An article by Nour Al Hassan, the CEO of Arabic.AI and Tarjama

The Middle East does not suffer from a capital shortage. It suffers from a deployment problem.

The region’s institutional investors—sovereign wealth funds, government entities, regulators, and strategic capital—collectively control nearly $4 trillion. That capital is active, sophisticated, and globally competitive. However, building scalable regional companies anchors only a small fraction of this capital.

This issue is often framed as a lack of risk appetite. In reality, this situation reflects a failure in the existing structure. Institutions are willing to back the region. It is that the ecosystem has not given them sufficiently clear, investable pathways to do so at scale.

We have everything except the right partnership model

The Middle East has $4 trillion in institutional capital. In 2024, the US had $307.8 billion in venture capital dry powder, yet still struggled to deploy it effectively. We don’t have a capital problem. We have an alignment problem.

Institutional investors deploy roughly $136 billion annually across international markets while allocating only around 10% regionally. This isn’t pessimism about local potential; it’s risk management. They back global companies because those companies offer proven models, transparent operations, and visible exits.

What’s changing is why regional startups now attract institutional capital. It’s no longer because founders are asking for support. It’s because the economy works and because these companies solve problems global players can’t.

Companies like Careem, Tabby, Syarah, and Ninja show that local founders can build billion-dollar businesses. These aren’t anomalies. They prove that when regional capital flows to the right companies, it delivers strong returns while building local capability. The partnership model isn’t broken because institutions lack appetite. It’s broken because the ecosystem hasn’t offered structured, transparent ways to deploy capital into companies that are both commercially viable and strategically important.

A government-backed guarantee structure, where the state co-invests alongside institutional investors in qualified regional startups, could unlock $50–100 billion currently sitting on the sidelines, waiting for confidence signals. These are not charitable decisions. They are rational capital moves that also address critical regional challenges.

The valuation gap is a signal, not a sentence

A startup in Silicon Valley receives a $6.45 million pre-seed valuation. The same startup in the Middle East averages $4.07 million—a 37% discount. The gap exists because the region has fewer exits, fewer data points, and less pattern recognition.

But the gap is shrinking year over year as regional success stories compound.

Institutional investors don’t need to eliminate this gap. They need to accelerate its collapse. When a government-backed fund invests in a Series C fintech, or a regulator creates favourable conditions for a climate-tech scale-up, those companies become templates. They prove that regional startups can compete globally while delivering impact locally. The valuation gap narrows through demonstrated returns, not goodwill.

Every developed market follows the same mechanism: large institutional capital creates confidence for smaller investors. The institutions that are already making global bets are the same ones that are capable of anchoring regional ones. They simply need to see both as strategically aligned.

We are not comparing apples to apples with the US

The US government doesn’t invest instead of private capital; it invests to enable it. SBIR and STTR grants provide around $2 billion annually in non-dilutive funding, reducing risk for private investors. Europe’s Startup Nations Standard aligned 26 countries around shared policy frameworks. Neither crowded out capital; both expanded it.

The Middle East holds a structural advantage neither market possesses: concentrated strategic capital with clear intent. A government commitment to allocate just 3% of institutional deployment to regional innovation—around $30–50 billion over a decade—would create a durable advantage, not a temporary boost.

The difference is not money scattered across startups. It’s capital deployed through structured funds, governed professionally, with expectations of financial return and regional benefit. When institutions co-invest with regional VCs in growth-stage companies, they reduce risk for the entire ecosystem. Every Series B round becomes proof. Every acquisition becomes precedent. Every exit recycles both capital and confidence.

The jobs problem demands local solutions

MENA youth unemployment stands at around 26%, roughly double the global average. Saudi Arabia has significantly reduced it through policy intervention, but importing technology platforms alone will never solve structural unemployment across the region.

Global companies prioritise scale and margins over employing a generation of regional talent.

Regional startups are fundamentally different. A fintech building in Dubai understands local payment behaviour, regulatory friction, and cultural adoption patterns in ways a global platform can't replicate at scale. It employs engineers, operations teams, designers, and support staff locally. Every startup that exits successfully creates 50–200 jobs directly and thousands more across the supply chain.

Here’s the math institutional investors need to see: $1 billion deployed across 50 regional startups over ten years creates a base of scaled companies across fintech, logistics, climate tech, and digital government. That generates more than 400,000 direct jobs while simultaneously building regional intellectual property, talent, and market dominance. This fixes unemployment and delivers the diversification that governments are explicitly targeting.

When governments and institutional investors back local companies, they’re not choosing between financial returns and social impact. They’re choosing to do both.

The real opportunity: Structural capital anchoring

The breakthrough isn’t convincing institutional investors to shift from global to local. It’s architecting a model where they anchor regional growth strategically.

Establish regional growth funds through co-investment structures where government bodies and institutions commit $5–10 billion tranches, matched by regional VCs and family offices. This creates predictable, scalable capital for Series A and B rounds and removes the funding cliff between early-stage and growth capital.

Create visible exit frameworks through regional exchanges and M&A infrastructure. When founders know their exit options extend beyond foreign buyers, valuations normalise upward, and companies stay regional for longer.

Use government procurement as an anchor customer. Allocating even 5% of public-sector IT and infrastructure procurement to qualified regional startups creates immediate revenue. Such funding is de facto capital, often more powerful than grants.

Define strategic sectors clearly: fintech, climate tech, agritech, digital government, and AI infrastructure. This clarity pulls investor capital into aligned areas, resulting in density, specialisation, and demonstrable returns.

Why now? It isn’t hype; it’s urgency

AI is compressing economic cycles. Regions that build platforms own future productivity and sovereignty. Remaining only an importer of AI tools locks in dependence across justice, finance, education, and governance.

Climate and food pressures are existential in MENA. Global climate-tech and agritech companies will never optimise for local water systems or agricultural constraints. Local founders will.

Fintech has momentum, but without infrastructure, data partnerships, and institutional capital, it remains regional. Anchored properly, it becomes exportable.

Youth unemployment becomes a crisis by 2027. If scalable job creation does not occur now, social pressure will escalate into political pressure. Startups are the only mechanism that creates knowledge work at scale.

The ask is clear

• Commit 5% of annual institutional deployment to regional VC and growth funds, with clear governance and accountability.
• Co-design exit pathways that make liquidity visible. Structural government guarantees to de-risk early losses and unlock larger pools of capital.
• Anchor demand through procurement.
• Signal strategic focus on fintech, climate tech, agritech, digital government, and AI.

The result isn’t aspirational. It’s mechanical: capital flows to founders, founders build companies, companies create jobs, exits recycle capital, and the ecosystem compounds.

The Middle East has the capital, the talent, and the urgency. What it needs is an architecture to connect them. Institutional investors aren’t obstacles to ecosystem building; they’re the load-bearing wall.

The capital wants to work. The companies are ready. The talent is here. The only question is whether we design structures that allow all three to connect and deliver returns—financial and strategic—at the same time.