It’s time for the annual crystal ball, and I was very interested to read an article in the FT last week which said that 60 percent is the magic number. Apparently, if you’re predicting something with a 60 percent probability it’s high enough to be credible and show conviction, but low enough to give you the wiggle room if things don’t eventuate as you forecast to avoid egg on face. Who’d have thought that fence-sitting has a number?
That said, given the whirlwind of changes we have seen in the last 12 months in the GCC’s trade and investment landscape, even 60 percent feels like a big punt. Who called even a fraction of all of the changes, new rules and developments of 2021?
However, I think you can see a few themes and trends emerging that will continue into 2022 and probably beyond which I’m confident enough to put my name to here as being trends to watch in the year ahead.
Firstly, ESG is here to stay in the region’s foreign direct investment landscape. Multinationals have shareholder pressure and board obligations to operate sustainably – many now have net-zero corporate commitments to meet – and these apply to their entire global operations. As such, to become involved in projects in the GCC, these opportunities have to meet sustainability criteria to even be considered, and this is increasingly the primary deciding factor, ahead of top and bottom-line considerations.
On a very visible level, we already see this in terms of corporate accommodation with the likes of District 2020 (the legacy development for Expo 2020 Dubai) drawing significant company interest on the basis of its genuine sustainability credentials. Expect to see more of this; landlords, developers and whole jurisdictions will have to very quickly shift with the times if they want to retain and attract serious corporate tenants.
As my colleague Noha Al Dahri wrote on these pages in November, we’re on the cusp of a seismic shift in the GCC’s approach to sustainable energy. The immense scale of the projects, spending and activity required for the region’s countries to meet their COP26 net zero commitments will traditional infrastructure projects in time.
Expect to see this sector becoming the major driver of FDI throughout the Middle East in the coming years. This is also a sector where the region can become a global leader given the size of the projects, the amount of capital to be deployed and staunch political commitment to change. The impact in terms of developing a large skilled local labour force, having full R&D functions in the region, inward skills and technical transfers are massive and will all become major drivers of economic growth in their own right.
One of the main features of 2021 has been the real emergence of competitive – even aggressive – FDI attraction policies in the region. The rapid unveiling of new rules and policies has distilled what feels like decades worth of reforms into 12 months and it’s unlikely we’re done yet.
Of course, these changes undoubtedly make the GCC as a whole more competitive in a global context and throw up interesting opportunities for companies already in the region to look at alternative structures and locations.
However, coming at a time while we’re still dealing with Covid-19 and all of its complications and impacts, I do wonder if the corporate world would also appreciate a pause for breath in 2022 in order to allow some of the reforms to bed. This is unlikely.
On a similar note, while the competition for FDI undoubtedly benefits companies by providing new and improved options, for SMEs forced to recalibrate again, evaluate a new jurisdiction and, increasingly, make a binary choice between two or more location options, the scramble for FDI isn’t all good news.
You can almost hear small companies screaming “don’t make me choose” when they’re presented with another requirement for them to be established in location X or country Y. FDI by obligation rarely leads to positive outcomes, for anyone, so the development of genuinely collaborative cross-border solutions, between countries or free zones, that recognise, welcome and endorse establishments from other regional jurisdictions would be truly exceptional and would most certainly benefit the protagonists own FDI attraction prospects.
This year could also be the year that Brexit comes to the region. The mood music, from both sides, suggests that a free trade agreement between the UK and the GCC might be in reach in the next 12 months, or at least that significant agreement may be met on the foundational terms and issues.
This would obviously be good news for the two parties involved but would also signal the GCC’s return as a cohesive bloc on such matters after the challenges of recent years, something which would benefit all other trading partners and FTA aspirants too.
And finally, 2022 will be the year of legacy dividends for the region. For the UAE & Qatar, it’s impossible to overstate the importance of Expo 2020 Dubai and the FIFA World Cup 2022 for each country, respectively.
For those of us in Dubai, I think it’s fair to say that we’ve already seen something of the economic impact of Expo (we can discuss Careem’s surge pricing another day). Expect to see this continue in the months and years ahead as international investors return to the region having originally been enticed, enthused and engaged at Expo.
Here’s to at least 60 percent of the above coming to fruition.
Joe Hepworth is the director, OCO Middle East, and founder of the British Centres for Business (BCB).
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