An article by Vikas Arora, Chief of Impact Investing at AVPN.

In the realm of investment strategies, West Asia (Middle East) has long been recognised for its dominance in traditional sectors such as oil, real estate, and finance, which have contributed to impressive returns and the creation of iconic skylines and bustling economic centers. However, a deeper examination reveals a significant shift towards impact investing, marking the beginning of a new era of positive change in the region's investment landscape.

The rise of impact investing signifies a departure from purely profit-driven motives to a more holistic approach that considers social and environmental impact alongside financial returns. This shift is evident in the region's sovereign wealth funds, which in 2023 boasted assets totaling a staggering $4 trillion, with Saudi Arabia's Public Investment Fund surpassing Singapore’s GIC in terms of deal activity.

Embracing innovation

The catalyst for this change is multifaceted. The Gulf’s burgeoning technology sector is emerging amid growing realisation that sustainable economic growth must be resilient to commodity fluctuations, amenable to a wounded environment, and adaptable to global digitalisation. Its emergence is not mere happenstance but a strategic response that has opened doors to new, non-traditional sectors like e-commerce, renewable energy, and healthcare.

In February, Saudi Arabia announced more than $6.4 billion in investments and initiatives in tech startups, data infrastructure, and future technologies to transform the Kingdom into an “innovation-based economy"—part of a grand Vision 2030 plan for the nation to diversify. Those amounts are closely matched by the private sector, such as Amazon’s US$5.3 billion fund for data centres, joining global competitors Alphabet and Microsoft in their quest to transmute deserts into clouds.

Coupled with regulatory reforms, strategic investments in technology have the potential to significantly benefit the region's large population of tech-savvy youth. In the United Arab Emirates, telemedicine services experienced substantial growth following legislative amendments in 2017 and 2019. However, it was Covid-19 that saw rates skyrocketing and habits changing. In addition to lower patient costs and continued care during lockdowns, telemedicine helped diabetics maintain, and in some cases improve, their glycaemic metrics. More recently, Saudi Arabia’s Ministry of Health awarded one of its first public-private partnerships, Altakassusi Alliance Medical, to improve services and quality of care in diagnostic imaging services, part of which includes reaching rural populations.

Evolving views on philanthropy

We are seeing that investors are not immune to shifts, either, especially when family business leaders make a generational transition. A 2022 Cambridge Judge Business School study of philanthropists in the Gulf Cooperation Council (GCC), which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, found that younger Millennial and Gen Z investors adopt a more strategic and evidence-based approach in their giving to pursue longer-term impact. It also found that “GCC philanthropists are increasingly aligned with government priorities for national development.”

Previously, philanthropic efforts in the GCC region were exemplified by initiatives such as Dubai’s International Humanitarian City, established in 2003 to efficiently distribute aid and emergency assistance worldwide. In contrast, current priorities reflect a more future-oriented approach, as seen in initiatives such as Saudi Arabia’s Vision 2030, Oman Vision 2040, and UAE Energy Strategy 2050.

Last year’s hosting of COP28 demonstrated how highly sustainability ranks on the agenda, with world leaders formally acknowledging fossil fuels and food scarcity. Meanwhile, a Lombard Odier survey of young high-net-worth individuals in the Middle East found that 81% take sustainability into account when making investment decisions, while 88% intend to increase their allocations. The latter fact will no doubt prove helpful considering the Middle East’s ambitions across climate, economy, and education.

Using networks as levers for change

Zooming in, organisations such as Ashoka Arab World will be key to cultivating and connecting what its founder, Iman Bibirs, describes as “a community of change leaders.” Its fellows go through a multistage vetting process to access its global network of investors and mentors. It counts Beacon, a Saudi Arabian employment company that has helped more than 30,000 women enter the workforce, among its successes.

Likewise, events such as the upcoming AVPN Global Conference 2024, being held in Abu Dhabi from April 23–25, will bring the world’s social investment community into West Asia. Social and impact investment leaders from across the globe will gather in the vibrant city to delve into critical discussions on mobilising capital for social and environmental causes. Notably, Day 2 of the conference is dedicated specifically to impact investing, highlighting its growing significance in the global investment landscape.

Such a gathering will not only spotlight West Asia’s achievements in the impact space but also pave the way for future initiatives through knowledge sharing and network amplification, further solidifying the region's position on the global stage of philanthropy – a positive and much-desired step towards Vision 2030.

Shaping the future

The West Asia investment landscape is at a critical juncture, marked by a dynamic interplay of tradition and innovation. As the region continues to diversify its economy, the role of technology, coupled with the influence of a young, vibrant demographic and the leadership of visionary women, will only continue to grow exponentially. The heavy investments in cloud infrastructure already hold big promise for AI, which could potentially contribute $320 billion to the region’s economy in 2030. Furthermore, its position within the Global Sun Belt brings immense potential for solar energy that, when combined with wind projects, will prop up the region’s fondness for sustainable cities and the $500 billion mega-development NEOM.

In conclusion, this transformation is not without challenges. It requires us to collaborate—from governments, private sector entities, investors, and the entrepreneurial community—to foster an ecosystem that nurtures innovation, encourages sustainable practices, and promotes social equity. Global investors should also familiarise themselves with Sharia-compliant investing, what it entails, and how it’s viewed by the next generation of philanthropists and social entrepreneurs due to its growing significance in West Asia and beyond. Harmoniously blending tradition with innovation will be key to unlocking West Asia’s full potential.