Private equity and the GCC
Changing attitudes have led to the region attracting increasing investment
Private equity investment in the GCC appears to be experiencing a “rebirth”. This is a very positive development as it may be paving the way for less oil dependency and an innovative business environment. The private equity industry in the GCC has had a shorter life cycle than other markets and has faced alternating fortunes since its inception in the 1990s. According to data by the Emerging Markets Private Equity Association, funds had raised more than $6.2 billion in the Middle East and North Africa region, but the advent of the financial market crisis caused an earthquake of such magnitude that the prevalent view of some experts was that GCC private equity would never fully recover.
Arguably, that was the end of one cycle and the beginning of a new mature one. Evidencing this, private equity fundraising in MENA reached roughly $1.1 billion in 2014 according to the EMPEA Special Report on Private Equity in the Middle East and Africa, published in April 2015. The mood has clearly shifted. Opportunities are emerging and dynamism and growth are recurrent themes which may lay a brighter future for the region as a whole. As Shailesh Dash, CEO of Al Masah Capital Limited stated in the EMPEA report, it is now a “matter of timing the wave”.
A TRANSFORMED MARKET
The next question posed is what has caused this change in perspective? The external factors remain difficult and the wars in Syria, Iraq and Yemen have not and cannot disappear overnight. However, the region as a whole has reached a new level of maturity somehow, aided by the constant turmoil that fortunately has been restricted to confined areas. Politically there is a drive towards regional integration. Significantly, the International Monetary Fund expects the region to be one of the world’s fastest growing in the years 2015 - 17, anticipating in the 2014 World Economic Outlook that its GDP will expand at an annual average of 4.1 percent. Investors that were looking skeptically at this part of the world have undergone a transformation in outlook as a result of multiple factors. The main theme revolves around a maturing market, strong fundamentals combined with in-depth “generational changes” all across the Middle East.
An important player in the market has confirmed to me that in the past it was very uncommon to agree to sell part of ownership for financing. It was seen as a taboo and associated with failure. The new generation does not regard the selling of ownership for expansion purposes as detrimental. This is seen as a positive change in mentality.
Currently, the focus of businesses is regional expansion and the building of scales, which as a result open up opportunities for private equity. Also,