As organizations across the MEA region increasingly embrace digitalization strategies and rapidly shift toward cloud migration, we will inevitably see an expansion of the threat surface area. The region has already witnessed exponential growth in threats such as DDoS attacks, phishing, and ransomware, resulting in the implementation of strict regulatory compliance measures across many countries and greater awareness around the need for organizations to improve their security postures. This will drive strong demand for security solutions over the next few years until the situation stabilizes.
The financial rollercoaster has investors reeling: is the “great rebalancing” here?
Jul 24, 2023
Abhishek Datta is the associate vice president at the Continental Group, an insurance intermediary and financial services solution provider in the GCC.
The year 2022 was difficult for even the most savvy investors. It was marked by a confused mixture of market forces, policy moves by Central Banks, and, to some extent, the hangover of the easy-money regime that prevailed over the last decade.
Across the developing world, both bonds and stocks witnessed a significant downturn. That upended the conventional 60:40 portfolio intended to reduce volatility and protect portfolio values. In fact, even gold, despite its time-tested hedging capability, did not appreciate as anticipated in the calendar year.
The zero-interest regime, coupled with quantitative easing, undertaken to alleviate the economic fallout from the pandemic, unleashed a financial rollercoaster. The subsequent uneven rebound in economic activity gave rise to inflationary pressures, which necessitated interest rate hikes. As a result, some stocks that had thus far witnessed stratospheric growth due to low rates nosedived quickly. Throughout 2022, successive interest rate hikes and tightening money supply had a negative impact on stock market returns.
Factors like “sticky inflation”, followed by one of the fastest interest rate hikes, reverberated through the markets. Generally, high rates discourage individuals and institutions from borrowing to scale and grow their ventures, eventually leading to slower economic growth. However, the impact isn’t uniform across the board. Strategic dollar-cost averaging has still made investing in markets attractive in the long term. Meanwhile, this unprecedented phase, punctuated by shifting geopolitical winds, has been positive for several GCC countries.
War and its zero-sum economics
The fragile state of a globalised economic world was highlighted by the Russian invasion of Ukraine. Initially, the knock-on impact was on the energy and food sectors, as critical supply lines were disrupted. The deficit snowballed into retail inflation, with costs passing on to customers. The retail inflation in the UAE verged on about 5 per cent in 2022. If anything, such cascade effects reinforced the need for alternative sources and diversification.
Though the Russia-Ukraine conflict gave investors exposed to the energy sector a windfall (S&P 500’s top performer of 2022 with a 58 per cent year-on-year spike), it came at the expense of many others. The war had a strange impact on many economies reeling from uncontrolled inflation — such as Turkey, where Borsa Istanbul gained 103 per cent in dollars fuelled by local investors pumping money into equities in search of returns and companies boosting their profits despite the economic hardships.
Crypto crumbles in times of crisis
Blockchain-based virtual currencies, dubbed “digital gold” for their hedging capability by virtue of induced scarcity, exposed their structural flaws in 2022. Years of meteoric growth, fuelled by inherent qualities such as immutable ledger and transactability, came crashing down as the noose of "red tape" began to tighten globally. Safe to say that, with the downfall of reputable exchanges such as FTX, cryptocurrencies have a long and bumpy road to resurgence.
Financial rebalancing impacting startup investments
Even the startup scene has not been unaffected by market developments. Startups have seen markdowns across the board in their valuations. For example, valuations in the Indian startup scene have declined, with serious markdowns for darlings like Byju's, PharmEasy, Oyo, and Ola, to name a few. Keeping up with excessive cash burn in a significantly higher-interest-rate regime during an economic slowdown is proving to be difficult for a lot of them.
The Softbank group lost about $32 billion in its Vision funds for the year ending March 2023. It is planning layoffs of about 30 per cent of the staff as fresh fund flows dropped to about 10 per cent compared to last year. However, there is still interest in investments in the AI space, with Softbank keen on deploying capital into Generative AI. Layoffs are the new normal for tech firms. According to consulting firm Challenger, Gray & Christmas Inc., the tech industry announced job cuts of 97,171 employees in 2022, which is the highest since the dot-com crash.
The startup funding situation in the Middle East and North Africa, too, has been par for the course. Mena startups recorded $919 million in equity financing from January–May 2023. The corresponding figure for 2022 stood at $1.45 billion according to Wamda. The number of deals, too, reduced significantly year-on-year, from 378 to 181 in 2023. The considerable shortfall is consistent with the ongoing “funding winter” globally.
Whims of asset classes in 2022
The New York Times, at the tail-end of 2022, published an article titled ‘Chamath Palihapitiya, the “SPAC King”, is over it’. It signalled the nadir of the SPAC market after rising interest rates rendered the practice of blank-check companies showing faux profits untenable. Needless to say, many sponsors of SPAC companies raked in significant returns during the peak pandemic, just as many lost their capital to short squeezing in 2022. Likewise, the ESG segment, which saw an upturn following the heightened awareness of sustainability in 2021, witnessed a lull as investments plunged by 76 per cent globally. The purported risk-mitigation element of ESG funds was thus called into question.
A defining moment in the financial markets in 2022 was the bursting of the “meme stock” bubble. The frenzy, which had culminated in the creation of a dedicated “meme stock” index in the yesteryear, died down as many ETFs tracking a basket of such stocks plummeted noticeably through 2022 with each passing interest-rate hike. For investors, it was a reality check on structural vulnerabilities and the sustainability of speculative assets. Both equity and fixed-income ETFs saw a muted performance but showed glimpses of promise, especially in nascent markets such as the Middle East.
All in all, the year 2022 offered investors a steep learning curve. It underscored how geopolitical faultlines have a direct bearing on ROI while reinforcing the need to balance externalities such as deglobalisation and the energy crisis with financial fundamentals. In other words, it upheld the rebalancing imperative in investments, echoing how strategic exposure to different asset classes and geographies is a prerequisite to wealth preservation and management.
From the Middle East and Africa’s standpoint, the year 2022 was about maximising the virtues of geopolitical non-partisanship by negotiating favourable terms in trade deals linked to domestic prices and inflation. At a time when financial markets are highly sensitive to geopolitical winds, MEA benefitted significantly by resisting the urge to cosy up to certain “blocs”. Such foundations will allow regional investors to build failure-proof portfolios in the times to come.
Tags
Share
Advertise here, Be the LEADER
Advertise Now
Latest Experts Thoughts
Who is the hustler entrepreneur?
Shaimaa Ibrahim
Hustler entrepreneurs are willing to work hard and put in a constant effort more than innovative entrepreneurs. They often start small and work towards growing a bigger business with hard work rather than capital, unlike innovative entrepreneurs.
This type of entrepreneurs usually studies all project-related factors including the investments, the project’s resources, and the risks they might face throughout their journey toward achieving all planned objectives.
Characteristics of hustler entrepreneurs
Hustler entrepreneurs are fond of unlocking opportunities to grow and broaden existing ideas; they work hard to create such opportunities rather than waiting for them.
A hustler entrepreneur is an enthusiastic business-oriented individual who is always prepared and dutiful and never lacks self-discipline or follow-through. Hustler entrepreneurs tend to be very focused and will get rid of all forms of distractions, favoring risks over short-term comfort.
Failure is not an option for hustler entrepreneurs. They always go for their goals to grow their projects even though it takes a long time to realize their ambitions, unlike other entrepreneurs
Advantages of being a hustler entrepreneur:
- Diligence and constant hard work
- Dedication and commitment
- Facing risks boldly
Disadvantages of being a hustler entrepreneur
Hustler entrepreneurs just work harder and are willing to get their hands dirty; they often do not see the value of raising capital opposite to working harder.
Translation: Noha Gad
How angel investors foster startups?
Shaimaa Ibrahim
Startups depend on various sources to secure the necessary funding for their businesses, notably the angel investors who play a crucial role in the startup ecosystem.
An angel investor is an individual who provides funding for startups at a very early stage, once or in a consecutive manner, in exchange for equity or ownership in the company.
Along with the financial backing, angel investors often provide mentorship and support entrepreneurs to grow their startups.
What angel investors provide for startups?
Angel investors can support startups in different ways, including:
- Securing funding to grow.
- Providing necessary support, expertise, and consultancies about business management.
- Helping entrepreneurs make decisions to enhance their competitiveness.
- Unlocking cooperation opportunities with potential partners and reaching new customers.
- Enhancing the startup’s credibility to attract potential investors and partners.
Types of angel investors
There are several types of angel investors who foster entrepreneurs, notably:
- Family and friends: Many entrepreneurs first turn to their family and friends when seeking funding for their business; however, this type does not provide entrepreneurs with the expertise they need to get off the ground.
- The Domain Angel: investors in this category are usually operating executives who have spent their entire careers in a specific industry or sector.
- The Angel Investor Group: this category comprises individuals who provide support for small startups or entrepreneurs.
- The Fellow-Entrepreneur Angel: this type includes entrepreneurs who provide funding for other junior entrepreneurs.
- The True Believer Angel: this type includes investors who hear a startup’s story, instantly believe, and want to immediately invest in spite of the financial risks.
Translation: Noha Gad
The future of P2P companies in KSA
Shaimaa Ibrahim
What is Peer-to-Peer Lending?
Peer-to-peer lending (P2P lending), as a significant component of the FinTech sector, is quickly becoming the most popular alternative investment option. P2P lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. P2P lending is also known as “social lending” or “crowd lending.”
P2P lending websites connect borrowers directly to lenders. Each website sets the rates and the terms and enables the transaction. Most sites have a wide range of interest rates based on the creditworthiness of the applicant. P2P services are less expensive than traditional banking institutions. As a result, lenders might earn higher returns than investors and savers offered by banks and other institutions.
Some sites specialize in particular types of borrowers. Funding Circle, for example, focuses on small businesses, while Lending Club has a “Patient Solutions” category that links doctors who offer financing programs with prospective patients.
In 2022, the total value of global P2P lending market reached $134.35 billion, according to data published by SNS Insider. This figure is expected to reach $708.8 billion by the end of 2030.
P2P Lending market in Saudi Arabia
In Saudi Arabia, P2P lending market is flourishing because growing technologically advanced P2P segment with added transparency over traditional banking system, affordable operating cost & low material risk, and increasing modernization of digital technologies in the BFSI sector. The kingdom’s P2P lending market size is expected to grow at a Robust CAGR of 30.45% reaching a value of $27.96 billion by 2029, according to a recent report by BlueWave Consulting.
Major growth factors of Saudi Arabia peer-to-peer lending market include Increasing technologically advanced with added transparency over traditional banking system, lesser operating cost & low material risk and growing modernization of digital technologies in the BFSI sector. Due to banks' rigorous credit rules, the money lending system is in high demand from small and medium-sized organizations (SMEs) and consumers. This drives users to P2P lending sites, which have comparatively speedier credit approval. Also, the implementation of digitalization in the banking sector increases transparency over traditional banking systems, which is projected to boost market growth.
However, P2P lending is one of Saudi Arabia's fastest growing fintech platforms. The tremendous rise of the financial sectors has attracted an increasing number of investors to this region. Banks and corporations that have previously avoided investing in Fintech are now doing so.
When compared to the traditional approach, peer-to-peer lending services are more transparent and less expensive. Thus, all these aspects are expected to boost the expansion of the overall market during the period in analysis. However, risks associated with credit and lending are anticipated to restrain market growth.
Categories of P2P lending market in Saudi Arabia
Based on loan type, Saudi Arabia’s P2P lending market is divided into Consumer Credit Loans, Small Business Loans, Students Loans, and Real Estate Loans segments. The small business loans segment held the highest market share, and the trend is expected to continue in the following years. P2P lending platforms can be an excellent source of small company loans, especially for companies that do not qualify for regular bank or financial institution financing, as they usually have softer lending rules than traditional lenders and may be able to provide credit to small firms at cheaper interest rates.
However, during the forecast period between 2023 and 2029, the size of Saudi Arabia P2P lending market is projected to grow at a CAGR of 30.45% reaching a value of $27.96 billion by 2029, according to a recent report by BlueWave Consulting. Major growth drivers for Saudi Arabia P2P lending market include Increasing technologically advanced with added transparency over traditional banking system, lesser operating cost & low material risk and growing modernization of digital technologies in the BFSI sector.
Further, ongoing Saudi Vision 2030 promotes the digitization process to achieve higher efficiency and performance in different industry verticals. The rapid adoption of digitization by the BFSI industry fastens the process of loan lending and is easier than the traditional method. High-end investments by the major players to upgrade the existing infrastructure of the Digital Lending platform and coupled with higher adoption of advanced technologies such as artificial intelligence, machine learning, cloud computing is expected to benefit the growth of the Digital Lending market in the next five years.
Saudi P2P lending market top players
Saudi Arabia’s major players operating P2P lending market include Tabby, Lendo, Raqamyah, Tammwel, Forus, Abdul Latif Jameel United Finance, Tamam, and Raya Financing Company. These companies adopt various strategies, including mergers and acquisitions, partnerships, joint ventures, license agreements, and new product launches, for the sake of enhancing their market share.
The Saudi market has several platforms to have a vital role in empowering SMEs across the kingdom through facilitating loans for SMEs. These platforms include Raqamyah, Forus, and Lendo.
As for Raqamyah, it uses innovative technology to connect small businesses seeking fast, affordable finance with lenders who could help fund their growth. By lending directly to businesses through Raqamyah, lenders earn attractive returns while businesses get fast, easy access to funding at competitive rates to grow, create jobs, and drive the economy forward.
On the other hand, Forus is a crowdfunding platform that bridges the gap between finance and SMEs, helping small businesses access the capital they need to grow and thrive. The platform enables borrowers to showcase their business potential and attract investment from individuals and institutions looking to support promising ventures.
The last platform is Lendo, a shariah-compliant P2P digital lending marketplace. The platform helps pre-finance outstanding invoices for businesses in the kingdom via offering a variety of financing products for SMEs with an initial focus towards pre-invoicing finance.
TFC Enters USD-Agreements For Egyptian Women (Testing)
Signed during the fourth meeting of the Technical Coordination Committee AfTIAS 2.0, the first partnership agreement aims to support Egyptian women in international trade in the agro-food industries and handicrafts sectors, while the second agreement promotes the traditional Palestinian craft industries.
Hello world
- Hy
- BYe
- Test
- World
- Expert thoughts
- Bullets test
- Numbers test
- next line test
Test is over.