The buzzing metropolises that have sprung from the deserts of the Gulf in a matter of decades have today become global hubs of innovation and investment. Saudi Arabia, Kuwait, the U.A.E. and Qatar now count among the richest countries in the world in terms of GDP per capita. And as governments and private sector players continue to plough money into the startups, infrastructure and new technologies that are set to further boost economies and change the world, the Middle East is determined to be a leader, not a follower, when it comes to the future of business and finance.
As youthful populations continue to grow, so does business for the wise investor and enterprising entrepreneur. Looking at recent data, the countries of the Middle East and North Africa (MENA) remain poised for growth in the coming years. MENA bagged foreign direct investment (FDI) of about US$32 billion in 2018, with the U.A.E. attracting the largest amount of FDI at US$10.4 billion, followed by Egypt at US$6.8 billion, and Oman at US$6.3 billion.
Real GDP in the region is expected to grow at 2.6% in 2020 and 2.9% in 2021, according to the World Bank, with the projected pickup largely driven by increasing infrastructure investment. But where exactly should global investors be looking in this fertile ground?
It’s a place of great change at the moment. Governments in the region have carried out a record number of reforms to improve the ease of doing business for domestic small and midsize firms, and the fruits of this are evident as four Arab countries now sit among the world’s top 10 business climate improvers, according to the World Bank’s Doing Business 2020 study. Saudi Arabia, Jordan, Bahrain and Kuwait account for almost half of the region’s reforms. Meanwhile, the U.A.E. remains the strongest performer overall in the World Bank’s ranking.
With MENA home to millions of long- and short-term working expats, a couple of the Gulf countries have also started to offer new residency visa options for the first time to encourage and reward long-term investment in their countries. Earlier this year, Saudi Arabia announced a new system that offers two types of visas: a permanent (premium) residency with a one-time fee of US$213,000 and a renewable one-year residency for an annual fee of US$26,700. The U.A.E. also made major changes to its visa system in May, including a new “Golden Card” system to grant permanent residency to investors and doctors, engineers, scientists and artists, as well as a long-term visa of up to 10 years and five-year retirement visas for residents that fulfil certain financial security criteria. This sends a powerful message in economies that have long been thought of as transient for workers.
The U.A.E. and Saudi Arabia are also preparing to host two major global events next year: Expo 2020 in Dubai and the G20 summit in Riyadh.
According to a report by PwC, the Expo—which opens on October 20 and runs for nearly six months—will have a significant economic impact for Dubai, which is expected to be the second-most visited city in the world in 2020 and 2021. The emirate is already the fourth most-visited city globally, according to Mastercard’s Global Destination Cities Index, hosting 15.9 million tourists in 2018.
In November 2020, Saudi Arabia will hold the G20 Summit, with participant countries accounting for more than 80% of global GDP. The kingdom also has its own mega-investments in the works, with the planned smart city of NEOM in northwestern Saudi Arabia at the forefront. The project stretches over three countries with territory from Egypt and Jordan comprising a total area of 26,500 kilometers. NEOM will be backed by more than US$500 billion from the Public Investment Fund of Saudi Arabia as well as from local and international investors. Its contribution to the kingdom’s GDP is projected to reach at least US$100 billion by 2030.
This is just a snapshot of the business and infrastructure development currently underway in MENA. And as money continues to flow, the region has witnessed a sizeable improvement in IPO activity, both in terms of volume and value, in the second half of 2019. Six IPOs raised proceeds of US$2.8 billion, compared with a single IPO that raised US$57.6 million in the first half of the year, according to EY.
With net proceeds reaching about US$1 billion, Saudi Arabia led the IPO activity in the region, which was fueled by three listings on the main market, including the Arabian Centres Company that raised US$658.7 million. The Gulf country is also preparing to kick off what is expected to be the world’s largest-ever IPO for Saudi Aramco, the world’s leading producer of crude oil and condensate, which generated US$163.9 billion in revenue in the first half of 2019.
Looking to North Africa, Egypt also is working on an IPO program that will see multiple state-owned companies listed on stock exchanges locally and potentially abroad. This year, the country launched its first sovereign wealth fund. The US$12.4 billion fund aims to ensure the best use of Egypt’s wealth and natural resources.
Despite a big drive in the region to diversify economies, the oil and gas sector continues to grab significant investments, with new discoveries coming to light. Recently, BlackRock and KKR acquired a 40% stake in Abu Dhabi National Oil Company oil pipelines for US$4 billion, while the Carlyle Group acquired a 30% to 40% stake in Cepsa, which is wholly owned by the U.A.E.’s Mubadala Investment Company, for US$3.4 billion. Italian multinational oil and gas company Eni recently announced new discoveries in Egypt, including new resources in the Abu Rudeis Sidri development lease in the Gulf of Suez. In August, it also announced production from the Zohr field—the largest gas discovery ever made in Egypt and in the Mediterranean Sea—had reached more than 2.7 billion cubic feet per day.
Aside from the established big names, MENA economies are also getting a boost from widespread entrepreneurial activity. The startup scene is consistently gaining traction, with US$517 million invested in 354 deals during the first nine months of 2019, according to a report from startup data platform MAGNiTT. The U.A.E. continues to be the main hub for startups, grabbing 62% of the total funding, while Egypt accounted for 27% of deals during the same period. The region witnessed its largest-ever technology transaction in March 2019, when Uber acquired its Middle Eastern rival Careem for US$3.1 billion.
Investors are racing to fuel growth, and countries have welcomed new funds. Last February, Dubai-based Middle East Venture Partners raised an additional US$65 million for its third regional fund, the Middle East Venture Fund III. BECO Capital also closed its second fund with US$100 million in October. And most recently, Mubadala Capital—the financial investment arm of Mubadala—announced new tech funds with assets of about $250 million for MENA.
Overall, despite global headwinds and regional challenges, the Middle East’s economies are looking strong for the future, and investors should keep their eyes on this resilient and visionary meeting point between East and West.