Should Private Equity In The Middle East And North Africa Be Regulated? The Case Of Egypt
Author: Ayman Ismail, Former Research Fellow, The Dubai Initiative
Belfer Center Programs or Projects: Dubai Initiative
Over the five years prior to the financial crisis, global private equity and venture capital investments grew exponentially. Private equity firms and funds are becoming increasingly important actors in emerging markets: they act as a source of financing for new enterprises and as growth capital for existing ones, as owners and managers of portfolio companies, and as employers for both management and labor.
The global financial crisis underscored the importance of prudent regulation for financial institutions to avoid systemic risks; however, private equity firms and funds in the Middle East and North Africa (MENA) are typically unregulated, and treated as private transactions. As these firms increase their investments in the MENA region, it is important to consider three policy questions: (1) Should private equity be regulated in the same way as other non-banking financial institutions? (2) Should there be public transparency standards mandated by law? (3) Is a domestic capital gains tax on private equity profits needed?
- Private equity firms and funds should be included under the regulatory regimes covering non-banking financial institutions (NBFI).
- Regulations should at a minimum focus on establishing transparency standards: disclosing funds, transactions, buyers and sellers, and transaction size.
- A capital gains tax should be considered, covering profits from private equity transactions.
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