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The GCC and wider MENASA region offer great investment opportunities. Abraaj Capital was one of the first to see the potential.

Imagine a Middle East without regional disputes, led by modern economists who freely collaborate amongst each other; A Middle East where businessmen as well as companies operate without restrictions on an inter-regional level. Imagine the Middle East of the next decade - or rather the vision of Arif Masood Naqvi, Executive Vice Chairman and CEO of Abraaj Capital, the largest private equity firm in MENA.

“The new leaders in the Middle East are young, media friendly, articulate, and most of them are economists. They know what helps a business thrive,” he says.

And Naqvi certainly knows them all: he is a UAE delegate and speaker at the World Economic forum in Davos (the forum designated him as “New Asian Leader” for his achievements with Abraaj - he famously built up the firm’s market leadership within just five years). He is also a member of various high-profile think-thanks and groups such as the Arab Business Council and the Young Presidents’ Organisation.

“From the 100 members of the Arab Business council seven of them have become ministers and governors within the last four years, among them Sheikha Lubna Al Qasimi from the UAE [Minister for Economy and Planning], Rashid Mohamed Rashid from Egypt [Minister of Foreign Trade and Industry] and Basem Awadallah from Jordan [Minister of Planning and International Cooperation]. Many new leaders therefore come to govern from a business background,” he says.

The entire region, he believes, is standing at an inflection point. “The last time we saw such significant developments was between the First and Second World Wars, when the British and French drew the borders of the countries in this region. Now we are again witnessing a similar drive, but this time it’s not political but economic,” he says.

Arab companies today work on a cross-regional scale, which triggers an “enormous boost to the self-confidence of Arab businessmen and companies,” he says. “In the telecom, media, food products and financial sectors, companies such as ours now operate entirely pan-Arab.”

The region, he says, has been experiencing a major economic boom for the last five years. “This boom has for the first time ever been driven by the private sector, as opposed to the government. The private sector has been investing in real estate, the stock market, and has been building up the industry. This has caused enormous growth in this region, which is slowing down slightly at the moment, which can be witnessed by the stock market corrections. The government therefore starts to play an important role again at this point,” he reveals.

Regional governments have been generating surpluses from oil revenues of some US$200bn - US$300bn per year, which they used to invest in US government treasury bills - revenues that they are now investing internally in assets such as infrastructure, which has a great spin-off effect on the private sector.

“I see at least another 10 very good years to come for this region,” he predicts.

Naqvi is somewhat of a pioneer for investments in the Middle East. “I have been involved with private equity for the last 13 years. In 1994 we started off as an investment firm, but later realised that we would need a more classical equity firm, so we transformed the company into a very traditional private equity model and continued as Abraaj Capital,” he recalls.

“We were one of the first voices to promote this region as a great investment destination. Today everyone want to invest here - a process that we started,” he adds.

The 9/11 bombings in New York were definitely a milestone in the history of investment in the Middle East, he underlines. “Since then the phenomena of repatriation of Arab money is omnipresent,” he says.

“The trend is definitely for Arab money to stay in the region.”

The lucrative emerging markets, which combine strong population and economic growth, are rapidly expanding - what was formerly known as MENA (Middle East and North Africa) has now grown into MENASA (including South Asia). “The subcontinent – India, Pakistan and Bangladesh – has more in common with the Middle East, particularly the GCC, than China or Singapore in terms of trade, culture and history. Arab investors are amongst the largest in India and Pakistan,” he says.

Private equity investment is, by definition, investment in companies that are not public, according to Naqvi.

“Some people confuse it with venture capital, but it is really the entire range – from start up to pre-IPO launch,” he states. “We traditionally have been focusing on buy-outs but now we are increasingly introducing infrastructure and growth capital to our portfolio.”

“This region holds some US$600bn worth of investments for new projects for the coming years. We are raising a US$2bn infrastructure fund, the demand for such investments is simply so high,” he maintains.

With these enormous figures in mind, does he not feel intimidated by regional tension and conflicts?

“There is a huge difference between me and, for example, a fund manager who is based in Frankfurt. The view from the window of my office might be the same, we both see skyscrapers, modern infrastructure and heavy traffic, but what differs him from me is his perception of risk,” he believes. “Iran and Iraq are certainly of concern to us, but we do not label the entire Middle East as unstable, being local has massive advantages in this respect,” he says confidently.

He adds, however, that “we focus on the areas we are familiar with, such as the GCC.”

Countries like the UAE, Qatar and Jordan “have helped change the global perspective of the region,” he stresses.

He argues that emerging nations such as Jordan, Egypt, Turkey and Pakistan have “superb growth ahead of them, which can make up for others.”

Naqvi has participated in some landmark private equity deals, such as the leveraged buy-outs of the Inchape Group’s Middle East businesses and Aramex. “The Inchape deal, in 1988, was the largest buy-out in the region. Our investments did extremely well in returns, we really grew the business,” he recalls.

“The Aramex deal was a classic textbook leverage buy-out. It was talked about in numerous publications, and is the subject of case studies in university courses. We had found the company on the New York stock exchange, a Middle Eastern company that had most of its income coming from this region. It was undercapitalised and under-leveraged, so we saw the opportunity and acquired it in a leveraged buy-out, added enormous value to it and listed it on the Dubai stock market,” he says.

“We bought it for US$25m in equity, and sold it on the Dubai stock market for US$420m in equity. Today it’s market cap is almost US$800m,” he boasts.

Deals of such dimensions certainly helped boost the company to the top of Middle Eastern investment firms – but what are Abraaj’s strategic efforts to increase investors’ confidence? “We deliver constantly well-performing transactions, which certainly helps. But in general investment is a business where you sometimes make money, and sometimes you lose it. Our investors know that we put a lot of effort into our work, and we operate very transparently,” he says. “We oversaw more than 30 exits in the last 7-8 years. Every single deal has performed exactly as we expected.”

The company moreover invests through funds, so “if a fund consist of 20 deals and one goes bad, the other 19 make up for it,” he explains.

Naqvi is not concerned about the regional stock market corrections. “These stock market corrections were overdue. The growth was unreasonable, and there were too many retail investors.

“Fortunately the governments did not interfere when the markets crashed, so a market correction mechanism was allowed to operate,” he argues.

He reveals that Abraaj invests in all regional equity markets. “Even if one markets goes down, we pick the company that will outperform the others,” he says.

A major challenge for the region is however employment and education, he believes. “We require a tremendous level of job creation and appropriate training for the next generation to come,” he says.

“Many governments are now privatising state-owned companies, not because they need the money but governments need to focus on politics and not management,” he says.

He concludes, “If we continue at the same pace we embarked on as a region, I think we will do well.”

And with more leaders like Naqvi, the region certainly will.

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