The Mediterranean, Middle East and Gulf region emerges as one of the top destinations for foreign direct investment (FDI) according to the BaroMed 2015 survey released by EY Cyprus today.
· US$85.5b of greenfield FDI in 2013, outperforming China
· Global companies drawn by growth and investment opportunities, improved skills and infrastructure
· Instability (53%) and lack of transparency (29%) remain top concerns
With a total GDP of over US$10t and 17,110 FDI projects in the last five years, the greater Mediterranean region* is already one of the most attractive FDI destinations worldwide, according to the new EY BaroMed 2015 – The Next Opportunity, launched today at the EY Strategic Growth Forum®- Unlocking the potential of Mediterranean, in Rome.
The EY Strategic Growth Forum (SGF) brings together in Rome, for the first time, representatives from countries around the region for a two-day discussion on collaboration and growth in the area, including José Manuel Barroso (former President of the European Commission); Alberto Alesina (Professor, Harvard and Luigi Bocconi University) ; Kjell Nordstrom (Business author and Associate Professor, Stockholm School of Economics); Giorgio Squinzi (President, Confindustria and CEO, Mapei Group); and Maria Elena Boschi (Italy’s Minister for Constitutional Reforms and Parliamentary Relations).
A global FDI destination
Countries covered by EY’s BaroMed 2015 attracted 17,110 FDI projects between 2009 and 2013, primarily directed to EU Mediterranean and the Gulf countries (78% for the two sub-regions).
Because of the relative rarity of acquisition targets and untapped potential in the region as a whole, M&A made up only 35% of total FDI during the period, while greenfield investment represented 65%. Greenfield investment alone totaled US$85.5b in 2013, more than such investments attracts in China.*
Donato Iacovone, EY Mediterranean Managing Partner, says:
“If integration and collaboration within the Mediterranean region continues to be encouraged, in the next few years we could see a new emerging growth area on the world map. The region expects to see positive growth prospects in the near future and investors are taking note. Thanks to its untapped markets and its well-established resources and stability, not only Europe and the US, but also China and India are looking at the area as an attractive destination.”
Marc Lhermitte, EY’s Head of International Location Advisory Services and author of the report says: “For corporate investors, motivation to invest can be strong. It already brims with ideas, energy and untapped skills. And the region will be home to more than 750 million people by 2040, with substantial and growing purchasing power.”
Investors see opportunities today and tomorrow
According to the BaroMed 2015 survey of 156 C-suite executives from 20 countries interviewed in March 2015, the Mediterranean area is deemed to be more attractive than Europe (51%), Asia (52%) and Africa (60%). When asked to compare it to Europe, investors note its faster economic growth and multiple business opportunities, driven by demographics and urbanization, with spectacular new cities or districts springing up in Gulf states, Turkey and North Africa.
Iacovone says: “With its central position relative to Europe, Asia and Africa, large labor markets and vast resources, the region offers a great compromise between growth and costs. In the near future, better infrastructure and improved stability will help draw more industrial and services jobs everywhere.”
Sectors and investments of the future
For greenfield investment, the region promises opportunities in business services (15.4%), digital industries (10.8%) and financial services (10.6%) — the top three greenfield FDI sectors across the region (2009-2013).
In terms of acquisition targets, telecommunication, media and technology (17.3%), retail and consumer products (15.4%) and energy (11.7%) companies drew the most cross-border interest over the same period.
The region is leveraging its central location between Europe, Asia and Africa, to develop the real estate, tourism and retailing sectors to become a global destination and travel hub. Some investors are even bringing back operations from Asia, in order to better manage their supply chain toward demanding European markets. The area is already serving global markets, with 18 of the 100 world’s busiest seaports and 8 of the world’s 30 busiest airports.
Reforms wanted
The report identifies eight FDI growth drivers for the region: digital demand; entrepreneurship; urbanization; economic competitiveness; industrial diversification; renewable energy; social development; and transparency.
Despite a general positive outlook, many respondents of the BaroMed 2015, pointed out risks everywhere in the region: instability (53% on average in the five sub-regions) and lack of transparency (29%) are the main roadblocks to investment and sustainable growth. In addition, they are worried because of the lagging infrastructure in some countries and stagnant economies in Europe, which is still the main source of capital in the whole region.
Investors are clear about what countries outside of Europe must do to enhance their attractiveness: achieving political stability should be the top priority (for 49% of respondents), as well as improving the security of individuals and goods (33% on average in North Africa and the Middle East), followed by efforts in education, infrastructure and international promotion.
Looking ahead
Lhermitte says: “By 2050, high-growth economies in the region will overtake some mature countries in terms of GDP, growth, innovation and adoption of disruptive technologies. Millions of people across the region will become sophisticated consumers. With the BaroMed 2015, we hope to contribute to the next chapter in the history of one of the world’s most fascinating regions.
SOURCE: GOLD NEWS
