Boom in the Gulf: Five reasons why the GCC is a magnet for foreign investment

Vijay Valecha , Gulf News, July 9, 2024

The Gulf Cooperation Council (GCC) countries have emerged as magnets for foreign direct investment (FDI),experiencing a notable surge in capital inflows across various sectors. Th is phenomenon underscores the region's attractiveness as a hub for global business and investment, driven by several compelling factors that have positioned the GCC as a pivotal player in the global economy.

1) Economic stability and diversification initiatives

One of the primary reasons for the increasing FDI in the GCC is the region's robust economic stability and diversification eff orts. Traditionally reliant on oil revenues, GCC nations have embarked on ambitious economicdiversification programmes aimed at reducing dependence on hydrocarbons and fostering a more sustainable economic landscape.
Countries like Saudi Arabia, the UAE, and Qatar have implemented comprehensive economic reforms, including privatisation initiatives, infrastructure development projects, and regulatory reforms, which have significantly enhanced the business environment and attracted foreign investors seeking stable and profi table opportunities.
Renoy Kundukulam, CEO of wealth management company Finmark Captial, said that one of the main reasons forforeign investors’ massive attraction in the GCC is the diversified investment hubs.

"This shift has been driven by long-term strategic plans like Kuwait Vision 2035, Abu Dhabi Economic Vision 2030,Saudi Arabia Vision 2030, and the Dubai Economic Agenda (D33). Additionally, the region's political stability hasbolstered investor confi dence in the long-term prospects of these nations."
It’s not just the initiative of diversification that attracts foreign investors, it’s the ease and smoothness that businesses operate with in the GCC. Tristan Brandt, managing director, Digital Technology Services of Alvarez and Marsal, discussed this point saying, "Consequently, the GCC is seen as an outlier in current global economic environment where opportunity and returns appear more favourable. As a result, capital inflows are improving across a range of sectors and are expected to continue this trend."

2) Strategic geographic location

The strategic geographic location of the GCC countries has also played a pivotal role inattracting FDI. Anuj Goel, senior executive offi cer, of asset and wealth management company, Century Private Wealth, said, “Due to the GCC countries' favourablegeographical position between the junction of Europe, Asia, and Africa, it is more attractive as a global trade and logistics hub.”
The well-developed infrastructure, including state-of-the-art airports, seaports, and logistics networks, further enhances the region's appeal as a logistics and distribution hub.Th is strategic advantage has not only facilitated easier access to regional markets but also positioned the GCC as an attractive destination for companies looking to expand their global footprint.

3) Investment-friendly policies and incentives

Governments across the GCC have implemented investor-friendly policies and incentives to encourage FDI. These include tax incentives, reduced bureaucratic hurdles, streamlined business registration processes, and enhanced protection of intellectual property rights. Bas Kooijman, CEO and asset manager of asset management company DHF Capital S.A discussed an importantpoint when asked about what kind of investment-friendly policies the region is adopting. "This has elevated the appeal of investing in the region as direct ownership has now become possible. Many highnet worth (HNW) investors and VC [venture capital] funds have accordingly been flocking to the GCC to capitaliseon this development. In fact, as it relates to the UAE, the country is on pace to welcome nearly twice as many HNW investors as the United States and this will likely have a direct correlation to a further uptick in regional investment." The establishment of special economic zones and free trade zones has provided foreign investors with additional benefits, such as full ownership rights and exemption from import and export duties. Such measures have created a conducive environment for business growth and innovation, making the GCC a preferred destination for bothm ultinational corporations and small to medium-sized enterprises seeking to capitalise on emerging marketopportunities.

4) Diverse investment opportunities

The GCC offers a diverse range of investment opportunities across various sectors, including real estate, hospitality,finance, healthcare, renewable energy, and technology. Th e rapid urbanisation and population growth in the region have fueled demand for infrastructure development, residential housing, and commercial projects, attracting significant investments from global real estate developers and construction firms.
James Dervin, managing director of global management company Alvarez and Marsal in the Middle East, and co-head in the region talked about the various industries that are accessible for investment in the GCC.

"Outsized opportunities across multiple sectors and industries, developing corporate and legislative landscapes,increasing ease of doing business, potentially favourable taxation arrangements (i.e. subject to efficient structuring and investors’ circumstances) and also the potential to form extremely valuable strategic relationships with lobaplatin's all seem to be contributing to foreign investors’ desire to play in GCC markets."
Moreover, the burgeoning healthcare sector in countries like the UAE and Saudi Arabia has attracted investments in hospitals, medical facilities, and pharmaceutical companies aiming to cater to the growing healthcare needs of the population.

Goel also raised an interesting point that gives the GCC an advantage for FDI infl ows. He said, “Th e opening of closed sectors, previously off -limits to foreign ownership, is gradually expanding the investable universe withinthe region. The countries have created a thriving startup environment, most notably in urban centres such as Dubai, Abu Dhabi, and Riyadh, which is creating an inflow of venture capital and driving innovation.
“Deeper collaborations between GCC sovereign investment funds and foreign companies are causing knowledge transfer and new avenues for investment. Environmental sustainability and green technologies is a distinct niche that GCC countries are focusing on, creating associated opportunities in renewable energy.”

5) Growing consumer market and rising income levels

The GCC boasts a young and affl uent population with rising disposable incomes, which has contributed to the region's emergence as a lucrative consumer market. Th e increasing consumer spending on luxury goods,entertainment, and leisure activities has attracted international retailers, hospitality chains, and entertainmentcompanies seeking to capitalise on the region's affl uent clientele. Moreover, the growing popularity of e-commerceplatforms and digital services has further fueled investments in technology and digital infrastructure to cater toevolving consumer preferences and behaviours.

Dr Pallavi Kishore, head of accounting and finance at Middlesex University Dubai spoke about how the UAE, Qatar,and Saudi Arabia are the top attractions among investors. He said, “Whilst 2022 saw a global decline in FDI, mainlyattributed to overlapping geopolitical and socio-economic crises, the fact that the UAE has become – and remains– one of the world's most stable investment destinations cannot be overlooked. Th e UAE recorded its highest FDIinfl ow at US$22.7 billion (Dh83 billion), being a 10 per cent increase from the previous year and surpassing allother countries in the Gulf Cooperation Council (GCC).
"According to the Kearney FDI Confidence Index [an annual survey of global business executives that ranksmarkets that are likely to attract the most investment], the GCC countries, including the United Arab Emirates,Qatar, and Saudi Arabia, emerge as the most attractive destinations for investors. China, India, the United Arab Emirates, Qatar, Thailand, and Saudi Arabia make up the top six positions, and they are the only emerging markets included in the world rankings. In emerging markets, UAE and Qatar scored the highest optimism ranking as investors continue to prioritise transparency of government regulations, tech capabilities, and tax rates in making investment decisions.”

Vijay Valecha Chief Investment Officer of investment services company Century Financial shared some statistics and percentages showing why the GCC is attractive to foreign investors. He said, “Greenfield FDI projects drive economic growth in the recipient country
by adding jobs and transferring technology & knowledge. While global FDI fell by 2 per cent to $1.3 trillion (Dh4.7 trillion) in 2023, driven by the economic slowdown and ongoing geopolitical tension. UAE pulled remarkable FDI inflows."

In 2022, UAE ranked 19th globally in terms of FDI infl ows and held on to aims of being one of the top 10 countries globally attracting FDI. Today, according to the World Investment Report 2024, UAE came in right after the US, securing itself second place globally in green FDI project announcements in 2023. In 2023, the country announced 1,323 greenfield FDI projects compared to the United States’s 2,152. For perspective, the United Kingdom stands at 1,184, India at 1,058 and Germany at 1,036.
In terms of FDI inflows in 2023, UAE pulled in $30.68 billion (Dh112 billion) compared to $22.73 (Dh83 billion)billion in 2022, a 35per cent year on-year growth and a 72 per cent growth from 2019’s FDI inflow of about $17.87billion (Dh65.6 billion). UAE’s FDI inflow stock grew to $2.2 trillion (Dh8 trillion) in 2023 from $1.5 trillion (Dh5.5 trillion) in 2019, a 47 per cent growth in 5 years. Now, the UAE targets to attract an impressive $150 billion (Dh550 billion) in FDI by 2031, suggesting a massive 388 per cent jump from 2023’s base. (Source: Bloomberg)”
The GCC's increasing attractiveness to foreign investors can be attributed to a combination of factors, including economic stability, diversification efforts, strategic geographic location, investment-friendly policies, diverse opportunities across sectors, growing consumer market, and regional stability. As the GCC continues to implementambitious economic reforms and capitalise on its inherent strengths, it is poised to sustain its growth trajectoryand solidify its position as a leading destination for foreign direct investment in the global arena.

Source

Gulf News