Geopolitics in MENAT: Opportunities Await

The HSBC MENAT perspective: Four letters encapsulate one of the greatest drivers of geo-economic opportunities for Professional Services across MENAT: Asia. China is already the Middle East’s biggest trading partner and energy buyer, for one. Beijing’s US$4trn global push via its ‘One Belt, One Road’ initiative¹ also encompasses the Middle Eastern region and Foreign Ministers from Saudi Arabia, Kuwait, Oman and Bahrain carried out a five-day visit to the Asian behemoth in January. The Secretary-General of the Gulf Cooperation Council (GCC), Nayef bin Falah al-Hajrah, joined them. ²

MENAT’s interest in Asia is certainly not exclusive to China, with the region having deep-rooted relationships across the continent – one home to 65% of the world’s population and three of the globe’s top five economies by 2050.³ These strong ties have created a simple equation: as Asia rises, so too will MENAT.

Of course, MENAT has much to offer as well, including its position at the heart of global geo-economic crossroads – a melting pot of Western, African and Asian trade. The region’s plethora of young, well-educated, digitally literate, culturally aware and extremely ambitious talent amplifies its global appeal. Increasingly leveraging this geographic, intellectual and digital potential must be a cornerstone of Professional Services’ next growth chapter, roundtable participants said.

“There are rarely guarantees when it comes to geopolitics. But the majority of the MENAT region has smartly and successfully ticked boxes that make it a safe bet for investors at home and internationally – creating a robust springboard for the flourishing Professional Services sector in 2022,” said Pri McNair, the Regional Head of Coverage for Commercial Banking in MENAT at HSBC.

Proactivity and Repositioning

All this geo-economic potential is underpinned by the financial smarts being achieved by many countries across MENAT. At the roundtable, participants focused on how the Middle East has positioned itself against other global players to make it especially attractive to investors eyeing the geopolitical map, wondering where best to invest in developing economies. That these countries have achieved this in a world characterised by volatility, uncertainty, complexity and ambiguity (VUCA) speaks volumes about the future potential for Professional Services, roundtable participants pointed out.

In 2020, global foreign direct investments (FDI) inflows shrank by 35% due to the Covid-19 pandemic – yet they climbed by 12.4% to US$27.7bn in the GCC.⁴ Astonishingly, this is nearly a 50% differential.⁵ Financial proactivity across the region – i.e., welcoming more foreign-owned companies and more accessible visas – boosted investors’ confidence and, in turn, helped buffer several nations from the worst effects of the world’s greatest financial squeeze in nearly a century.⁶

Several countries’ determined vaccination rollout for Covid-19 – the UAE has the world’s third highest vaccination rate⁷ – also helped significantly as parts of the MENAT region had several more months to do business than regions with slower rollouts, roundtable participants highlighted. The ongoing benefit is reflected in the International Monetary Fund’s (IMF) anticipated 4.1% growth forecast for the Middle East in 2022, up from 3.7% estimated in April 2021.⁸ This positive trajectory means the Professional Services sector in the region can leverage more business growth this year – both from established and new sources – than many other regions worldwide, roundtable participants explained.

Ones to watch

Great diversity across MENAT means every nation is arguably one to watch in 2022, but roundtable participants were able to whittle the list down to a handful. An “astounding level of market entry demand” puts the region’s economic hegemon, Saudi Arabia, at the top of the list, they agreed. In particular, the Kingdom benefits from a decision-making architecture that enables swift and efficient directives, such as the requirement by market participants to move their regional head offices to the Kingdom. This is a clear objective of the Crown Prince Mohamed bin Salman, which pays significant dividends in the fast-moving world of geo-economics.

“If they keep playing their geo-economic cards right, Saudi Arabia could push FDI to vastly different levels in five to ten years,” one roundtable participant said. Law firms and consultancies are already establishing offices, and even their headquarters, in-country. If managed correctly, this hegemonic growth will have a positive ripple effect across MENAT for Professional Services.

Oman is also keen to lock in geo-economic alliances, with a recent raft of legislation around FDI, including 100% foreign- owned onshore businesses for the first time and with the offer of various licensing and visa concessions. There has also been a key strategic focus on creating greater efficiency in government with the restructuring of various ministries and government-owned entities. Family businesses, a cornerstone of the Sultanate’s economy, are also changing to keep pace with the increasingly competitive and globalised environment. The Professional Services sector has been working closely with both its international client and network base – as well as the government – to bolster efforts to see this regional treasure thrive economically – both regionally and with partners in Asia, Europe and Africa – in the 2020s.

Looking west, Egypt is quickly emerging as a hot spot for Professional Services as the country works hard and creatively to cater to its population of 103mn people (MENAT’s most populated nation; ten times the size of the UAE). Diversifying Egypt’s biggest sectors – i.e., construction, infrastructure and energy – would create a more competitive marketplace that would attract more Professional Services to further elevate Africa’s second largest economy, behind Nigeria.⁹

“The cutting edge of climate change”

Few topics are as deeply tied to geopolitical reputation as climate change and, more broadly, environmental, social and governance (ESG). This region is especially vulnerable to climate change, from water scarcity, flooding, excessive heat, climate refugees and unfortunately, much more. This is a space where MENAT’s penchant for innovation and crafting international alliances must be maximised in the 2020s.

Impressive work is already underway, with several nations within MENAT home to the world’s largest and most competitively priced renewable energy projects. Saudi Arabia, the UAE and Bahrain have also set net zero targets, while Egypt and the UAE are hosting COP27 and COP28 in 2022 and 2023, respectively. Oman has also launched several solar power and wind projects with a key focus on green hydrogen projects. Many green technological innovations are also underway, as is a rise in green financing. Developing the right structure and mechanisms for green finance can help unlock a US$2trn opportunity in economic growth in the GCC alone – and more than 1mn jobs by 2030.¹⁰ Inevitably and rightly, this puts a far brighter spotlight on the region’s ESG credentials with an acknowledgement that there must be a dovetailed approach to both the environment and society and governance.

The outlook will flex and twist as the question marks synonymous with geopolitics and a pandemic are answered. But without doubt, this multifaceted backdrop will generate demand for Professional Services in the region.