2012 Middle East attractiveness survey
The reality of FDI in the Middle East
In 2011, the Middle East attracted headlines because of the Arab Spring. However, that did not stop global companies from initiating projects in the region. In 2011, foreign business leaders invested in 928 new projects in the Middle East, 7.8% more than in 2010.
The increase in the number of projects was complemented by a slight increase in the total FDI value — up 2.2% on 2010. This reflects investors’ optimism about the region, bolstered by growth prospects and regional potential in an increasingly unstable global economy.
Despite this FDI increase, investors have been showing caution. While the total number of FDI projects and the total value of investment have gone up, investors have also scaled back the size of individual projects.
In 2011, on average, a new FDI project in the Middle East created 103 jobs, compared with 123 in 2010, 136 in 2009 and 244 in 2008. The average investment size has also been declining.
This can be attributed to investors’ reduced interest in large projects due to economic uncertainty — not only in the Middle East, but globally as well. However, the average size of FDI projects in the Middle East, US$68.8 million, remains higher than the global average of US$62.5 million in 2011.
Sources of FDI: intra-regional investment remains decisive
Western Europe and North America bring the most FDI projects to the region. Since 2003, India has also enjoyed a strong investment relationship with the Middle East. The country ranks as the fourth-largest investment partner for the region, ahead of many developed countries such as France and Germany.
Driven by the UAE, Kuwait and Qatar, intra-regional FDI flows have been exerting an increasing influence on FDI projects as well, with a rise in share of total projects from 14% in 2007 to 24% in 2011. For the first time, in 1H12, intra-regional activity accounted for the most investment in the Middle East in terms of number of projects, value and jobs created. Intra-regional FDI projects doubled in comparison to the same period last year and the amount invested increased by 18%, suggesting that Middle Eastern investors are increasingly optimistic about tapping into the potential of their own region.
The Middle East in numbers:
- 928 new projects in 2011, a 7.8% increase in 2010
- 95,474 jobs created through FDI projects, a 9.9% decline in 2010
- 41% of total FDI value in 2011 went into the construction and energy sectors
- 47% increase of FDI projects in the business services sector in 2011
- 64% of projects took place in the GCC “trio” between 2003 and 2011
Viewpoint: Making MENA even more attractive
It has become clear to me that the Middle East and North Africa (MENA) region has the potential to develop into one of the most important growth regions in the world. I see a lot of possibilities and opportunities: this is a good place to invest; the people and businesses have a real hunger for success and for growth. But that's not to say there aren't challenges.
There are hurdles to doing business in the Middle East that are less obvious elsewhere. There are disparities in societies, for example, that can make things difficult. This is because social inequalities can often make it harder for entrepreneurs to grow and develop their businesses. An important step forward would be to reform the labor market.
Liberalization of labor systems in MENA would open up a world of possibilities — particularly for younger people. But, despite these political challenges, the potential to the region is obvious to all. As the world looks for growth, MENA will be increasingly important both now, and in the future.".
The Commission is delivering what it has promised to make life easier for innovative companies, under our Innovation Union banner. This includes progress on the unitary patent, on venture capital, on public procurement and on standards. We have also proposed to increase EU-level funding significantly for researchers and businesses. Horizon 2020, our future research and innovation program, has a proposed budget of €80b over seven years, up from €55b in the current program. This would provide direct research grants for everything from blue-sky research to demonstrator projects. It would also leverage private funding to provide finance to innovative companies.
Former President of Switzerland and Former Chairman of UBS Bank