Opportunities are Everywhere – Why the Middle East?
Australia’s trade with Asia has been in the spotlight a lot recently, because it’s going well. Last year Australia signed Free Trade Agreements (FTAs) with Japan, China and Korea. What’s more, trade with these and other Asian economies accounted for more than 55% of our total trade in 2014.
A continent away, the media shows Iraq and Syria burning to the ground at the hands of ISIS, Hamas and Israel firing rockets at each other and the price of oil fluctuating wildly. To the uninformed, the idea that business people should start trading with the Middle East seems like madness. But it’s not, and those in the know, including our own Minister for Trade, the Hon Andrew Robb AO, MP know that there are opportunities in the Middle East. Concluding the long-running Gulf Cooperation Council (GCC) -Australia FTA negotiations in 2015 is on the Federal Government’s to-do list.
So what’s the deal? Why should anyone consider taking their goods and services to the Middle East?
Not all Middle Eastern countries are the same
While most of the media coverage of the Middle East is pretty bleak, it’s also very one-sided. The truth is that not all Middle Eastern countries are the same and while things may be going badly in some parts of the region, in others they are going very well.
Take, for example, the United Arab Emirates (UAE), which has turned into a regional economic power over the last decade. Despite a volatile oil market, the small, oil-rich federation’s economy grew between 4% and 5% in 2014. And its economic capital, Dubai, became one of the top five fastest growing cities in the world, according to a survey of 300 cities by the Brookings Institute and JP Morgan Chase, released in January 2015.
Add to that the fact that just over a year ago, Dubai won the right to host the 2020 World Expo and you have a pretty potent combination for economic expansion and international business opportunities. Dubai is expected to host more than 25 million visitors during the Expo alone and is racing to build state-of-the-art facilities to accommodate them all. Projects like these generate significant business opportunities for international firms, particularly in the design, construction, tourism and hospitality sectors.
This is just one case-study, but you see what I mean… it’s not all bad news.
Rich in natural resources
There's also no getting away from the fact that the Middle East and North Africa (MENA) region - located on the crossroads between Asia, Europe and Africa - is home to 60% of the world’s energy resources in the form of oil and gas. The region contains six of the top 15 oil-producing countries, and three of the top ten gas-producing countries. So, despite the current volatility in the oil and gas markets, the MENA is likely to remain a source of long-term financial security and purchasing power.
The GCC countries, which produce most of the oil are expected to grow above 4% in 2015, leading economic growth in the region on the back of robust non-hydrocarbon activities and large budget surpluses. These countries also benefit from solid financial fundamentals such as huge assets in their sovereign wealth funds and external surpluses. There is no shortage of capital for expenditure.
Promising economic growth ... and liberalisation
In sharp contrast to the world’s developed markets, economic growth throughout the MENA region has remained relatively strong, even during the GFC. Between 2003 and 2013, regional annual economic growth averaged between 5% and 6%, whereas Australia’s economy achieved average annual growth of 3%, the United States 1.7% and the economy of the United Kingdom averaged just 1.3% annual growth. By contrast, a number of MENA countries performed extremely well between 2003 and 2013, led by Qatar, which was the world leader in economic growth for the decade, achieving a whopping 13.4%!
As I’ve pointed out above, the GCC states have plenty of money and their economies continue to grow. Most of them are also aggressively pursuing economic development and diversifying away from hydrocarbons as their key source of revenue. The trend towards liberalisation has helped to stimulate growth in sectors such as construction, financial services, health, tourism and renewable energy. It has also created opportunities for foreign companies from all sectors to capitalise on growing markets in already wealthy economies and there is ongoing demand for foreign investment and foreign expertise across the board.
The MENA is growing in more ways than one. In addition to explosive economic growth, the region has the world’s most rapidly growing population after Africa. Over the next 40 years or so, today’s population is expected to increase by about 80%, from 217 million in 2010 to 392 million in 2050, greatly expanding the number of consumers and companies in need of goods and services.
And it's not just the poor and working classes that are booming. The MENA’s middle class is also burgeoning, driven by increasingly high levels of education in most countries across the region. More than half of the region’s population is less than 25 years old, making it one of the most youthful markets in the world. Other key developed or emerging markets can’t boast the same ratio of young consumers. India comes close, with 48% of the population under 25 years old, but only 34% of both the Chinese and United States populations are under age 25.
The take-away here is the MENA is a rapidly growing consumer market and despite the stereotypes that paint the region in a negative light, its youthful, rapidly expanding and increasingly affluent population is as hungry for sophistication and the same kind of quality products as consumers anywhere else.
Globally connected … and looking sharp
To the uninitiated, the MENA region may seem like a closed and inhospitable society. But as those who have spent time in the region will tell you, the reality is very different. The MENA region is globally interconnected and open to companies and visitors from around the world.
The UAE, for example, is a centrally located hub for international travelers and freight. Traveling by air, you can reach London in seven hours, Shanghai in eight and Delhi in just over two-and-a-half. This natural advantage is reflected in the rapid expansion of the country’s airports. In 2013, Dubai International Airport became the world’s seventh busiest airport, handling 66 million passengers, up from tenth place and 57 million passengers in 2012. As we publish this piece, Dubai International Airport has just been recognised as the world's busiest airport for international travellers.
And the UAE isn’t the only country pushing hard on the transportation front. Qatar’s brand spanking new Hamad International Airport rivals any airport on the planet for opulence and convenience. Although it only handles 10 million passengers at present, this figure is set to jump to 30 million when the airport is completed in a couple of years time. As these statistics demonstrate, the MENA markets are both globally interconnected and attracting expanding numbers of visitors.
I could go on, but I'm sure you get my point - there are plenty of good reasons to consider the MENA as a destination for your international business and plenty of opportunities to get you started. For more on doing business in the MENA, check out my book, Camels, Sheikhs and Billionaires: Your Guide to Business Culture in the Middle East and North Africa.