Muscat: Gulf-based sovereign wealth funds are expected to strengthen their exposure in technology industries, which will boost national digitisation drive and signal a major shift in their investment portfolio, research from Boston Consulting Group (BCG) said in a report.
Gulf Cooperation Council (GCC) SWFs, including Omani funds SGRF and OIF, are one of the largest in the world, with investment portfolios mainly in mature industries, such as healthcare, retail and energy. However, with the rise in technology companies in the past decade, a shift is inevitable, BCG Middle East's Markus Massi, managing director and senior partner and Alessandro Scortecci, principal at the consulting giant, wrote in their report.
“At the end of 2016, six of the top 10 revenue-generating companies in the world were technology companies, compared with just one at the end of 2006. The growth and strength of technology as a sector in today’s world is undeniable; and the resulting opportunities for SWFs to break from tradition and benefit from this momentum are palpable,” the article read.
This investment can especially be manoeuvred into a nationwide digitisation drive, the authors suggest. As diversification has become a pillar of economic growth in Oman in recent years after oil prices dropped, digitisation and technology are considered an important factor in achieving efficiency and growth in business environment. Omani SWFs’ investment into this can offer financial returns, as well as accelerate the dream of shifting to a technology-based economy.
“The focus should be placed on to investments into industry sectors that not only offer financial returns, but also offer insights into sectors that are important to further improve the national agenda. This is the case and a common practice among other SWFs; for example, nations that prioritise improving and driving the digital and innovation agenda should look towards investment in companies that can be of support,” Scortecci said.
According to BCG, Oman has increased investments in technology industry since 2016, with over 10 investments in the sector. “Our research into Oman SWF’s landscape has pointed that they have chosen to adopt an indirect path towards investment in technology through fund investments. We have seen this in investments made in WorkWave and BlueStep for instance, where SGRF has invested along EQT Partners or The Carlyle Group,” Scortecci added.
While local investment can provide the much needed monetary injection into the local economy, fuelling jobs and developing SMEs and local talent, a diverse portfolio of international and domestic firms is crucial to bring foreign expertise in to the country and increasing financial benefits.
“Each type of investment has a different risk or return profile, and will differ based on a country’s requirement. Domestic investments might offer the highest employment potential and international studies have highlighted that promoting SMEs offer similar high employment potential.”
“Equally important, we believe that start-ups will be the engine to fuel the pipeline of SMEs in the future, as they offer many micro businesses (up to four employees) the opportunity to create jobs. However, they will not offer immediate opportunities to develop comparative advantages or export-oriented companies. Therefore, international investments are an important aspect to consider, as it provides access to international market knowledge, trends and potentially technology transfer and can complement domestic growth initiatives,” Massi explained.
BCG suggested that SWFs adopt a horizontal approach, where they can leverage the investment across portfolio companies by accessing technology maturity across companies and share these technologies across their investments. Experts also advised SWFs to capitalise on digital opportunity through four steps; develop a clear objective, have the right experienced team to predict technology life, develop internal knowledge and infrastructure and invest through cycles.