Thanks for the reply. You put me on the correct track!
I got it working with the least privilege approach. These are the final permissions i ended on and seems to be the bare minimum. At least to get a full sync going.

By adding these 2 as application permissions and not Delegated Permissions we dont need to add the Access Manager application with user impersonation permissions, which is a big pluss from a security perspective.

ref: to this document. Some of the steps could be expanded upon a bit i think.
Organization End Users - Cisco Meraki Documentation
I am unsure if Directory.Read.All is necessary if we instead add Group.Read.All along with User.Read.All. Removing the Directory.Read.All permission would go a long way in boosting security posture.
Also regarding licensing. Checked with a colleague who is quite learned in the ways of Azure. The Entra ID free tier should be enough for it to work, which is nice to know.
I will do some more testing on my end with the bare minimum permissions and do a short writeup here when i get time 🙂
MLL