Despite an overall reduction in funding compared to previous years, investors in the MENA region deployed approximately $2.6 billion of capital in 2023. This decrease in funding stems from geopolitical and economic factors including high taxes, inflation, oil price surges, and elevated interest rates. Experts compare the 2023 venture investment capital landscape to that of late 2020, and this volatility is expected to only increase as long as interest rates remain high.
However, despite such challenges in the macro environment, the FinTech industry in MENA continues to shine. This year, investment analytics data platform MAGNiTT reports the industry as once again topping the charts in terms of capital deployed.
In this article, we will compare the top five industries in MENA in terms of their funding over 2023. Along with providing statistical information, we will also delve into potential factors affecting their performance as well as reasons for the rise of FinTech in MENA.
FinTech - 2023’s Leading MENA Industry
The Financial Technology (often abbreviated as FinTech) industry has seen significant growth in the Middle East and North African region over the past decade. This year is no different, with the industry achieving the top rank in terms of capital deployed in the entire region for the fourth consecutive year. According to MAGNiTT reports, FinTech startups raised approximately $1.279 billion in funding from 101 deals in 2023.
Across the MENA region, the number of deals secured by FinTech has decreased by 31%, but the amount of funding acquired is a 16% increase from last year. This disparity can be explained by the series of mega deals of FinTech companies like Tamara, Tabby, and Halan which brought in over $100 million in investment in the MENA region. This is in part due to the popularity of the industry, allowing it to raise funds at higher valuations relative to its peers in both seed and Series A rounds, further propelling the success of the industry.
We can see a similar trend globally in Emerging Venture Markets as well, where FinTech also remains the industry leader, despite a 51% drop in funding and a 41% drop in the number of deals since 2022.
Factors Behind Rise of FinTech
Over the past decade, the FinTech sector in the MENA region has grown from virtual obscurity to a defined global presence. This rapid growth can be attributed to multiple social, economic, and regulatory factors.
One of the key reasons behind the increased interest in FinTech in the Middle East is digital transformation initiatives led by the government in both public and private sectors. This includes heavy investments in smart city projects like Saudi Arabia’s Neom. These initiatives promote the leveraging of technology to enhance efficiency and innovation in the financial services sector. Regulatory frameworks and fintech-friendly policies promoted by the government have also played a crucial role in encouraging innovation in the MENA region.
Social adoption of digital technologies like smartphones is another driving force behind the rise of FinTech in the GCC. Smartphone penetration is incredibly evident in Saudi Arabia, where approximately 92% of the population has been reported to own or have access to a smartphone in 2024. This number is forecasted to only increase in the coming years, with predictions of near complete penetration by 2028. Such widespread smartphone usage has created much more dependency on digital financial solutions which in turn garners investor interest in the industry.
These factors, coupled with a growing entrepreneurial ecosystem, multiple cross-border collaborations, as well as a changing financial landscape have resulted in the region becoming a top hub for FinTech startups.
Funding Performance of Other Industries
The overall trend for this year’s MENA startups has been fewer deals bringing in more funding. 100% of the top five industries have recorded a major decline in deals since last year. Transport & Logistics has fared the worst of all, experiencing a drop of 54% in the number of deals as well as an 85% retraction in funding. As a result, the industry did not even rank in MAGniTT’s MENA Industry Funding Comparison of 2023.
Similar to FinTech, second-ranked E-Commerce and Retail which is one of the top industries in the Middle East saw a 48% decline in the number of deals but a 16% increase in funding, raising $502 million this year. This is largely due to Saudi fresh-cut flowers e-commerce solution Floward’s mega $156 million Series C round in the first quarter of 2023, as well as dark store grocery delivery startup Nana’s record $133 million funding round.
Third and fourth-place industries Healthcare and EdTech both jumped up five spaces but recorded a 19% and 3% decline respectively in funding. Last-ranked IT Solutions proved to be the underdog industry this year, jumping up five places by raising $81 million of capital, a 15% increase since 2022.
Overall, more than three-quarters of the capital deployed in MENA-based startups in 2023 was concentrated in these five industries, with FinTech taking the lead for the fourth consecutive time.
The Future of FinTech: Final Thoughts
FinTech has had a stellar performance in terms of funding, with multiple mega deals bringing the industry over the $1 billion mark in 2023. According to experts, this wave will only get bigger as the region begins to adopt digital solutions in the mainstream. At Tawaref, we specialize in helping such FinTech startups find support for successful fundraising as well as connecting investors with top talent in the MENA region. This makes us all the more excited to see the growth of this industry and we can’t wait to see what comes next.