Top 5 Startup Sectors with the Highest Investment Opportunities in the MENA

The Middle East’s digital future is brilliant, with numerous promising entrepreneurship and investment opportunities for innovative startups and investors. This growth capacity has been attributed to various factors, including the region’s sizable youthful population. Currently, nearly 60% of the total MENA population is below the age of 30, with 30% falling into the 15-29 age range. It is definite that this young generation will fuel the rapid digital expansion in a variety of sectors in the forthcoming years.

The second influential variable is the region’s fast-growing access to technology, along with its insatiable appetite for digital adoption and consumption. As smartphone penetration and online accessibility have risen noticeably in most Middle Eastern countries, a greater hunger for online content and services has emerged. This has significantly created a diverse range of entrepreneurial opportunities for those looking for huge profits in the region. In this post, we’ll provide an overview of the five most thriving investment sectors to give you a clue where to start from. 

1. E-Commerce

E-commerce is currently the most mature yet still sub-scale digital sector in the Middle East. It is flourishing rapidly with a variety of entrepreneurial solutions. Pure-play marketplaces, like Dubizzle, provide a varied range of sellers with a platform to sell their goods, while full-fledged e-retailers, such as Namshi, offer integrated digital storefronts, payment services, and delivery solutions. Furthermore, hybrid models like Amazon’s SOUQ have prospered in blending both marketplace and e-retail models.

Leading E-commerce Platforms in the Middle East

Source: www.SaleCycle.com

According to Go-Gulf.ae, some highlights of the e-commerce sector in MENA are as follows:

• E-commerce sales are expected to reach $48.6B by 2022 from $26.9B in 2018.
• There’s been a 19.80% retail e-commerce sales growth in 2020.
• 66% of online shoppers purchase from businesses outside the region.
• Electronics, fashion & beauty, grocery, and home products comprise 98% of the e-commerce market in UAE & KSA.
• In 2020, the average consumer spent an estimated $817.11 shopping online.
• 48% of internet users in the Middle East shop online.
• UAE, KSA, and Egypt make up 80% of the region’s e-commerce market.
• Most MENA consumers discover new sellers on social media.

 Source: www.kearney.com

E-commerce is literally going through rapid growth in the whole region. Calculations reveal that Gulf states have experienced a quadruple of their e-commerce profit in the period 2015-2020 from $5B to $20B. Even with nearly 90% of their online merchandise being imported from foreign countries, it is still a lucrative sector for most regional investors to take the lead.

 2. FinTech

A decade ago, could you ever envision that one day you could trade virtual currencies and stock while waiting at a subway station, all from your mobile phone? Have you ever wondered what the future of finance will be like five years later? The emergence of FinTech has revolutionized the financial world, and the sector is brightly expanding worldwide. Hopefully, the FinTech industry is rapidly on the rise in the Middle East with a 30% of Compounded Annual Growth Rate (CAGR). According to Middle East Institute (MEI), it is estimated that over 800 Fintech companies will rise above $2B in VC funding by 2022. The sector encompasses a diverse range of businesses from open banking, smart lending, RegTech, InsurTech, and blockchain to cybersecurity measures for the financial industry, including anti-fraud, anti-money-laundering, identity management, identity theft, etc.

As a flourishing business, Fawry makes an excellent example of a multichannel FinTech platform. Launched in 2010 in Egypt, it allows users to transfer money with no need for a bank account. It currently serves over 225,000 locations in 300 cities and has built a partnership with many retailers nationwide. According to the latest Fawry in Numbers, the company claims to serve over 29M customers, including payers, businesses, and chief financial institutions, and perform above 3.0M transactions daily.

Indeed, the Middle East has turned into a promising FinTech hub for tech-savvy innovators and investors since 2017, when 30 FinTech startups raised almost $80M in the region. It’s worth noting that nearly half of the 400M population in the Middle East are currently below 25. It will undoubtedly make the push for digital financial solutions continue to surge in the following years. Currently, countries like Israel, the UAE, and KSA have demonstrated significant public interest in this regard. By establishing a Central Bank Digital Currency (CBDC) as a new payment method, they can fuel a magnifying digital economy while upholding regulatory power.

3. Digital Music Streaming

The digital music industry is currently a promising target for global streaming giants in the region. Following their triumphs in Europe and the Americas, online platforms have turned to the untapped markets in the MENA region to push the old-fashioned industry into the digital era. This can dramatically captivate the large, hyper-connected youth who’s eager to elevate their lifestyle up to western standards. For instance, Spotify, launched in the region in 2018, claims that it intends to revolutionize the 

 industry by giving regional talents a golden chance for universal exposure on its platform.

A booming regional exemplar is Anghami, the largest local music-streaming platform launched in 2012. It provides infinite streaming access to Arabic and global music. Based on a Forbes Middle East report, the platform’s 30M users streamed over 500M songs a month in early 2017. Since then, the company has remarkably flourished, with revenues of an average of $20M a year, despite severe competition with global rivals, Spotify and Apple Music. It also entered a long-term deal with Warner Music Group in 2017 to provide the region with the Group’s comprehensive catalog of music. As the region’s access to 4G and 5G data is expected to upsurge in the forthcoming years, the music-streaming target audience will also increase, leading to a sizable room for further investment in this sector.

4. Logistics & Last-Mile Delivery

To fulfill the increasing need for e-commerce, numerous startups see a rewarding opportunity in providing logistics and last-mile delivery services in the MENA region. Last-mile delivery refers to the ultimate step of the delivery process when a package is transferred from a warehouse shelf to a customer’s doorstep. Innovation is undoubtedly a key factor for massive success in the last-mile space. As a pioneer, FODEL employs proprietary technology to create a click & collect network. It tracks parcels in real-time, enabling customers to have complete visibility over their shipments. According to the company, it currently serves +1000 locations across the UAE, integrated with such retailers as JollyChic and Choithrams. FODEL plans to expand into KSA with 800 secured pick-up locations.    

Another growing exemplar is Fetchr, a Dubai-based startup, which utilizes smartphone GPS technology to precisely locate consumers for parcel delivery. Other similar platforms, like what3words, provide solutions catered to emerging markets by addressing circumstantial infrastructure barriers. All this great potential has urged many global and regional players to invest substantially in this sector, highlighted by Fetchr’s $41M Series B funding round in 2017, based on businesswire’s report. This 6-year-old company is currently partnering with Skycart and Eniverse Technologies to create the first self-directed drone delivery service 

 in the region.

The future of logistics and last-mile delivery looks so encouraging in MENA. Startups and SMEs have a great chance to deliver innovation and update their last-mile technologies. They can look up to the major regional players for inspiration and take advantage of a sector that is bound to scale.  

 5. Tourism & Travel

Tourism and digital travel applications have gained a great deal more popularity worldwide over the past decade. Such online platforms have made booking transportation means, particularly flights, accommodation, tours, and excursions, a lot easier and more convenient for the general public. However, in the MENA region, the majority of search and booking activity still occurs offline. This provides substantial opportunities for modernization and timely investment. According to Phocuswright (Global Travel Market Research Authority), there are over 60 travel startups with HQs in the Middle East.

Wego is an online travel search engine with growing operations in the MENA region. Launched in Singapore in 2005, it has flourished to generate over $1.5B per month in booking referrals to its diverse partners. Wego presents travel rate results in real-time from +700 travel sites so that customers can compare flight and hotel prices available online. In August 2017, MBC (MENA’s biggest media corporation) invested in Wego through a deal worth $12M, according to Phocuswire. This smart partnership enabled Wego to utilize MBC’s diverse digital platforms to reach millions of users through video content. With such substantial investment in the global search engine market, MBC’s move uncovers trust in a sector that caters to local interests. As Walid Mansour, chief investment officer at MEVP, says: “opportunities are still massive in travel in the Middle East, as everything from payments to packages continues to shift online.”

Explore the Region for Further Opportunities

The Middle East Startup ecosystem is on the cusp of a potential entrepreneurship gold rush. With all the turbulence seen over the past decades, it is still a tempting hub for risk-takers to conquer the untapped markets. Given the demographic shifts toward a younger, tech-savvy generation, and the evolution of technology, digital consumption is growing exponentially in the region.

What we covered in this post are just 5 of the most flourishing sectors, as stated by mckinsey.com. However, there are abundant golden opportunities for entrepreneurs to explore and invest in. What matters most is the country chosen to found your business in. While a sector may be so lucrative in UAE, that might entrap you with failure in KSA. Therefore, you need to conduct extensive research on each country’s startup sector before putting your innovation into practice.

What other sectors do you find prospering in MENA? Share your thoughts with us in the comments below.