Mideast main FDI source for Gulf region

Muscat: The Middle East investors are emerging as major investors in the Gulf region in terms of investment value.
“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,- according to the Middle East Attractiveness Survey released by Ernst and Young (E&Y).

Although Western Europe and North America have historically brought the most projects by number to the Middle East, with 59 per cent of the total between 2003 and 2011, investment by value has become increasingly concentrated on intra-regional investment.

The 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.

Top five investors
“This highlights the ongoing trend of intra-regional investment in the Middle East which has gained significant momentum in recent years.,- said Phil Gandier, Ernst & Young transaction advisory services managing partner, Middle East and North Africa. 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 per cent from last year.

Since 2003 the majority of investment in the Middle East -” 79 per cent of FDI projects, 62 per cent by value and 65 per cent 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 the UAE, Saudi Arabia and Qatar, with Egypt the highest placed non-GCC country with 16 per cent of investments by value.

Retail and consumer products attracted over 20 per cent 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 capitalising on the region’s rich and expanding consumer base.

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 per cent to 928, says the survey.

“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,- added Gandier.

Saudi Arabia was the big regional winner in 2011 with 161 investments worth $14.7 billion 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.

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.

Jay Nibbe, Ernst & Young Markets Area Managing Partner for Europe, Middle East, India and Africa (EMEIA) comments, “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.-

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, the 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. Real estate has seen a revival in 2012 and attracted the most capital investment.

Most regional governments are recognising 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.

Phil continues, “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 labour challenges.-

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.

Forty percent of respondents who are not present in the Middle East consider energy as the main sector, compared to only 19 per cent among investors who are already there.

Times of Oman 2012, Oct 18 2012