Sustainability is Driving Innovation across MENAT

The innovation ecosystem in the Middle East, North Africa and Turkey (MENAT) is expanding rapidly. It comprises early stage companies looking to introduce new products and services to the region. It also includes government accelerators, banks, service providers, and investors.

Although not an exact proxy for innovation, venture capital (VC) activity does reveal the state of the market. 2021 was a record year for VC activity in the region, according to Magnitt, a data provider. And while 2022 was more muted, more benign investing conditions could be imminent. “These favourable conditions could stimulate renewed investor confidence and pave the way for increased deal-making activity towards the end of Q3 [2023] or the beginning of Q4,” says the research provider.¹

A further indicator of the vibrancy of the market comes from Dubai’s financial hub DIFC. The total number of registered companies at DIFC increased from 4,031 to 4,949 in H1 2023, a 23% year-on-year growth.²

FinTech and Innovation companies surged from 599 to 811, up 35% year-on-year. DIFC is now home to 1,443 financial and innovation related companies, a 15% year-on-year growth.²

Sustainability efforts and the clean energy transition are driving innovation across the Middle East. “As companies and governments commit to sustainability targets, there is an increased need to find solution providers that are developing key technologies to solve ESG challenges,” says Jennifer Chammas, Regional Head of Sustainability and Sustainable Finance, HSBC Commercial Banking MENAT.

Government Incubation

There are also a number of government initiatives that are driving innovation in the region, particularly in policy areas of high importance. For instance, in Abu Dhabi, the Authority of Social Contribution – Ma’an - has run seven cohorts of the Ma’an Social Incubator (MSI), which supports entrepreneurs working on solutions within the green cities, circular economy, and sustainable transport sectors.³

Meanwhile, in Saudi Arabia, a new industrial incubator has been launched by the Ministry of Industry and Mineral Resources. This will accelerate and incubate companies that can help to expand the country’s industrial base and foster sustainable growth⁴. And in Qatar, the Qatar Science and Technology Park (QSTP), which has been established for over a decade, is incubating and accelerating new, global companies that are working in the energy environment and health sectors.⁵

One other sector that is attracting a lot of attention is food security and food independence. "We’ve seen a lot of innovation, new business models and offering in this sector such as vertical farming, development of cell based meat solutions as well as vegan products " says Chammas. "The governments have launched several initiatives to attract business from all over the world into the region by providing them the necessary market entry fundamentals to launch and scale”.

A Climate Technology Hub

The region is also becoming a key hub for carbon reduction technologies. On May 10 and 11, 2023, the UAE Ministry of Industry and Advanced Technology and two of the UAE's energy and technology companies, ADNOC and Masdar, hosted their first-ever decarbonization technology conference - UAE Climate Tech - which gave a platform to start ups and investors around the world to this fast-developing sector.

International technology companies that operate in the carbon space are now establishing themselves in the region because some of their largest buyers - the national energy companies - are in the region. "If you are a company selling carbon solutions, you are likely to set up close to where your stakeholders are and where investment capital is available” says Chammas.

Supporting Innovation

In September 2023, HSBC announced their plans to make USD1billion of financing available to early-stage climate tech companies around the world. The financing will support early stage companies that are creating a range of climate technology solutions, including EV charging, battery storage, sustainable food and agriculture, and carbon removal technologies. This announcement also follows the launch of HSBC Innovation Banking⁶ and of HSBC Asset Management's Climate Tech Venture Capital strategy.⁷

While the majority of global early and growth stage climate tech investment has focused on the USA and Europe, HSBC’s allocation plans to focus on high potential climate tech companies, wherever they are in the world.

This follows the announcement at the beginning of 2022 that HSBC would invest USD100 million to accelerate green technologies earmarked by Breakthrough Energy Catalyst, which supports the decarbonisation of high-carbon sectors via four climate critical technologies – direct air capture, clean hydrogen, long-duration energy storage, and sustainable aviation fuel.

In addition to its investment, HSBC has joined the leadership council for Breakthrough Energy Catalyst, providing an expert view on the transition opportunities in some of its biggest markets, notably in Asia and the Middle East.

"Estimates suggest almost half the emissions reductions required to reach net zero in 2050 will come from technologies that are currently at the demonstration or prototype phase."⁸;

Going International

One further way in which the innovation economy is different now from in the past is that businesses expect to be able to operate internationally early, whether it be international sales or having a globally distributed workforce. As a result, the companies need a banking partner that enables them to do so from the get-go.

One such is Egyptian company called Shift EV, which electrofits minivans and delivery trucks with its in-house designed and manufactured lithium-ion battery packs that can be integrated seamlessly into the existing frame of a vehicle. Through debt-financing, we supported Shift EV’s mission to support companies in emerging markets to electrify their delivery fleets.

Shift EV aims to tackle the need to speed up the electrification of last mile deliveries, which are responsible for over half of global carbon emissions.

"Given the market dynamics in Egypt and the growth potential in the innovation economy, we see a real opportunity to help technology entrepreneurs as they look to expand internationally,” says Ali Taqi, Country Head of Commercial Banking, HSBC Egypt.

“Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability”