What Will Drive Economic Growth in the Middle East?

What Will Drive Economic Growth in the Middle East?

Oil and energy are topics that have historically dominated investment discussions in the Middle East/North Africa (MENA) region, but a unique combination of forces is changing conversations about the region’s future. As CFA Institute prepares to hold the 5th Annual CFA Institute Middle East Investment Conference in Jordan on 9–10 April, an increasing number of MENA investors are viewing entrepreneurs as new drivers of the region’s economic growth.

Success stories such as Maktoob, the Arab internet portal acquired by Yahoo! For $164 million, give tech-savvy entrepreneurs something to aspire to, while services such as Wamda.com, Jordan’s Oasis500 and Silicon Badia, and SeedStartup in Dubai help evaluate potential business ideas at an early stage. Other factors — like the region’s youth unemployment rate of 25%, which, according to a 2012 IMF report, exceeds that of any other region in the world — contribute to an environment where motivated individuals are finding the means to carve out their own path to success.

Starting a business is inherently risky, but as Emile Cubeisy, managing partner at Silicon Badia, noted in a recent Wall St. Journal article, “business cases for [MENA] startups are looking more and more realistic. Companies are starting to generate traction, and the talent pool is getting deeper and deeper.” According to Cubeisy, MENA startup firms are also “shifting from ‘me too’ models to more globally relevant firms catering to global audiences.”

This shift is reflected in the growing number of investments in the region. A report analyzing MENA internet and technology investment, compiled for Sinibad Business in 2012 (.pdf), showed three times as many IT investments taking place in the MENA region between 2010–2012 than in 2006–2009. In Jordan, Cisco announced a US$6 million investment in the Badia Impact Fund to support early-stage online and mobile innovation. And Fadi Ghandour, the serial entrepreneur and angel investor behind Wamda, confirmed a collaboration with the International Finance Corporation to launch a new US $75million VC fund serving tech startups across the region.

Saygin Yalcin, founder and CEO of SellAnyCar.com, is optimistic about the region’s prospects. In an email, Yalcin noted that “the general population is trusting electronic transactions more and more. However, we are still lagging behind in venture capital. Regional investors are still reluctant to deviate from traditional sectors, such as real estate.” Despite regional investor wariness, Yalcin expects to see continuing opportunities for startup firms, citing the growing number of people in the Middle East who are integrating online business into their daily lives. “We will see many more internet ventures coming up in the near future,” writes Yalgin, “starting with the big opportunity areas, followed by niche offerings.”

These developments suggest a potential for business ventures that could well meet global consumer appetites while contributing to a more stable, sustainable economic climate in their home countries. However, as witnessed in the aftermath of the Arab Spring, turning potential into reality is seldom simple.

At MEIC in April, Raghida Dergham, founder and executive chairman of the Beirut Institute and senior diplomatic correspondent, Al Hayat, will chair an interactive discussion with Cubeisy and Yalsin, exploring the growing wealth of entrepreneurial talent in MENA, the steps still needed to convert potential to reality — and crucially — how investment professionals can take part.

Join us and ask for yourself: Could entrepreneurs be the key to unlocking a new economic approach in MENA?

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/geopaul

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