New funds for Palestinian development

A fund by Abraaj Capital and the Middle East Venture Capital Fund aim to help small businesses and start-ups.

The Palestinian Territories, long an exporter of some of the Arab world's most successful entrepreneurs, are the focus of two new investment funds targeting start-ups and small businesses. While Palestinian businessmen have built sprawling conglomerates across the Middle East, entrepreneurs within the territories have suffered from poor access to credit and investment, on top of the human and economic impact of Israeli controls.

But the two new funds aim to raise a total of US$100 million (Dh367.2m) to help build larger and more successful Palestinian businesses to create both economic and social returns. One fund, managed by the Dubai-based private equity company Abraaj Capital, will make multimillion-dollar investments in growing companies in the West Bank. It sees opportunities for local businesses to grow in industries such as construction, agriculture, food and building materials.

Abraaj announced last year that it would make a major investment push among small and medium enterprises, mobilising what it described as the "patriotic capital" that regional investors and governments are allocating towards local entrepreneurs and small business. The Palestine Investment Fund (PIF), a sovereign fund owned by the Palestinian government, is the largest single investor in the new Abraaj venture, which recently announced it had raised $15m of its target of $50m. The remainder is expected to be raised shortly.

The PIF, with more than $800m of assets under management, was assembled in 2002 from the various, often shadowy, assets accumulated by the former Palestinian leader, Yasser Arafat. The second fund, the Middle East Venture Capital Fund (MEVCF), is backed by international institutions including the European Investment Bank, the Soros Foundation and the Skoll Foundation. While the Abraaj fund will focus more on private equity-type deals involving established, profitable companies needing money for growth, the $50m MEVCF will focus on entrepreneurs looking to start businesses.

"This is definitely a double bottom-line investment. Our investors are looking not only at returns but also creating a positive social outcome, a social bottom line," said Saed Nashef, a Palestinian venture capitalist who will co-manage the fund. "We are not going after partners who are looking for purely financial returns. The reality is that they have a hundred other options that are less risky, and we need to prove that what we are trying to do will work."

The fund will initially focus on technology and internet businesses, Mr Nashef said. "There is a rich talent pool here, and the disadvantage today for this pool of raw talent is they haven't had the opportunity to get exposed in a major way to global markets," he said. [e-mail]