Impact of SVB’s Collapse on  MENA Region to be Shortlived

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SVB’s collapse sent shockwaves through global capital markets as fears of broader systemic risks in the financial systems gripped investors. The startup ecosystem and budding tech companies were especially impacted by the news given their strong reliance on lenders for funding. In an environment of rising interest rates, borrowing is becoming increasingly expensive, thereby making startups jittery and risk averse. The Middle East has emerged as a lucrative financial hub that houses a number of promising startups and tech companies. SVB was one of the chief lenders to these entities. Thus, the ripple effect of its collapse was felt by the stock markets in the MENA region, sending their respective banking sectors and indices lower. However, there is reason to believe that any detrimental impact arising from this event will be short-lived once the dust settles. In fact, officials from Kuwait’s central bank revealed their local lenders have very little exposure to SVB. For starters, the Gulf region has a substantial amount of liquidity and is not reliant on foreign lenders to support emerging businesses in the region. The commodity boom brought in a fresh influx of cash flows, adding to the coffers of the region’s largest sovereign funds that control over $3 trillion in assets. Thus, Gulf funds are pouring in billions of dollars into global deals, playing the role of funders and lenders to cash-strapped entities. SVB’s collapse presents an opportunity to scale up lending to firms in a volatile market as liquidity evaporates globally. Middle Eastern money is making its way into foreign markets. As of last year, the gulf region’s largest sovereign funds acquired over $28.6 billion worth of businesses outside the Middle East and Africa. That marks a 45% growth relative to 2021. Thus, the gulf region is relatively immune to the downfall of banks such as SVB.

Furthermore, the government is always providing impetus for startups and tech companies to thrive by creating a business-friendly regulatory environment. Owing to the inherent business and growth savvy nature of its leaders and businessmen, several family-owned businesses and corporations are investing heavily in startups, providing much-needed funding and expertise. Moreover, the MENA region offers a sturdy legal framework that protects startups in the event their lenders go bust. The courts permit affected entities to present their cases and seek recovery of lost funds. In extreme cases, the UAE government may also bail out struggling banks to protect the interests of businesses and startups with exposure to the bank. Nonetheless, SVB’s downfall has undoubtedly infused a degree of uncertainty and nervousness amongst venture capital-backed firms and the tech startup ecosystem. However, this initial jitteriness is likely to run out of steam given the adequate policies and mechanisms in place to safeguard the interests of entrepreneurs and investors alike. For instance, businesses facing compliance issues or high exposure to risky lenders may avail certain exemptions and incentives such as the Deposit Protection Scheme administered by the UAE Central Bank. Furthermore, a digital narrative storytelling hub called Blinx was recently launched, equipped with state-of-the-art metaverse studios and superior AI-based analytical software. This will provide a forum for startups to gain traction, swap stories, and build connections to help their businesses thrive. As a result, any economic repercussions arising from the unfortunate events are likely to be contained and short-lived within the Middle East.