Special edition 2012 Middle East attractiveness survey

Despite the events of the Arab Spring, in 2011 the number of FDI projects in the Middle East rose by 7.8% and their value increased by 2.2% on 2010. Clearly, there is still confidence in the Middle East’s attractiveness as an investment destination.

As our survey reveals, business leaders are also optimistic about FDI in the region: three quarters of respondents to our survey believe that the attractiveness of the Middle East will continue to improve.

In addition, 43% of our respondents said that they have an immediate investment strategy in the Middle East.

The Middle East has many of the qualities that companies look for in an FDI destination:

Solid fundamentals
Strong demographics
Government willingness to improve the already concrete growth prospects

The region has a large population, which is also one of the youngest and wealthiest in the world. The possession of vast natural resources and increasing oil prices have created substantial budget surpluses among oil exporters, which have helped governments to increase their spending on infrastructure projects and efficiently drive their diversification efforts.

As a result, the image of the Middle East has changed: it is no longer seen as solely an oil-rich region; its diverse economy can now offer growth in many other sectors as well including real estate, hospitality and construction, chemicals and metals & mining.

Overall, investors remain positive about the Middle East, but still see some areas for improvement in the region’s R&D capacity, regulatory environment and technological readiness.

They also see room for growth in innovation and entrepreneurship. The relatively stable Gulf Cooperation Council (GCC) countries such as the GCC “trio”: Qatar, Saudi Arabia and the United Arab Emirates (UAE), remain FDI favorites, while investors are more cautious about non-GCC nations like Egypt and Libya.

In terms of sources of FDI, intra-regional investment remains decisive. The Middle East became its own largest investor for the first time in 1H12 in terms of projects as well as jobs created, while maintaining its position as leader in terms of FDI value since 2005.

Our report also highlights the differences in opinion between investors who are already operating in the region and those who are not. Companies doing business in the Middle East are better educated about the internal environment, the diversification efforts and opportunities available and are very optimistic about the future.

Meanwhile, those who do not operate in the region are often far less aware of these opportunities.

This special edition, as well as the upcoming full report, are designed to help both business leaders in their investment decisions and governments in the Middle East to remove barriers to future growth.

Ernst & Yong