MidEast funding in climate tech is heating up despite a global slowdown: Middle East players invested a total of USD 5 bn in climate tech around the world in the 12-month period ending September 2023, nearly triple the USD 1.8 bn deployed a year earlier, according to PwC’s 2023 Middle East Climate Tech Report (pdf).

Defying the trend: The upswing came amid a global slump in climate tech funding, which dipped by about 43% y-o-y to around USD 65 bn in 2023 on the back of a shortage in primary funding sources and macroeconomic headwinds, according to the report.

Yet, less than 2% of that spending has gone to local entrepreneurs: Middle East players funneled some USD 69 mn into climate tech in the region during the period — a paltry 1.4% of their total investments. Instead, 70% of the funds went to innovators in North America, followed by China (14.8%), Asia Pacific (9.8%), and Europe (4%).

Why? Middle East investors are reluctant to include regional entrepreneurs — which the report describes as the “missing link” in their investment strategy — due to a focus on traditional performance metrics and a preference for large-scale national projects. Measures such as ROI, for instance, are difficult to forecast for new technologies. Additionally, prestigious government projects eclipse the capabilities of smaller firms.

Investors around the globe are channeling less into the Middle East, too: Total funding for climate tech innovators based in the Middle East dropped 84.8% y-o-y to USD 152 mn during the period.

WHERE DOES EGYPT STAND?

Egypt is the third largest recipient of funding in the region: Local companies received some USD 210 mn in global climate tech funding between 2018 and September 2023 — 11.4% of the total USD 1.9 bn funneled into the Middle East during that period. The lion’s share went to the UAE (63.2%), followed by Saudi Arabia (24.9%).

And ranks sixth in outbound investments: Egyptian investors deployed a combined c. USD 30 mn in climate tech globally in 2022 and 2023, coming in 6th at the regional level. KSA claimed the top spot with USD 3.9 bn of investments, followed by the UAE (USD 2.1 bn), Qatar, Kuwait, and Oman.

We have a handful of climate tech innovators in the motherland: Homegrown startups Natrify and TileGreen in November were featured on PwC’s first Net Zero Future50 Middle East report (pdf) — a list of 50 startups in the Middle East implementing new technologies aimed at reducing emissions and addressing the impacts of global warming. Founded in 2020, Natrify produces biodegradable packaging and bioplastic products to help businesses go green. Meanwhile, TileGreen, which launched back in 2021, produces green paving tiles and sustainable building materials from plastic waste. The report also includes a number of local companies that are flagged as “ones to watch,” including:

  • Dajin Platform, a fintech platform and marketplace that seeks to provide poultry breeders with access to finance.
  • Bekia, which aims to facilitate the recycling of inorganic waste through a system of collection and financial rewards.
  • Plstka, a tech recycling company that offers a gamified reward app.
  • Fuelin, which digitizes fuel payments for commercial vehicles.

The energy sector is the most heavily funded: The majority of global climate tech funds invested in both Egypt and Saudi Arabia between 2018 and September 2023 have gone into the energy sector, USD 148 mn (70.5%) and USD 369 mn (80.2%), respectively. The energy sector also received the greatest share of inbound investments at the regional level in 2023, succeeded by the mobility sector. These sectors are two of the main sources of greenhouse gas emissions, accounting for a combined 63% of the Middle East’s carbon footprint.

What can be done to help climate tech startups scale up? Startups are taking a long time to scale up their operations, and unicorns — those valued at over USD 1 bn — are scarce. To help local entrepreneurs grow and build an ecosystem of climate tech, governments can offer more incentives to private players to stimulate investment in startups, the report suggests. These include tax breaks, subsidies, and measures aimed at minimizing investment risk — such as a system for offtake agreements and mechanisms to help investors exit with sufficient returns. Other suggestions that can be implemented by public as well as private players include:

  • Setting up funds that are dedicated to climate tech innovations. Sovereign wealth funds, private investors, and other players could be offered incentives to invest in these funds.
  • Introducing regulations that encourage innovation — such as building codes that require the use of sustainable materials, which increase the demand for such materials.
  • Leveraging the higher education system, which could set up incubators or accelerators and develop new curricula to cultivate environment-related skills, including climate engineering.
  • Efforts by industry leaders to support smaller entrepreneurs, such as by building R&D labs, promising to buy certain amounts of innovative products from small firms through offtake agreements, and prioritizing purchases from innovative startups.
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