Middle East holds strong growth opportunities for private equity investors

Investors interested in locking-in significant returns in the medium- and long-term would do well to consider the Middle East and North Africa, where there are substantial opportunities supported by strong economic fundamentals, founders of the Arab world's top private equity firm told a gathering of industry players at a meeting in Washington this week.

"This gathering is taking place at a defining moment during which the private equity model is being challenged," said Ahmed Heikal, Chairman and Founder of Citadel Capital, the leading private equity firm in the Middle East and North Africa with 19 Opportunity-Specific Funds controlling investments of $8.3bn in 14 industries.

"Achieving returns through leverage is not sustainable — providing growth financing, including greenfields, is more enduring. Growth in the Middle East and North Africa over the medium-to-long term will certainly not be derailed by the current economic slowdown. Our investments are built on growth fundamentals, not the cost of finance," Heikal told attendees at the International Finance Corporation's 11th Annual Global Private Equity Conference, held in association with the Emerging Markets Private Equity Association (EMPEA). The gathering hosted financial leaders from across the universe of emerging markets private equity.

Heikal went on to praise the new role of multilateral finance institutions, including the International Finance Corporation, in providing finance for new projects.

"A slowdown in growth or trade today does nothing to diminish our broader term investment rationale; the challenge is correctly buying into these opportunities," Heikal noted. "Under the current conditions, we are pursuing an incremental approach that allows us to lock in large, attractive investment opportunities with very little in the way of up-front capital commitments."

60% of the MENA region's rapidly growing population remains under 30 years old, consumer income is rising markedly and personal debt is minimal throughout the region's under-leveraged economies, the head of the leading MENA private equity firm told investors and economic officials.

Speaking at the conference's gala reception, Heikal challenged fears that the global slowdown will dampen the region's economic potential, "MENA economies have not witnessed the same evaporation of demand that Western and many emerging-market economies have. Many of our largest markets, including Egypt, are still growing even today."

Hisham El-Khazindar, Citadel Capital's Managing Director and Co-Founder, told a panel audience that the region's competitive advantages as an export power are ready to be tapped by investors willing lay the groundwork for success while waiting for the rebound of the global economy.

"Citadel Capital is a control investor building export-oriented platform companies that benefit from low labor and energy costs, an abundance of natural resources and the MENA region's proximity to European and world markets. These factors haven't changed in the long view," El-Khazindar said, speaking on a panel titled Hidden Gems: The Untapped Potential of Private Equity in North Africa.

"As a significant principal investor in our own deals, we're increasing our capital to increase our exposure to what we believe will be tremendous growth throughout the region as the world economy recovers. The down turn, if you take a step back, is a buying opportunity. Citadel Capital has invested in industries including cement, glass, transport and logistics, and agrifoods on the belief that both domestic demand and export advantages are here to stay — and that the region will stay among the world's fastest growing for years to come," he added.

While in Washington, El-Khazindar announced that the IFC, the conference's co-sponsor, had decided to once again co-invest with Citadel Capital, joining the firm's $500m Citadel Capital Joint Investment Fund.

"We are obviously delighted to be expanding our investor base with our first permanent fund," El-Khazindar noted. "In these times, it is a strong vote of approval to have won the confidence of an institution such as the IFC, which just last month announced it was co-investing in our $100m Sphinx Turnaround Fund, which is investing in distressed industrial and other assets in Egyptian small and medium-sized enterprises segment."