So much money, so little time...

The wealth of the region is piling up - and increasingly is heading into technology investments, says Eliot Beer.

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By  Eliot Beer Published  January 20, 2008

Sovereign wealth funds are not, at first glance, the most relevant topic to enterprise IT. These unnervingly large investment funds, held by governments, are making headlines at the moment with their sizable investments in industries from shipping to banking and finance.

The news of course is that the sovereign funds making these investments are in the ‘developing' world - and the companies they are investing in are in the West. Recent purchases by Kuwaiti and Emirati funds have raised eyebrows around the world - but there are many trillions of dollars left to spend.

With the prospect of recession in the US looming and the continuing meltdown from the sub-prime lending fiasco (credit-happy regional banks take note), this cash is being welcomed by Western enterprises and governments. But as a number of commentators have pointed out, this welcome can turn sour when fears of eroding national security raise their heads - see the Dubai Ports World/P&O deal in 2006 for an example of just how bad it can get.

But one area where cash is always welcome is technology - as shown by Abu Dhabi's recent investment in CPU-challenger AMD. And with the credit and investment markets tightening in the US, the next couple of years could be a good time for smart investors to pick up some canny deals.

Aside from the general economic malaise, the tech market has been tightening for some time, in the classic pattern observed after the first dot-com boom of the late 1990s. Wiser investors are now asking to see some evidence of actual returns and - despite the odd Facebook - valuations are looking relatively sane.

This gives sovereign funds - whether from the Middle East or elsewhere - a chance to step in where Western credit markets are failing, and pick up the choicest of these startups, and indeed invest in more mature IT vendors as well. The funds are certainly interested - market-watchers have identified technology as one of the areas most likely to see sovereign funds investing.

Potentially, this could lead to regional investors owning substantial slices of up-and-coming and established IT firms - and potentially an interesting situation for vendors operating in the region. From a business backwater, IT providers may develop a greater interest in establishing more substantial presences in the Middle East - already AMD is making important noises about the region.

This is, of course, something of a pipe dream - but the potential for a regional IT renaissance is there in the actions of major investors.

Last week a consortium of investors took a 79% stake in Egyptian integrator ITWorx - an interesting example of investment by investors, not by a competitor or partner. In this case the money was mostly private, coming from EuroMENA, an Islamic venture capital operation, and the French Development Agency (an varied collection).

But with potentially hostile reactions to Middle Eastern investment in Western ventures all too likely, sovereign funds may well come looking closer to home for investment opportunities. And so we may finally see some serious and much-needed investment to the regional market - to the benefit of vendors and end users alike.

3606 days ago
Jassim

Would be quite interesting to know wether funding has really stopped the advancement of technology, usually the case has been that of the smart inventor sitting somewhere in a rundown garage and tinkering on the next 'electric bulb'....but i guess this has been the romantic side of tech that has been carried over ......present day technology advancements require huge investments and probably that explains why the american defence research labs have been able to comeup with the biggest innovations in the past few decades. The sovereign funds of the region should be ideally looking at investments which would not only make monetary sense but also aim strategic partnerships between the investments and their home economies as the leverage on their political and social aspirations.

3610 days ago
Zooni Khan

The article is an apt commentary on the current situation in the region. Both the government and investors need to look at home grown companies like Momenta Global who are on the fast track of growth. I have been tracking the growth of Momenta since their launch and they have been pioneers in getting some of the latest tech concepts in the country. If such companies are nurtured it wont be long before they develop into Microsoft's and Cisco's of the West.

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