With new regulatory reforms and market liberalisation at play, less established markets in the Middle East and North Africa (Mena) region hold huge potential in attracting foreign direct investments, a London-based research firm has predicted.
Gulf Arab countries have confidently occupied the Mena’s financial centre stage, thanks to its petrodollar-flushed economy, adequate infrastructure and government-initiated economic reforms that encourage a climate conducive to business operations.
However, as GCC states such as the UAE, Saudi Arabia, Bahrain and Qatar start to mature, “less obvious” Mena markets such as Libya, Egypt, Iraq, Syria and Algeria are seen providing an alternative environment for companies seeking to expand their corporate presence in the region, says Liz Martins, Business Monitor International’s head of Mena – Country Risk and Financial Markets.
“[We’ve looked] at which countries within the [Mena] will lead the growth, or which have the best potential, over the long-term based on four key indicators on our emerging markets checklist,” says Martins.
She explained that one of the indicators includes a strong banking industry that has limited leverage, which in turn will lessen risks that could lead to a possible collapse of the domestic financial sector.
Another is the presence of a large consumer market with the potential increase of the middle-income population. The last two factors are resource richness and market orientation.
Fiscal growth, demographics fuel advantage
With a
thriving banking industry that is expected to post a compound annual growth rate (CAGR) of about 12 per cent between 2008 and 2012, Egypt is undoubtedly a market worth exploring, says Martins.
The Northeast African state currently hosts the regional branches of international banks such as Citibank, Lloyds TSB, Credit Suisse, Barclays, Bank of Tokyo, Deutsche Bank and Societe Generale, among others.
Outside of the Gulf region, another Middle East country that has been shortlisted by Business Monitor as a potential investment growth market is Jordan, which has managed to post substantial gains amid the prevailing economic meltdown.
Official figures released in January by the Central Bank of Jordan showed that bank deposits grew by 11 per cent in December as compared with statistics registered in the same period in 2008.
Likewise, post-war Iraq proves to be promising as the government attempts to work double time to reconstruct the country’s public infrastructure and rebuild its industries. In a report published early this year, the country’s oil minister Hussain Al Sharistani said Iraq is expected to be
one of the world’s top oil producers in the next seven years, beefing up its output to about 12 million barrels of oil per day (bpd) from the current level of 2.6 million bpd.
In February, the
International Monetary Fund acknowledged Iraq’s “strong economic performance” and granted it a $3.6-billion loan, payable in two years, to help it meet its financial requirements amid the declining prices of oil.
“In terms of the resource rich [factor], we see Iraq and Libya really taking off after years of sanctions. Libya, for example, has natural gas outfits that are expected to annually produce from 10 billion cubic metres to 60 billion cubic metres in the next 10 years,” says Martins.
Iraq, which has a population of 29 million, is likewise being eyed as a future retail centre. Regional players such as UAE-based Majid Al Futtaim had been quick to realise that when it announced in February that it will bring the
Carrefour franchise to Iraq towards the end of 2010. The company also hinted at bringing the French retailer brand to Syria, Egypt, Yemen and Libya.
Other markets are considered promising because of their population. According to the
CIA World Factbook, Egypt’s population as of July 2009 stood at nearly 79 million, about 15 times more than that of the UAE. The figure alone speaks for the volume of opportunities that could be tapped to generate revenues.
Algeria also has a prolific population of over 34 million, which is expected to grow annually by 1.2 per cent. The population of Syria (22 million), Libya (6.3 million) and Jordan (6 million) are all seen rising annually by about 2 per cent.
Market liberalisation attracts investors
Martins said most of the emerging Mena markets in their survey have shown initiatives in revising their business policies in a bid to allow foreign players’ involvement in their country’s economic growth.
“I think these countries are actively addressing the issue of liberalisation. Egypt, for example, went all out on their privatisation drive,” she said.
However, she admitted that because of the financial crisis, further steps to liberate the countries’ respective markets have taken a backseat as governments become cautious in their economic approach.
“This is happening everywhere. Governments are just concentrating on getting through the next fiscal year and not taking any decisions because privatisation, is always a bit controversial. Syria, though, is still taking some initiative by passing a law allowing foreigners to own banking stocks. That is a good sign,” she added.
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