Home / GFH Insights / Private Equity and Venture Investing Landscape in the GCC
Contrary to the global slowdown in fundraising and deployments, PE investors in the Middle East ploughed more than $14 billion into 60 buy-outs last year driven largely by SWFs and corporates.
SWFs in the Gulf became stronger and more active. Over the next few years, GCC SWFs are expected to expand in line with international growth trends, with total global value forecast to increase from an estimated $10.6 trillion in 2022 to $12.6 trillion by 2025. Last year, Saudi Arabia’s PIF announced plans to invest $24 billion into MENA through five new investment vehicles. The MENA region also witnessed a record 51 IPOs in 2022, raising $22 billion, with $6.1 billion raised by Dubai’s DEWA in Q2.
Beneath the headline deals there is a healthy appetite for deals in the Middle East and GCC specifically, where a robust economy and strong fundamentals underpin promising long-term growth opportunities.
Here we explore what’s driving the region’s PE market.
Robust GDP Growth Driven by Structural Economic Changes
Building on 2022’s extraordinary 7.3 percent GDP growth which saw the economy touch $2 trillion, the GCC is expected to post strong relative growth in 2023 as well. Importantly, the GCC’s growth is underpinned by healthy fundamentals including strong government and consumer spending trends, public and private sector investments across key economic sectors, such as infrastructure development, manufacturing, and tourism, improved legal and capital markets frameworks, and the keen desire of the GCC’s next generation of leaders to take the local economies to the next level.
Economic Diversification
The GCC’s economies have made significant strides in diversifying their revenue streams beyond oil, focusing on sectors such as technology, entertainment, infrastructure and industrials. The governments’ commitments to economic diversification have resulted in a more balanced and sustainable growth model, presenting investors with longer term opportunities. The GCC’s GDP growth is projected to remain strong, with next year’s 3.2 percent growth forecast expected to be sustained over the next five years.
Localisation of Investments
In recent years, HNWIs and families in the region have leant towards local investments due to macro fundamentals, such as the GCC’s sustainable economic growth and growing consumer base. A number of growth opportunities have emerged in the region, from the e-commerce boom to developments in the tourism sector, to the growing focus on renewable energy. Families that were once closed to third party equity investments are now looking at PE and IPOs as an effective means to institutionalise, boost growth and diversify wealth. The stabilisation of oil prices and high-profile international events in the region recently, such as Expo 2020 Dubai and the 2022 FIFA World Cup, have instilled further confidence among local investors. The GCC’s geopolitical stability will continue to encourage investors to keep their assets closer to home, where they believe they will be more secure – especially in the context of geopolitical instability elsewhere in the world.
Fast Facts
$12.6tn
Projected global SWF growth by 2025
$22bn
in IPOs raised in MENA (2022)
$14bn
Invested into PE buy-outs in MENA in 2022
Relative Outperformance of Capital Markets
Capital markets in the GCC have exhibited relative outperformance, providing a favourable investment climate for investors in general including private equity players. Robust regulatory and governance frameworks, reforms to strengthen capital markets liquidity, and increased transparency have all enhanced investor confidence. In fact, the Middle East was one of two global markets that bucked the global decline in IPOs. In the first quarter of 2023 alone, GCC stock markets raised $3.5 billion through 12 IPOs. Further, GCC stock exchanges have witnessed increased liquidity and trading volumes, offering investors access to diverse investment opportunities across various sectors.
Rising FDI and Supply Chain Localisation
The GCC has witnessed a significant increase in foreign direct investment (FDI) inflows in recent years, reflecting the confidence of global investors in the region’s stability and growth potential. The MENA region in 2022 saw FDI inflows increase by 13.6 percent, with four of the top five countries in the world for greenfield FDI projects last year situated in the GCC. With FDI pouring into digitalisation, green energy and tourism, businesses in the region are demonstrating strong long-term prospects. Additionally, there is a growing trend of investing locally and localising supply chains, driven by the region’s focus on enhancing economic self-sufficiency. This shift presents lucrative opportunities for investors to partner with local businesses and tap into the expanding domestic market. Certain industries are poised to benefit exceptionally well from localisation, such as energy, agriculture, technology, healthcare and pharmaceuticals. Jamjoom Pharma’s $1.12 billion IPO announced in May 2023 is an indication of the prospects of some critical sectors in the wake of the localisation trend.
“The MENA region in 2022 saw FDI inflows increase by 13.6 percent, with four of the top five countries in the world for greenfield FDI projects last year situated in the GCC.”
Influx of Talent, Tourists and Businesses
The GCC has become an attractive destination for talent, tourists, and businesses. The influx of talent from around the world, drawn by employment opportunities and favourable living conditions, has bolstered the region’s workforce as well as several key sectors. Generations X, Y and Z are all attracted to the region due to pull factors such as quality of life and economic opportunities as well as push factors, such as geopolitical tensions in their native countries.
The growing number of tourists visiting GCC countries has fuelled the hospitality and leisure sectors, creating further investment prospects. The UAE plans to create a $123 billion tourism economy by 2031, while Saudi Arabia has committed $550 billion to develop new destinations by 2030. Branded as the world’s most ambitious tourism undertaking, the PIF-backed ‘The Red Sea’ project is an indication of the trajectory of the region’s tourism economy. The same can be said for projects such as NEOM, Palm Jebel Ali, and Diriyah. Healthcare, financial services, real estate, and technology are other sectors set to benefit from these positive emigration trends.
The GCC has also established a number of notable special economic zones (SEZs) including the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM), and the King Abdullah Economic City (KAEC) in Saudi Arabia which offer a number of benefits to foreign investors, including tax breaks, customs exemptions, streamlined regulations, cost and ease of doing business, and have been very successful in attracting foreign investment to the GCC region.
Thriving Startup Ecosystem
The GCC has seen an unprecedented level of support and funding for startups, particularly in the technology sector, despite drying venture capital funding globally. In 2022, startups in the GCC region raised $3 billion – a figure that is expected to be significantly higher in 2023. Governments and private investors have recognised the potential of emerging technologies / new economies, fostering an ecosystem that nurtures innovation and entrepreneurial ventures. This environment has attracted both local and international investors, creating exciting prospects for private equity investments in disruptive and high-growth startups. Fintech, e-commerce, healthcare and logistics are among the startup sectors making waves in the region.
Looking ahead, the GCC is expecting a boom in startups and SMEs, with 45 unicorns worth an estimated $100 billion expected to emerge from the region by 2030. Many of these are predicted to be technology firms leveraging the region as a base from which to scale. HungerStation, Noon, Jahez, Careem and Kitopi are unicorns that have already proved the GCC is the ideal platform for technology companies to thrive.
We are upbeat about the GCC’s economic outlook. The non-oil economy is growing and the region’s fundamentals are stronger than ever making the GCC an increasingly attractive destination for investments. We positioned ourselves at the forefront of identifying and capitalising on these opportunities, ensuring our investors benefit from the region’s growth and development, which includes investing in high-growth and defensive sectors, such as healthcare and life sciences, technology, fintech, logistics and education capable of generating higher and sustainable returns for investors.
