Jordan: Venturing for SMEs

Amidst a slowdown in the Middle East’s private equity industry, Jordan’s small and medium-sized enterprises (SMEs) are set to get a boost from a new private equity fund.

Aimed at facilitating investment in new businesses, the fund will enable SMEs to access liquidity from a new source, a vital step as finance coming from traditional means – specifically banks – remains one of the biggest obstacles to business expansion and job creation in the country.

In an October 24 press release following the World Economic Forum’s Special Meeting on Economic Growth and Job Creation in the Arab World, the Jordan Enterprise Development Corporation (JEDCO), the European Investment Bank (EIB) and Abraaj Capital unveiled the details of the fund.

The $50m Jordan Growth Capital Fund will provide long-term financing and institutional support to up to 15 SMEs with high potential in fast-growth sectors such as technology.

JEDCO, EIB and Abraaj Capital will serve to anchor investors in the fund, which will be managed by an Amman-based team supported by the Riyada Enterprise Development (RED) platform, itself part of the Dubai-based Abraaj Capital Group’s $500m SME investment scheme.

“The Jordan Growth Capital Fund is the first venture capital fund targeting SMEs in the Kingdom,” said Eng. Yarub Qudah, the CEO of JEDCO. “This initiative will play a major role in attracting international venture capital funds and foreign direct investors to invest in Jordanian SMEs. In addition, it will help in encouraging Jordanians to establish their own venture capital funds that will create a new sector specialised in fund management activities.”

JEDCO, in partnership with the EIB, spearheaded the Jordan Growth Capital Fund initiative in order to foster the development of the venture capital industry in the kingdom. Abraaj Capital, which is investing $20m in the fund, was also awarded the contract to manage it.

As the government’s national development and export promotion organisation, JEDCO helps Jordanian companies compete globally by fostering export opportunities in targeted regional and international markets. It also helps to enhance technical, logistic and administrative expertise.

“The fund is expected to make a key contribution to the emergence of the risk capital industry in Jordan with its talent pool and entrepreneurial energy,” Philippe de Fontaine Vive Curtaz, EIB’s vice-president, told reporters. “The successful launch of this fund is the result of over two years of close cooperation between EIB and JEDCO, and it sends a significant message to the market across the region.”

The EIB, via its financial arm in the Mediterranean, the Facility for Euro-Mediterranean Investment and Partnership, provides support for economic and social development in the Mediterranean region.

The EIB’s involvement in the Jordan project is part of the bank’s annual €2bn investment in the region, where it is planning to accelerate its investment in Jordan as well as Morocco, Tunisia and Egypt. As of the end of 2010, the EIB had made overall investments of more than €12bn in Mediterranean countries.

In addition to RED, Abraaj Capital group, a private equity manager, oversees more than $6bn in assets in the Middle East, Turkey, Asia and Africa.

“SMEs are the engine of the region’s future economic growth and a vital source of social and economic stability,” Mustafa Abdel Wadood, the CEO of Abraaj Capital, said. “Addressing the region’s employment challenge and fostering the growth of entrepreneurship clearly go hand in hand.”

Abraaj has been helping to address these challenges in Jordan since 2002, when it bought into logistics company Aramex. Five years later, in 2007, the company realised a 75% return from the sale to Yahoo! of its stake in Maktoob.com, an Arabic-language website.

“We like Jordan as an investment destination,” said Tom Speechley, a senior partner at Abraaj Capital, at the launch. “We think it’s very entrepreneurial… This will involve Jordanian investment managers investing in Jordanian entrepreneurs.”

RED also offers strategic support to SMEs, including assistance in gaining access to new markets and building and maintaining appropriate human resources and business practices.

In September, RED invested in Jordan’s d1g.com, one of the fastest-growing Arabic social media and content sharing platforms in the Middle East and North Africa region. With 1m subscribers and more than 4.8m unique visitors per month, d1g.com offers its target audience – Arab youth aged 12 to 25 – Arabic-language discussion forums and video and audio sharing, as well as entertainment content.

“It’s the best investment climate we’ve seen in our region in terms of pure investment opportunity, strong macroeconomic fundamentals and very little competing capital, meaning that asset prices are not in any way inflated,” Speechley said of Jordan. “Despite the political turmoil, especially in the SME range, businesses continue to grow to serve the needs of the local market.”

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