Singapore: eWTP Arabia Capital (eWTPA), a leading Saudi Arabia and China based growth stage venture fund, is aggressively joining the global private equity (PE) universe, upon sensing the strong growth drivers in the region.
Although currently most PE and 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. We are also seeing increasing inbound investment and activities from Middle Eastern sovereign wealth funds. Meanwhile, actions of governments and certain characteristics of the region have contributed to this rise.
The strong government supports
MENA-based start-ups attracted over US$1.2 billion in the first half of 2021, representing 64% year-on-year growth, among which 71% was invested in the Saudi Arabia, UAE (mainly through the various financial centre free zones, such as the Dubai International Finance Centre, and the ADGM) and Egypt.
The Saudi Arabia and UAE have implemented fiscal reforms and unleashed large-scale programmes to privatize assets, increase public-private partnerships, unlock value by monetising real assets and infrastructure, improve public benefits and services, develop social and human resources, and optimize government operations.
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 strong sector supports
Saudi Arabia'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 US$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 fulfil societal needs in ways that are scalable and sustainable.
eWTP Arabia Capital (eWTPA) has launched its first fund (Fund I) in 2019, backed by the sovereign wealth fund of Saudi Arabia, Public Investment Fund (PIF) and eWTP Capital (Alibaba Group and Ant Finance Group). Within a short period of time, this US$400-million-fund has already invested into 16 companies across of digital infrastructure, core technology and platform, consumer and enterprise services which span enterprise services, cloud services, cyber security, fintech, cross-border supply chain, retail and consumer, e-commerce, logistics and digital entertainment and others, which are to work together and build a unique digital ecosystem in the MENA region. Currently, 13 out of the 16 portfolio companies are already operating and growing the MENA markets.
The unique MENA offering
Housing 7.5% 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% 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 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.
With the right balance between investment returns and start-up potential, PEs and VCs are more intrigued by regions like MENA, which offers an interesting mix of investment options. We are also seeing another wave of start-ups with Chinese origin expanding into the region for the same reasons. Likewise, Southeast Asian countries which offer similar welcoming and flexible environment also are attractive to investors and entrepreneurs.
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