MENA's Economic Outlook for 2024 and the Rising Interest in Private Equity and Venture Capital Investments
According to the Middle East and North Africa Economic Update report published by the IMF in April 2024, the Middle East and North Africa (MENA) region will experience modest growth of 2.7% in 2024, up from 1.9% in 2023. Both oil importers and exporters in the region are expected to grow at similar rates in 2024. The forecasted growth difference between the Gulf Cooperation Council (GCC) economies and developing oil importers (excluding Egypt) is nearly 1%. GDP per capita is expected to rise by just 1.3% in 2024, driven almost entirely by the GCC economies. The impact of ongoing conflicts has ceased economic activity, particularly in Palestine. In Gaza, economic activity has nearly dropped by 86% in the fourth quarter of 2023 compared to the same quarter in 2022. The Palestinian economy's outlook remains highly uncertain, heavily dependent on the conflict's progression. The disruptions in maritime transportation, particularly through the Suez Canal, affected both regional and global trade.
Over the past decade, most MENA economies have seen increases in their debt-to-GDP ratios as MENA oil importers struggle to reduce their debt-to-GDP ratios due to high oil prices. Additionally, oil importers have been unable to lower their debt-to-GDP ratios through inflation, mainly due to exchange rate fluctuations and off-budget factors, known as stock-flow adjustments, highlighting the need for greater debt transparency. On the other hand, for MENA oil exporters, periods of high GDP growth are typically associated with smaller increases in nominal debt stocks, leading to a slower rise or even a decrease in the debt-to-GDP ratio.
However, interest in private equity (PE) and venture capital (VC) has been surging in the Middle East and Africa, reflecting a notable shift in investment preferences within the region. According to recent data, provided by Preqin, in collaboration with the Dubai International Financial Centre (DIFC), approximately 65% of investors in the region are either planning to maintain or increase their exposure to private equity this year. Similarly, 56% of investors are keen to do the same with their venture capital investments. This growing interest is partly due to the region's historical under-investment combined with an optimistic outlook on the regional economic and market conditions.
Despite challenges due to geopolitical tensions, venture capital remains a critical component of the investment ecosystem. The sector is expected to recover as it adapts to the current economic conditions. In the Middle East, investor sentiment towards VC and PE is generally positive. A significant portion of regional investors have reported that their PE and VC investments have met or exceeded expectations. Sectors such as fintech, technology, healthcare, and infrastructure are particularly attractive to investors.
The Middle East and North Africa region is poised for a modest economic recovery in 2024, however, geopolitical tensions and conflicts continue to pose significant challenges. As MENA economies navigate through fluctuating global conditions and regional disruptions, the interest of private equity and venture capital investors reveals the region's promising outlook for investors and economic stakeholders.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in the Middle East and Africa by market cap. From that list, we narrowed our choices to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 23. We also included the market cap of the companies as of August 23. The list is sorted in ascending order of their average upside potential as of August 23.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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A mid-rise office building bustling with employees working on various telecom projects.
Turkcell (NYSE:TKC) is a Turkish telecommunications and technology services provider. As of 2023, Turkcell (NYSE:TKC) operates in four countries and offers mobile, fixed, and broadband services. The company has been investing heavily in 5G and other advanced technologies, positioning itself as a key player in the Turkish and regional markets.
Turkcell (NYSE:TKC) serves over 38.2 million mobile subscribers and more than 3 million fiber broadband subscribers. The company’s extensive infrastructure and broad customer base provide it with a significant competitive advantage, enabling it to capitalize on the growing demand for high-quality telecommunications services in Turkey. As the country continues to develop its digital economy, Turkcell (NYSE:TKC) is well-positioned to capture a larger share of this expanding market.
On February 29, Turkcell (NYSE:TKC) entered into several Memorandums of Understanding (MOUs) with Huawei, to advance their collaboration in three key areas. The two companies will jointly work on developing 5.5G technologies, such as Ambient IoT (Passive IoT) and RedCap (Reduced Capability), and on the creation of next-generation 5.5G networks. Their efforts will also focus on green technologies, aiming to reduce carbon footprints through energy-efficient solutions in GPON networks, the use of solar and green energy, and improvements in energy efficiency for WDM networks. Additionally, both companies will pursue innovations in artificial intelligence to develop user-centric, self-optimizing networks.
One of the core strengths of Turkcell (NYSE:TKC) lies in its ability to raise prices faster than the inflation rate, a key factor driving the company's margin expansion. In Q1 2024, Turkcell's mobile average revenue per user surged by 95.3% year-over-year, while fiber average revenue per user increased by 89.7%, both well ahead of Turkey's CPI inflation rate of 66.8%. This pricing power has allowed Turkcell (NYSE:TKC) to significantly improve its EBITDA margins, which reached 41.4%, one of the highest levels in recent years. In Q1 2024, the company reported an 11.8% year-over-year increase in revenues and a 23.2% surge in EBITDA. Turkcell (NYSE:TKC) raised its full-year guidance to a low double-digit revenue growth rate, indicating confidence in its ability to continue outperforming in the coming quarters.
Turkcell (NYSE:TKC) presents a compelling investment opportunity, driven by its market leadership, pricing power, and effective management in a challenging macroeconomic environment. As the company continues to execute its margin expansion strategy, it is poised to deliver sustained earnings growth, making it an attractive buy for investors. With its ability to outperform inflation and navigate currency risks. While the Turkish Lira's depreciation poses a risk, Turkcell (NYSE:TKC) has shown resilience through effective hedging strategies. The company has significant US dollar-denominated debt, with over $1 billion maturing in 2025. However, Turkcell’s (NYSE:TKC) proactive management of foreign exchange (FX) exposure has mitigated the impact of currency fluctuations on its balance sheet. The company remains well-positioned to navigate these challenges, and its robust cash flow generation will support debt servicing efforts.
In the second quarter, Turkcell’s (NYSE:TKC) stock was held by 5 hedge funds with stakes worth $3.15 million. Schonfeld Strategic Advisors is the largest shareholder in the company with a stake worth $2.36 million as of June 30. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $9.50, which represents a 35.33% upside potential from its current level.
Overall TKC ranks 7th on our list of the best Middle East and Africa stocks to buy according to analysts. While we acknowledge the potential of TKC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TKC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
