The private equity industry will continue to enjoy substantial growth in the Arab Gulf states this year as a result of privatisation and re-engineering of family businesses, according to F
The private equity industry will continue to enjoy substantial growth in the Arab Gulf states this year as a result of privatisation and re-engineering of family businesses, according to Faisal Juma Belhoul, founder and managing partner of Dubai-based Ithmar Capital.
Speaking at the Middle East Private Equity 2008 conference, Belhoul said that the growth he expected in private equity in 2008 was also due to the buoyant economic landscape of the Gulf Co-operation Council countries and rising international interest.
‘With revenues from record energy prices having driven liquidity levels to more than USD1.5trn, regional GDP growth is expected to continue to rise and economic restructuring is gathering pace,’ Belhoul said.
‘Of particular importance is the rising number of privatisations of state-owned assets, as Gulf governments address shortfalls in infrastructure financing and increase pressure on public services. Interest in the region is also growing from international firms aware that the Gulf markets are not yet dominated by one single player and are looking to hedge risks and compete in an increasingly globalised market.’
He also identified a number of issues that, initially at least, could restrict the region’s private equity industry from reaching the heights seen elsewhere, including uncompetitive exit markets, inconsistent and often restrictive regulatory regimes, underdeveloped human capital and management pools and strong investor interest in government-owned infrastructure, resulting in a reinforcement of existing market segmentation, restriction of technology development, and an overall limitation of economic diversification.
‘If these issues can be successfully addressed, the Gulf has the potential to become a truly global player in the private equity industry,’ Belhoul says, ‘particularly since the high proportion of private companies in the region, compared with the greater numbers of public companies in the West, means that private equity in the GCC can perhaps be considered as a mainstream asset class rather than an alternative investment.’
Re-engineering of family businesses also offers industry growth potential. Belhoul says the operating environment for family businesses in the region is rapidly changing as strong economic conditions lead cash-rich conglomerates to expand both domestically and increasingly outside their home markets. Meanwhile, international businesses are being attracted into the region by more liberal economic attitudes and growth markets.
Said Belhoul: ‘The result of these outward and inward flows can be summarised in a single word – competition. Family businesses, perhaps for the first time, have to compete both abroad and at home. Businesses that can generate superior profits, as family firms in the Gulf undoubtedly can, are always likely to attract investor capital.’
