David Tynan, General Manager Gulf States takes a regional perspective.

Until 6 months ago business opportunities in the MENA region were diverse and readily available for those willing to pursue them.  The major concern for companies moving into the region was the level of physical risk they and their staff were willing to assume. Should they enter the established and relatively well-regulated markets of the UAE or the riskier but high potential markets like Iran? The search for talent in this environment was focused on balancing the need to fill an ever-growing skills gap with burgeoning wage costs.

This situation has changed globally, but the topography of this change in the MENA region is unique as islands of stability sit cheek by jowl with stuttering economies. What are the characteristics of the economies that are withstanding the current crisis?

Established producers of essential commodities:

Economies with access to essential commodities like oil and gas have the potential to hold their positions in the current global economic environment.

This is evident in the current buoyancy of Abu Dhabi. This stability is provided for by vast, accessible oil reserves and stands in contrast to the current pressure on the economy of Dubai with less tangible finance and property markets.

A commitment to national infrastructure investment.

In an environment where commodity prices are collapsing, commodities alone are not enough to support stressed economies.  MENA states that have invested in infrastructure, be it in transport, technology or education, are now seeing the benefit of increased efficiency through lower trade and production costs. Further to this, countries with mobilised heavy engineering sectors are able to use infrastructure spending as a means of cushioning their economies from the worst of the down turn.

Oil prices have tumbled from highs of over $140/barrel to less than $40/barrel in the past 6 months. Those countries like Saudi Arabia and the UAE that have invested in the infrastructure to ensure cheap, efficient extraction are able to produce profitably despite lower prices.

Investment in modernisation and civil infrastructure, especially in Egypt, the UAE, Qatar and Bahrain is providing potential opportunities for countries willing and able to pursue them.

Stable, investment friendly governments.

In a volatile environment, business is untenable without secure property rights. Where profits have fallen in states with unstable property and ownership rights, capital flight has further damaged weakened economies.

Regional Highlights

Dubai is a fraught investment environment at present but lower rental and salary pressure should provide a cost effective working environment in the short term. Assuming infrastructure spending continues and property regulations remain unchanged Dubai will be in a position to grow effectively when the up-turn begins. 

Commodities and infrastructure spending in Abu Dhabi and Saudi Arabia is helping to maintain solid business environments. Despite falling prices in oil and gas, base load demand globally and relatively cheap extraction costs predict positive economic growth, and linked infrastructure spending will provide business opportunities.

Then there is Qatar. In a slow down that is likely to deliver an average economic expansion of just 0.5% globally for 2009, the Qatari economy is forecast by the IMF to expand by an incredible 29%. This growth is being driven by the maturation of an LNG industry stemming from the third largest gas field in the world. Challenges and opportunities that are the polar opposite to those in almost any other region.

What does this mean for businesses looking at the MENA market? It means that no blanket assessment can be applied to the potential of the region and that due diligence has never been more important. Opportunity exists, but any move must be accompanied by an exhaustive look at the political and economic environments. Where a slowing economy reflects the contraction of key industries, medium to long term prospects will remain stable if infrastructure development continues and property rights are unchallenged.