The Middle East is emerging as a hotbed for fintech innovation and initial public offerings. According to UBS’ “TechGPT Compendium,” the region’s digital economy, currently valued at $180 billion (4.1% of gross domestic product), is projected to surge to $780 billion by 2030, representing 13.4% of GDP. The anticipated growth rate of 20% per annum dwarfs the global average of 10%.
At the forefront of this digital surge is the fintech sector. In 2023 alone, fintech ventures in the Middle East and North Africa region attracted $1.4 billion in venture funding. McKinsey & Company predicts that the regional fintech segment’s revenues could triple between 2022 and 2025, potentially reaching $4.5 billion.
Parallel to the fintech explosion, the Middle East is experiencing an unprecedented IPO boom. During 2022-23, Middle Eastern stock markets welcomed 99 IPOs, collectively raising approximately $33 billion. This flurry of activity is particularly noteworthy given the global slowdown in IPO markets.
As more companies eye public listings, the need for flexible financing options is likely to increase, particularly with a decline in traditional financing in what is still an environment of relatively high interest rates. Specialty financing firms like EquitiesFirst, which provides immediate capital financed against equity holdings, could step in to play a role for shareholders in post-IPO firms looking for near-term financing to fuel development in the fast-growing Middle Eastern tech sector ahead of interest rate cuts.
IPOs on the Horizon
Industry experts are optimistic about the outlook for Middle East and North Africa region IPOs in 2024.
“Maybe the difference between 2023 and 2024 is that in 2024, we expect to see more private companies come to market, including in the United Arab Emirates,” said Christian Cabanne, Bank of America Corp.’s head of equity capital markets in Central and Eastern Europe, the Middle East and Africa, in a recent Bloomberg interview.
Several companies are already preparing for potential listings. Saudi low-cost carrier Flynas has hired banks for its potential offering, while supermarket chain Spinneys Dubai LLC and shisha (flavored tobacco) brand owner Advanced Inhalation Rituals are also eyeing public markets.
Tech listings have been relatively scarce so far, but this could be set to change. The IPO of Saudi fintech firm Rasan Information Technology in May 2024 may herald a new wave of fintech public offerings. Rasan, which provides fintech and insurance-tech services, serves more than 7.5 million customers in Saudi Arabia, demonstrating the scale that regional fintech companies can achieve. Startups like e-commerce firm Floward and buy-now-pay-later company Tabby are also considering listings.
The strong performance of recent IPOs in the region is likely to keep investor interest high. The average gain for IPOs raising at least $100 million has been almost 40%.
The Fintech Landscape
Within the Middle East fintech sector, digital payments have emerged as the dominant trend. The COVID-19 pandemic accelerated adoption, with noncash payments in the UAE rising from 39% in 2018 to 73% in 2023. This shift has been further supported by government initiatives, such as Saudi Arabia’s Vision 2030 policy, which targets 70% cashless payments by 2025, and the UAE’s efforts to link regional payment systems.
While cash transactions remain prevalent in much of the Middle East, consumers have expressed a strong appetite for the digital wallets and contactless payments that are increasingly favored throughout the world.
This demand is reflected in Forbes Middle East’s Fintech 50 list, which is dominated by payment companies.
Digital banking represents the second-largest category in the region’s fintech landscape, albeit with significant room for growth. While 60% of U.S. consumers use digital banking, only 17% of consumers in the Middle East do, a low market penetration rate that suggests substantial potential for expansion in the coming years.
Leading the charge in this space is UAE-based Wio Bank, which tops Forbes Middle East’s Fintech 50 list. Wio Bank launched its first digital banking application in 2022. Egypt’s Fawry, ranked second on the list, provides e-payments and digital finance solutions to over 52.7 million customers.
For fintech companies looking to expand in the region, the United Arab Emirates is emerging as a preferred base of operations, offering a supportive regulatory regime, low taxes, and well-developed infrastructure. Moreover, its strategic location allows it to serve as a gateway to the broader Middle East market.
The UAE’s appeal extends beyond regional players. Some startup founders report success in attracting tech workers from as far afield as California, often at slightly lower pretax salaries.
Fueling Growth With Equities-Based Financing
Despite the growth potential in the Middle East, fintechs could still face challenges in accessing funding to fuel development in the near term after they go public. While analysts expect interest rates to decrease over time, they remain relatively high at present. As such, traditional lending avenues may not be ideal for companies looking to fund more immediate expansion. However, this situation may create opportunities for alternative financing methods to play a crucial role in sustaining the region’s fintech momentum.
EquitiesFirst’s financing model, which allows shareholders in listed companies to access capital while retaining long-term exposure to their equity, could be particularly attractive to fintech startups looking to scale rapidly without diluting ownership or taking on traditional debt following their IPO.
The firm’s “Progressive Capital” approach offers a novel way for companies to access liquidity. EquitiesFirst provides capital in exchange for temporary custody of publicly traded equity assets.
Shareholders in newly public companies could use EquitiesFirst’s services to gain immediate liquidity while maintaining the possibility of long-term upside. In a fast-growing Middle East tech sector, it could pay to have access to the capital to invest in growing a young business in the near term while retaining exposure to its long-term potential.
