Analyzing Middle East Investment
Middle East Investment: Venture Funding in MENA by Country and Industry
Region
The United Arab Emirates (UAE): The majority of venture capital Middle East and Northern African (MENA) investments in 2019 were made by United Arab Emirates (UAE) investors, accounting for 62% of total MENA investment.
We expect this trend to continue due to the more robust investment infrastructure in the UAE. Although the percentage of deals completed did not change from 2018 to 2019, the UAE’s percentage of total MENA investment increased 21%. This signifies the continuing growth in UAE investment size.
Egypt: A distant second in terms of total MENA investment (13%), Egypt completed seven more deals in 2019 compared to the UAE, confirming the assumption that due to its size the country is investing less money in more deals.
Saudi Arabia: Rounding out the top three in terms of deal value closed is Saudi Arabia. Saudi Arabia’s position is expected to increase in the upcoming years due to the government’s efforts to diversify the economy.
Industry
Real estate held the top spot in terms of investment dollars in 2019 but did not rank in the top five for deal count. This is a result of the capital-intensive nature of the investments. Fintech remained the leader in number of deals despite the moderate industry slowdown near the end of 2019. These investments include those in blockchain and crypto-related businesses.
Although funding for fintech was number five in terms of investment dollars, these numbers signify an interest that investors like to enter the market early.
E-commerce took second place in terms of funding value (17%) and deals (10%). As the industry continues to grow globally and key players continue to make acquisitions, this is an interesting market to watch. These numbers are bolstered by a $6.2 million seed round investment in the e-commerce wholesale food and grocery marketplace MaxAB.
Delivery and transport realized large growth in investment dollars with 10% growth from 2018. This mimics trends from USA investments as delivery startups continue to compete for the expanding market.
Middle East Investment: Strategies for Bringing Innovation to the MENA Region
Previously, we detailed the recent venture funding the region by industry and country. Now that the Middle East investment landscape has been outlined, we will walk through how to use a joint venture (JV) strategy for bringing innovation to the MENA region.
Paths to Driving Revenue Growth
PwC recently conducted a survey of business executives in the Middle East asking them which activities, if any, they were planning in the next 12 months to drive revenue growth.
Results from PwC survey
Entering a new market or forming a joint venture was identified as a top priority for 83% of business executives in the Middle East.
Additionally, 17% of business executives identified collaborating with a startup or innovative company as a top priority.
These three objectives (entering a new market, forming a JV, or collaborating with startups) presents powerful opportunities for companies seeking capital and financial partners in the region.
Note: J&A utilizes a broad definition of joint ventures that includes distribution agreements, franchising agreements, reseller agreements, and traditional joint venture agreements in which multiple entities own equity positions in a new entity.
Reasons to Consider a JV
Joint ventures can be an ideal investment structure in certain situations, especially in fast-growing markets like MENA. Below are some common advantages associated with JVs.
Components of Successful JV
We have seen great success with North American and MENA JVs in recent years when a clear strategy, detailed planning, and strong execution is at the center of the deal. Below are components of success for long-term value creation.
Define objectives: Starting with the end in mind, defining the objectives and aligning to them will ensure the feasibility and strategic fit of the JV.
Choose the right partner: Due to the collaborative nature of JVs, selecting the right partner is critical to its success. Defined objectives inform selection criteria based on the needs of the partners (i.e. ownership of a critical asset such as presence in a market or intellectual capital). Other selection criteria to support the JV may include company culture, decision making, communication, trust, and financial drivers.
Determine contributions and operating model: Clearly articulating the link between asset contributions and ownership will drive success. Selecting a valuation methodology and layering in industry and region nuances will help guide the contribution discussion. Understanding the level of support, involvement, and key target dates for each company will act as a guide to ensure objectives are met.
For more information on MENA investments, please contact us at jahani@jahaniandassociates.com or visit our website jahaniandassociates.com.
Originally published February 18, 2020. Updated March 20, 2020.
Sources: PWC Middle East CEO survey | McKinsey and Company | Magnitt | The World Economic Forum[/vc_column_text][/vc_column][/vc_row]
