COP 28 has dominated almost every headline since its arrival in the UAE this year. Funds worth billions have been announced, new accelerators and initiatives dedicated to enabling a cleantech future have been launched at COP28, which commenced in Dubai on 30 November.
It was a similar spectacle in Egypt last year, with a vigour of pledges and vows to steer the world away from fossil fuels and towards a more sustainable future.
Technology is always a poignant part of these discussions, it is one of the critical ways that carbon emissions can be reduced and more sustainable practices can be introduced.
Globally, startups in this space have garnered greater attention and investment, recognised as a key player in a carbon-free future. But regionally, the importance placed on the cleantech space by the investment community has been lacklustre.
While investment in sustainability-focused startups has risen across the Middle East and North Africa (Mena), it has not attracted the same passion nor investor interest that other sectors like fintech and e-commerce have.
In fact the bulk of the investment value in the cleantech space, which we define as any startup that has sustainability as a core tenet, be it startups in clean energy, agritech, food waste or the circular economy, has been dominated by only a handful of players.
In 2021, just 27 startups in the cleantech and agritech space raised investment amounting to $182 million. In 2022 this soared, with 56 startups raising $652 million a growth of 258 per cent in terms of investment value. This was however, mostly down to two major deals, the $400 million raised by the UAE’s Yellow Door Energy and Pure Harvest’s $181 million round. Egyptian startups accounted for the bulk of the deals in the agritech space while Lebanese startups are more active in the energy space thanks primarily to the Energy Innovation Hub, which awards small grants of $12,000 to each of its participating startups.
So far this year just $15.6 million has been raised across 46 deals, marking a major slowdown in cleantech investing.
The sector still relies heavily on grants and accelerators with the likes of PepsiCo, Energy Innovation Hub and Flat6Labs accounting for the most active investors in the region when it comes to cleantech technology.
Part of the problem is the lack of mature investors focused on sustainability in the Middle East and North Africa. Most investment mandates in the region are still centred on sectors like fintech, e-commerce, SaaS and logistics. Yet regional investors have invested some $5 billion in global climate technology according to a recent report from PwC.
“Climate tech innovation in the Middle East is being driven by some of the most dynamic entrepreneurs in our region, championing new technologies to accelerate the path to net zero,”says Yahya Anouti, partner at Strategy& and sustainability leader at PwC Middle East. “While Middle East players are ramping up climate tech spending globally, they can do much more to fund and empower local entrepreneurs, who may represent the ‘missing link’ in their strategy.”
He advises governments and corporations to play a “vital role” by establishing specialised funds and off-take agreements, fostering demand and reducing investment risks.
The growth in funding in 2022 was part of an overall investment boom in the startup sector and this year’s slowdown is in line with a general decline in startup funding worldwide. Whether COP28 will have an impact on cleantech investing in the region, remains to be seen. If Egypt’s experience is anything to go by, there will likely be more startups being established, but it is unlikely to move the funding needle too much.
But with each passing year, the need to reduce carbon emissions becomes more potent. The increased awareness and initial investments are promising, but we need more dedicated support and investors to sustain and scale cleantech initiatives. The success of cleantech and sustainability-focussed startups not only contributes to the environment, but it also signals the region’s commitment to diversifying its economy and fostering innovation. As such, the future of cleantech in Mena hinges on a concerted effort from investors, governments and the private sector to nurture this critical field.