, collectively posted a decline of 40 per cent in 2023, the report showed.