PRIVATE EQUITY
Venturing Forth MEA Finance talks with Alex Gemici, Chairman & CEO, Greenstone Equity Partners, who paints a detailed picture of the prospects for the Private Equity and Venture Capital market in the Middle East, telling us that while there are challenges, there are also bright spots in the region too Alex Gemici Chairman & CEO, Greenstone Equity Partners
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rivate Equity activity reached a peak in Q4 2020, remaining positive in 2021. How do you sum up the regional PE & VC market? In short: VC is booming, and PE continues to consolidate. While the Financial Times reported that, globally, PE broke a 40-year record with $500 billion of deals in the first half of this year alone, some markets, including the MENA region, have not grown in the same pace. It remains true that on a relative basis, private funding is substantially underutilized in MENA compared to Western markets. Today, the venture capital industry in the region is enjoying a “purple patch” as governments around the region from Amman to Kuwait City look to support SMEs as part of their efforts to diversify their economies from fossil fuel production. Sovereign funds are also either making direct investments or backing venture funds in the hope that they will unearth the next MENA unicorn, or at minimum help drive economic growth in the business and service sectors. The UAE, Jordan and Lebanon continue to be the centers of influence for PE and VC in the MENA region. Overall, however, a lack of finance available for businesses, particularly SMEs, continues
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to present challenge to growth. This results in SMEs’ inability to utilize capital to scale as rapidly as they should. A growing youth population also means local governments need to generate levels of economic growth capable of putting these young people to work. As governments alone cannot employ the waves of young people coming into the workforce, they need the private sector to drive employment and further growth. Meanwhile, MENA-based PE firms are still recovering with more firms simply shutting down or consolidating due to capital raising challenges. EY reports that regional participants in the sector have raised about $1 billion in capital over the past five years, down from the high of around $5 billion in 2008. Local fund managers acknowledge that there is little appetite from either local or international investors to commit to funds from the region. One factor in this is the geographical diversification needs of local investors, and continued imbalance in risk-adjusted returns between North America/Europe and MENA. The difficulties in fund-raising predate the pandemic. The dislocation in the marketplace started as early as 2015, even before the Abraaj implosion in 2018. The long-term outlook for MENA-
Banking and Finance news in the MEA market
based PE is that the sector is downsizing to a more modest level and fund-raising remains difficult.
Which market sectors or industries in our region will see the most Private Equity and VC activity? There are unprecedented opportunities in the market on which PE and VC firms can capitalize across sectors leading the transition to the fourth industrial revolution. Sectors that are attracting interest and investment include financial services, AI, robotics, service sector solutions, healthcare, and education. There is also a strong, continued investment in renewables, food security, and sustainable real estate. In each of these industries, much of the focus revolves around technology to create adaptive, efficient, and effective solutions to face expected global challenges and increase economic productivity. The bright spot today is that there is growing VC interest to back technology start-ups in the region. MENA’s fintech industry alone is expected to hit a record valuation of $3.45 billion by 2026. In just the first quarter of 2021, related venture investments increased 163% year-on-year, as the pandemic caused an acceleration in the fintech industry.
