Private equity key to GCC self reliance

Private equity and venture capital will become increasingly important in the process of diversification away from oil and will help the GCC states to become self-reliant, experts said yesterday.

"Private equity must run parallel with the public sector – both should work in tandem for successful long-term economic diversification," said Arno Castanet, Dow Jones's European Research Manager for Venture Capital and Private Equity.

Sound infrastructure and strong oil and gas sector will form pillars for the diversification of the GCC economy, the Middle East Private Equity Forum at Dubai's Al Murooj Rotana hotel was told. And analysts said private players had a role in both areas.

Infrastructure projects account for more than 60 per cent of new funds being raised by regional private equity firms.

Faisal Belhoul, Founder and Managing Partner of Ithmar Capital, said: "When we talk about infrastructure, I believe that private sector has a big role. We have seen a huge number of developers entering this sector but it needs more regulation.

"The energy sector has been restricted and the government has been taking the bulk of the investment programme. But there has been the emergence of the service sector within oil and gas and private players are contributing to its growth."

Khaldoun Haj Hasan, co-founder and Managing Partner of Ithmar Capital, said: "The move away from hydrocarbons to a fully diversified economy presents perhaps the biggest challenge to the GCC as a whole. No doubt there's enough money and this is not a factor to worry about, but if the government opens up oil and gas a lot of money will come from foreign direct investment and private equity players."

Belhoul said the education sector, which formed part of the basic infrastructure of a country, should attract private investment.

"The education sector in the GCC is under-served and there is immense potential for private equity players but the governments should serve as a catalyst for further private sector participation," he added.

The population of the Middle East and North Africa is projected to double over the next 50 years and 90 million jobs will have to be created over the next 20 years.

Hydrocarbons currently employ just three per cent of the GCC's workforce but with increasing privatisation many more jobs are expected to appear and private equity players will contribute to this growth.

The region's private equity houses manage more than $13 billion in more than 70 funds and are playing a significant role in the creation of the 47 million extra jobs required in the Middle East and North Africa over the next decade, the forum was told.