Doha, October 17 (QNA) – Most of the Middle East’s FDI by number of projects, their value and jobs created in the last decade went to the GCC, led by the ‘trio’ of Saudi Arabia, UAE and Qatar, an Ernst and Young analysis found.
Launched to coincide with the Growing Beyond Summit 2012, currently held in Doha, Ernst and Young’s inaugural Middle East Attractiveness Survey is a detailed analysis of how foreign direct investment (FDI) into the region has evolved in the last decade. The report combines annual FDI analysis since 2003 with a survey of 355 global and regional executives on their views about how and where investment across the Middle East will take place in the next decade.
The region has seen the number of annual FDI projects increase from 362 in 2003 to a peak of 1,070 in 2008. Project numbers fell in 2009 and 2010 as the global and regional economies took a step backwards but recovered again in 2011 with an increase of 8% to 928. The value of the investments in 2011 remained low compared to 2008 but again showed a modest recovery on 2010. Initial findings for the first six months of 2012 demonstrated a similar picture with investment project numbers and value flat or below that of the comparable period in 2011.
Despite the size of the projects declining as investors take a more cautious approach to large-scale projects given the recent political challenges, the region still has many positives as the long-term investment outlook from executives confirmed.
“The Middle East has many of the qualities that companies look for in an FDI destination: solid investment fundamentals, strong demographic trends and vast natural resources,” Jay Nibbe, Ernst and Young Markets Area Managing Partner for Europe, Middle East, India and Africa (EMEIA) commented.
Since 2003, the majority of investment in the Middle East – 79% of FDI projects, 62% by value and 65% of jobs created – has gone to the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. The bulk of this has gone to the GCC ‘trio’ of UAE, Saudi Arabia and Qatar, with Egypt the highest placed non-GCC country with 16% of investments by value.
Phil Gandier, Ernst and Young’s Middle East and North Africa (MENA) Transaction Advisory Services Managing Partner says the ‘trio’ GCC members have managed to occupy a positive space in the minds of investors and attract a large portion of actual FDI. “International investors see bigger internal markets, more accessible customers, a stable political environment, and better transport and logistics infrastructure as some of the most attractive features of these economies.”
Saudi Arabia was the big regional winner in 2011 with 161 investments worth $14.7bn establishing the kingdom as the largest recipient of FDI by value. Other markets that outperformed the previous year in 2011 included Bahrain, Iraq and Oman.
Although western Europe and North America have historically brought the most projects by number to the Middle East, with 59% of the total between 2003 and 2011, investment by value has become increasingly concentrated on intra-regional investment. Initial analysis of the 2012 data shows the number of projects originating from Middle East investors exceeding that from western markets for the first time.
“This highlights the ongoing trend of intra-regional investment in the Middle East which has gained significant momentum in recent years. There is growing optimism among Middle Eastern companies in terms of tapping into the potential of their own region,” Gandier said.
However, the United States, the UK and France were still amongst the top five investors in 2011 with 180, 100 and 61 projects respectively. India was also in the top five with 76 projects, an increase of 12% from last year.
Early data from 2012 suggests that the GCC ‘trio’ again attracted the most investment projects with UAE leading Saudi Arabia in terms of project numbers and value. There was also a welcome return of investment into Egypt.
Despite traditionally being seen as a region famous for its vast natural resources, GCC countries have used the surplus cash to diversify into other sectors. The first half of 2012 continued to see increased diversity in the sectors attracting FDI in the Middle East.
Retail and consumer products attracted over 20% of projects in the first half of 2012 and – along with business services, real estate, hospitality and construction – became a top choice for investors. The retail sector is capitalizing on the region’s rich and expanding consumer base.
Real estate has seen a revival in 2012 and attracted the most capital investment. Most regional governments are recognizing their citizen’s social infrastructure needs. In addition to massive outlays to respond to this, and the announcement of ambitious projects like the 2022 FIFA World Cup, the prospect for the infrastructure sector seems promising.
The business services sector is also becoming increasingly popular among investors and ranked second in terms of projects (16% of the total) and third in terms of value. This sector draws strength from the presence of free trade zones.
The perceptions of those already doing business in the Middle East are vastly different to those who are not in the region. Forty percent of those who are not in the region highlighted the current political environment as the key area of improvement needed, however, this dropped to 25 % for the investors who are already there.
Those already present highlight education and skills development (27%) as a priority followed by the need for increasing political stability, investing in major infrastructure and urban projects (24%) and support in high-tech industries and innovation (22%).
“The responses to our survey make it clear that there is a lack of awareness amongst investors who are not doing business in the region. Respondents who are already doing business in the region are well aware of the diversification drive, political environment, and education and labor challenges,” said Gandier.
Unsurprisingly, a quarter of the surveyed investors think that the energy sector will be the main driver of FDI growth in the Middle East over the next two years. However, this varies distinctly between those already present in the region and those who are not. 40% of respondents who are not present in the Middle East consider energy as the main sector, compared to only 19% among investors who are already there.
Established investors see real estate and construction as the most promising growth sector for the future. More opportunities are also emerging in the private and business services sector, real estate, hospitality and construction, information and communications technology, and life siences sectors.
About 75 % of respondents are optimistic about the Middle East’s future attractiveness in the medium-term. This is relatively high compared to most regions, particularly Europe and Russia where only 38% and 57%, respectively, were positive about their attractiveness in the medium-term.
The immediate investment plans of many foreign companies appear to be affected not only by the uncertain global economic outlook but also by the recent unrest in some Middle Eastern countries – with 26% of respondents giving that as the reason for the deterioration of the region’s image. However, 43% of the survey respondents said that they have plans to establish or increase operations in the region next year.
“The Middle East with its large market potential, coupled with investment and infrastructure programs, and abundant natural resources make it a natural choice for consideration by foreign investors. However, challenges remain and the region must improve its technological readiness and regulatory environment, then — with a more stable political environment — it will be better able to compete with the larger rapid-growth markets for investment,” Nibbe concluded. (END)