The wave of political unrest that engulfed much of the Middle East and north Africa (MENA) has led to a dramatic reconfiguration of the region’s investment map. The Arab Spring protests, which began in December 2010, spread across several MENA countries and led to disruptions in economic activity causing FDI in the region to plummet. At the epicentre of the protests was north Africa, which witnessed significant transformations in its political and business environment.

According to greenfield investment monitor fDi Markets, FDI in north African greenfield projects declined from $23.9bn in 2010 to $13.3bn in 2011, and stands at $3.8bn for the first eight months of 2012. Yet The fDi Report 2012, released in April, found that while capital investments into the MENA region declined by 1% in 2011, the number of FDI projects grew by 16% in 2011. The World Bank offers further cause for optimism; although it predicts that FDI investments into north Africa will decline in 2012, it expects inflows to recover and increase in 2013. 

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Thus the picture that emerges when examining north Africa’s investment environment is a mixed one. A survey conducted by professional services firm Grant Thornton found that although the unrest had a negative impact on operations in the region, it was not necessarily deterring businesses from investing. Although 22% of respondents reported that the political unrest had a negative effect on their operations, only 10% indicated that they were less likely to do business in the region. As north Africa’s business environment undergoes significant changes, there is an understanding among investors that these shifts present new risks but also new opportunities.

Shifting interest

A major consequence of the unrest in north Africa has been that markets which were previously perceived as safe FDI destinations are now being re-evaluated by investors. A notable casualty of the Arab Spring was Egypt, which has seen FDI inflows slow. fDi Markets found that in 2011 Egypt attracted $6.2bn, the highest level of greenfield FDI in the region. In the first eight months of 2012, however, it has attracted just $2.2bn.

Regime stability has emerged as a crucial component in attracting FDI. Morocco and Algeria, neither of which experienced sudden changes in political leadership during the unrest, were the only two countries in north Africa that experienced continued growth in FDI in 2011. In contrast, FDI in Egypt, Libya and Tunisia, all of which experienced regime changes in 2011, declined in the same period.

fDi Markets data reveals that the number of FDI projects in Morocco increased by 69% in 2011 when compared with 2010. The country has also received the highest number of FDI projects in north Africa in 2012 so far, attracting 32 projects in the first eight months of the year, accounting for 34% of all greenfield FDI projects in the region. The number of FDI projects in Algeria increased by 25% in 2011 when compared with 2010.

“Algeria is [one of] the most stable countries in north Africa, thus companies which have had a bit of a battering with their investments in Libya are beginning to look at Algeria with new interest,” says Lady Olga Maitland, chairman of the Algeria British Business Council. 

Austria-based investment holding company Agrana highlights the significance of political stability to a company. “We run two businesses in north Africa, one in Morocco and one in Egypt,” says Johann Marihart, the company's CEO. “It was business as usual in Morocco because it was not influenced by the Arab Spring and there were no political problems. The problem was in Egypt, where we were in the midst of constructing our new plant, which was delayed by two months. For a short period of time it was difficult as the hotels were not open, the infrastructure was interrupted, so foreigners experienced difficulties living there. We delayed the [planned] construction work and sent home our employees.”

Libya witnessed the most significant decline in FDI in 2011. According to fDi Markets, the number of FDI projects in the country decreased by 71%, from 17 projects in 2010 to five projects in 2011. In the first eight months of 2012, Libya has attracted eight projects.

New opportunities

The decline of north Africa’s tourism sector shows that the sectors powering the region’s economies are changing. fDi Markets data shows that out of the top five sectors that attracted the most FDI between 2003 and 2012, the hotel and tourism sector experienced the largest contraction in FDI projects in 2011. FDI projects in this sector shrank by 53% last year, decreasing from 19 greenfield projects in 2010 to nine in 2011. The financial services sector also witnessed a decline in project numbers, from 22 in 2010 to 19 in 2011.

Yet the concurrent rise of other sectors reveals that the changes within the region are also creating new opportunities in alternative industries. Out of the top 10 performing sectors, automotive original equipment manufacturer (OEM) has emerged as a key area of growth. Greenfield FDI into automotive OEM increased by 250% in 2011 when compared with 2010, and accounted for 3% of all greenfield FDI in the region.

The textiles sector emerged as another strong performer as greenfield FDI projects showed an annual increase of 147% in 2011, representing 17% of all greenfield FDI projects during this period. “The manufacturing and textile industries, [particularly] in Morocco and Tunisia, are poised for exponential growth,” says Dr Florence Eid, CEO of research firm Arabia Monitor.

“However, a re-calibration of tariffs to incentivise intra-regional trade would need to be undertaken at the policy level to support this growth. If such conditions are met, these industries, in addition to the automobile market, will experience significant growth. Industrial projects such as the Renault industrial facility in Morocco would likely be multiplied by such measures, with sizeable repercussions on job creation, which remains the region’s biggest challenge going forward.”

Wait and see approach

Although businesses around the world are continuing to count the costs of the Arab Spring, despite the unrest, many investors continue to maintain a positive interest in the region’s long-term prospects. “The situation [in north Africa] is still unstable, and it will take some time to go back to normality,” says Nour Suliman, regional CEO for DHL Express MENA.

“The governments [are] still not back to being 100% normal, and because you have political instability, it impacts the economy. But within the next 12 months, we will have a better idea of what will happen next. I believe there is still a lot of potential.”

A foreign investors survey conducted by the Economist Intelligence Unit and the Multilateral Investment Guarantee Agency found that although north Africa's political unrest led to a quarter of investors putting their plans on hold, only 6% of investors withdrew their investments. Additionally, 44% of firms claimed they would not change their plans, instead adopting a 'wait and see' approach.

The protests have led many investors to adopt a more cautious perspective when viewing the region, thus it seems that business in the region this year will be characterised by a more bearish approach to investing. Yet according to Mr Suliman, there is a consensus that the region’s long-term prospects will offer foreign companies compelling business opportunities.

“The thing with north Africa is that it has always welcomed FDI,” he says. “DHL Express has a very strong presence across north Africa and we remain committed to staying [there] because I think the future for north Africa is good. [The countries within it] are all trying to build [up] their infrastructure to attract more companies, and they have relaxed taxation laws. I think most of the north African countries will continue to develop and we continue to look at the region in a positive way.”

The wave of political unrest that engulfed much of the Middle East and north Africa (MENA) has led to a dramatic reconfiguration of the region’s investment map. The Arab Spring protests, which began in December 2010, spread across several MENA countries and led to disruptions in economic activity causing FDI in the region to plummet. At the epicentre of the protests was north Africa, which witnessed significant transformations in its political and business environment.

According to greenfield investment monitor fDi Markets, FDI in north African greenfield projects declined from $23.9bn in 2010 to $13.3bn in 2011, and stands at $3.8bn for the first eight months of 2012. Yet The fDi Report 2012, released in April, found that while capital investments into the MENA region declined by 1% in 2011, the number of FDI projects grew by 16% in 2011. The World Bank offers further cause for optimism; although it predicts that FDI investments into north Africa will decline in 2012, it expects inflows to recover and increase in 2013. 

Thus the picture that emerges when examining north Africa’s investment environment is a mixed one. A survey conducted by professional services firm Grant Thornton found that although the unrest had a negative impact on operations in the region, it was not necessarily deterring businesses from investing. Although 22% of respondents reported that the political unrest had a negative effect on their operations, only 10% indicated that they were less likely to do business in the region. As north Africa’s business environment undergoes significant changes, there is an understanding among investors that these shifts present new risks but also new opportunities.

Shifting interest

A major consequence of the unrest in north Africa has been that markets which were previously perceived as safe FDI destinations are now being re-evaluated by investors. A notable casualty of the Arab Spring was Egypt, which has seen FDI inflows slow. fDi Markets found that in 2011 Egypt attracted $6.2bn, the highest level of greenfield FDI in the region. In the first eight months of 2012, however, it has attracted just $2.2bn.

Regime stability has emerged as a crucial component in attracting FDI. Morocco and Algeria, neither of which experienced sudden changes in political leadership during the unrest, were the only two countries in north Africa that experienced continued growth in FDI in 2011. In contrast, FDI in Egypt, Libya and Tunisia, all of which experienced regime changes in 2011, declined in the same period.

fDi Markets data reveals that the number of FDI projects in Morocco increased by 69% in 2011 when compared with 2010. The country has also received the highest number of FDI projects in north Africa in 2012 so far, attracting 32 projects in the first eight months of the year, accounting for 34% of all greenfield FDI projects in the region. The number of FDI projects in Algeria increased by 25% in 2011 when compared with 2010.

“Algeria is [one of] the most stable countries in north Africa, thus companies which have had a bit of a battering with their investments in Libya are beginning to look at Algeria with new interest,” says Lady Olga Maitland, chairman of the Algeria British Business Council. 

Austria-based investment holding company Agrana highlights the significance of political stability to a company. “We run two businesses in north Africa, one in Morocco and one in Egypt,” says Johann Marihart, the company's CEO. “It was business as usual in Morocco because it was not influenced by the Arab Spring and there were no political problems. The problem was in Egypt, where we were in the midst of constructing our new plant, which was delayed by two months. For a short period of time it was difficult as the hotels were not open, the infrastructure was interrupted, so foreigners experienced difficulties living there. We delayed the [planned] construction work and sent home our employees.”

Libya witnessed the most significant decline in FDI in 2011. According to fDi Markets, the number of FDI projects in the country decreased by 71%, from 17 projects in 2010 to five projects in 2011. In the first eight months of 2012, Libya has attracted eight projects.

New opportunities

The decline of north Africa’s tourism sector shows that the sectors powering the region’s economies are changing. fDi Markets data shows that out of the top five sectors that attracted the most FDI between 2003 and 2012, the hotel and tourism sector experienced the largest contraction in FDI projects in 2011. FDI projects in this sector shrank by 53% last year, decreasing from 19 greenfield projects in 2010 to nine in 2011. The financial services sector also witnessed a decline in project numbers, from 22 in 2010 to 19 in 2011.

Yet the concurrent rise of other sectors reveals that the changes within the region are also creating new opportunities in alternative industries. Out of the top 10 performing sectors, automotive original equipment manufacturer (OEM) has emerged as a key area of growth. Greenfield FDI into automotive OEM increased by 250% in 2011 when compared with 2010, and accounted for 3% of all greenfield FDI in the region.

The textiles sector emerged as another strong performer as greenfield FDI projects showed an annual increase of 147% in 2011, representing 17% of all greenfield FDI projects during this period. “The manufacturing and textile industries, [particularly] in Morocco and Tunisia, are poised for exponential growth,” says Dr Florence Eid, CEO of research firm Arabia Monitor.

“However, a re-calibration of tariffs to incentivise intra-regional trade would need to be undertaken at the policy level to support this growth. If such conditions are met, these industries, in addition to the automobile market, will experience significant growth. Industrial projects such as the Renault industrial facility in Morocco would likely be multiplied by such measures, with sizeable repercussions on job creation, which remains the region’s biggest challenge going forward.”

Wait and see approach

Although businesses around the world are continuing to count the costs of the Arab Spring, despite the unrest, many investors continue to maintain a positive interest in the region’s long-term prospects. “The situation [in north Africa] is still unstable, and it will take some time to go back to normality,” says Nour Suliman, regional CEO for DHL Express MENA.

“The governments [are] still not back to being 100% normal, and because you have political instability, it impacts the economy. But within the next 12 months, we will have a better idea of what will happen next. I believe there is still a lot of potential.”

A foreign investors survey conducted by the Economist Intelligence Unit and the Multilateral Investment Guarantee Agency found that although north Africa's political unrest led to a quarter of investors putting their plans on hold, only 6% of investors withdrew their investments. Additionally, 44% of firms claimed they would not change their plans, instead adopting a 'wait and see' approach.

The protests have led many investors to adopt a more cautious perspective when viewing the region, thus it seems that business in the region this year will be characterised by a more bearish approach to investing. Yet according to Mr Suliman, there is a consensus that the region’s long-term prospects will offer foreign companies compelling business opportunities.

“The thing with north Africa is that it has always welcomed FDI,” he says. “DHL Express has a very strong presence across north Africa and we remain committed to staying [there] because I think the future for north Africa is good. [The countries within it] are all trying to build [up] their infrastructure to attract more companies, and they have relaxed taxation laws. I think most of the north African countries will continue to develop and we continue to look at the region in a positive way.”