The first half of 2017 was an exciting one for enterprises and startups in the MENA region with mega deals taking the ecosystem by storm. Though some believe it is nothing but a normal evolution, others insist that this is a turning point unleashing a new era of investments and business cycles in the region.
Portfolio diversification has always been a business strategy where companies attempt to diversify risk and develop a broad and comprehensive investments base.
Additionally, the dropping oil prices have driven the region’s investors to tackle new profit-generating industries. “Limited partners (essentially the ultimate providers of capital) found themselves in a low interest rate with oil prices at $50 a barrel and declining real estate yields, and were hungry for new and promising asset classes to invest in,” said Walid Hanna, MEVP founder and managing partner.
According to Sherif ElRakabawy, cofounder and CEO of Yaoota, an Egypt-based ecommerce platform, the region is stepping into a post real estate and retail era, where large market players are more confident about technology and startups.
"This is not a trend that is just meant to add additional revenue streams to traditional real estate and retail businesses through diversification. I see it rather as a necessary step to hedge against potential decrease in future demand of traditional businesses by investing early in high growth markets such as ecommerce.”
During a conversation with Wamda, ElRakabawy explained that looking to the US market, a record brick-and-mortar retail stores are going down as a result of Amazon's dominance, while some already refer to the trend as the ‘retail apocalypse’. “This is as if we're looking into the future of the MENA region,” he commented.
In line with this global and more specifically regional disruption, a spokesperson of Emaar Properties told Wamda that the company is focused on an organization-wide digital transformation that will strengthen customer service standards and operational efficiency.
“Across all our businesses, we are rolling out digital engagement strategies to engage deeper with our customers and assure them personalized experiences. We believe that investing in digital technologies is imperative in today’s world, especially in the UAE and the region, which has among the highest internet and smartphone penetration rates.”
Unicorns in the region remained part of the ecosystem’s jargon until Amazon acquired Souq last March turning the buzzword into a buzz-fact.
The arguable multi-million budget of the deal, which Emaar attempted to champion, has left investors and stakeholders pondering on the future of the industry, and who will the upcoming list of unicorns and wannabe-unicorns include.
Shortly after Souq’s hit-deal, a series of announcements started popping up on a weekly basis led by three investments by Emaar: A tech fund acquiring retail platform Jadopado, followed by an acquisition of a large stake in Middle East Venture Partners (MEVP), and finally, Emaar Malls acquiring 51 percent stake in online fashion retailer Namshi.
In parallel, Saudi Prince Alwaleed Bin Talal joined Daimler AG, one of the world’s biggest luxury-car makers, DCM Ventures and New York-based Coatue Management LLC, in a $500 million Series E fundraising in Careem, which valued the company at $1 billion.
Three years ago, Majid Al Futtaim Ventures, acquired a stake in mobile wallet app Beam Wallet. Back then, Rasool Hujair, CEO of Majid Al Futtaim Finance said: “We believe that mobile technology is at the core of the consumer shopping experience, and our investment in Beam Wallet will further enhance our ability to create great moments for everyone every day.”
Status of VCs
Besides large companies investing in technology, VCs in the region are also more into this business scheme. According to Hanna, since 2009, the amount of cumulative funds raised by VC firms increased from $5 million to over $700 million in 2015. In 2016 alone, over $800 million were raised. The deployment of these funds into startups and technology companies is happening in parallel.
He explained that 2009 marks a historic inflection point. Yahoo! acquired Maktoob around that time and the GCC was starting its gradual recovery from the global financial crisis. VCs were emerging as an alternative asset class, new to the region, and ‘it seemed to show promise.’
He added: “We do not believe this is a temporary battle as technology is disrupting each and every sector. In this region, more innovation is required, and we need to permanently embrace the knowledge economy. VC investments help foster this culture. At MEVP, we like online marketplaces/ on-demand enablers, fintech, healthtech and other disruptive sectors.”
A tech real estate story
While technology was disrupting real estate companies, the latter are owning startup communities, and Beirut Digital District is an example.
“It is not about building a successful real estate project, it’s rather about attracting the right communities,” Mohamad Rabah, general manager of ZRE, the real estate company behind BDD told Wamda.
The next development stage of BDD will be adding commercial and residential units, hotels, printing services, convenient retail outlets, banks, gym facilities, and others. “We see ourselves as a startup that is helping startups,” Rabah added.
Technology is shaping up all types of industries, including the car industry, real estate, and retail.
“To be future-ready and to ensure that we are aligned with the aspirations of the youth – the largest demographic in the region – we believe that digital technologies offer the most effective platform,” said Emaar’s spokesperson to Wamda.
Technology is also shaking family groups, according to Rabbah. “This ecosystem is pushing family businesses to leverage their investments and inject more capital in technologies that represent high growth potentials, especially in the Arab world.”
He adds that it’s not just about diversification, but rather about being an early adopter.
Rabbah explained that we will be seeing more family businesses especially led by new generations, allocating funds to new technologies.
Besides Emaar and Majid Al Futtaim in the region, AN Bou Khater, IPT, INDEVCO, and Fattal all owned by families, are adopting the same path in Lebanon. “They are looking to create small funds and small investments arms to invest in startups and VCs,” said Rabbah.
According to Hanna, VCs are generally multiplying, but some will soon disappear.
Telecom operators such as STC and Batelco have respectively allocated $500 million and $75 million for VC investments. Emaar Group and Mohamed Alabbar believe in tech, and are heavily investing in this sector. Additionally, many GCC family offices are allocating larger budgets for VC investments.