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Sandeep Ganediwalla is a partner at Redseer Strategy Consultants, responsible for the Middle East and Africa practice
The Middle East and North Africa (Mena) region is characterized by a dynamic and digitally developed population. Its internet penetration exceeds 60%, backed by supportive macro infrastructure and strong enablers, stimulating the growth of scalable new ventures in the digital space. The past two years have been important for public markets in the Middle East and North Africa, with many companies choosing the initial public offering (IPO) route, including some well-known brands. There may be a slight slowdown in 2023 given the global macro environment. However, with a mature startup ecosystem supported by favorable policies and investor confidence, the coming years will see more unicorns and “emerging unicorns” emerge in the region, many of which will have already been established by the end of this decade. Ripe for an IPO.
The digital economy in the Middle East and North Africa region is expected to cross the $500 billion milestone by 2030
The growth process of the digital economy in the Middle East and North Africa can be divided into three stages. The first stage is the “growth period” from 2016 to 2019. Tech-savvy Generation Y and affluent consumers are the earliest adopters of the digital economy. Strong internet penetration and educated customers are also driving digital trends, prompting e-commerce or “e-retail” players to enter the digital space.
2019 to 2022 is the “disruption phase” as the Covid-19 pandemic requires mass adoption of e-commerce and most new customers are tech-savvy. Players in online grocery, food delivery and other fast commerce segments have experienced a period of sharp growth as a result of the surge in demand for door-to-door delivery of essential goods.
The period from 2022 to 2027 will be the “acceleration phase” of the digital economy in the Middle East and North Africa. The post-pandemic years have spurred a diversification of growth, with emerging industries such as health tech, edtech and fintech scaling up to meet consumer demand. In addition, continued government support for the region through regulatory measures will continue to drive economic growth, with many developments coming from inland areas. The digital economy has a compound annual growth rate of 22% and is expected to exceed US$500 billion by 2030.
Continued growth will spawn approximately 350 unicorns and unicorn companies
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Millions of people in the MENA region now have access to digital services via smartphones and tablets, allowing them to take full advantage of the benefits of the digital economy. While the pandemic has given a major boost to global digital adoption, Mena has received an even stronger boost. As consumers embrace digital pathways across industries, technology companies in the region are capitalizing on the digital wave to unlock new opportunities.
The growing consumer market will not only spawn new startups but also drive profitability for existing players across all market segments, setting the stage for the emergence of many unicorns and hyperunicorns. Among all digital industries, e-commerce and fintech are expected to take the lead, accounting for 50% of the total number of new startups reaching “unicorn” status. With e-tailing becoming the main driver of retail growth in the region, fintech is an enabler of the digital economy. Together with several other players, these 300+ startups could create a strong pipeline of IPOs in the region by 2030.
By 2030, more than 30 conglomerates will have mature assets ready for IPO
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Mena’s conglomerate has incubated many digital startups. We expect that over the next few years, many of these startups will mature enough to conduct IPOs. These prominent omni-channel players with online and offline businesses have lucrative opportunities to unlock value through their digital assets. While most of these conglomerates are profitable, creating high-growth investments in digital assets will only allow them to unlock incredible value and drive growth.
Regulatory reforms boost public markets in MENA
While regulations vary by country, measure and development Play a role in all MENA markets, establishing itself as a significant factor in global equity markets and enhancing the investor experience.
For example, the governments of the GCC, UAE and Saudi Arabian economies are committed to increasing the depth of local public markets through listing public entities (SALIK, DEWA) and are creating enabling frameworks for private sector listings.
Some noteworthy reforms in the MENA region include:
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In 2020, the UAE Securities and Commodities Authority (SCA) issued regulations allowing companies in UAE free zones to conduct public offerings.
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Saudi Arabia has lowered the assets under management (AUM) threshold from $1 billion to $500 million for potential investors looking to enter the Saudi market.
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Saudi Arabia’s Tadawul also revised the volatility limit mechanism for newly listed stocks in the first three days of trading from 10% to 30%.
Preparing for an IPO requires a thoughtful, goals-based approach
Getting ready for an IPO requires a long-term, goal-based and immediate approach, with a focus on the right aspects. At the core of the process is goal definition, tracking metrics on the fly, problem solving to close gaps and improvements, and documenting the DRHP or quote document throughout the process. Maintain market leadership, clearly visible total addressable market, attractive valuation, MOATS/multiple use cases, diversification, consumer love, predictable revenue, high operating leverage, achieve sustainable unit economics, and clear Attention to aspects such as profit paths is also crucial.
Finally, it is critical to build ecosystem relationships early by building rapport with investors and maintaining open lines of communication that emphasize transparency and corporate governance. Strengthening CFO involvement and investor relations can also go a long way in leading the IPO process.
Mena has a lot of untapped potential in the technology sector; this alone will be critical to the approximately 100 IPOs expected this decade. The region has a unique digital economy landscape, in which the region’s largest conglomerates such as Apparel Group, Landmark Group, Al Tayer Group of Companies, Mashreq and Saudi Telecommunications Company (STC) have created innovative digital assets by 2030 These assets are ripe for IPOs in 2018. Overall, while the MENA region’s IPO market is still relatively small compared to other global markets, it has been growing in recent years and is likely to continue to attract companies and companies in the coming years. investors’ attention.
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