CAIRO, Egypt – When Aly Magdy, founder of an Egyptian startup that makes electric water-scooters, needed to grow his business, he found it challenging in an economy that has been suffering from currency devaluation, dollar shortages, and inflation. So he looked to Saudi Arabia. 

The Saudi market expanded 8.7% last year, the most of any G20 country. With small businesses expected to account for a little over a third of GDP by 2030 as part of Saudi Arabia’s economic diversification strategy, dubbed Vision 2030, entrepreneurs from the region are being lured by economic incentives and access to a relatively young market with money to spend.

“The Saudi market is booming,” Magdy told The Circuit. “They are supporting so many industries, including manufacturing and technology, which is attracting not only startups, but also SMEs  [small and medium-sized enterprises] from across the region and elsewhere to come to the country.”

Magdy will keep Seavo’s back-office operations in Cairo, but he isn’t the only entrepreneur relocating –and looking for growth – in Saudi Arabia. AstroLabs, a Dubai-based ecosystem builder, says it has supported about 450 businesses in setting up shop in the kingdom since 2018. Lately, the organization has noted a trend of more startups coming from Egypt, Jordan, Pakistan, and even the United Arab Emirates.

Fintech startup Tabby, which was valued at $660 million after its last funding round in January, announced a few weeks ago it would shift its headquarters from Dubai to Riyadh as it prepares for its initial public offering. It plans to list on the Saudi exchange.

Until recently, the UAE was the destination of choice for entrepreneurs from the Middle East and North Africa region looking to establish their startups. They were lured by tax-free zones, the presence of venture and debt capital, as well as lifestyle and a diverse workforce. Yet increasingly, the UAE is being overlooked for Saudi Arabia. 

“UAE is still a focal point, because of its popularity, and diversity in terms of adapting to international markets,” Saad Syed, partnerships manager at AstroLabs, told The Circuit. “But I think a lot of companies are seeing an opportunity with Saudi in terms of market size, it’s alignment with Vision 2030, the recent announcement of the Kingdom’s 2024 fiscal year budget of $333 billion, especially when it comes to digital transformation.”

Saudi Arabia is getting the basics right to attract businesses and investors: setting up new economic zones, allowing 100% foreign ownership, and fast-tracking business licenses. It has also laid the groundwork for startup incubators and a growing investment community.

For Marwan Abu Sakha, co-founder of Jordan-based Kitchefy, a startup that provides virtual kitchen services to the food and beverage industry, relocating his startup’s headquarters to Riyadh enabled him to jumpstart its  business growths. 

“Since we landed here earlier this year, we had the chance to be part of four different programs,” Abu Sakha told The Circuit. “One of them took us to Silicon Valley, another gave us a grant by KAUST [King Abdullah University of Science and Technology], and the third managed to connect us with four of our current investors, and lastly, one managed to connect us with two major clients that today have over 20 locations each. So, the amount of support… that entrepreneurs are benefitting from is insane.”

But like any market, Saudi Arabia has its challenges. Entering a new country and hiring new talent can be costly, especially for smaller startups. And with Saudization, a policy that requires companies to hire Saudi nationals on a quota basis, some may struggle with paying competitive salaries.

“Getting good talent means that you need to pay really high salaries,” said Abu Sakha. “This is something tough for startups, because what happens is, if you’re a small startup in a small market, you’re probably managing fine with the team of young, passionate entrepreneurs that you’re starting with.

“But when you’re in Saudi it’s different, because it’s a big market that requires a different caliber of talent. There are a lot of new companies investing in the market, and a lot of new companies moving their headquarters to Saudi Arabia. As a result, budgets are getting bigger, and the competition is getting tougher, for talent as well. So, finding the right talent within a reasonable budget, especially for a startup, is definitely a challenge.”

Still, with investments in MENA’s startups declining year-on-year, recording a total of $1.1 billion in the first half of 2023, a 41% drop in funding, according to data platform Magnitt, many are turning to Saudi Arabia as a way out of the economic downturn. In the last six months, the country ranked first in terms of funding value, raising a total of $446 million.

Venture capital is only part of the story, with Saudi Arabia pouring billions into developing a technology sector. In August, the government launched a $200 million fund to support early-stage investment in local and global high-tech startups, and earlier this year at the Leap Tech Conference in Riyadh, it announced investments of more than $9 billion to boost digital transformation. These funds, along with the PIF-backed Sanabil and Aramco’s venture arm, Wa’ed Ventures, make for a massive startup war chest. 

But while funding is important for a startup to succeed, Anas Agag, general manager at New Native, a Saudi-based enterprise AI company, believes that government and regulatory support is ultimately what creates a thriving startup ecosystem. It was this that led him to set up shop in Saudi Arabia, after exiting his startups in Egypt and Estonia.

“Funding is one thing,” Agag told The Circuit. “The regulator support is also really important. You need someone who is progressive and who works closely with the entrepreneurs, especially in this space if we want to do breakthroughs. And this is what we have. We have the minister visiting our office, speaking with startups, and asking them what kind of struggles they have. They are deeply interested to see how the regulator should operate, and this interaction helps accelerate innovation.”

He predicts more startups will keep coming to the kingdom.

As Saudi’s startup ecosystem continues to evolve and attract more entrepreneurs from across the region, Magdy from Seavo feels secure in his choice to expand outside of Cairo. 

“As long as we’re operating from Saudi, there are a lot of opportunities available for us here.”