Diversification is crucial to economic maturity and assists in addressing economic risk management, says a new report on private equity in the GCC.

‘Catalysing Diversification: Private Equity and the GCC’ sets out an analytical framework, articulating the contribution of private equity and venture capital investors in this vital process.

It was unveiled at the launch today (June 23) of the third in a series of thought-leadership reports on private equity in the GCC at the Middle East Private Equity Forum, organised by Ithmar Capital, in partnership with Dow Jones.

The report highlights the imperative for diversification by studying the current economic context and, in particular, the GCC’s central economic pillar: hydrocarbons. Hydrocarbons account for 73 per cent of total export earnings, 63pc of government revenues and 41pc of GDP.

The report goes on to explain why a reliance on a hydrocarbon-based economy is both unsustainable and potentially dangerous to socio-political stability within the GCC.

“While global demands for oil and gas is projected to continually increase, hydrocarbons are a finite resource industry which currently employs a mere 3pc of the GCC’s workforce”, said Ithmar Capital founder and managing partner Faisal Belhoul.

“The Mena population is projected to double in the next 50 years and 90 million jobs will need to be created over the next 20 years for this particularly young demographic entity. The hydrocarbon sector is unable to meet these demands and as a result, the region’s socio-political stability is at great risk,” continued Belhoul.

By their nature, private equity and venture capital are proven catalysts of essential change in this region. Local and international private equity firms are playing an increasingly major role in economic diversification across the GCC. The report reveals how private equity and venture capital, through a three-stage process, are primed and positioned to support and diversify the GCC economies in the near future.

According to the report, regional fundraising activity has almost doubled in the last three years. The total amount raised in 2007 was $6 billion, compared with $2.4bn in 2005. Perhaps even more remarkable is that the number of private equity investments in the wider Mena region has increased by a compound annual growth rate of 107pc since 1998 – and 92pc of the investments were made from 2005 onwards.

“The move away from hydrocarbons to a fully diversified economy presents perhaps the biggest challenge to the GCC as a whole,” said Ithmar Capital co-founder and managing partner Khaldoun Haj Hasan.

“The future of the region may depend on a radical and substantial engagement between investors and GCC economies. GCC economies will need to actively examine the benefits private equity and venture capital brings, whilst investors must respond to such unique and important opportunities.” – TradeArabia News Service