Betting on blockchain
Can blockchain startups thrive in the MENA region? We find out
The Gulf Cooperation Council (GCC) and MENA region have become fertile ground for blockchain startups, with many countries emerging as ‘hotbeds’ or ‘crypto hubs’. As the allure of blockchain technology continues to grow, governments and businesses alike are racing to embrace its transformative potential. With this limitless potential in mind and an increase in support mechanisms popping up throughout the region, how easy is it for blockchain startups to thrive in the MENA landscape?
GROWING SUPPORT
Undoubtedly, the burgeoning landscape of the GCC and MENA region offers a structured foundation with ample tools for blockchain startups to grow. For instance, the UAE has developed (and is still developing) a robust infrastructure that permeates through multiple initiatives. Multiple free zones have been established in different Emirates to not only encourage blockchain and Web3 startups to grow, but also to develop and nurture the current technological ecosystem present in the country. Additionally, these zones not only provide technical and networking support but also serve as collaborative hubs.
Furthermore, government involvement and regulatory initiatives play a pivotal role in catalysing blockchain startup growth in other areas of the GCC. For example, Saudi Arabia has been at the forefront of integrating blockchain technology and cryptocurrency into various sectors through its Vision 2030 initiative — and this has been a prevailing trend among numerous regional “crypto hubs”.
In other prominent crypto-friendly regions such as Singapore or even Malaysia, governments have implemented measures and initiatives to support cryptocurrency and blockchain technology that are aligned with the future strategic goals of their respective countries. The proactive approach they have taken has provided local blockchain startups with an important sense of regulatory certainty and fuelled industry growth and investment.
Beyond infrastructure and government support, regulatory clarity plays a pivotal role in shaping the blockchain ecosystem. The joint initiative between Saudi Arabia’s Central Bank and the Central Bank of the UAE to utilise blockchain for crossborder transactions exemplifies this. Such initiatives not only provide startups with regulatory certainty but also unlock new opportunities, particularly in sectors with complex logistics chains like oil and gas, and consumer goods.
LIMITED ACCESS TO CAPITAL
Despite the supportive environment, access to capital remains one of the significant hurdles for blockchain startups in the region. The decline in investment from venture capitalists, coupled with a notable decrease in crypto VC funding, has created a challenging fundraising landscape. According to a report by Magnitt, there has been a staggering 50 per cent decrease in investment from venture capitalists to blockchain startups in MENA from 2022 to 2023. This decline in investment poses a formidable barrier to growth and innovation within the blockchain ecosystem.
Other key challenges could include the high energy costs in the UAE and the region’s emphasis on sustainability which pose significant obstacles for startups looking into cryptocurrency mining. The UAE aims to derive 50 per cent of its energy from renewable sources by 2050, as outlined in its Energy Strategy 2050. Consequently, startups venturing into cryptocurrency mining face substantial operational costs, making it a challenging endeavour.
Finally, there are reservations regarding willingness to work in the blockchain and Web3 sector, making it more challenging or startups to recruit talent. Additionally, the scarcity of skilled professionals in blockchain further compounds the talent shortage. This talent gap underscores the growing need for education and training programs to cultivate the next generation of blockchain talent. Recognising the importance of education and training programs, efforts are underway to develop the next generation of blockchain talent. For example, initiatives such as the Mohammed bin Rashid Al Maktoum Global Initiative aim to equip students and professionals with the necessary skills to thrive in the blockchain industry. Beyond this initiative, the Ministry of Education in the UAE has included information about Bitcoin and cryptocurrency in school textbooks.
THE FUTURE OUTLOOK FOR THE BLOCKCHAIN ECOSYSTEM
As we consider the journey of blockchain startups in the region, it’s apparent that challenges are present. However, equally evident is the region’s prompt recognition of these hurdles and its proactive steps to overcome them. Governments across the region are increasingly cognisant of the challenges and are swiftly moving to provide support and create an enabling environment. The MENA 2023 VC Winter, while a testament to the resilience required in this space, has begun to thaw. This resurgence of investor confidence signals a promising shift in sentiment towards the region’s blockchain ecosystem — and rightly so. Contrary to other regions globally, MENA and GCC governments are committed to supporting blockchain technology, startups have opportunities to flourish, and investor confidence is on the rise — making the future outlook of the blockchain ecosystem for 2024 shine bright.