How Middle East Stock Markets can Empower the Region's Tech Moment
The Middle East is entering a tech moment. Startup formation is rising, venture funding exceeded $1 billion in 2020, and with Uber’s $3.1 billion acquisition of UAE mobility startup, Careem - the region is seeing high profile exits.
Despite this, the Middle East’s stock markets are not where they need to be to support the next level of digital innovation. The UAE, Saudi Arabia and Egypt are innovation hotspots and - according to data platform, MAGNITT - accounted for 68% of VC deals in the region last year, but their respective stock exchanges still need to make the step up.
These bourses need to ease the listing process for startups and tech-enabled businesses and increase access to capital at the time of IPO.
The small number of listings in the MENA region, especially in the tech sector, means the case for improvement is clear. In 2019, there were only 19 IPOs for the entire MENA region, with almost half on the Tel Aviv Stock Exchange alone. There have been some highlights within the FinTech sector, such as the listing of Egyptian-based Fawry, and the UAE-based Network International. However, Fawry only decided to list locally on the Egyptian Stock Exchange, and Network International chose the London Stock Exchange.
To encourage more startups and tech-enabled businesses to IPO, Middle Eastern bourses should review and revise their listing structures. There are three core areas the Egyptian, Saudi and UAE stock exchanges should improve: restrictive profitability requirements, fee structures, and liquidity levels.
Firstly, profitability requirements. Currently, the Dubai Financial Market requires two years of profits before it accepts applications for companies to go public. This does not cater for young, agile, asset-light, technology ventures.
In other markets, such as the US - which has launched numerous successful startups - investors focus more on a company’s demonstrated revenues as a characteristic of strong IPO candidates. For many pre-profit startups, the ability to list is often the crucial step to raising the capital required, to finally attain profitability.
Secondly, high transaction and complex listing fee structures should be reviewed and restructured. In 2019, the Egyptian Stock Exchange took promising steps by reviewing and reducing listing fees, but much remains to be done to scale down listing costs for startups.
Thirdly, liquidity. The Egyptian, Saudi and UAE stock exchanges should create targeted campaigns to encourage institutional and retail investors across the region, to back tech and tech-enabled companies on their platforms. One particular segment to target is the hundreds of family offices throughout the Middle East worth over $1 billion.
Whilst many of these offices were built on the real-estate, infrastructure, and commodities sectors, they could look to profit by boosting the region’s tech movement. Interest in the tech sector is already apparent. A 2020 report by Intertrust on Middle Eastern family offices revealed that accessing tech-enabled financial solutions was a priority of 53% of those surveyed.
Fawry’s 2019 IPO also showed the inherent enthusiasm for tech stocks; it was 30 times oversubscribed.
There are many benefits in revamping the region’s top stock exchanges to meet the tech sector’s needs. These three steps would enhance the digitization and productivity of the region’s economies, help entrepreneurs and their ventures gain critical liquidity, and increase startups’ ability to raise capital.
One only has to glance at the neighboring tech scene in Africa – which recently surpassed $1 billion in annual startup venture capital – to find companies listing or looking to list abroad. Pan-African e-commerce unicorn, Jumia, went public on the New York Stock Exchange in 2019. Mitchell Elegbe, CEO of NigerianFinTech unicorn, Interswitch, has indicated the company’s intention to list on an international exchange in the near future.
Revising listing requirements on the Egyptian, Saudi and UAE stock exchanges could pave the way for more homegrown IPOs and make the region an attractive destination for other emerging market tech standouts. The result would be more liquidity for local startups and entrepreneurs across multiple countries.
The region’s tech moment is upon us. It is time for the region’s exchanges to seize the day.