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Gulf Arab states to woo investors, business risks come into focus | RiskMap2022

Middle East and North Africa

Gulf Arab states to woo investors, business risks come into focus

Victor Tricaud | Analyst

In 2022 the UAE and Saudi Arabia are pinning their post-pandemic futures on becoming global investment destinations. The UAE in September announced the Projects of the 50, which aim to attract USD 150bn in foreign direct investment (FDI) by 2030. Similarly, Saudi Arabia in October 2021 launched the national investment strategy; the kingdom hopes to raise net FDI flows to the country to more than USD 100bn annually by 2030. This year the two states will revamp their business environments and offer large investment opportunities. With these growing opportunities, investment risks will come in focus, particularly as intra-regional competition and international scrutiny of investment practices sharpen.  

To provide greater certainty to potential investors, the UAE and Saudi Arabia will introduce new business regulations, particularly in strategic industries. For instance, the UAE announced in September that it would introduce a Federal Data Law to promote the development of a mature digital industry. Further regulatory developments are likely to take place in other strategic economic diversification sectors, such as clean energies. In Saudi Arabia, pro-business developments in 2022 are likely to extend beyond the realm of industry and investment regulations. In addition to setting up special economic zones to facilitate investment, the kingdom will relax some of the religion-inspired legal strictures on social life to attract foreign talent.  

 

In parallel, privatisations are set to accelerate, with state-related entities directing proceeds into much needed economic diversification initiatives. As a result, expect further sales of stakes in state-related and sovereign wealth fund-controlled companies, including in some of the Gulf Arab states’ most prized oil and gas assets. Opportunities to partner with state-related entities under public private partnership models, particularly in economic diversification sectors where local know-how remains lacking will also grow (think: hydrogen technology). Invest, but be mindful of political, contractual and reputational risks associated with the strategic nature of these sales and partnerships.

The two states’ investment drives will present lucrative opportunities but will also carry significant business risks for investors. Frequent and short-notice regulatory changes, while likely to be pro-business, will heighten compliance costs and uncertainty. Meanwhile, with environment, social and governance coming into focus globally, investors will need a clear and up-to-date understanding of these fast-evolving markets. Finally, increased competition between Saudi Arabia and the UAE will force companies to carefully examine their local footprint, considering intra-regional flows of goods, but also of people and investments.

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