Reflections on a Winding Road to EM Private Equity

In late 2005, I would arrive at the office early and catch up on the latest news of sectarian violence in Iraq.  It made for gruesome reading—bodies discovered in vacant houses, tied to chairs with clear evidence of torture.  A favorite tool seemed to be power drills, which were used on knees, ankles, heads.

There were suspicions that Iraq’s interior minister—Bayan Jabr—was at least partially responsible, and that members of the National Police force that he oversaw were effectively operating as Shia death squads, exacting vendettas against Sunnis and former elements of Saddam Hussein’s regime.  The sectarian violence seemed to be increasing until February 2006, when militants bombed one of Shia Islam’s holiest sites, the Golden Mosque in Samarra, kicking off an orgiastic spate of bloodletting that brought Iraq to the precipice of a full-blown civil war.

At the time, I was the youngest member of an interagency team working with senior civilian and military commanders in Baghdad and Kabul on interior ministry and police reform.  U.S. policymakers had dubbed 2006 the “Year of the Police,” but as the year passed by, the results trickled in; and I grew increasingly skeptical about the ability of the United States to effect positive and enduring change in Iraq.  Moreover, when viewed in a broader perspective of state-building, counterterrorism and U.S. national security objectives, I became convinced that the only viable long-term solution was to drive investment into the region, create jobs and, over time, generate licit opportunities for people to feed their families.

So, it was off to grad school to study economics and finance, where I serendipitously learned about something called private equity and how it could drive private sector development in emerging markets.  Unlike in developed markets (e.g., Australia, Europe and the United States), where “private equity” often is synonymous with “leveraged buyouts,” in developing countries, private equity can play a critical role by providing long-term growth capital to companies that are locked out of local bank lending / capital markets, and by sharing management expertise and enhanced corporate governance practices with local entrepreneurs.  And so working with this industry is how I’ve spent most of my time since grad school.

This week, the experiences of the last decade came full circle as my teammates and I released a report on private equity in the Middle East and North Africa.  In spite of all of the terrible news over the last five years, nearly 300 companies in the region have received private equity investment, with a median ticket size of ~ $12.5 million.  While it’s still a small amount of activity relative to other markets—be they developed or developing—these are tangible manifestations of growth, and they hold the promise of contributing to greater stability over the long term.

It’s frequently said that in the Middle East, perceptions are reality.  I hope this report demonstrates that there is a sizable gap between global perceptions and local commercial realities.  I hope investors will possess enough variant perception to identify this arbitrage opportunity, and participate in building a more promising future for the region.  Doing so could pay dividends in more ways than one.

2 thoughts on “Reflections on a Winding Road to EM Private Equity

  1. Mike, as always penetrating insights. I only hope you are right, but with developments in Yemen, the Shia v Suni schism seems to be growing ever wider and more violent. …joe

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