Trade between Asia-Pacific and Middle Eastern economies set to grow strongly

NZPA

Thursday 21st July 2011

Asia-Pacific firms are likely to be key beneficiaries of the growing trade between the Middle East and North Africa (MENA) region and other emerging markets, according to research published today by the Economist Intelligence Unit.

New routes to the Middle East: Perspectives on inward investment and trade, a report commissioned by HSBC, examines the MENA region's attractiveness to investors and businesses from around the world. In a global survey of 618 executives, nearly one-half of whom are at the C-suite level or equivalent, respondents broadly expect the Middle East to feature more prominently in their business plans in the next five years.

Two-fifths of Asia-Pacific companies surveyed for the report say that the MENA region currently accounts for less than 3% of their global revenue. But in five years from now, nearly all Asia-Pacific companies expect a much greater share of their global revenue to come from the region. The percentage of Asia-Pacific companies making a quarter of their global revenue from the region is also expected to more than double in five years. The expansion plans of Asia-Pacific firms centre on the wealthy Gulf states and on Turkey-reflecting the impact of high oil prices on the economic outlook for these countries, as well as the perception that political risk is relatively low in these markets.

"As the momentum for trade between emerging markets acquires critical mass, the combination of its favourable location, resources and population is making businesses everywhere look at the MENA region as an opportunity," says Abhik Sen, editor of the report. "This is particularly true of emerging-market firms which often see opportunity where firms from developed markets see a challenge."

Other key conclusions of the report include the following:

• The UAE is the most favoured business location in the Middle East. For most survey respondents, expansion plans centre on the wealthy Gulf states, which are also favoured because of the perception that political risk is lower there than in other countries of the region. The UAE is by far the most popular investment and trading location, cited by 63% of respondents overall. Latin American executives also showed strong interest in Egypt and Morocco.

• Latin American executives are less worried than their peers in other regions about the impact of political turmoil on business in the Middle East. A total of 55% of respondents from Latin America (compared with 43% from both North America and Asia Pacific) say that the political upheaval seen this year in the region is unlikely to affect business adversely in the medium to long term. This could reflect the fact that many Latin American countries have come through their own transitions from authoritarian or military rule to democracy in the past 25 years. Nevertheless, a majority of investors, unsure how to handle rapid change, say that if forced to choose, they would prefer stability to democracy.

• Corruption is less of a concern for emerging-market firms than it is for businesses from developed markets. Corruption is a relatively minor concern for emerging-market investors in the Middle East, especially among Asian and Latin American companies (cited by around 30% from these regions). However, for European and North American firms, corruption is cited by 51% and 42%, respectively, as having a major impact on operations, possibly reflecting tighter anti-corruption legislation in their home markets.

• Cultural factors present major concerns for emerging-market businesses. The view that businesses and workers may face discrimination on the basis of gender, race or nationality in the Middle East is cited by a significant minority of respondents from all regions as a major issue. An average of 41% of respondents across all regions agrees with the statement that "attitudes towards women and ethnic minorities significantly hold back the economic development of the region". Almost one-half (48%) of Latin American businesses also feel that the business culture of the Middle East is more suitable for firms from other emerging markets than it is for firms from developed markets.

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