The mission of the MENA Private Equity Association is to promote greater communication, to enhance the flow of information, encourage overall economic growth, and establish transparency within the Middle East and North Africa region’s private equity (PE) and venture capital (VC) community. KITE Invest spoke with the Association’s Director, Lina El Zein, in order to get a better look at the PE industry in the region.
KITE Invest: Who is the MENA Private Equity Association and what is their mandate?
Lina El Zein: The MENA Private Equity Association (MENA PEA) was established in 2010 to support the development of a nascent private equity and venture capital industry in the MENA region. As the leading private equity Association in the MENA region, we represent the largest private equity firms with more than US$ 30 billion in assets under management.
The MENA PEA issues industry annual reports, research, and hosts a number of events that bring together Private Equities’ fund managers, Family businesses, Limited partners, Industry practitioners, Investment Bankers and Advisors.
To further advance the interests of its members and wider industry players, the MENA PEA has formed a Legal task force that develops solutions to pressing industry challenges and observes the regulatory regimes across the MENA region in order to petition regulators where necessary to bring about some key regulatory changes across the MENA region.
KITE Invest: How would you classify PE and VC in the MENA region, as a whole, in comparison to other regions around the world?
LEZ: The PE and VC industry in the MENA region has been growing steadily in the past few years after it had gone through some testing times during the recession followed by the Arab Spring. While the industry witnessed ebbs and flows in the number of investments and fundraising activity from 2008 till 2012, we have been observing that PE/VC investments are gaining momentum on the back of strong economic drivers in certain countries of the Middle East and following the Morgan Stanley Capital International (MSCI) upgrade of the United Arab Emirates and Qatar to emerging market status, which is a significant growth driver and a vote of confidence.
As a matter of fact, the PE industry in 2014 registered a significant improvement whereby USD 1.9 billion were raised. This is more than double the USD 859 million raised throughout all of 2013 *Data as of December 2014 – Source: Zawya Private Equity Monito
According to a recent survey we launched with the participation of 30 private equity and venture capital fund managers in the MENA region, The GCC, Egypt and Lebanon are the top three main investment destinations despite the economic and political turmoil. In general the outlook is positive for the regional private equity industry since a large number of deals are in the pipeline and expected to close during 2015.
KITE: The concentration of deal flows tends to veer towards Morocco, Tunisia, Lebanon, UAE, Egypt, Saudi Arabia, and Jordan. In general what characteristics, investment climates and opportunities do these countries boast over other countries in the region?
LEZ: While it’s true that the deal vigor is observed across these major countries, we cannot ignore the rise of entrepreneurship in the entire region.
The VC industry in the MENA region is still in its nascent stages yet grasping international interest. We’re working closely with governments and semi-government entities on promoting and fostering the growth of entrepreneurship because there are huge opportunities to be tapped and there’s a new breed of entrepreneurs who are coming up with brilliant ideas but require favorable ecosystems in order to put their ideas to execution.
The region is currently witnessing a major shift in regulations and mindset and access to capital is being democratized and the pool of regional mentors is expanding exponentially.
Having said that, a cluster of economic and social reforms including acceptance of failure, introduction of bankruptcy laws and a liberal employment policy are some of the key factors that would support the growth of the VC industry across the entire MENA region.
KITE: What trends, challenges and investment risks would be seen as having an impact on the PE & VC industries and the influx of foreign investments?
LEZ: The MENA region is gearing up to many promising changes and regulators are working behind the scenes to facilitate the influx of foreign investments.
As enablers of integration of MENA markets, we constantly engage with regulators and government bodies to harmonize regulations and rules in support of the PE and VC industry.
There are some specific industry challenges that we are addressing in order to establish transparency within the MENA region, to name the key ones:
1). Enhance Corporate Governance and transparency of business practices especially in family owned businesses in the region.
2). Promote privatization of large-scale government backed projects: Infrastructure, utilities and power generation companies, majority of telecoms, etc.
3). Address certain regulations in some jurisdictions where it’s difficult for PE firms to raise funds or deploy capital effectively.
KITE: What are some goals and milestones that Association hopes to achieve in the short and long term?
LEZ: As the scale of investment opportunities in the MENA region is growing and the deal-making environment for both investments and exits is improving, we are gearing up our efforts towards building a bridge between PE/VC fund managers and Investors.
We have several promising initiatives that will support the private enterprise development and building of a more stable, prosperous and globally competitive PE/VC industries.
We’ve developed certain programs in order to highlight the industry’s resilience and to restate the role of private equity in the growth story of regional family businesses and how private equity managers add value to the businesses by enhancing management capacity, structures and controls and complementing the existing skills already in the business with new ideas and innovation in vital sectors such as agriculture, logistics, business services, technology, telecoms, financial services and FMCG.
We will also be working closely with international organizations to promote best practices throughout the MENA region and have recently partnered with a leading corporate governance and shareholder activist consultancy in the Middle East to launch high-impact advocacy initiatives as well as research, roundtable discussions and conferences. This partnership will aim primarily at promoting private enterprise development and to support the rise of the MENA region a safe investment destination for local and foreign capital alike.