Translated by: Hayat Hernández

The ramifications of Covid-19 epidemic has generally affected MENA countries economies, but the uncertainty along with other negative economic repercussions, had a significant impact on the venture capital financing sector in the MENAin particular.
In this article we will take a glance at the recently released report "Venture Capital in the MENA in 2020" by Magnitt foundation.

Venture Capital Investments

The VC investments volume broke a one billion dollar barrier in the MENA for the first time in 2020, reaching a growth rate of 13% in comparison with 2019. Although Covid-19 repercussions had a noticeable impact on the volume of VC investments, it was subsidized by the midterm growth of 2020 when the epidemic ramifications were less critical on the MENA economies.

Magnitt’s report data on the VC investments volume geographical distribution in the MENA were not surprising, as the UAE ranked first with 56% of total VC investments with a 4-point decline in its share of total VC investments in the Middle East. Meanwhile, Egypt ranked second with a 17% reaching a growth rate of 31% compared to 2019, and an increase of 2 points in the share.

While Saudi Arabia ranked third with a 15% ratio and an increase in the share of VC by 4 points, which is considered to be the highest increase regarding share distribution. Furthermore, it reached an annual rate of growth of more than 55% which is the second highest growth rate for venture capital investments compared to Bahrain as it attained 200% of growth, and with a ranking increase of one point in the MENA in terms of VC, ranking by that the seventh.

Venture Capital Deals

The number of VC deals decreased by 13% compared to 2019, as it reached 496 deals. This decrease subtended with also a 13% increase regarding the investments volume indicates an excess in the volume of a single deal in terms of the rate, as the size of a single deal in 2020 reached more than two million dollars on average, while it was about 1.6 million in 2019, indicating an increase of more than 400,000 dollars per deal. Consequently, the deal size average in 2020 is the highest in three years.

In contrast to the volume of VC investments which were concentrated in the UAE, Egypt and Saudi Arabia at an attribution of approximately 88%, VC deals in 2020 were less concentrated while maintaining their positions order in the first three places, as the UAE acquired 26% of the total number of deals, followed by Egypt with 24% and thirdly Saudi Arabia with 18%, which also witnessed the highest growth rate in the number of deals as it reached 35%, as well as Lebanon and Oman, both witnessed a rise in the number of deals reaching 23% and 18% respectively. While Lebanon witnessed a significant decline of nearly 64%, which led to eliminating it from the list of the top seven countries in terms of VC deals number in 2020.

Allocating Venture Capital Investments by sectors

Perhaps the most prominent impact of the Covid-19 epidemic was on the sectorial distribution of VC investments. This effect is indicated by the sectorial focus of investment deals on E-commerce, Financial Technology, Health Care, Delivery and Logistics Services, all of which witnessed an increase in demand in 2020 and received most of the VC transactions.
As for the sectors ranking regarding the share of total VC investments and the volume of invested capital in 2020, they came as the following:
E-commerce ranked first with a growth rate of 24%, and an increase in the participation share to total investments by one point. Followed by The Real Estate Sector with an increase of 54% and a growth of 4 points. Ranking third, The Financial Technology sector demonstrating a rise by 19% with an increase by one point.

Followed by The Food and Beverage Sector having a growth rate of 265% and an 8-point increase in its share.

As for The Health Care sector, it occupied the fifth place with a growth rate of 280% and an increase of 5 points. While The Transport Sector ranked sixth with a decline in growth by (-32%) and a decrease in the share by 4 points. Finally, came The Delivery and Logistics Sector with an increase in growth reaching 3%, with neither a decline nor a progress in the VC investments participation rate.

How would it be in 2021?

It is too early to talk about our expectations on what the situation will be in the following months of this year, but the last quarter data of 2020 indicate a remarkable improvement regarding the deals number and volume, as their number increased by 17.5% compared to the third quarter.
In addition to the improvement in the number and volume of VC transactions in the last year final quarter, the number and volume of the deals announced in the first month of this year also indicate a relative improvement in VC investments compared to how they were in the third quarter of the last year when the epidemic ramifications were significantly noticeable.

Some good examples of those deals might be the investment tour of AZOM foundation, as its value attained about 9 million dollars, as well as Foodex which was estimated at 20 million dollars, Tamara with 5.8 million dollars, and also Salasa with about 8.5 million dollars, accomplishing a total value of 43.3 million dollars.

 All of those deals have been conducted from the beginning of the year until the first week of February in this year. In addition to those investment rounds and many others that we did not mention, the number of undeclared deals constituted 17% of the total volume of VC investments, according to 2020 data.

Based on the above, an improvement in the venture capital investments in MENA can be anticipated in the foreseeable future.