Venture capital (VC) investments in the Middle East and North Africa (MENA) region could rebound this year after a slowdown, thanks to a low interest rate environment, according to a new report.

Among those likely to “take centre stage” in deal-making this year are start-ups in the UAE and Saudi Arabia, the report from Tenet Consulting said.

“Expectations are high for a resurgence in investment activity across the Middle East and North Africa this year, following a dip in 2023,” the report noted.

The shift is also expected across VC markets worldwide. The consultancy firm noted that, as interest rates are expected to fall, initial public offerings (IPOs) and deal-making are poised for a turnaround.

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“This impending shift has the potential to breathe new life into initial public offerings (IPOs) and M&A deals, reigniting investor confidence and deal-making momentum,” the firm said.

If interest rates drop, borrowing costs could be cheaper and this will incentivise businesses to “pursue expansionary strategies such as mergers and acquisitions,” according to Alexey Bogdanov, Partner at Tenet Consulting.

“The forecast interest rate decline carries significant implications for valuation dynamics. Lower interest rates generally translate to cheaper borrowing costs,” he said.

“Moreover, the prospect of reduced borrowing expenses could entice more companies to go public, tapping into the equity markets to fuel growth initiatives.”

The VC market worldwide had a challenging year in 2023 due to high interest rates, geopolitical tensions and uncertainty.

VC investments, as well as the number of VC deals fell significantly year-over-year in 2023, with all regions seeing major declines, according to a KPMG report.

(Writing by Cleofe Maceda; editing by Seban Scaria) seban.scaria@lseg.com