By Georges Chehade, Frederic Ozeir, and Dr. Siavash Rahimi
Even before the COVID-19 pandemic, energy and chemical companies in the GCC faced a volatile market, with disruptive forces such as demands for sustainability and local content gaining momentum. The dual shock of COVID-19 and the steep drop in oil prices has compounded the disruption. Responding to these challenges is difficult, especially as most companies in the sector are large, complex organizations. However, they can use corporate venture capital (CVC) funds to manage these challenges by putting in motion three strategic moves: supply chain localization, technology innovation, and environmental sustainability.
CVC funds function in a similar fashion to traditional venture capital firms. They make strategic investments in early-stage companies with attractive technology, capabilities, and assets. The difference is that they are funded by, and benefit, a single company. They hold the potential to generate attractive financial returns, with similarly important strategic advantages. In the GCC, only a few energy and chemical companies already have active CVC funds, including Saudi Aramco and SABIC. Most other GCC organizations in the industry have yet to establish such funds.
Now more than ever, given the recent global health pandemic and economic crisis, CVC funds can help energy and chemical companies make faster progress toward their strategic goals. With valuations now lower for energy and chemical companies, and some organizations likely to run out of cash, companies have acquisition and investment opportunities that can assist their strategic moves. Parent companies should therefore increase investment in their CVC funds, and equip them with the capabilities to ensure that they can remain competitive in this more challenging market.
This article originally appeared in Oil and Gas ME, July 2020.