The UAE is poised to continue its growth and foster the development of new unicorns in the foreseeable future, thanks to ongoing government support, a robust ecosystem, a favourable regulatory environment, and increasing investor interest, according to experts.

Leading executives highlighted the Gulf region’s commitment to promoting innovation and entrepreneurship. Dubai, aiming to become the unicorn hub of the Middle East and North Africa (MENA), has initiatives to attract at least 20 new unicorns to the UAE. “The Gulf states, including the UAE, offer conducive regulatory environments and have a strong venture capital asset pool,” said Silvina Moschini, CEO of Unicoin and Unicorn Hunters, in an interview with BTR.

Abu Dhabi’s startup ecosystem, which has experienced a 134 per cent growth in ecosystem value, is now the fastest-growing in the MENA region and the sixth globally. This demonstrates the emirate’s capability to generate significant economic impact from its startup sector, Moschini noted. She added that the UAE’s impressive talent pool, especially in finance, further attracts unicorns like Unicoin. Moschini, who attended the Web Summit Qatar in Doha, emphasised the importance of local talent for powering growth in sectors such as fintech, cleantech, and agtech, supported by initiatives like the Golden Visa program.

Higher inflation rates exceeding targets and potential geopolitical tensions may affect the region’s sentiment

Highlighting potential unicorns, Moschini mentioned companies like Swvl, Kitopi, EMPG, and Careem that have thrived in the Gulf in recent years. She stated that the region’s dedication to innovation and entrepreneurship is evident in Dubai’s goal to become the MENA unicorn hub. “We see numerous opportunities for regional companies to expand globally,” she added.

Moschini also cited data suggesting that the MENA region’s fintech and innovation sector is expected to double in value from $135.9 billion in 2021 to $266.9 billion in 2027, underscoring the Gulf region’s vibrant environment for emerging unicorns. “We are strengthening our presence in the region to contribute to job creation and support local economies. Savvy cryptocurrency consumers seek greater transparency, which is where Unicoin comes into play,” she said.

The outlook for UAE startups in 2024 is promising, echoed Amar Rizvi, Chief Strategy Officer of Dubai-based logistics and delivery services provider iMile. Rizvi attributed this to continued government support, a thriving ecosystem, and growing investor interest. “The UAE’s strategic location, favorable business environment, and commitment to technology and innovation will continue to attract entrepreneurial talent and investors,” Rizvi told BTR.

Rizvi predicted that technology-driven industries such as fintech, logistics, mobility, and e-commerce would dominate in 2024, along with sustainable and clean technology startups as the UAE intensifies its focus on environmental sustainability. However, he also noted challenges such as regulatory hurdles, access to funding, talent acquisition, market saturation, geopolitical tensions, and potential global market volatility.

In 2023, Saudi Arabia led the MENA funding rankings, with the UAE in second place and Egypt third. Saudi Arabia’s venture capital ecosystem surpassed the $1 billion milestone for the second consecutive year, deploying $1.383 billion, a 33 per cent increase from 2022. This boosted the kingdom’s share of MENA region funding from 30 per cent in 2022 to 52 per cent in 2023.

The significant rise of international startups choosing the UAE for regional expansion and the active presence of international venture capitalists as key factors driving the UAE’s venture space growth

Philip Bahoshy, CEO of MAGNiTT, provided a different perspective, noting that 2023 was a year of adjustment for the UAE’s venture capital ecosystem. Despite a contraction in funding and a decrease in investor numbers, signs of adaptation and strategic shifts emerged. Early-stage investments rose, investor profiles diversified, and exit activity continued, indicating a potential ‘soft landing’ in 2024, Bahoshy told BTR.

He highlighted the significant rise of international startups choosing the UAE for regional expansion and the active presence of international venture capitalists as key factors driving the UAE’s venture space growth. “We anticipate a robust increase in local capital deployment, intensified competition with regional startups, and upward pressure on inflation concerning services and talent,” Bahoshy said.

Despite efforts by General Partners (GPs) to secure funding from Limited Partners (LPs), the conversion into concrete investments remained limited. International investors allocated only 49 percent of capital, down from 54 percent the previous year. As 2024 begins, the prospect of a stable interest rate environment raises questions about the resurgence of international capital in the UAE’s venture capital ecosystem. This speculation is compounded by prevailing geopolitical tensions, adding uncertainty to the region’s stability.

Bahoshy concluded that fintech maintained its dominance across various stages in MENA last year and is likely to continue its growth in 2024. Other sectors like enterprise software, healthcare, and edtech are also seeing increased deal activity. However, inflation and interest rates could impact overall sentiments in the region. “Higher inflation rates exceeding targets and potential geopolitical tensions may affect the region’s sentiment,” Bahoshy said. “While MENA may experience four flat quarters of VC funding excluding mega-deals, there is potential for an uptick in the fourth quarter of 2024 if the global economy recovers and interest rates decline.”