The MENA region has been facing significant socio-economic challenges even before the SARS-CoV-2 crisis, which were exacerbated by it. The lack of economic competitiveness and limited capacity in labour markets are substantial challenges for the countries of the region. In addition, growth models are considered inefficient as they rely too heavily on state entrepreneurship and public funds, while at the same time public sector finances are strained and there is also a large gap in MSME financing. Accordingly, private risk investment, the business field of so-called business angels, is seen as an important alternative source of financing to commercial bank loans, through which start-ups can acquire capital for business creation and development despite credit constraints. As expected, the shock caused by the pandemic has in turn substantially affected the private investment sector. To better understand the impact on angel investment activity in the region, we conducted a series of interviews with business leaders and/or co-founders of business angel networks. Here you go!
Click on the fictitious banknotes to watch the videos!
Interview with president of the Moroccan Business Angels Network, Dr. Samir Idrissi
Interview with general manager of the Jordanian BeyondCapital Angel Network, Ghalia Abu Sitteh
Episode with Carthage Business Angels will be available soon
Episode with Alexandria Angel Network will be available soon
The relevance of start-ups for the MENA region and their obstacles
Startups provide millions of jobs and are considered an important pillar of the economy’s ability to change and adapt to future demands. Their ability to innovate, create jobs and adapt to the ever-changing business, technological and socio-economic environment makes them a vital building block for economic growth and prosperity.
However, startups around the world face numerous challenges, including funding, legal and regulatory issues, to name a few. In the MENA region, the challenges for founders go beyond those mentioned above, as political instability, lack of technology adoption, unskilled labour force and, most detrimental to entrepreneurship, lack of access to appropriate financial services further complicate the process of starting and establishing a business.
The importance of business angels for start-ups and economies
Business angels are an essential element in creating and sustaining a promising business environment for start-ups. However, they not only provide the capital needed for entrepreneurial ventures, but also bring their skills, competencies, knowledge and contacts to the companies they invest in, thereby increasing the potential for success. In this way, business angels help to drive entrepreneurship and innovation, create jobs and enable economic growth.
A closer look at the socio-economic challenges of the MENA region makes it clear that a thriving private investment business sector would be an important development factor for the region. In addition to the inefficient growth models already described at the beginning and the large SME financing gap of 186 billion USD, low regional trade and investment volumes, low use of digital technologies and large and growing infrastructure gaps are barriers to growth. Considering that the current youth unemployment rate of 29 percent is the highest among the regions, and estimates that more than 300 million youth will enter working age between 2020 and 2050, labour market development is a mammoth task for the region (World Bank Group). Moreover, the equivalent of 11 million full-time jobs have already been lost in the MENA region by 2020 as a result of the COVID-19 pandemic (UNICEF).
The impact of the COVID crisis has accordingly also led to private investors becoming more cautious about investing in start-ups, and the number of transactions has declined. Except for certain sectors such as fintech, healthtech, e-commerce and logistics, investment in start-ups declined with the outbreak of the pandemic (UfM). The MAGNiTT Venture Investment Report 2021 also showed that international investors’ interest in the MENA region has declined compared to previous years. Cross-border investments have also declined sharply in the MENA region, in some countries by more than 50 percent year-on-year between 2019 and 2020 (World Bank Group).
The role of the GIZ project Financial Inclusion in the MENA Region (FIMENA)
The FIMENA project has promoted and boosted angel investment activities in the region in recent years through the support of the Mediterranean Business Angel Network (Med Angels). The aim of this network is to support the development of regional start-ups and entrepreneurial ecosystems across the Mediterranean region by facilitating cross-border venture capital investments in young companies.
Given the MENA region’s enormous development challenge to create more and better economic opportunities, and the important role that business angels and business angel networks can play in addressing these challenges, it was important for us to find out how the local start-up scene has responded to this new pandemic burden.
Have we seen comparable reactions in Egypt as in Morocco? Was the newly established Jordanian angel network able to overcome the crisis? How has one of the oldest Angel networks in the MENA region been dealing with all these challenges?
One thing is certain, business leaders and/or co-founders of business angel networks provide unique insights to the above and other questions in this video series. CHECK IT OUT!
Text by Raed Abdallah & Sebastian Kausemann
Video series by Raed Abdallah