STATE OF THE GCC

As we come to terms with the effects of the global coronavirus pandemic, underwhelming forecasts of global GDP, and global indices falling into correction, our recent reference of financial distress remains the 2008 financial crisis. More relevantly, times are changing in the startup world, as we witness most switching from the valuation game to the profitability game, which has not proven easy by any means. As we’ve been monitoring investment portfolio fluctuations for the past quarter (albeit realistically, only March), single to double digit declines are the new norm, and drastic cuts in growth forecasts are not limited to global GDP.

As our main investment focus geographically remains the MENA region largely, and the GCC specifically, here’s how GCC governments have responded to the COVID-19 effect on business regionally during the first quarter of 2020.

The UAE, being the second largest Arab economy, announced a $34bn stimulus package to provide liquidity and aid banks via zero-interest collateralized loans. Several measures have been announced to help startups stay afloat and lift the burden of fees & loans. The government has been urged to co-invest alongside prominent institutional investors during those times. Lastly, the government has adjusted labor laws allowing companies to implement wage reductions, incentivizing them to retain talent in the long-term and aiding them in maintaining sufficient liquidity. This comes as an effort to combat high unemployment rates nationwide.

Shortly thereafter, the Kingdom of Saudi Arabia, announced a 50bn Riyal package to support private businesses in mitigating damage due to coronavirus. The relief package will provide 13.2bn Riyals in loans to SMEs in the Kingdom, and a further 30bn riyals offered to banks to defer SME loans. The Kingdom has pledged to pay a significant portion of salaries paid to Saudi nationals employed in the private sector, as well as making necessary adjustments to labor laws. The Kingdom of Bahrain’s government has committed to paying Bahraini nationals’ salaries, lifting a large burden off many struggling companies. 

Though we maintain a diverse and international portfolio, we remain rooted in Kuwait. Here’s our Managing Partner, Abdulaziz Al Loughani’s take  on a suggested governmental relief program to aid SMEs during the COVID-19 crisis. In short, the proposal urges Kuwait’s government to survey the number of existing startups and their staff. The main aim is to provide sufficient liquidity over the next 6 months to help startups in the form of the following:

• Zero-interest loans. Value of loans to be the lower of: 50% of shareholder’s equity; or not exceed KWD 100k
  • Loans do not exceed total expenses over the next 6 months, with priority to employee salaries, rent, and supplier contracts
  • Loans repayable over a period of 3 years (flexible), with incentives for non-deferred payments

The above plan is to be regulated by local banks in light of local financial regulation and the governments’ practices. A detailed presentation can be found here [link].

Another study presented to Kuwait’s Council of Ministers researched the detrimental effects of the COVID-19 crisis on 250 local SMEs suggested a detailed approach to remedy the situation, including but not limited to zero-interest loans, foregoing rent and governmental fees for a period of a few months, and others. The full text can be found here.