Gulf countries are most attractive emerging markets for investors

02 May 2023 5 min. read
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A majority of investors worldwide plan to boost their foreign direct investment (FDI) over the next three years despite discouraging factors like inflation and war. The Gulf Cooperation Council (GCC) countries top the list for the most attractive emerging economies for investors.

The United Arab Emirates, Qatar, and Saudi Arabia top the list of emerging markets that inspire the most optimism from investors, according to the annual Foreign Direct Investment Confidence Index, created by global management consulting firm Kearney and now in its 25th edition.

The UAE is the emerging economy with the most optimism, with its net optimism score making it the ninth most attractive market overall.

Gulf countries are most attractive emerging markets for investors

In general, the Middle East and Asia Pacific regions stand out as especially attractive to investors. Latin America is another region that ranks high on the listing, with Brazil, Mexico, and Argentina among to top emerging markets for FDI.

Most FDI is, however, destined to developed economies, with the US, Canada, Japan, Germany, and the United Kingdom among the largest recipients.

Looking at the worldwide top 25 for FDI attractiveness, while the UAE lost some ground to the likes of European countries the Netherlands and Portugal, Qatar saw its position improve by three spots, while Saudi Arabia is a new entrant to the top 25, similar to India and Thailand.

Gulf countries are most attractive emerging markets for investors

This optimistic outlook from investors on the GCC countries comes at a time of considerable turbulence in the global economy. Considerable uncertainty in the global economy and geopolitical turmoil stemming from Russia’s invasion of Ukraine have only added to the existing instability caused by the lasting effects of the pandemic. Supply chains around the world took a huge hit as lockdowns and stoppages spread across the world.

According to the index, “investors anticipate a rise in commodity prices and increased geopolitical tensions in the year ahead.” Inflation remains a major risk factor.

Investors are forecasting several risks for the year, including increased commodity prices, escalating geopolitical tensions, and political instability in developing countries. These potential stress points include the ongoing conflict between Russia and Ukraine as well as the persistent impacts of the pandemic.

Gulf countries are most attractive emerging markets for investors

FDI flows

Kearney’s report found that global FDI inflows increased slightly last year, from an around $2.07 trillion in 2021 to $2.13 trillion in 2022 – and that growth is expected to continue this year. In a survey of senior executives in 25 countries, 82% of respondents said they planned to increase their FDI in the next three years. That is a slight increase from 76% in last year’s questionnaire.

As far as competitiveness, 87% noted that FDI will be more important in the next three years, up only slightly from last year’s 83%.

“We have entitled this year’s Index ‘cautious optimism’ to reflect the generally positive outlook of investors regarding FDI and globalization despite the profound economic and geopolitical shocks of the recent past,” the report states.

Gulf countries are most attractive emerging markets for investors

A 66% majority of investors believe globalization will increase over the next three years, with 80% indicating their businesses are dependent on highly globalized value chains. Those that expect more globalization pointed to increasingly strong digital infrastructures, more trade opportunities, and fewer barriers to trade. Digital trade and services boomed during the Covid-19 pandemic and much of those new digital offerings are here to stay.

Despite the belief among investors that globalization will continue to increase, 73% also said that in the next three years they expect to see more regionalization, which includes trends like nearshoring supply chains and manufacturing goods closer to customers.

While most of the GCC countries – especially Saudi Arabia, Kuwait, and Qatar – are still highly reliant on oil and natural gas exports, they are increasingly diversifying their economies with more activity in other industries like financial services and tourism. Even traditional oil behemoth Saudi Arabia has been making ambitious moves to modernize its economy, with the Vision 2030 roadmap envisioning a total paradigm shift in the country’s economy and make-up.