Recent social, political and economic developments across the Middle East and Africa mean the trajectory of countries in this region will take highly divergent paths this year. While the United Arab Emirates is celebrating its nomination for Expo 2020, which has given its real estate and financial sector a considerable boost in recent months, political turmoil in Bahrain has taken the sheen off the country's allure for international investors.

The FIFA World Cup 2022 in Qatar and the construction of four mega-economic cities in Saudi Arabia pose highly lucrative investment opportunities for regional and international companies, particularly in the non-oil sectors. Yet Saudi Arabia’s marred human rights and labour law record, coupled with high market entry barriers that continue to disproportionately affect small and medium-sized enterprises, mean the country’s legal system will continue to face significant pressure to reform in order to attract a wider range of Western firms.

The tentative steps taken by Iran’s new leadership, which include re-establishing diplomatic ties with the West, will be an important game-changer for region. The Iranian rial lost more than 40% of its value under previous president Mahmoud Ahmadinejad, leading to hyperinflation and resulting in political victory for Hassan Rouhani in the 2013 presidential elections.

Iran’s unexpected rapprochement with the West and its regional neighbours could reverse its recent economic decline. In his speech at the World Economic Forum in Davos earlier this year, Mr Rouhani invited the global business community to consider Iran as a country with the potential to become one of the top 10 global economic powers in the next 30 years. The country’s large domestic market, diversified industries and highly educated population make for a compelling investment case. The developing ties, particularly between Iran and its immediate neighbours, will be interesting to watch.

Africa’s economic potential is well documented – inward FDI to Africa grew by 7% in 2013. Yet continued political instability in Egypt and Libya means the investment map has shifted and French-speaking west Africa has benefited. The $5bn investment by Abu Dhabi sovereign wealth fund Mubadala and the Dubai-based aluminium firm Dubal into Guinea reveals west Africa is rising as an alternative destination in place of north Africa. 

Mozambique in the south of Africa has emerged as another notable investment destination with its 30% increase of inward FDI last year. Natural resources remain the primary attraction for investors into sub-Saharan Africa as a whole. Gas discoveries in Tanzania and the development of new oil fields in Kenya, Uganda and Ghana mean in the short-term extractives will continue to dominate Africa’s inward FDI.

Mazdak Rafaty is managing partner of Ludwar International Consultancy and SME advisor to the joint Emirati-German Chamber of Commerce.
E-mail: m.rafaty@lic-consulting.com