Some say that entrepreneurship is getting more incorporated into the countries’ economies, yet it is considered crucial for economic development. It is worth emphasizing at an early stage, that “Private” in private equity shows no relation to the secretion, but in fact, private equity defined by John Gilligan and Mike Wright in their book “Private Equity demystified, an explanatory guide” is the sum of all capitals put at risk of loss in a transaction and that, as a financial package, has a share in any capital gain earned. It is important to underline that a private equity fund represents a type of investment, in which institutional investors like banks, individuals with elevated net worth, firms’ managers, pension funds, investment funds, and insurance companies are the principal investors. The main target of a private equity fund is to study the portfolio of a private company and therefore invest risk capital in it. In other terms, private equity firms would like to make a profit via the generation of capital gain, and in order to generate them, those companies would put all of their efforts into the increase of shareholder value.
Whilst reading the title of this paper, the definition of emerging market arises, but prior to this definition, it is crucial to understand the meaning of the Human Development Index (HDI) and its direct relation with the characterization of emerging markets.
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According to Niels Lind in his article entitled “Values Reflected in the Human Development Index”, a country is compared amongst others based on their respective population development. The Human Development Index together with the Gross National Index (GNI), is used to classify a country into three distinct categories; high-income countries (developed), emerging economies, and low-income countries. Furthermore, the Human Development Index is based on three different important factors; firstly, longevity, which is the expected life of a person at birth, secondly the education of a human, which is attained by measuring adult literacy ( combination of the gross primary, secondary and tertiary enrolment ratio), and finally the standard living of a person in the country of interest, which is identified by the real gross domestic product per one capita.
Far from this summary, this paper will emphasize the pitfalls of a private equity firm in the emerging markets, more specifically in the poorest countries of the MENA.
Specifically, an emerging market country is a country that has some characteristics of a developed country but lacks its standards. Experts in the Journals of Business Research shed the light on the importance of these emerging markets, therefore, they stressed the point that those markets help the economy to grow. This statement was based on a study that they did while taking 3808 firms as a sample and therefore stated that “ international firms tend to have higher performance, while businesses with intangible resources have a poor performance.
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