Although currently most Private Equity (PE) and Venture Capital (VC) investments still originate from North America, the MENA is rapidly gaining traction. More start-ups and institutional investors and PEs choose to reside in the region, according to a new report released by Saudi Arabia and China-based growth stage VC eWTP Arabia Capital (eWTPA).
According to the study, there has been an increase in inbound investment and activities from Middle Eastern sovereign wealth funds. Meanwhile, the actions of governments and certain characteristics of the region have contributed to this rise.
Strong government support
MENA-based start-ups attracted over $1.2 billion in H1 2021, representing 64 percent year-on-year growth, among which 71 percent was invested in Saudi Arabia, the UAE (mainly through the various financial center free zones, such as the Dubai International Finance Centre (DIFC), and the Abu Dhabi Global Market (ADGM), and Egypt.
Saudi and the UAE have implemented fiscal reforms and unleashed large-scale programs to privatize assets, increase public-private partnerships, unlock value by monetizing real assets and infrastructure, improve public benefits and services, develop social and human resources, and optimize government operations, the report said.
These initiatives, together with complementary legal and regulatory reforms and social changes, ultimately make these countries more attractive destinations for foreign capital with more diverse, efficient, and sustainable economies.
The MENA markets recognize the importance of the venture capital sector to achieve higher economic aims. Government-led initiatives have therefore been a key driver of growth in the venture capital sector in the region, evidenced by the development of start-up ecosystems, the report noted.
Strong sector support
Saudi’s Public Investment Fund (PIF) has been supportive of the ecosystem mission. PIF’s support of fund managers has also formed a key aspect of its strategy. For the sole purpose of promoting the development of a venture capital ecosystem, two years ago PIF established Jada, a fund of funds company. By funding venture capital funds and private equity focused on the Saudi market, Jada’s mandate is to create a self-sustaining growth platform for local SMEs.
On the other hand, PIF’s Sanabil Investments commits approximately $2 billion in capital per annum in private investments that include venture, growth capital, and small buyouts.
With this commitment, Sanabil aims to partner with originators of good business ideas: entrepreneurs who harness the innovations of mind and matter to fulfill societal needs in ways that are scalable and sustainable.
Unique MENA offering
Housing 7.5 percent of the world’s total population, the MENA region has a predominantly young population. Of the 600 million people in the region, more than 50 percent are under 25 years old. This enables a customer base that welcomes disruptive business models and a growing culture of entrepreneurship.
Traditionally, MENA also benefits, according to eWTPA, from its geographical location as a gateway to both Africa and Asia. Given that one-third of the world’s population lives within a four-hour flight of Dubai, the region’s proximity to Africa and Asia is an attractive attribute for start-ups looking to capitalize on these vast emerging markets.
