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Venture finance in the MENA region — challenges and opportunities ahead

Jul 18,2019 - Last updated at Jul 18,2019

I recently had the pleasure and honour of participating in the Digital Mashraq Forum (DMF) under the patronage of HRH Crown Prince Hussein, the Ministry of Digital Economy and Entrepreneurship in Jordan and the World Bank Group. 

The high-level affair to discuss the future of digitalisation in the region attracted upwards of 500 attendees from public and private organisations across 25 countries. The DMF hosted an immersive two-day programme with 26 panels, 69 speakers, 40 start-ups and 22 investors on board. A commendable success to orchestrate such a powerful platform. 

The calibre of men and women was unexpected, to say the least. It was most certainly a remarkable experience to be surrounded by so many educated, talented, sophisticated, pleasant, informed, ambitious, engaged and relentless humans. 

Although a regional event, it was without a doubt global. Entrepreneurs, companies, venture capitalists (VCs) and public officials from the MENA region, Europe, Asia, Africa and throughout the US all doing great things. 


Ripe, rich and ready 


It is no secret, the Kingdom of Jordan is on the brink of breaking through bureaucracy to bring in billions of dollars and it is only a day away. The events taking place are defying the antiquated sentiments that postulate a lack of resources as an uncontended culprit preventing a rapid evolution to modern economic and social systems. 

The fact is there is abundant capital and it is high-time this wealth is unlocked and effectively allocated to achieve its full impact-potential. 


Public-private partnerships 


Once again, it is as much about the calibre of people and companies and the ambitious agenda the DMF sets to advance as what it symbolises. The conference concluded with the release of the “Amman Communiqué”, announcing Jordan’s plan to launch a regulatory reform process and digital transformation strategy by the end of 2019 to improve the Kingdom’s business environment. The communiqué also addressed the government’s commitment to open the National Broadband Network (7,000 kilometres of fibre) for public-private partnerships (PPP). 

For Jordan, the meeting was one of many recent government-backed initiatives that emphasise its commitment to back and empower entrepreneurs, create a conducive business environment and advance robust public-private cooperation. 


The role of the Central Bank


The Central Bank of Jordan can serve a fundamental role in leading a PPP that will open up the floodgates of capital. 

Consider Lebanon, which instituted an impactful PPP model. In 2014, the Banque du Liban (Central Bank of Lebanon) introduced Circular 331 to bolster the Lebanese “knowledge economy”. It is proving effective despite the central bank’s massive debt and the country’s stormy geopolitical climate. 

In fact, Circular 331, which encourages commercial banks to invest in start-ups, is clearly one of the boldest and smartest initiatives undertaken so far by the Lebanese government. For the uninformed, the central bank now guarantees up to 75 per cent of the value of a commercial bank’s investments into a start-up. That move opened up a potential of $400 million that could be invested into venture capital funds or directly into start-ups. Circular 331 has clearly taken it up a notch by encouraging venture financing. 

This model can be similarly emulated in Jordan to open up the floodgates of capital second to none; especially given the fact that Jordan has half the debt-to-GDP ratio of Lebanon. 


The floodgates of capital 


A PPP of this magnitude to create professionally managed pools of capital in Jordan will generate opportunities: 

— More capital: The capital injection will increase the number and variety of VCs that would in, turn fund, and empower more entrepreneurs. 

— Take Jordanian companies global: Such a programme would establish new VCs of the highest calibre with qualified experience that not only meet local-standards but have the aptitude to fair well globally as well. More globally competitive VCs mean more globally competitive companies. 

— Larger pools of capital: It will serve to develop and expand the current VC system exponentially. Most VCs in Jordan today are basically restricted, for the large part, to the seed stage. This opportunity would allocate capital to equip new VCs to mature and develop seed to later-stage companies. Larger VC pools of capital will serve to accelerate the growth and scalability of the companies they fund, positioning them to compete in global markets. 

— Empowered entrepreneurs: With new VCs and larger funds, a whole new spectrum of entrepreneurs will have access to capital. Consider the shift in dynamics that would follow — consider companies or entrepreneurs that do not conform to their capital providers but are forced to comply to secure their financial survival. This desperation leads to discouragement which in turn stifles individual potential and the evolution of their enterprise. A robust VC model will pierce this paralysis and protect innovation capital, a source of national wealth. 

— Green light for foreign investment: This government-backed initiative gives outsiders the greenlight. Jordan is open for business. The blessing and support of the Kingdom boosts investor confidence, garners respect from national leaders and will certainly serve in reaching their foreign direct investment targets, probably overnight. 


Looking ahead 


Make no mistake about it. At the end of the day, it all boils down to access to professionally managed pools of capital that can make a real dent in the marketplace. You can have the smartest and most educated entrepreneurs on the planet but without “smart” capital backing them, their projects are nothing but a pie in the sky. Silicon Valley is a prime example in this regard. Without Sand Hill Road backing the entrepreneurial spirit and companies of the Valley back in the early 1980s and 1990s, the tech giants of today would have never existed. 

Just as it has in the United States, the worldwide democratisation of capital will democratise industrial assets and produce an explosion of job creation the world over. The MENA region needs this more than any region in the world. And the capital revolution, which so changed America in the last third of the 20th century, is only the prelude to the other two major revolutions of the 21st century — the worldwide democratisation of venture financing and of knowledge. These three revolutions, each aided by emerging technology, provide hope that the 21st century will be able to avoid the terrible Middle East conflicts of the past hundred years and become a new age of enlightenment. Our children will not have opportunities unless there are opportunities for everyone. 


The writer is a partner and wealth-curator at Blackhawk Partners, Inc. in New York

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