Effect of Recent Events and Trends on the MENA Economy

Aathira Prasad provides economic insights on the Middle East to Duke's Fuqua School of BusinessAathira Prasad is an economist with a deep understanding of the Middle East. She is director at Nasser Saidi & Associates, a specialized advisory firm based in the United Arab Emirates that focuses on providing consulting services to a diverse range of clients.

Prior to that, she spent nearly five years at the Dubai International Finance Centre (DIFC), most recently as director of macroeconomics and statistics—a position where she provided economic analysis and forecasts of the MENA region and contributed to the DIFC’s strategic plans. She has also co-authored a number of research papers focusing on economics of the MENA region.

Earlier this year she shared her expertise with Global Executive MBA students from Duke University’s Fuqua School of Business who were studying in Dubai. More recently she provided insights into the region’s current economic climate in a Fuqua Q&A.

Q) The large Saudi Arabia stock market that had previously been off limits for direct foreign investment recently opened up. How do you think this will affect the Gulf economy as a whole?

The opening up of the Saudi market is an important milestone: simply because Tadawul alone accounts for more than 50 percent of the market cap of the Gulf Cooperation Council (GCC) countries and is the most liquid. The country is also the largest economy in the Middle East, with a nominal GDP of USD 752 billion in 2014. Tadawul has over 160 stocks, a market capitalization of approximately USD 530 billion and is relatively more diversified compared to other exchanges in the region, with sector representation from petrochemicals, banking, telecom companies, retail and real estate.

However, simply opening the market to qualified foreign institutions is not sufficient to make the market an attractive one. Much reform is needed: efficient financial markets require breadth (a wide variety of financial securities and instruments), depth (sufficient size to enable transactions without leading to large bid-ask spreads) and liquidity (ability to enter and exit markets without affecting price). Saudi needs active money markets, bond and Sukuk markets, and could even use the opening up of its capital markets to encourage more listings of both Saudi and GCC companies (dual listings). All this would contribute towards Saudi’s long-term goal of economic diversification and reduce over-dependence on oil revenues.


Investcorp Executive Shares Industry and Leadership Perspective

Rishi Kapoor headshotAs Chief Financial Officer of Investcorp, Rishi Kapoor has a rich perspective on the investment industry in the Middle East. Based in Bahrain—with additional offices in London, New York, Riyadh and Abu Dhabi—the firm is a provider and manager of alternative investment products, and Kapoor has held a number of progressive responsibilities there over the last 20 years. The founder and CEO of Investcorp is set to retire in 2015 and Kapoor will then assume the role of co-CEO.

Kapoor graduated from Duke University’s Fuqua School of Business Global Executive MBA program in 2001 and currently serves on the school’s regional advisory board for the Middle East and North Africa (MENA). He shared his industry and regional insights in a Fuqua Q&A.

Q) Investcorp’s current portfolio includes companies in North America, Europe and MENA. Are there fundamental differences in how you target investments in each of these regions?

Yes, there are fundamental differences in the types of investments we look to target in these regions.

In the US, we prefer control investments in mid-market companies, particularly in the services or consumption-driven sectors, since a large component of America’s economic growth is anchored by domestic consumption.

In Europe, we also target control investments in mid-market companies, except here we prefer companies that are export-driven, in particular catering to some of the global growth markets in Asia or Latin America etc., as opposed to relying on domestic European consumption.

In MENA, the target universe is very different. We acquire minority stakes in opportunities sourced from family businesses, divestitures of non-core corporate assets and corporates seeking growth capital. Our core investment thesis is that the economic transformation in the MENA region (including Turkey) and the evolution of the family business model has created opportunities to establish higher-value, larger-scale businesses that require complex and sophisticated processes, and enhanced management capabilities.


A View of the Private Equity and Investment Landscape in the Middle East

Mo Bississo - HeadshotMo Bississo can paint a detailed picture of the private equity landscape in the Middle East. In 2007 between his first and second year as an MBA student at Fuqua, he interned at the private equity group of an alternative investments firm, Gulf Capital, based in Abu Dhabi and experienced firsthand the quantum growth that the Middle East—particularly the Gulf Cooperative Council (GCC)—was experiencing.

Bississo spent two enjoyable and educational months there during his internship, and upon graduation in 2008, decided to join Gulf Capital in a full-time capacity as an associate. Over the following six years, he witnessed not only how Gulf Capital survived a tumultuous storm that wiped out most of its regional and international competitors, but he also helped the firm grow into one of the region’s premier private equity groups, today with more than USD 1.6 billion assets under management.

He has now taken this “for the region, by the region” approach and is in the process of starting a search fund, which employs an amalgamated approach of private equity and entrepreneurship. He shared his insights on private equity and the general economic backdrop in the Middle East in a Fuqua Q&A.

Q) You began your career in private equity just before the global financial crisis began taking hold in the Middle East. How has the economic outlook changed since then?

Before the crisis, there was a lot of liquidity in the region, primarily driven by government spending, large and long-established wealthy families who dominate the regional conglomerates, and an influx of foreign investors looking to capture part of the explosive growth the region was experiencing. Private equity started making its way during that surge, but what you found were countless funds setting up, that lacked discipline, conventional approach, and professionalism often followed in the US and Europe. Many of these new firms were very “raw” and unfocused, whether during conducting diligence or when managing their portfolios.

Then came the crisis, and it had a clear and heavy impact on this part of the world. The real estate crisis was well-documented, people were leaving the country, and the effect was visible in all aspects of day-to-day life. The real outcome of such was weeding out the “undisciplined” fund managers, leaving the truly institutionalized and well-capitalized to survive. It is interesting to see how over the past year-and-a-half the GCC, and primarily UAE, economies have rebounded and private equity investment opportunities have come roaring back with a more sound approach to investing. There still are the outliers, but not to the degree seen during the pre-crisis era.


Chairman of Dubai Mercantile Exchange Shares Industry Insights

photo Ahmad Sharaf - DMEAhmad Sharaf is an expert on futures trading in Dubai. He’s chairman of the Dubai Mercantile Exchange (DME), which has focused on crude oil futures since its inception. Sharaf is also CEO of Dutco Energy. He serves on Fuqua’s Middle East Regional Advisory Board. Sharaf earned his MBA from Fuqua’s Global Executive MBA program. Sharaf discusses the future of energy and the DME in the following Fuqua Q & A:

Q) The Dubai Mercantile Exchange was created in 2007. What is its importance when it comes to crude oil globally?

The production of oil in the Middle East historically was not represented through a futures contract, but through over-the-counter trading which has limited transparency. Futures oil trading provides a globally recognized platform for transparency and pricing. Risk managers can trade the contract with certainty in terms of price.

Today, DME is the leading energy focused commodities exchange in the Middle East and home to the sour crude oil benchmark, DME Oman. DME Oman is the largest physically delivered oil futures contract in the world and the only credible benchmark for oil trading for the Asian markets. This makes us relevant and important on the global stage, and our focus is on providing a fair and transparent means of pricing a regionally produced product for a global audience.

The East of Suez, specifically the fast-growing Asian and Indian markets, is a major source of the rising crude oil consumption that has been witnessed in recent years. Much of that demand is being met by the Middle Eastern producers. The Middle East-Asia corridor is the fastest growing oil supply/demand corridor in the world and the DME has a vital role to play by providing a fair means of oil price discovery and risk mitigation.


Q&A: Health Care in the Middle East

Ali_HashemiAli Hashemi knows the health care industry well in the Middle East. He co-founded Avicenna Partners, a specialized health care venture capital firm. Hashemi serves as managing partner of Avicenna and as director of Amana Healthcare. He is a graduate of Duke University and serves on the Middle East Regional Advisory Board for Duke University’s Fuqua School of Business.

Hashemi discusses the health care industry in the Middle East in the following Q&A.

Q) What do you want people to know about the business of health care in the Middle East?

Health care in the Middle East is a story of opposites. It is a web of constraints, yet possesses immense opportunity. The sector is historically underdeveloped, but is fertile ground for world-class innovation. Working in health care in the Middle East can be at times massively frustrating, but mostly immeasurably rewarding. The Middle East, in my view, is currently and will continue to be the backdrop to some of the most interesting and exciting advances and investments in the health care arena. Although the sector is behind its mature-market peers and riddled with gaps, the irony is that these large swaths of white space, unencumbered by legacy, create opportunities to “get it right.”

Health care providers and companies, if smart, can leap frog over best-of-breed peers in other markets because heavy legacy systems with high switching costs often do not influence strategic, business, and clinical decisions.

For example, one of our flagship VC investments, Amana Healthcare, is a hospital brand totally conceived and built from the ground up in the Middle East. The company’s envisioned care model was drawn up on a blank sheet of paper – drawing from global best practice but nuanced and adapted to the needs of the region. The company has none of the drag or the legacy of the international partners that peer health care entities in the region are quick to enlist for guidance and support. Amana has now evolved into a world-class benchmark in the care of long-term care patients. In my opinion, you would be hard pressed to find another center in the world that provides a comparable level of clinical care or focus on quality of life.