2019 outlook: The Middle East proves it is investable and more investors will believe in its potential

Exits in 2019 funds will finally start returning money to investors, encouraging new ones to believe and invest more in the region, writes Fadi Ghandour, executive chairman at Wamda Capital
2019 outlook: The Middle East proves it is investable and more investors will believe in its potential
Market leader Yallacompare is said to have more than 75 percent of the market of online insurance sales in the GCC
By Fadi Ghandour
Sun 06 Jan 2019 03:33 PM

2019 will be the year we see regional sovereign wealth funds investing in tech startups in the region.

This will be deployed mostly via venture capital (VC) firms, but some will also go directly into startups. Abu Dhabi, Saudi Arabia and Bahrain are taking the lead – think Mubadala, Public Investment Fund and Small & Medium Enterprises General Authority (SMEA) in Saudi Arabia, Oman technology fund and Central Bank of Jordan in partnership with the World Bank.

In Egypt, there are already two new funds, Sawari Ventures and Algebra, each receiving investment from development finance institutions (DFIs) including the International Finance Corporation (IFC), the UK-based CDC and European Bank for Reconstruction and Development (EBRD).

Moreover, for the first time, three leading Egyptian banks will also invest, while global funds will continue to look for investments and acquisitions of regional companies which are more mature and have already scaled in several geographies, especially in Saudi Arabia.

The $120m investment by New York-based General Atlantic in Property Finder and Amazon’s acquisition of Souq is a validation that Western funds will only invest in size and scale. It is also proof that this region is investable, at least when it comes to technology. So global funds or strategic investors will not shy away from investing, regardless of the political climate.

2019-2020 will be the year of exits, and funds will start returning money to investors

In Lebanon, the central bank’s $400m ‘circular 331’ initiative to support tech start ups has run its course. We are all anxious to see the results in the coming three years. This can be assessed by the number of funds and companies it created, as well as the returns it gave to investors.

This means the success and sustainability of these startups, and ultimately their exits. So only through returns will the model be validated, since the limited partners were banks whose main drive is to make money. The ecosystem flourished when the circular was active in funding. Now, sustainability is to be tested.

Furthermore, 2019-2020 will be the year of exits. Some will be large but I predict most will be small.

Exits, however, will take place, and funds will finally start returning money to investors, encouraging new ones to believe and invest more in the region. The Careem-Uber story will continue to make headlines, while the battle for e-commerce and the Noon, Souq/Amazon war will continue with a vengeance.

We will see new products, improved services and lower prices, with the consumer being the biggest beneficiary. This battle for e-commerce will also lead to some consolidation of smaller vertical players, where traditional retail regional groups will acquire smaller e-commerce players and continue to invest aggressively. Majid Al Futtaim and Al Tayer Group are likely to lead the way. 

As for rising stars to look out for in 2019, they include smaller, specialised companies such as Mumzworld, Jamalon and Yallacompare.

When it comes to fintech, central banks are finding it fashionable to launch fintech sandboxes. While regulators know they must become more digitally-savvy, the region needs to move from sandboxes to high-streets, with licensing available to everyone. This will solve problems related to peer-to-peer lending, payment solutions and digital wallets.

As for cryptocurrencies, despite the decline and crashing of cryptocurrencies globally, 2019 will see crypto exchanges finally be licensed, with Bahrain and Abu Dhabi taking the lead.

The battle for e-commerce will lead to the acquisition of smaller players

Another trend we will see is a rise in mobility for the masses. Cairo is showing the rest of the region how to solve mobility challenges in congested cities. Tuk-tuks are already in fashion in Cairo through Halan, whil Swvl provides mass/bus transportation.

Careem and Uber have also invested in similar solutions. Dubai, on the other hand, will lead the region in introducing scooters. Saudi Arabia will see startups expand to the country, but Saudi nationals will also build their own startups and scale them inside the kingdom. The biggest economy of the region is already showing some serious startup traction revolving around e-commerce, last mile delivery and mobility.

The Saudi market is quickly opening up, with new regulations easing the setting up of wholly-owned foreign companies. Then there is the last mile war, where logistics companies are popping up in every corner of the region.

The home delivery demand for groceries, restaurants and e-commerce is so huge that none of the current players are able to fulfil it. So, incumbents like Aramex are investing, and new last mile companies are popping up by the tens.

This is also spilling over to the supply chain, especially to cross-border trucking. As the e-commerce and on-demand economy accelerates, traditional supply chain providers will begin facing serious challenges, and new disruptive entrants looking to fill the gap and/or deliver logistics solutions will need to do so with deeper tech integration.

Fadi Ghandour, executive chairman at Wamda Capital

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