2012 Middle East attractiveness survey

The investor’s view

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The Middle East's attractiveness pillars: market opportunities and investment programs

Forty-six percent of investors surveyed for this report highlighted the Middle East’s market potential as its key strength. They recognize the opportunities arising from more than 175 million consumers in the region.

The massive infrastructure and development projects, and supportive government investment programs, are the region’s second strongest point. Access to natural resources also remains high on the list of key features.

Respondents hold a mixed view of the diversity and quality of labor force and the macroeconomic stability of the Middle East. Investors also showed concern about the region’s technological readiness, its regulatory environment, R&D capacity and access to local investors.


What are the main world-class features of the Middle East?

EY- What are the main world-class features of the Middle East?


Large market size and high purchasing power

In response to our survey, business leaders highlighted the Middle East’s market opportunities — large market size and high purchasing power — as the key investment attractions. Population in the Middle East grew at a CAGR of approximately 3% from 2001 to 2011, and it currently stands at more than 175 million people.

The region’s population is relatively young, with a median age of 25 years. This is below the world average of 29, Asia’s average of 29, Latin America’s of 27.7 and far below the developed nations’ averages — Europe’s is 40.2 and North America’s 36.9.

This large, youthful population is also one of the wealthiest in the world. The UAE, Qatar and Kuwait qualify as high-income countries with a mean wealth of more than US$100,000 per adult in 2011. The number of millionaires in the region grew by 2.7% in 2011, where the global average was only 0.8%.This sizeable and affluent population has been attracting many luxury brands, such as Hermès, La Prairie, and Louis Vuitton.

Investment and infrastructure programs

For 37% of our respondents, government investment programs and infrastructure spending is the most attractive feature of the Middle East. Many Middle Eastern countries are trying to compensate for their fading external growth through fiscal programs.

For instance, Saudi Arabia has launched a multi-year spending package equivalent to 19% of GDP, focusing on capital spending and directed mostly at the housing sector. In 2011, most of the extra spending was on increased employment and social welfare, including wages and subsidies.

Egypt has implemented a similar program, focusing on expanding subsidies and transfers, in response to the economic downturn and higher commodity prices. Qatar, Saudi Arabia and the UAE have also maintained their already low interest rates.

To keep pace with a growing population and increasing urbanization, as well as to develop a more balanced economy, countries in the Middle East have been directing funds toward infrastructure development with a focus on education, health care, transportation and power generation.

Many countries are inviting both private sector and international partners to be part of the massive infrastructure and development projects through public-private partnerships (PPPs). In the 2000s, on average, countries in the MENA region spent 8%-10% of GDP on infrastructure.

This was a similar level to spending in other rapid-growth markets, such as India (8% of GDP) and China (9% of GDP) in 2011.This is a much larger commitment to infrastructure in comparison with the developed world; for instance, spending was 2.4% of GDP for the US and 5% for Europe.

A combination of consistently high crude oil prices and high production levels has enabled regional governments to push these infrastructure investments. According to the World Bank, MENA’s infrastructure investment and maintenance needs through 2020 require around US$106 billion per year — a tempting opportunity for foreign investors.

Abundant natural resources

Plentiful oil and natural gas reserves, increasing worldwide demand and rising fuel prices have protected the Middle Eastern economy from the global downturn to a large extent. Access to natural resources is the Middle East’s most competitive feature, according to 30% of our respondents. Interestingly, 44% of investors not yet present in the region, versus only 24% of investors with operations there, believe natural resources to be the most attractive feature.

 

The Middle East's challenges: technology, regulation and R&D

Less than 10% of the investors that we surveyed thought that the Middle East’s technological readiness, research and innovation capabilities were attractive. This is also reflected in the region’s mediocre global ranking in these areas:

  • Technological readiness
  • Regulatory environment
  • R&D capacity

 

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