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18 Oct 2012

Evolving opportunities in the Middle East

Simon Cooper

by Simon Cooper

Chief Executive Officer, HSBC Middle East and North Africa

The Palm Jumeirah in Dubai, built during the boom years of the 1990s

The Palm Jumeirah in Dubai, built during the boom years of the 1990s

The Arab spring has brought unprecedented changes, but the economic challenge for new regimes is only beginning. Uncertainty has had an impact. Foreign direct investment in the Middle East and North Africa (MENA) has fallen every year since 2008, from a high of USD100 billion to USD44 billion last year. That is partly due to the global financial crisis, but also due to fears about how stable new institutions will be and what attitude new governments will take to economic growth. Inflows into Egypt and Libya, in particular, have dropped significantly as investors waited for the dust to settle.

Any honest appraisal must acknowledge risks as well as opportunities. Yet recent events have done nothing to detract from the region's fundamental strengths, and there are four pillars which support confidence about its prospects for prosperity and growth in the medium to long term.

MENA is well placed for the rapid rise in South-South trade that is already happening. Trade flows with Asia have been growing at
18 per cent a year
since 2001

The first pillar is natural resources. MENA countries hold 58 per cent of the world's oil and 45 per cent of its gas reserves. Largely because of this, they have six of the world's largest sovereign wealth funds. Over the five years to end-2011, the Gulf Cooperation Council (GCC) states had a cumulative budget surplus of some USD 550 billion.

The second pillar is the region's enviable demographics. More than three in five of its citizens are under 25. This has huge potential for the workforce and the consumer market. Research for HSBC last year showed that half of inward investors expect a growing middle class to create many business opportunities.

The third pillar is geography. MENA is well placed for the rapid rise in South-South trade that is already happening. Trade flows with Asia have been growing at 18 per cent a year since 2001.

The business environment is the fourth pillar. Overall GDP growth in 2011 was 5.1 per cent, against 1.3 per cent for developed markets. Governments, particularly in the Gulf Cooperation Council states, are pursuing pro-growth policies. Capital markets are developing fast. Capital flows within the region are strong. The Qatari Investment Authority alone intends to invest some USD30 billion in 2012. Massive infrastructure projects are under way in Saudi Arabia, the United Arab Emirates, Kuwait and all around the Gulf – including the Doha metro and improved venues for the 2022 Football World Cup. There is also heavy investment in education and in new energy industries. This is a crucial period, as leaders new and old consider their future direction. The evidence overwhelmingly suggests that region's best interests are served by engaging wholeheartedly in trade and investment.

This article is based on a speech by Simon Cooper to the World Knowledge Forum in Seoul, South Korea, on 11 October 2012.

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