Funding model for water tech ‘holds back Gulf innovators’

• 90% of finance from governments
• Other sources and partners needed
• Saudi water startup GI valued at $1bn

An over-reliance on government funding for water startups in the Gulf may be holding back innovation, experts have told AGBI.

The Middle East – a region that includes some of the world’s most water-stressed countries – gained its first water “unicorn” in February when Saudi-based GI Water as a Service raised eight figures in a Series A funding round that valued the business at more than $1 billion.

GI, a subsidiary of German company GI Aqua Tech, offers decentralised wastewater treatment on a pay-per-cubic-metre model.

It has described Saudi Arabia as having “a thriving ecosystem for innovative startups in the water sector” – but water innovation across the Gulf and beyond is dominated by governments, making it harder for many businesses to scale up, according to analysts.

About 90 percent of water sector innovation financing comes from governments, says Arnaud Delamare, partner at Oliver Wyman’s energy and natural resources practice for India, Middle East and Africa.

“For startups, success often depends on securing grants, public-private partnerships and industry collaborations rather than traditional investment,” says Liane Thompson, CEO of Aquaai, a tech company that uses drones to provide waterway data in countries including the UAE.

Startups operating in Mena stand to gain more in later stages if they are aligned with national goals, Thompson says. “But government procurement is slow and bureaucratic, making it harder for startups to sustain themselves or get early traction.”

Saudi Arabia is working to improve the situation. Last September its minister of environment, water and agriculture launched Sahabah, an incubator designed to attract investment to water startups.

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Such programmes “highlight the growing momentum behind water innovation”, says Delamare.

A 2018 report by GlobalData found that five of the 10 biggest-spending countries on water projects are in the Middle East: Saudi Arabia, the UAE, Qatar, Egypt and Oman. 

Given the region’s water scarcity concerns, it is crucial to support startups that can develop breakthroughs in areas such as desalination, wastewater treatment and smart water management, says Delamare.

“However, for these startups to succeed, they must bring innovative technologies that can scale globally while also securing sustainable financing.”