The Middle East is seen as the most attractive region for investment.
This suggests that businesses are increasingly warming to the positive dynamics inherent in many of its economies.
The finding emerged from Deal Appeal, our survey on investor attitudes towards, and appetite for, investment in the UK. As part of the survey, we also canvassed views on other markets around the world, with a quarter of investors rating the Middle East in their top three regions for attractiveness, placing it ahead of Asian markets and North America.
The results point to an increased appreciation of the opportunities emerging in the Middle East among both domestic and international investors.
The need for new and improved infrastructure across the region is resulting in the need for significant investment and access to a burgeoning youthful demographic with disposable income is creating opportunities.
For example, with more than US$2 trillion of projects in the planning stage across the Gulf Cooperation Council (GCC) region, according to MEED Projects statistics, led by construction, with transport and power in second and third place, respectively.
Investment opportunities in healthcare and education
Healthcare and education continue to present attractive investment opportunities, with initiatives such as the UAE Vision 2021 National Agenda emphasising the creation of a first-rate education system as a means to diversify its economy.
Indeed, a recent BCG report suggested that the private education market in the GCC would double from US$13 billion today to US$26 billion in 2023, boosted by state-led moves to encourage private sector involvement in the sector and the region’s youthful population: 60% of the GCC population is under 25.
Technology is also fast catching up as a key area for investment in the region. Tech start-ups in the Middle East and North Africa raised US$650 million in 2017 (down from US$931 million raised in 2016, but up significantly from US$384 million raised in 2014 and US$268 million in 2015).
Meanwhile, global tech giants are looking to the region for investment opportunities: last year Amazon acquired e-commerce business Souq.com for US$580 million. Alibaba also announced plans to invest US$600 million to create a tech town housing 3,000 companies developing robotics, artificial intelligence and apps in Dubai. The governments of both Dubai and Abu Dhabi have backed this movement. Both have set up start-up accelerator programmes for Fintech companies in particular, and the government of Dubai has publicly stated its intention for all government transactions to be blockchain-powered by 2020.
Yet despite the region’s positive dynamics, investment is often hampered by perceived risks, such as political unrest, lower transparency standards than some other markets and less well-developed corporate governance, with many businesses in the Middle East family-owned and run.
Recent negative press coverage regarding the region may have given investors pause for thought about committing to the region. This is perhaps why, when we asked executives in our survey where they actually had plans to invest over the next two years, the Middle East came in fifth position.
However, many of these perceived risks can be mitigated and managed by taking appropriate professional advice at the beginning of any proposed investment in the region, enabling investors to understand how to manage the risks in the region and so capitalise fully on the opportunities.
As long as both parties have the right frameworks and agreements in place, these arrangements can enable investors to gain a foothold in the market without committing significant resource.
Indeed, a recent PwC survey found that 56% of CEOs in the Middle East were actively planning a joint venture or strategic alliance over the next 12 months, demonstrating strong appetite for this kind of deal that can provide an ideal starting point for any regional strategy.
In addition, investors and companies can take advantage of Dubai’s position within the region as a financial and business hub.
The UAE has recently announced a raft of measures designed to encourage and protect foreign investors and to foster long-term commitment to the region.
These changes may well prompt international investors to look even more closely at establishing or expanding in the region from a UAE base as it signals the government’s intentions of attracting further foreign investment.
Asian investors are particularly drawn to the Middle East, our survey shows, with 29% ranking its markets as among their top three for attractiveness.
China’s Belt and Road Initiative, an ambitious state-led plan to open up commercial routes from the country to Europe, is one reason the Middle East is such an interesting region for Asian investors, with United Arab Emirates among the key beneficiaries.
During the summer, for example, Dubai-based ports operator DP World signed an agreement to build a trading cluster with partner Zhejiang China Commodities City Group, while the UAE International Investors Council is expecting trade between the two countries to reach US$70 billion by 2020.
In addition, we have seen strong interest in the region from South East Asia. While this has traditionally centred around the energy markets, recently we have seen growing interest in other sectors including financial services, hospitality, retail and technology. In addition, Dubai’s position as a hub for Africa, as well as the GCC, offers Asian investors a strategic opportunity to target two very different markets from one base.