Uncovering Opportunities in the Middle East and North Africa

Despite news headlines highlighting political instability in the Middle East and North Africa (MENA) region, business continues as usual. FSG estimates that only 14% of the region’s GDP, which is expected to surpass US$ 4 trillion by 2017, comes from unstable markets. With private consumption forecast to grow more than 7% in MENA and spending power nearly 50% higher in GCC markets than in Central and Eastern Europe, there are plenty of investment opportunities for foreign multinational companies.

Three market developments to watch in 2014

  1. Iraq: This is your last chance to stay ahead of competition in Iraq. Devastating violence deservedly draws media attention, but it does not preclude the emergence of significant business opportunities. Iraq has the fifth-largest oil reserves in the world and funds are already being spent on infrastructure upgrades in education, healthcare, housing, IT, and retail. Iraq is expected to have MENA’s second-largest youth population within a decade, providing future customers to consumer-oriented companies. Many companies are working with local partners to capture these opportunities, while minimizing security and operational risks. First-movers are positioned to build customer loyalty, establish relationships with key government officials, and gain market share. FSG clients should read Frontier Market Access: Iraq to learn about strategies for entering the market, finding local partners, and navigating the difficult regulatory environment.
  2. Iran: Oil analysts estimate that global crude prices could drop by up to 15% following an international agreement involving Iran’s nuclear development program. Companies should expect lower oil prices to provide some relief to oil-importing countries in North Africa and the Levant, plagued by dwindling currency reserves, and as a result, currency volatility since 2011. Sanction rollbacks will also lead to more companies assessing Iran as a frontier market. Still, senior executives should manage expectations for Iran. Even if a deal is reached, it will be complicated to undue decades of an uncoordinated sanctions policy.
  3. Saudi Arabia: The recent crackdown on illegal labor is designed to provide long-term economic benefits. And while Saudi Arabia remains the top MENA market for many companies, senior executives should plan for higher inflation, which could impact consumers and small businesses, and project delays at least through the beginning of 2014. Close to one million migrant workers left Saudi Arabia this year. Some small businesses, such as bakeries and grocery stores, were forced to close after losing workers. Costs are up for electricians, mechanics, and plumbers. Foreign companies should allocate additional resources for recruiting and developing Saudi nationals due to mounting pressure from the government. FSG clients should read the Saudi Quarterly Market Review Q3 2013 report for strategies to overcome labor challenges.

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