Page 243 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

Capable Capital: The GCC as a Source of Capital 225

The Gulf’s enthusiasm for private equity is, in some ways, a reflec-
tion of a global trend toward this asset class witnessed worldwide.
It is also, however, a sign of the increased sophistication of GCC
investors and of their tolerance for the risks associated with private-
equity investment.
Unlike in previous booms, government and government-
linked institutions now place private-sector development at the
core of their investment strategy. This shift in emphasis is exhibited
in three ways. One is the development of “soft” infrastructure—
such as the UAE’s free zones, King Abdullah Economic City in
Saudi Arabia, and Bahrain’s Financial Harbor—designed to stimu-
late the private sector and jump-start local entrepreneurial ven-
tures. These ventures reflect governments’ objective of providing
the private sector all the tools it needs to drive economic diversifi-
cation and growth and to make the economies more competitive. A
second mechanism of private-sector development has been the pri-
vatization of state enterprises. One high-profile privatization was
the listing of shares in Etisalat, long the UAE’s monopoly telecom
provider. Etisalat has since gone on to acquire or launch services in
other markets, including a wireless carrier in Saudi Arabia and a
stake in Pakistan’s formerly state-owned telecom company.
Insiders view such privatizations as a mechanism by means of
which the state can share the wealth created by economic growth
while at the same time making companies more efficient and mar-
ket oriented. A third, and similar, mechanism is state coinvestment
in companies floated on exchanges or otherwise made available to
private shareholders. Two examples of this are Abu Dhabi’s real
estate firm Al Dar and air-conditioning company Tabreed—both
publicly listed companies in which the state-owned Mubadala
keeps a small minority stake. The signal sent by such ventures is
that the government will support new enterprises but wants the
private sector to drive them forward.
A final—yet crucial—difference between today’s investment
approach and that of the past concerns the way investment man-
agement expertise is utilized. In the past, Gulf institutions were
more passive investors who channeled funds to investment man-
agers in New York or London and “managed the managers” from
afar. Over the years, however, GCC institutions have taken a much
more active role and have increasingly brought expertise in-house.