5 minute read
GCC FDI
Neighbourhood Watch: What’s happening in the GCC’s inward investment market in 2021?
How much of a magnet is the GCC for attracting new businesses and foreign direct investment (FDI)? In this contribution, Joe Hepworth, Director, OCO Middle East, and Founder of the British Centres for Business (BCB), examines the landscape and analyses the prevailing conditions and economic ecosystem in the region.
In August last year we had the milestone Abraham Accords signalling the rapprochement between Israel and the UAE and Bahrain; in January the Al-Ula Agreement was signed in Saudi Arabia to end the diplomatic stand-off with Qatar and to return the latter to the GCC fold; and in February 2021, Saudi Arabia signalled that multinationals wanting to win public contracts would need to have their regional headquarters in the Kingdom.
With so many significant initiatives and changes, it’s hard to keep up with what this actually means for companies looking at moving to, and growing, in the region, but I think it is possible to discern a few clear trends.
Firstly, for the short-to-medium term at least, the UAE’s position as the pre-eminent regional business hub is secure on the basis that, along with Bahrain, it’s the only country that can provide total regional connectivity to the whole of the Levant and GCC.
Founding pitch
This very much plays back to the founding pitch for pioneer free zones like JAZFA, DIFC and DMCC – that they can offer complete regional access and that, ostensibly, they can support companies and investors from anywhere in the world.
Whilst the UAE’s regional play is intact, most obviously through Dubai, we’re also seeing the rise of challenger jurisdictions in the UAE. Ras Al Khaimah is one example, which, through RAKEZ, has built an international reputation as a cost effective and efficient place to set up manufacturing operations.
FDI is less interested in reputations and more attracted to practicalities, particularly postCovid, so a number of the newer and more agile locations are grabbing market share based on their more pragmatic approaches.
For Qatar, freshly back in the fold, there’s obviously a serious benefit for the likes of QFC (Qatar Financial Centre) and QFZ (Qatar Free Zone), that companies established there can now access the rest of the GCC, so we can expect to see more regional competition for investment from Qatar.
Logistics boost
For the logistics sector, the most obvious manifestation will of course be the resumption of transhipment operations in Jebel Ali and KIZAD, much to the detriment of the Oman ports.
Indeed, that investment attraction in the Middle East is now altogether more competitive can only be of benefit to the
investor companies themselves. Gone are the days of ‘build it and they will come’.
We are now seeing across the region a very keen sharpening of offers and approaches, with increases in foreign ownership provisions, long term visas, access to residency and more, all becoming more common.
All of this coming in 2021, as we emerge from 12 months of Covidinduced chaos in many sectors, it means that there’s an increasingly compelling array of options for companies looking at the region for the first time, and that’s got to be good for the corporate world.
First-mover advantage
You may think that this is bad for the UAE, and Dubai in particular, but the country’s first-mover advantage, established supply chains, international reputation, and mature industry ecosystems are not something that can be replicated easily or quickly elsewhere in the region, if at all.
Similarly, there’s the old adage that being the best house on the worst street is not really much of a positive, so the wider region improving its offer actually benefits the UAE regardless. 2021 will likely see a small flow of Israeli companies looking to establish operations in the UAE, however this is unlikely to be the breakthrough that many have predicted. Look beyond the few headline announcements, and there’s not actually a huge FDI flow there.
Rather, we expect to see Israeli firms establish commercial partnerships, and distributor and agency agreements in the UAE as they test the market first rather than diving in headlong.
Supply chains
With UAE-Israel supply chains having, thus far, been limited by Covid-19 rather than diplomacy, it will be interesting to see how both air and sea connections grow once we return to normality.
Whilst a bonded land corridor through Saudi Arabia is most likely a non-starter, everyone will be looking for the most efficient channel, so we expect DubaiTel Aviv to become a major air freight route which means that Emirates, with its greater cargo capacity on the B777, is likely to leapfrog FlyDubai and the regional passenger operators as a result.
Saudi Arabia’s recent diktat on regional HQs is obviously still being mulled over in boardrooms here and worldwide and, like all such announcements, details and substance are sought to understand exactly what this means and how it will be implemented and monitored.
In many ways, this is no different to current practice in the Saudi energy sector whereby any company in the Aramco supply chain has to be locally registered and engaged in In-Country Value programmes.
Local connections
This has obviously led to most international companies opting to do business through local agency agreements, so this is likely to be the main outcome with regards to the HQ ruling, certainly for SMEs, who wouldn’t have the resources to establish Saudi operations anyway.
Whilst we await this to fully play out, it’s probably a fair assumption that we haven’t seen the last of the big news in this area for 2021. Expo 2020 is likely to be a forum for both countries and companies alike to put their best foot forward, so I think we can expect a flurry of developments later in the year once Expo is underway.
With the world’s focus on the region, there will be no better time to make a splash and claim the spotlight, even if your competitor does the same the next day.
Joe Hepworth, Director, OCO Middle East, and Founder of the British Centres for Business (BCB)
With responsibilities across all market sectors and multiple regional countries, Joe oversees trade and export support projects across the region and is responsible for delivering the company’s investment attraction services in the region. He also leads the company’s economic development consulting team for the GCC.
As part of Joe’s work with OCO, he holds a number of other important client representational roles in the Middle East. He is Director for Missouri Department of Economic Development in the Middle East; Regional Director for IDA Ireland; Middle East Director for the Connected Places Catapult and has managed the UK’s Department of International Trade regional delivery contract since 2013.
(The views expressed by the author are his own and independent of Global Supply Chain)
