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Venture capitalists find Arab resistance to outside investment

Specialists advising Arab bankers on creating a venture capital industry say they have found resistance from the business establishment to outside investment.

“There’s a lot of traditional behavior among businesses who say they don’t want shareholders other than themselves,” said Klaus Nathusius, founder of GENES, one of Germany’s oldest venture capital firms.

“They usually have a certain equity that’s okay to survive but not enough to follow growth strategies,” he said.

The Union of Arab banks invited Nathusius and his partner Jorg Kreisel to conduct a workshop on venture capital on the weekend, an almost non-existent form of financing in the region that elsewhere supports start-ups or takes stakes to help firms expand with an eye on capital gains.

The Beirut workshop followed rising awareness of the financing gap between Arab nations and Israel, where venture capital investment in technology has financed export-led growth.

Transport Minister Najib Mikati, one of the few businessmen in the Cabinet, said venture capital had pushed Israeli per capita income to $17,000, around four times the level in Lebanon.

He said the government had taken only shy steps toward encouraging venture capital through modernization of laws.

George Bitar, managing director of the Direct Investment Group at Merrill Lynch, said last month that laws expanding and protecting monopolies were partly behind his group’s zero venture capital investment in Arab countries so far.

GENES said American government encouragement had helped create venture capital in its modern form and Lebanon could draw on Arab and international aid to do the same.

“The ingredients are there. The population is very well educated and the banks know most of the economy. The financial system could easily make the first step,” Nathusius said.

“But the profile needed is different. A loan officer is not a good venture capitalist. Lebanon, Jordan and Morocco are lacking some expertise, which can be solved. We relied on American and British help to develop venture capital in Germany.”

Once homegrown venture capital is established, it can be augmented from outside, as with Israel, Nathusius said.

“Venture capital would provide the way to grow and internationalize. Arab firms are mostly too small to be a market force on a global scale,” he said.

GENES has identified middle- and low-tech industries, specialty chemicals, and internet related fields as potential areas for venture capital in Arab countries. - Reuters

 

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