Potential Investment Opportunities in GCC

Jul 06, 2015

The GCC countries have been doing a lot better than both the developed and the emerging markets. The governments in the GCC region have been using oil revenues to develop various industries such as aviation, infrastructure, retail, health and education and thereby spurring strong growth in non-oil sectors. The success of GCC airlines at the global level stands testimony to this. Emirates Airways, Qatar Airways and Etihad Airlines have provided intense competition to their American and European rivals.

KEY QUESTION 1: Can you explain the market growth in the GCC region?

The GCC countries have been doing a lot better than both the developed and the emerging markets. The governments in the GCC region have been using oil revenues to develop various industries such as aviation, infrastructure, retail, health and education and thereby spurring strong growth in non-oil sectors. The success of GCC airlines at the global level stands testimony to this. Emirates Airways, Qatar Airways and Etihad Airlines have provided intense competition to their American and European rivals.

KEY QUESTION 2: What are the major upcoming projects in the GCC region?
 
The following is a brief list followed by a detailed explanation.

Table: Upcoming projects/events in the GCC Region

Country Key Event/Project Project Value (in USD bn)
Qatar Qatar National Vision 2030 86
Qatar FIFA World Cup 2022 26+
Kuwait 2020 Kuwait Development Plan 113 (2015-2020)
Saudi Arabia King Abdullah Economic City (KAEC) 100 (from 2005 till completion)
Dubai World Expo 8
Source: Marmore Research

Qatar National Vision 2030 & FIFA World Cup 2022
The National Vision 2030 Plan outlines spend of about USD 86bn to build roads, rail network, seaports and airport. About 40% is to be financed by the Government and the rest by Government entities. The investment opportunities will further broaden as Qatar is set to host the FIFA football World Cup tournament in 2022. This will result in spending not just restricted to stadium construction and upgradation but also in establishing hospitality centers, tourist spending and associated economic activities. All this will add 1-1.5% to GDP value according to a Marmore Report on FIFA World Cup 2022, written in April 2013. While stadiums will come up at USD 3 billion, expansion of the road network (USD 27.5bn) and building the fully automated metro system and long-distance railway network (USD 41bn) could make Qatar an attractive business destination.
 
Kuwait Developmental Plan 2015-2020
A new Kuwait Development Plan (KDP) for 2015-2020 was announced in August 2014, with a focus on implementation of several long-stalled mega strategic projects. This will address the imbalances of economic reforms and require the private sector to play a bigger role in realizing the country’s strategic vision through the implementation of mega projects.
 
According to the Marmore report on KDP 2015-2020, some of the highlights are:
  • 521 projects will be executed over the next five years  
  • Construction and Development of the Metro rail project
  • Developing another rail network as part of the larger GCC wide rail network  
  • Development of the Mubarak Al Kabeer port on Boubyan Island  
  • Privatization of selected public schools and universities  
  • Increase in private sector jobs for Kuwaiti nationals from 92,000 to 137,000 over the   development period
 
King Abdullah Economic City (KAEC)
KAEC, one of the largest projects run by the private sector in the world, is an attempt to build an integrated city to benefit from investments and competition in the Saudi market. It provides investment opportunities in various sectors like logistics, retail, and manufacturing. Its strategic location on the Red Sea and the port’s infrastructure would pave for significant business and investment opportunities.
 
World Expo 2020
World Expo 2020 in Dubai will be a six-month exhibition of trade, innovation and products from across the globe. It will boost tourism, trade and investments in the economy. The likely Government expenditure amounting to USD 7 to 8 bn on infrastructure will have a trickle-down effect on the other industries such as banking, real estate, hotel industry, aviation, etc. Such mega projects create employment opportunities in the economy.

KEY QUESTION 3: What are the potentially emerging sectors at GCC regions?
 
Petrochemicals & Allied Industries
GCC region provides a competitive edge to power-intensive sectors such as petrochemicals, metallurgy and fertilizers by offering cost advantage through its low-cost energy resources. The energy costs, natural gas prices and the average electricity cost in GCC are lower than the rest of the countries in the world. Once the oil prices rebound, vertical diversification can serve as a lucrative option by opening up doors for gas, own petrol stations abroad, petrochemicals, fertilizers, refineries, and other downstream and heavy industries. However, these are capital-intensive industries and will be profitable only when the oil prices shoot up and stabilize.
 
Social Infrastructure
Investment in education, building skill set for nationals to take up private sector jobs and R&D can expand the local pool of talent available for employment and can also create jobs through entrepreneurial ventures set up by nationals. Investment in these sectors will widen the scope of further investments in future. The private health sector has high potential, as there is a dearth of state doctors and staff. This led public hospitals in Abu Dhabi to enter into contract with international experts, to avail their services. The region is known for world’s highest number of diabetic and obese patients. The private sector can jump in to provide better services to broader coverage.
 
Retail & Tourism
According to a Mamore report, Luxury Retail has an enormous potential for investments due to increasing brand awareness among the youth, deep-pocketed tourists and increasing income levels of the nationals. E-retail accounts only for a minimal share and the same is not likely to change soon due to the shopping related behavioral patterns and preferences of the GCC nationals.
 
Tourism has always been a flourishing sector across the GCC countries due to its strategic location between the west and the east. The Marmore Report on GCC Hospitality points out that the hosting of World Expo 2020 in Dubai and FIFA World Cup 2022 in Qatar, will lead to further growth in international travellers and thereby create opportunities in the hospitality sector.

Banking
In the past, GCC states have been actively investing in other nations through acquisitions and Sovereign wealth funds. This broadens the scope of investment banking and consultancy in the GCC region. Financial Sector has been on a rise ever since the Gulf States realized the importance to diversify, and also due to the fiscal surplus of the Government and the high income of nationals. Even the insurance sector is likely to improve and experience a high growth as the income levels of citizens go up and many infrastructure related projects materialize.
 
KEY QUESTION 4: What are the incentives to Invest in Gulf regions?
 
The Gulf countries have relaxed various regulations to welcome domestic and foreign players to investment in the private sector. There are free zones to offer tax benefits, easier foreign investment regulations to encourage foreign ownership and reduction in bureaucracy to reduce costs and delays. There are incentives to encourage entrepreneurship for the nationals.
 
Saudi Arabia introduced financing guarantee program for small businesses in 2006 worth USD 200mn, Qatar launched ‘TechWadi’ in 2013, offering training and support to selective nationals for their entrepreneurial ventures, In Oman, 5% of the lending by the Banks for 2014 were to be channelized towards small and medium sized enterprises. Kuwait rolled out the National Fund for the Support and Development of SMEs to provide finances for small entrepreneurial ventures set up by nationals. Dubai SME programmes have offered support in areas of licensing, consultancy and facilitated start-up phase for about 13,500 local SMEs. A subsidy programme that reduces licensing and fees up to 90% for up to three years was also introduced. SME 100 is one of the Dubai SME programmes where SMEs are encouraged to apply for the rankings and the top 100 performers get recognized.
 
The inclusion of Qatar and the UAE in the MSCI’s Emerging Market Index, the planned opening of Saudi Arabia’s Tadawul Stock Exchange in 2015 and its signing MoUs with the Abu Dhabi Securities Market and Bahraini stock market could spread some positive sentiments to equity investors. The investment law in Qatar now welcomes full foreign ownership in IT, consultancy, sports, and culture, entertainment and distribution services.
 
Abu Dhabi’s construction, manufacturing and finance sector are the most significant and attractive non-oil sectors for investors.
 
There is great potential in Saudi Arabia in the generic pharmaceuticals, food processing and automotive subsectors. Export promotion entities such as Export Development Authority in Saudi Arabia and an Export Development Centre in Bahrain help companies to export their products. In Saudi Arabia, provision of credit facilities and insurance services also facilitate exports.
 
KEY QUESTION 5: How is GCC investor-friendly?
 
GCC states have untapped potential for investors in various sectors. The region has an investor friendly taxation environment with low corporate tax rates. It has a well-developed infrastructure and mega development plans are set to materialize in the coming years. The increasing population and the increasing income levels of the nationals raise consumption and create new demand for various products and services.