Private equity is flourishing in the Middle East and North Africa (MENA). A com-bination of favorable demographic trends and rising commodities prices have made for strong GDP growth driving a growing array of investment opportunities.

GDP growth estimates range from 3% to 14% for individual MENA economies in 2008, according to the International Monetary Fund (IMF). A consumer base in the region is emerging from rapidly growing populations, expected to swell by as much as 10% in the coming ten years. Deal flow has improved as second- and third-generation owners of family businesses increasingly consider external capital as part of succession strategies and as a source of expansion capital. Additionally, many MENA-based investors are opt-ing to diversify their portfolios away from traditional targets in Western countries, keeping more liquidity in their home markets. The amount of locally-generated petrodollar wealth destined for overseas dollar-linked instruments has fallen from 85 % to 75% over the last several years.

Fundraising TrendsThe MENA market has witnessed stellar growth in funds raised for private equity invest-ment in the region over the past five years, rising from US$680 million raised in 2003 to US$5 billion in 2007. In the first six months of 2008, MENA funds closed on US$1.14 bil-lion. Average fund sizes are growing too, rising from US$215 million in 2005 to US$265 million in 2007. In 2007 and 2008, the industry witnessed at least six regional funds

Region Snapshot

© 2008 Emerging Markets Private Equity Association 1

MENA Region Private Equity Funds Raised (2004 - 1H2008)

An Overview of Trends in Select Sectors and Markets August 2008MENA

2008 Population*: • 408.6 million†

Population Growth (2001-2007): • 13.1%

% of Population Under 15 Years-old: • 33.8%

2008 GDP*: • US$3,816.3 billion†

GDP Growth (2001-2007): • 28.9%

Proven Crude Oil Reserves: • 552.9 billion barrels

Source: International Monetary Fund.

† Estimates

* MENA defined as: Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Syria, Tuni-sia, UAE, and Yemen.

continued on page 2

Source: EMPEA.

0

1000

2000

3000

4000

5000

6000

1H 20082007200620052004

USD

Mill

ions

1,140

5,333

2,946

1,915

320

Middle East and North Africa

© 2008 Emerging Markets Private Equity Association 2

EMPEA Insight: MENA

launched with target sizes of US$1 billion or more, among them Investcorp’s US$1 billion Gulf Opportunity Fund I and Abraaj Capital’s US$2 billion Infrastructure and Growth Capital Fund—the biggest MENA fund raised to date.

Across the region, a number of funds are seeking pre-IPO and buyout opportunities; however the majority of vehicles, as op-posed to the majority of capital, are focused on growth and, to a lesser extent, venture capital. Approximately 50% of funds with vintages between 2006 and 2008 are focused on growth and venture, versus one-third of funds on buyouts. With transaction sizes averaging roughly US$20 million, and given the limited number of sizeable control deals available, funds focused on middle market growth transactions are expected to flourish as family-owned companies seek expansion capital to expand into other MENA markets.

Geographic Focus

The geographic profiles of regional funds are becoming more di-verse, as mandates and operations broaden to encompass Tur-key, South and Southeast Asia, and North Africa. Dubai-based Abraaj Capital has opened offices in Turkey and Egypt. Backed by the National Bank of Dubai Investment Bank, NBD Sana Cap-ital’s US$500 million maiden fund will be invested in telecom, life sciences and consumer companies across a wide swath of markets that include Turkey and India. Through its US$250 mil-lion Ummah Investment Fund, Venture Capital Bank of Bahrain is pursuing deals in sectors that will benefit from demographic trends in Malaysia and Saudi Arabia, such as food manufactur-ing and transportation. The National Investor’s flagship growth capital fund is targeting pre-IPO opportunities in the GCC, Le-vant, Pakistan and India. EFG-Hermes Holding, Egypt’s largest publicly traded investment bank and the parent of EFG Hermes Private Equity, has announced plans to grow private equity funds to US$4 billion over the next four years via regional expansion beyond North Africa.

Other fund managers are honing in on specific markets or sub-regions instead of taking an opportunistic MENA-wide approach. According to the Gulf Venture Capital Association (GVCA), region-al funds raised only 46% of capital in 2007 compared with 80% of capital raised through 2005.

In Pakistan, veteran venture capital firm TMT Ventures, invest-ing since 2002 from a technology incubator fund, launched a US$100 million SME-focused growth fund in 2007 in partner-ship with Small Enterprise Assistance Funds. More recent arriv-als have included Abraaj Capital, through a US$300 million joint

venture fund with local investment bank BMA, and the JS Group, with a US$200 million debut fund that drew commitments from World Bank’s International Finance Cooperation (IFC) and Glob-al Capital Management.

Still considered a private equity frontier, the Levant countries of Jordan, Syria and Lebanon play host to a small but growing number of dedicated funds. Looking to strengthen a toehold in the Levant after completing a number of deals from its maiden MENA fund, Dubai-based SHUAA Partners launched a dedicated Levant vehicle, the US$100 million Frontier Opportunities Fund I, in 2007. In Jordan, longtime investor Foursan Group, which began operations in the country in 2001, is currently raising its second fund, Foursan Capital Partners. Launched in 2005, Jor-dan Dubai Capital, a US$300 million vehicle backed by Dubai International Capital (DIC), is focused on investments in energy, tourism and real estate development. The Byblos Private Equity Fund, a US$20 million vehicle backed by the European Invest-ment Bank, launched in 2007 to focus on small and mid-sized enterprises in Lebanon, and opportunistically elsewhere in the Levant.

North African markets remain fragmented despite interest in greater economic integration—demonstrated by the French-led efforts to launch the Union for the Mediterranean in the summer of 2008. However, the roster of investors focused on North Af-rica is growing deeper. Tunis-based Tuninvest, investing in North Africa since 1994 and with US$350 million under management,

continued on page 3

EMPEA Insight

Editorial Director Jen Choi choij@empea.net

Writing and Research Alexander Adrian / adriana@empea.net; Sean Michaels / michaelss@empea.net; Harrison Moskowitz /moskow-itzh@empea.net

Production Manager Cristiane Nascimentonascimento@empea.net

Advertising OpportunitiesEMPEA Insight offers readers an overview of the data and drivers behind investment trends in emerging markets private equity. Each issue of EMPEA Insight provides an opportunity for a single exclusive back page advertisement. Issue-specific placements are on a first come, first served basis. For a list of upcoming issues and more information about advertising opportunities and rates, contact Cristiane Nascimento at nascimento@empea.net.

About EMPEAThe Emerging Markets Private Equity Association is a broad-based membership organization founded in 2004 that focus on the emerg-ing private equity markets of Africa, Asia, CEE, Russia/CIS, Latin America, and the Middle East.

August 2008

© 2008 Emerging Markets Private Equity Association 3

closed its Maghreb Private Equity Fund II at US$182 million in June, reputed to be the largest ever raised for SME investments in the Maghreb.1 Libya garnered its first two private equity funds in 2007, with the launch of debut funds from newly formed man-agers Libu Capital and Tuareg Capital.

Egypt has hosted some of MENA’s watershed deals in the last two years and is home to two of the region’s most established private equity teams. Investing in buyouts throughout MENA from its Cairo base since 2004, Citadel Capital is currently raising its first institutional vehicle, a US$500 million Joint Investment Fund, and recently established an Algerian subsidiary, with an-other in the works for Libya. Cairo-based EFG-Hermes Private Eq-uity added to its US$1 billion portfolio with the 2007 close of the US$555 million Horus III Fund, the largest fund raised to date for North Africa and more than triple the size of its predecessor. New funds in the market in Egypt include a US$150 million joint venture SME fund formed between France-based SIGEFI Private Equity and Cairo-based Beltone Private Equity, comprised of two sub-funds, a US$100 million sub-fund focused on Egypt and an-other US$50 million intended for the GCC region.

1 Morocco, Tunisia, Algeria.

Infrastructure-related investment required to support the re-gion’s rapid economic and population growth is estimated at as much as US$1.6 trillion, according to Merrill Lynch. The IMF forecasts that US$800 million of that will be spent in the next five years, with 75% earmarked for non-hydrocarbon projects. A number of sizeable funds have come to market in 2007 and 2008 to tap the region’s vast infrastructure opportunity, includ-ing Abraaj Capital’s US$2 billion Infrastructure Fund, as well as a US$500 million joint venture between Dubai International Capi-tal (DIC) and HSBC Bank, and a US$500 million fund launched by Millennium Private Equity in 2007. Most recently, UBS Asset Management and the Abu Dhabi Investment Company (ADIC) announced a US$500 million joint venture fund to make equity and quasi-equity investments in infrastructure-related sectors.

Sources of Capital

With more local investment opportunities available and Western-trained managers returning to the region, both international and local LPs have began to see the appeal of Middle East private equity. Among the LPs responding to EMPEA’s 2008 LP Survey, 35% percent expected to invest in Middle East funds in the next three to five years compared to 11% who presently do so.

Established buyout shops in the region are tapping domestic institutional investor interest by offering new MENA-focused products. For example, Investcorp, a longtime investor in assets outside the region, has recently launched its first fund focused on investments in the MENA region. BNP Paribas and The Car-lyle Group, long the recipients of MENA LP capital intended for investment abroad, are now raising funds targeting regional business opportunities.

Current vs. Projected EM Investment Strategy(2008 vs. 2013)

Source: EMPEA 2008 LP Survey.

continued on page 4

EMPEA Insight: MENAAugust 2008

Fund Name Assets estimated (US$ billions)

Abu Dhabi Investment Council (Abu Dhabi) 875

SAMA Foreign Holdings (Saudi Arabia) 300

Kuwait Investment Authority (Kuwait) 250

Qatar Investment Authority (Qatar) 60

Brunei Investment Agency (Brunei) 30

Kazakhstan National Fund (Kazakhstan) 21.5

Dubai International Capital (Dubai) 13

Oil Stabilisation Fund (Iran) 12.9

Istithmar World (Dubai) 12

Mubadala Development Company (Abu Dhabi)

10

Mumtalakat Holding Company (Bahrain) 10

Public Investment Fund (Saudi Arabia) 5.3

State General Reserve Fund (Oman) 2

RAK Investment Authority (UAE - Ras Al Khaimah)

1.2

Palestine Investment Fund (Palestine) 0.89

Investment Corporation of Dubai (Dubai) (n/a)

Emirates Investment (UAE - Federal) (n/a)

Libyan Arab Foreign Investment Company (Libya)

50

Revenue Regulation Fund (Algeria) 47

Libyan Investment Authority (Libya) 40

0%

10%

20%

30%

40%

50%

60%

AfricaMiddle East

% o

f Res

pond

ents

Inve

stin

g

Projected Strategy (3-5 Years)

Current Strategy

Sovereign Wealth Funds - Middle East

© 2008 Emerging Markets Private Equity Association 4

Additional advantages are available to firms in the Middle East, home to 20 of the world’s largest sovereign wealth funds (SWFs). According to the 2008 Norton Rose/EMPEA survey “Sovereign Wealth Funds and the Global Private Equity Land-scape,” 70% of PE firms surveyed expected an increasing amount of investment from SWFs—through co-investments on deals (41%), investing directly in fund management companies (13%), or via fund commitments (16%).

Investment TrendsMENA private equity investments have steadily grown, from US$140 million in 2004 to US$3.5 billion in 2007. Deal sizes in the region have risen significantly, from an average of US$21.4 million and US$20 million in 2005 and 2006, respectively, to US$54.8 million in 2007— representing an increase of 174%. 2007 marked a milestone year for the region, with Abraaj Capi-tal’s investment in Egyptian Fertilizers Company (EFC) being the first MENA PE deal to break the billion-dollar mark.

Owing to the large scale of recent deals such as EFC, Egypt attracted the greatest volume of private equity investment in 2007, attracting US$1.6 billion, or 45% of the MENA total. The UAE drew the second largest portion of investment in 2007 at US$587 million, followed by Saudi Arabia and Jordan at US$568 million and US$155 million respectively.2

Five thousand families in the GCC alone account for as much as 90% of the private sector, and receptivity to private capi-

2 Turkey recorded US$306 million in investment in 2007. The industry is divided on treat-ment of Turkey—sometimes considered within CEE/CIS, sometimes MENA. For statistical purposes, EMPEA applies capital raised for, and invested in Turkey to CEE/CIS statistics.

tal among family-owned companies is apparently growing. The 2008 Ernst & Young Family Business Survey revealed that as many as 73% of family businesses in the Middle East are run by second generation owners, only 16% of which have a clearly defined succession strategy. As the number of MENA countries entering the WTO has grown, several Gulf companies have be-gun to recognize the need to achieve regional or even global scale to remain competitive.3 MENA fund managers are taking advantage of these parallel phenomena by investing in compa-nies looking to IPO or to expand regionally. Notable examples of PE investment in closely-held companies include Damas Inter-national, Balhoul Group, Petrofac, Depa Interiors and Aramex.

The spending power of the region’s growing middle class is in-fluencing a shift in investment focus away from oil & gas to ser-vice-based and consumer-oriented businesses. In particular, the “soft” or social infrastructure needs of the region’s growing population are fueling investments in healthcare and education. Abraaj Capital has been particularly focused on healthcare of late, with investments in Tadawi Health Care Company, a Saudi pharmaceuticals wholesaler-distributor, and Egyptian medical testing company Al Borg Laboratory.

The education sector in the GCC countries has drawn a spate of investment in recent months. In June 2008, Al Khayyat, Ras-mala Investments and RHT Partners together acquired a 13% stake in Taaleem, a regional specialist in quality and standards for the education sector. Dubai Investments’ private equity arm M’Sharie recently took a 50% stake in the Dubai International Driving Centre.

3 Kuwait, Bahrain, Egypt, Qatar and UAE joined in 1995-1996; Saudi Arabia, Jordan, Oman between 2000 and 2005.

Source: GVCA/Zawya.

August 2008EMPEA Insight: MENA

0

500

1000

1500

2000

2500

3000

3500

Others

Turkey

Jordan

Saudi Arabia

Egypt

UAE

200720062005

USD

Mill

ions

$661 (56)

$1,765 (50)

$3,459 (62)

MENA Region Private Equity Investments 2005-2007(Value, Number Transactions)

continued on page 5

© 2008 Emerging Markets Private Equity Association 5

GPs tapping into the region’s tremendous hard infrastructure needs are investing at both the project level via holding or management companies, and in related sectors. In April, the US$500 million MENA Infrastructure Fund, sponsored by Dubai International Capital LLC and HSBC, completed its first invest-ment with a minority stake in Alexandria International Container Terminals SAE. Regional companies that have attracted private equity include Bahrain engineering firm Gulf Strategic Partners, with operations throughout the GCC and India (Unicorn Invest-ment Bank), and UAE-based construction and consulting firm Dewan Architects and Engineers (Ithmar Capital).

Additional deal flow is expected from privatization programs throughout the region. State-owned assets in a number of sec-tors—from airlines and power stations to desalination plants—earmarked for privatization in GCC countries are valued at as much as US$1 trillion.

According to Zawya, a data provider, basic materials attracted US$2.5 billion or private equity in 2007, while construction at-tracted US$213.6 million. Recent examples include Oman In-vestment Corp’s investment in the Gulf International Pipe Indus-

tries of Oman for US$30 million, Ithmar Capital’s investment in Qatari construction firm Panceltica, and GrowthGate’s stake in Arabian Roots Group, a Saudi building materials firm. A host of other infrastructure deals have taken place in the booming urban construction zones of the UAE, including Al Safat Invest-ments stake in Orimix Concrete Products and Amwal al-Khaleej’s investment in Dubai Contracting Company.

Exit TrendsExits soared in both value and number in 2007, with 19 trans-actions yielding US$1.5 billion, according to the GVCA. Publicly reported internal rates of return (IRRs) in 2007 ranged from 30% to an outlier of 348%. In a GVCA survey of MENA fund managers, 53% of respondents indicated that an IPO was the preferred exit strategy, with 30% indicating they preferred strate-gic sales. While IPOs have thus far been the most dominant exit route, strategic and secondary sales are expected to increase in importance.

Fund Manager (s) Firm (US$M) Sector Market Date

Abraaj Capital Bosicor Group N/D Oil refining Pakistan Mar-08

Abraaj Capital Al Borg Laboratory 145 Medical testing Egypt May-08

Actis Mo'men Group 49 Food Services Egypt Aug-08

Al Khayyat, Rasmala, RHT Taaleem N/D Education UAE Jun-08

Al Safat Investments Orimix Concrete Products N/D Basic Materials UAE Jul-08

Amwal al-Khaleej Dubai Contracting Company N/D Construction UAE Jan-08

Citadel Egyptian Company for Marketing and Distribution N/D Publishing Egypt Feb-08

Dubai Capital Group Sphinx Glass 200 Glass Egypt May-08

Dubai Investments - M'Sharie

Dubai International Driving Centre N/D Education UAE Jul-08

Global Capital Management National Co. for Consumer Industries N/D Consumer Products Kuwait May-08

GrowthGate Arabian Roots Group N/D Building Materials Saudi May-08

Gulf Capital Metito N/D Desalination MENASA Nov-06

Istithmar World PWS International Bahrain N/D Financial Services Bahrain Mar-08

Ithmar Capital Panceltica N/D Construction Qatar Apr-08

Jahangir Siddiqui Group Optimus N/D Vehicle Contracting Pakistan N/A

NBK Capital Al-Tala'a International N/D Transport Saudi Jun-08

Oman Investment Corp. Gulf International Pipe Industries of Oman 30 Piping Oman Apr-08

Rasmala Investments Capital Industries & Investments N/D Private Equity UAE Jan-08

SHUAA Capital Orion Holding 53 Financial Services UAE Feb-08

Swicorp Joussour Mosvold Middle East Jackup N/D Drilling Saudi Aug-08

Venture Capital Bank Lemissoler Maritime Company WLL 166 Transport Bahrain Mar-08

Sampling of Investments in MENA

continued on page 6

August 2008 EMPEA Insight: MENA

© 2008 Emerging Markets Private Equity Association 6

EMPEA Insight: MENA

The region’s capital markets began to take off in 2006 and 2007, making IPOs a viable path to exit. However, results have been mixed and the bourses have not been completely unaffected by the turmoil in global markets. MENA capital markets—Saudi Arabia in particular—have taken a hit year-to-date in 2008. The Dubai bourse fell 7% between January and June 2008. Damas Jewellery’s IPO, sponsored in July 2008 by both Amwal Al-Kha-leej and SHUAA Partners, raised US$279.6 million on the Dubai International Financial Exchange (DIFX), below initial projections of US$350-US$400 million.

As the bench of established fund managers in the region grows, secondary sales to other players have emerged as a more prom-ising alternative to strategic sales or IPOs. MENA secondar-ies witnessed their largest deal in 2007, when Citadel Capital sold 100% ownership of Egyptian Fertilizers Company (EFC) to an Abraaj Capital-led consortium at a price tag of US$1.41 bil-

lion. Citadel Capital acquired EFC in 2005 from a consortium of investors, fronting the growth capital necessary for expansion plans aimed at doubling EFC’s capacity. Unicorn Investment Bank exited Orimix Concrete Products in a sale to Al Safat In-vestments, realizing more than double of its investment in the UAE-based basic materials firm. Strategic sales are also occur-ring: the Foursan Group recently registered an exit in Jordan of Arab Orient Insurance Company to Fairfax Holdings, an insur-ance conglomerate.

As much as 90% of PE investments made in MENA within the last decade remain unrealized. Given recent languor in regional bourses, and inflation in some MENA countries hovering near 10%, fund managers appear to be waiting out market condi-tions. With the abundant liquidity available to firms raising new funds, PE firms in the MENA region can potentially afford to be patient.

Fund Manager Firm Size (US$ mil)

Sector Market Date Transaction

Abraaj Capital National Air Services N/D Transport Saudi Aug-08 Exit

Al Mal, HSBC Middle East Drake & Scull N/D Contracting UAE Jul-08 IPO

Amwal Al-Khaleej, SHUAA Partners Damas 280 Jeweler UAE Jul-08 IPO

Citadel Capital Egyptian Fertilizers Company 1 Fertilizer Egypt Jun-07 Secondary Sale

Emerging Capital Partners Charaf Corporation 23 Fertilizer Morocco May-08 N/A

Foursan Group Abdali District N/D Real Istate Jordan Jun-08 Trade Sale

Foursan Group Arab Orient Insurance Co. N/D Insurance Jordan Jun-08 Strategic Sale

Injazat Capital Atos Origin Middle East N/D Technology GCC Nov-07 Trade Sale

The National Investor Depa Limited N/D Contracting UAE Apr-08 IPO

Unicorn Investment Bank Orimix Concrete Products 45 Basic Materials UAE Jul-08 Secondary Sale

Sampling of Recent MENA Exits

Middle East Capital Markets Performance, July 2008

Source: Rasmala Bank, July 2008 Capital Markets Report.

August 2008

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35%

Lebanon

Egypt

Qatar

UAE

Oman

Bahrain

Kuwait

Tunisia

Saudi Arabia

Morocco

Jordan

YTD (July 31 2008)

MTD

© 2008 Emerging Markets Private Equity Association 7

EMPEA Insight: MENAAugust 2008

Sampling of Firms Investing in MENAPE Firms Investing in MENA Most Recent Fund Sector FocusAbraaj Capital Abraaj BMA Pakistan Buyout Fund (2006, US$300m) Generalist

Abu Dhabi Investment House Al-Arabia Private Equity Fund (2007, US$75m) Generalist

ADIC, UBS Global Asset Management MENA Infrastructure Fund (raising, US$500m) Infrastructure

Al Mal Capital Al Fares Private Equity Fund (raising, US$95.3m) Generalist

Amwal al-Khaleej Amwal III (raising, US$500m) N/A

Arbah Capital Arbah Nanotechnology Fund (raising, US$100m) Technology

BNP Paribas MENA Private Equity Fund (raising, US$200-400m) Generalist

Capital Trust EuroMENA II (raising) N/A

CapitalInvest Capital North Africa Venture Fund (raising, Euro30m) SMEs

Catalyst Private Equity, Millennium Energy Industries, Arab Palestinian Investment LTD

Millennium Energy Palestine (raising) Energy

Citadel Capital Citadel Capital Joint Investment Fund (raising, US$500m) N/A

Delta Capital Delta Telecoms Fund (2007, US$75m) Telecom

Dubai Capital Group Dubai Investment Group Fund (raising) Generalist

Dubai International Capital Saudi Dubai Capital Fund (raising, US$500m) N/A

EFG Hermes Private Equity Horus III Fund (2007, US$555m) Generalist

Emerging Markets Partnership EMP Energy Fund (raising, US$1b) Energy

Foursan Group The Jordan Fund (2003, US$50m) Generalist

Global Capital Management Global Buyout Fund (raising, US$1.5b) Generalist

Injazat Shefa Healthcare Fund (2007, US$100m) Healthcare

Investcorp Gulf Opportunity Fund I (raising, US$1b) Generalist

Ithmar Capital Ithmar Fund II (raising, US$1b) Generalist

Jahangir Siddiqui Group JS Private Equity Fund I (2007, US$158m) Generalist

KGL Investment Cayman Ltd. The Port Fund LP (raising, US$500m) Ports

MENA Capital MENA Capital Private Equity Fund (2005, US$20m) Generalist

Millennium Private Equity Global Energy Fund (raising, US$1b) Energy

NBD Sana Capital NBD Sana Capital Shariah Private Equity Fund (raising, US$1b) N/A

NBK Capital Kuwait Investment Opportunities Fund (raising, US$125m) Social Infrastructure

Oasis Capital Egypt Oasis Capital Egypt (2006, US$150m) Generalist

SHUAA Partners Saudi Hospitality Fund I (2008, US$240m) Generalist

Sphinx Capital Sphinx Capital Turnaround Fund (raising, US$100m) N/A

Swicorp Joussour Fund (2006, US$712m) Energy

The National Investor TNI Growth Capital Fund (2006, US$150m) Generalist

TMT Ventures, Pakistan Kuwait Investment Co.

TMT-PKIC Incubation Fund (raising, US$250m) Generalist

Tuareg Capital The Libya Fund (2007, US$100m) Generalist

Tuninvest Maghreb Private Equity Fund II (2008, US$193m) N/A