Worldwide, businesses may be facing an increasingly challenging operating environment. Companies are rethinking their strategies to improve agility, meet sustainability goals, and shave down costs. For many, the response to the increasing pressures is to seek new geographies to operate in. Backed by a growing economy and buoyant investment sentiment, Saudi Arabia has emerged as an obvious choice for entrepreneurs and high-growth businesses in the tech industry who are looking to start a business or expand existing operations, owing primarily to the country’s strong emphasis on cultivating a robust business environment.
The country’s leadership position in the tech sector has been reinforced by hosting LEAP 2024, the world’s biggest technology exhibition that brings together the global technology ecosystem. The event is expected to attract 172,000 attendees, more than 600 future-forward businesses, and 1,800 major global tech companies, such as Google, Microsoft, Oracle, Dell, Cisco, and Avaya. The event is set to witness tech investments skyrocketing to $11.9 billion, surpassing last year’s $9 billion, according to the Kingdom’s Ministry of Communications and Information Technology.
During LEAP, UIPATH, a global firm specializing in robotics and automation, announced the opening of its Saudi office, following its expansion into the market with the help of our on-ground team in Saudi. Meanwhile, Saudi contech BRKZ, another one of our expansion companies, also managed to raise $8 million in funding during the renowned event.
Factoring in Saudi Vision 2030, the Kingdom is bracing itself to be a prime business destination for nearly everything. There are sweeping reforms across key economic sectors, opening up new avenues of growth and innovation and prompting bold entrepreneurial endeavors. The end goal is to increase small businesses’ contribution to GDP from 20% to 35% and boost foreign direct investment from 3.8% to 5.7%, as envisioned in Vision 2030.
The latest Global Entrepreneurship Monitor (GEM) report signals the growing reputation of the Kingdom as an ideal place to start a business, with entrepreneurship surging to record-breaking heights throughout the Kingdom in 2023. Out of 49 economies, the Kingdom has been recognized among the top economies globally in entrepreneurship, exhibiting an impressive score of 6.3 out of 10 in 2022 and 2023, up from 5.0 in 2019.
On the other hand, becoming digital-first is a core vision of Saudi Arabia, which aims for a 19.2% contribution to its overall GDP. The latest figures indicate that we are almost there, with the Saudi digital economy contributing 14% to its GDP in 2022. The improvement in the country’s score reflects a steady increase in its tech sector with increased participation from early entrepreneurs, SMEs, and large-scale businesses, backed by rapid digitalization over the years, contributing to the formation of an innovation-led, diversified economy.
Strong rise in business activity as confidence grows
The improved quality of the entrepreneurship ecosystem is a reflection of a strong government commitment, a prerequisite to the success of any startup ecosystem anywhere in the world. From tax and discretionary incentives to streamlined registration processes, the Saudi government is diligently working to facilitate business expansion and setup in the country, driving overall optimism around the market outlook to new levels.
As a result, there’s a growing appetite among companies to enter the Saudi technology market. What was once a nascent sector in Saudi Arabia is now one of the key economic cornerstones of diversification, growth, and change. As per our sector-building blueprint at AstroLabs, we have been working closely with governmental bodies and corporations to activate the 3 pillars for sectoral advancement in Saudi; attracting global businesses, cultivating local startups and SMEs, and integrating local corporates to enable cross-sector innovation in close alignment with the public sector and the Vision 2030 mandate.
Tech companies make up nearly 32% of the businesses that we helped expand to Saudi Arabia. Half of them originally come from Europe (15%), Asia (18%), and the US (17%) cumulatively. As of today, 35 companies have raised more than $35 billion in funding after expanding to the Kingdom.
The kingdom has made significant progress in improving its overall ease of doing business, gradually acquiring all of the characteristics of a global center for technology and businesses. For one, the market boasts several funding programs and initiatives geared towards tech companies across all stages of development.
Key among these are the National Technology Development Program (NTDP), the Misk Foundation, and the Saudi Unicorns program, which focuses on supporting high-growth businesses and minting local unicorns. Another notable mention is the ongoing climatetech-focused Mega Green Accelerator Program led by PepsiCo in collaboration with AstroLabs and SABIC that aims to nurture the next generation of innovators as they develop solutions to address both regional and global sustainability challenges.
The combination of continued government support and vast consumer market opportunities creates a favorable environment for businesses to thrive. As per the GEM report, Saudi Arabia is among the economies to have scored “more than sufficient” for entrepreneurship framework conditions, used to take stock of the entrepreneurial context of a particular geography. Interestingly enough, the level of established venture ownership reached 14%, up from 10% in 2021, meaning that more entrepreneurial ventures are transitioning into established businesses, a sign of the growing maturity of the ecosystem.
Reimagining growth opportunities in emerging digital sectors
Taking a closer look at the Saudi technology sector, there was a record-breaking surge in VC funding in the local ecosystem last year, bucking the global trend of the global funding slowdown. In 2023, as much as $1.8 billion was invested in Saudi startups, accounting for more than half of the funding deployed to startups based across MENA. Saudi investors were the most prolific, signaling a shift in the dynamics of venture capital funding. The figure represents 33% growth year-on-year (YoY) compared to the previous year and 52% of the region’s fundraising.
Leading the fundraise were fintech, e-commerce, and software. Unsurprisingly, fintech clinched the maximum funding and deals, making up 51% of the country’s deployed capital, thanks to equity mega-rounds raised by BNPL providers Tamara (340 million) and Tabby ($250 million), both of which account for more than half of the VC activity. Both also achieved unicorn status last year. In e-commerce, the surge in funding value was mainly driven by large rounds of over $100 million; top fundraisers were Nana ($133 million), Sary ($150 million), and Floward ($165 million).
While fundraising is usually concentrated in a few sectors across the region, including Saudi Arabia, there’s a rise in interest among startups and investors in emulating success stories in unsung spaces, where there’s a lot of value left uncaptured. Examples include health, renewable energy, and climate technologies.
Now more than ever, investors are looking to back business models in the Saudi technology sector that not only generate solid financial returns but also have a positive impact on society and the environment. This trend is particularly taking hold, especially in light of Vision 2030 for sustainability goals.
Innovation induces palpable economic progress; empowering fledgling businesses remains a key pillar in realizing economic diversification strategies, therefore accelerating the path toward a digital and sustainable transformation.