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Where are the hotspots for foreign investment?

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While the global economy may be stuck in low gear for another year, analysis released today points to 15 investment hotspots in the Europe, Middle East and Africa (EMEA) region that should offer some good news to businesses.

IHS announced the findings from its study on foreign direct investment (FDI) hotspots at the company’s Global Economic and Country Risk conference this week.

The FDI hotspots are:

* Emerging Europe: Czech Republic, Romania, Serbia, Slovakia and Turkey;

* Sub-Saharan Africa: Ethiopia, Kenya, Tanzania, Uganda and Ghana; and

* Middle East and North Africa: UAE, Qatar, Saudi Arabia, Tunisia, and Iran.

 

Emerging Europe

The Czech Republic, Romania, Serbia, Slovakia and Turkey are five future hubs for FDI in emerging Europe and have clear advantages for businesses.

“The Czech Republic and Slovakia have favorable risk profiles, business-friendly agendas and highly educated populations, making these countries ripe for opportunity,” says Sara Johnson, senior research director for global economics at IHS Global Insight. “Romania’s low labor costs, privatization opportunities and natural resources also make up an attractive package for businesses looking to invest.”

IHS Global Insight forecasts that real GDP growth in Emerging Europe is on a steady course for the next 10 years. All five countries will see their real GDP close to 3.0 percent through 2025.

The business environment in Serbia and Turkey is on the ups, but is slightly more challenging. “Serbia is a long-term play for businesses as its growth prospects really depend on accession into the European Union in the 2020s,” Johnson says. “Turkey is a more ‘high risk, high reward’ market. You have a large, young, growing population with low labor costs and access points to Europe and the Middle East, but a security environment that is more risky than what we see of our other highlighted markets.”

 

Bright spots in sub-Saharan Africa

Many African economies will grow rapidly over the next decade. However, the total size of African GDP remains very low. Total GDP of the African continent was estimated to be $2,3-trillion in 2015, similar to Indian GDP, and about 3% of global GDP. Many sub-Saharan African countries remain highly dependent on commodity exports, making their exports and fiscal revenues vulnerable to the current slump in world commodity prices.

Despite these challenges, IHS economists identified a significant number of sub-Saharan African economies with high long-term potential growth rates over the next decade.

The East African region is a particular growth and investment hotspot, with Ethiopia, Kenya, Tanzania and Uganda all forecast to show rapid economic growth over the next decade. Major LNG projects are planned for Tanzania and Ethiopia, which could boost their economies over the medium to long-term outlook if these projects get the go ahead.

“Ethiopia is a star on the rise,” says Rajiv Biswas, senior director for economics at IHS Global Insight. “The government has been undertaking strategic policy reforms to build up its industrial sector, led by garments and food processing, and they have accelerated infrastructure development including hydropower dams, railroad, and ports as well as a 3G roll-out scheduled over the three-year outlook.”

Real GDP growth in Ethiopia exceeded 10% per year in the decade to 2015. Strong growth is expected to continue, with GDP growth forecast at 7,6% in 2016.

Kenya has a diversified economy including tourism, food processing, and IT-BPO industries as important growth sectors. Kenya has become one of the most attractive destinations in Africa for FDI inflows into a wide range of sectors, including infrastructure, energy, real estate and tourism. The Kenyan economy has grown at a pace of just over 5% per year in the decade to 2015. Tanzania has also shown rapid growth of 7% per year during 2013-2015, with similar growth expected in 2016.

 

Middle East and North Africa: Diversified economies to benefit most

Despite the impact of low oil prices and civil unrest on many countries in the Middle East, a number of economies have a favourable long-term growth outlook, including the UAE, Iran, Qatar, Saudi Arabia and Tunisia.

“In the Middle East, the lifting of economic sanctions on Iran could significantly boost its medium-term economic outlook,” Biswas says. “Iran is a middle income country with a per capita GDP of $4 520 and a population of 78-million. The lifting of economic sanctions will boost real GDP growth from 0.9 percent in 2015 to 3,2% in 2016, and push GDP growth to an average pace of 4,5 % over the next decade.”

Iran is expected to benefit from strong trade and investment flows with Asia, and is part of the One Belt One Road Initiative by China, with plans to build a high-speed Silk Road rail link from China to Tehran. “This will help to improve supply chain logistics for bilateral trade between China and Iran, which both governments are targeting to reach $600-billion by 2025,” Biswas says.

 

UAE

According to the IHS study, the UAE is forecast to grow at 3,5% per year over the next decade, helped by a recovery in Abu Dhabi’s oil exports due to gradually improving oil prices over the medium term, as well as strong growth in Dubai’s economy. “Dubai’s role as a leading global commercial aviation and shipping hub as well as tourism destination has helped to diversify the structure of the UAE economy,” Biswas says.

 

Saudi Arabia

Saudi Arabia is the largest Middle East market with a 2015 GDP of $653-billion. Saudi Arabia’s long-term potential GDP growth rate is forecast at around 3,5% per year as oil prices gradually recover over the medium-term. A new National Transformation Plan will increase non-oil revenue, while public spending has already been curtailed to narrow the fiscal deficit. Plans to create a Saudi mega sovereign wealth fund with around $2-trillion in assets will also help to finance a significant diversification in the structure of the Saudi Arabian economy.

 

North Africa

In North Africa, Tunisia and Morocco will be growth and investment hotspots. Tunisia is forecast to grow rapidly, at 4,2% per year over the next decade, while Morocco is also forecast to show strong growth of 3,7% per year between 2016 and 2025.

“EU trade and investment ties with both Tunisia and Morocco are expected to be a key growth driver,” Biswas says. “The EU is negotiating with both Morocco and Tunisia bilaterally for the creation of a Deep and Comprehensive Free Trade Area, which will further boost EU trade and investment flows to both countries. For the EU, helping to build strong, fast growing economies in North Africa is a key strategic priority to help improve geopolitical stability in the region.”