It seems to be getting harder and harder to find a news story about the Middle East and North Africa (MENA) that doesn’t fall within the narrow narrative of disorder and political violence. From state collapse in Libya and the tragic conflict in Syria to the geopolitical flashpoint in Yemen, the headlines from the broader region make for bleak reading indeed.

These challenges are real and they are significant, but there is another story about the region that remains under-reported. It is a story of dynamism and entrepreneurship, and it’s one of how private capital is playing a critical role in creating new realities for the region and its people.

We recently undertook an in-depth research initiative to examine private equity in the region. The industry has deployed nearly $4.7bn in capital across 300 deals over the last five years, according to EMPEA data.

While this amounts to a small percentage of private equity activity globally, it does suggest that private equity investors are able to cut through the noise, source deals and execute transactions, raising the question: what do these investors see that much of the world doesn’t?

To be sure, many Middle Eastern and North African economies have been through the ringer over the last decade, suffering a series of external and internal shocks that have impacted growth — the global financial crisis, Dubai’s debt crisis, the Arab Spring and the recent collapse in oil prices to list but a few.

Yet in spite of these headwinds, the MENA region today constitutes a $3.3tn economy, making it larger than the ASEAN-5 and one of the largest emerging market economic blocs. Moreover, the International Monetary Fund (IMF) forecasts that it will be the third fastest-growing region in the world for the next five years.

The positive macroeconomic trends are supported by favorable demographics. With nearly 162m people between the ages of five and 24, the MENA region has one of the youngest populations in the world. With more than 20 per cent between the ages of 15 and 24, it has the largest concentration of young people of working age out of any region, stimulating a vibrant and energetic start-up culture.

This youthful demographic profile exists in a region with strong purchasing power, fueling aspirational consumption. Eleven MENA economies, for instance, generated nearly US$1tn in household consumption expenditures in 2013, a figure on par with the total spend for all of Sub-Saharan Africa.

In addition, increased regional integration — both within MENA and toward other regions, such as Sub-Saharan Africa and Europe — is expanding local firms’ access to new markets and shifting countries’ directions of trade. It is no surprise that global private equity houses, including KKR, TPG and Warburg Pincus, have joined a seasoned crop of local managers looking for deals in the region.

Chronic challenges
The strong macro tailwinds, however, belie two chronic challenges besetting the growing number of business owners in the region. Companies continue to face pernicious constraints in obtaining growth capital — particularly those that fall in the small- and mid-cap segments — and owners often possess insufficient management proficiency to help their businesses reach their next stage of development.

Private equity fund managers are a natural partner, and they are playing a key role in bridging these financing and expertise gaps, contributing to corporate growth and private sector development in the process.

And yet, despite all of the demand for capital and all of this deal flow, private equity investment as a percentage of GDP measured in at merely two basis points (0.02 per cent) in 2014 — one-sixth the degree of activity in Brazil and Sub-Saharan Africa, and a tiny fraction of that found in the United States and United Kingdom. For all its promise and benefits, private equity remains a grossly under-utilized and under-appreciated asset class in the MENA region.

At a time when newsfeeds carry headlines of wanton violence and the destruction of priceless artifacts from humanity’s shared history, perhaps it’s worth reflecting on those who are building a more hopeful future. Private equity actors in the region are working with entrepreneurs and management teams to grow valuable local businesses; in the process, they are creating licit opportunities for the region’s youth to earn a living in the formal economy. This is a story of people using their agency to drive positive change — one whose under-appreciated successes we should embrace and champion.

Michael Casey is Director and Nadiya Satyamurthy is Senior Director of EMPEA Consulting Services. The authors recently completed the in-depth Special Report: Private Equity in the Middle East and North Africa, available for download at

Back to beyondbrics

Get alerts on Emerging markets when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article