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New Blue Ocean: New Opportunities for Investment in the Middle East
Ancient civilizations, abundant oil, deserts and wastelands, wars and conflicts… For a long time, these elements have shaped the perception of the Middle East.
However, as the region accelerates its steps toward economic diversification, it is opening up broader spaces for attracting investment, encouraging innovation, and developing technology. This region, located at the crossroads of Europe, Asia, and Africa — a "land of five seas and three continents" — is now painting a new picture for the world and gradually becoming a major destination for global capital.
According to new data from the greenfield investment monitoring institution, fDi Markets, since the outbreak of the COVID-19 pandemic, the three countries with the largest growth in the number of foreign direct investment (FDI) projects are all in the Middle East. Despite some uncertainties brought about by ongoing conflicts, the Middle East remains a popular destination for Chinese technology companies looking to expand overseas.
Abundant Resources: The Middle East is rich in energy resources, particularly oil and natural gas. For Chinese companies, there are significant opportunities in energy development, procurement, and cooperation, which can meet China’s growing energy needs.
Infrastructure Development Demand: Many Middle Eastern countries are undertaking large-scale infrastructure projects, including in transportation, energy, and water resources. Chinese companies, with their rich experience and strong capabilities in infrastructure, can provide advanced technologies and solutions.
Key Node for the Belt and Road Initiative: The Middle East is a crucial strategic pivot and cooperation region for China’s "Belt and Road Initiative." By participating in infrastructure development and trade cooperation in Middle Eastern countries, Chinese companies can strengthen their brand presence and increase market share.
Diverse Cooperation Opportunities: Beyond traditional resource cooperation, the Middle Eastern market offers diversified opportunities in technology, finance, healthcare, education, and other fields. Chinese companies can explore new business ventures in these areas.
Demographic Dividend: The Middle East has a young population, providing a potential growth market for retail, consumer goods, and services. Chinese companies can tap into this market by catering to the needs of young people in the region.
Government Support and Investment Environment: Some Middle Eastern countries are actively attracting foreign enterprises through policy reforms and investment incentives. Chinese companies can benefit from the open policies and favorable investment environment in the Middle East and North Africa.
Cultural and Historical Ties: China and the Middle East have had exchanges since the era of the ancient Silk Road, laying a foundation for current business cooperation. By deeply understanding local cultures and building good business relationships, Chinese companies can better integrate into the local market.
Strong Government Purchasing Power: Due to relatively stable oil revenues, Middle Eastern governments have strong purchasing power and can plan large-scale or mega infrastructure projects. These projects represent significant business opportunities for Chinese companies.
Rising Consumer Demand: Local residents have strong purchasing power, and as countries in the region continue to open up, there is increasing demand in sectors such as entertainment and consumption. Chinese e-commerce and logistics companies have already started to consider the Middle East as an important part of their global operations.
Growing Healthcare Market: With a population of about 493 million, the Middle East is experiencing aging and a rising incidence of chronic diseases, creating substantial demand for pharmaceuticals and healthcare products. The local biopharmaceutical industry is relatively underdeveloped, making the Middle East a promising market for healthcare companies.
Automotive Industry Growth: In emerging markets, in addition to finance and real estate, sectors related to local assembly, auto parts, aftermarket services, and automotive finance have significant market space. Given the current insufficient local supply and the need for development in the automotive supply chain, Chinese brands have already achieved considerable success, and there may be more opportunities for domestic brands to enter this market in the future.
Saudi Arabia's Vision 2030: In 2016, Saudi Arabia launched its "Vision 2030" economic diversification blueprint, setting a series of goals for social life, industrial development, and national construction. Under this vision, Saudi Arabia is moving toward a diversified economy, making it a new goldmine for Chinese enterprises.
The Middle East spans three continents (Europe, Asia, and Africa), encompassing 22 economies and approximately 15 million square kilometers. Its strategic position is extremely important, and it is also a key region for China’s "Belt and Road Initiative." Chinese companies are currently focusing on the six Gulf countries (UAE, Oman, Bahrain, Qatar, Kuwait, and Saudi Arabia).
From the perspective of per capita income, in 2022, the per capita GDP of the six Gulf countries reached $34,000, higher than the $14,000 of emerging market economies. Qatar's per capita GDP reached $82,000, ranking fifth globally, while Oman’s per capita GDP was $23,000, ranking 46th. Overall, the per capita GDP of the six Gulf countries ranks among the highest in the world, indicating a high level of economic development and a promising consumer market.
In terms of demographic structure, the labor force population in the six Gulf countries is approximately 43 million, accounting for 74% of the total population, higher than the global average of 65%. The overall population structure of the Gulf countries is relatively young.
From an economic perspective, the Gulf countries have a relatively single economic structure, with oil and natural gas as their main pillar industries. Non-oil industries such as manufacturing heavily depend on foreign countries. For a long time, foreign exchange income from oil has led to a sharp increase in per capita income in the Gulf region. However, relying solely on a single industry is not sustainable, prompting the Gulf countries to introduce economic transformation plans and adopt a more open stance to attract foreign investment.
A city worth mentioning here is Dubai in the UAE, a model of transition from an oil-based economy to a diversified economy. Dubai's success has paved a proven development path for the Arab world. We should also mention Saudi Crown Prince Mohammed bin Salman, a bold and ambitious leader born in the 1980s, who has taken significant steps to reduce Saudi Arabia's dependence on oil and attract foreign investment.
In 2016, Saudi Arabia announced its national strategy for transformation, "Vision 2030." This vision aims not only to change the social landscape but also to involve foreign investors deeply in Saudi Arabia’s economic transformation, ultimately creating a modern economy that is not dependent on oil.
In the 2030 plan, Saudi Arabia encourages foreigners to establish small and medium-sized enterprises and relies on foreign investment to develop emerging industries, with keywords such as renewable energy and digitization represented by cloud computing. Saudi Arabia’s vision is not just to end its fiscal dependence on oil but also to link itself to digitalization, renewable energy, and high-tech to create a new economy.
Similar transformation plans exist elsewhere in the Arab world. For instance, the UAE launched its "Future 50-Year National Development Strategy" in 2021, focusing on investment and entrepreneurship in digital economy and advanced technology applications; Kuwait's "Vision 2035," Qatar's "Vision 2030," Oman's "Vision 2040," and Egypt’s "Revitalization Plan" are other examples.
To achieve economic diversification, the Gulf countries have introduced a series of supporting measures in policy execution. For example, in July 2022, the UAE established the Cybersecurity Council to assess investment effects in areas such as 5G, cloud computing, and artificial intelligence and to evaluate the effectiveness of different phases of its vision planning. Saudi Arabia established the Communications, Space, and Technology Commission to set regulations and standards for cloud computing.
From a business environment perspective, to promote economic diversification, the Gulf countries are increasing openness and continuously improving the business environment. For instance, Saudi Arabia is gradually relaxing restrictions on foreign investment, promoting foreign investors' participation in sectors such as technology and education through public-private partnerships. In April of this year, Saudi Arabia launched an Economic Zone Plan focusing on renewable energy, cloud computing, logistics, and the digital economy, with measures such as tax breaks, expedited visa procedures, and financial incentives to attract foreign companies to invest directly.
With the Middle East vigorously promoting economic diversification, Chinese companies venturing into the region are entering a new phase. A report by KPMG China in September this year, "The Transforming Middle Eastern Economy," shows that China’s investment in the six Gulf countries increased from $10 million in 2003 to $1.7 billion in 2021.
It is worth noting that in the past, the main economic entities investing in the Middle Eastern market were state-owned enterprises, primarily focusing on sectors such as energy, real estate, and infrastructure. As the Middle Eastern market becomes more open, private enterprises are also catching up with investments in areas such as cross-border e-commerce, fintech, social entertainment, new consumption, overseas corporate services, and renewable energy, which have become hot sectors in the region.
To the outside world, the Middle Eastern market seems like a "land of opportunity," but succeeding in this market is not easy. The Middle East consists of over 20 countries, each with its unique culture and economic development level. For instance, the six Gulf countries have GDP per capita and internet penetration rates comparable to those of Europe and the US, while other markets like Turkey and Egypt are closer to Southeast Asia in terms of development levels.
While embracing the opportunities in the MENA (Middle East and North Africa) market, Chinese companies must also be aware of the challenges that come with this new blue ocean. These challenges include cultural and linguistic differences that can be difficult to understand, as well as variations in local culture and language. Moreover, navigating the political environment, legal regulations, and market demands in the region is crucial for successful expansion.
How can companies more easily enter and establish themselves in this market? "Localization" has become a key theme for Chinese enterprises venturing into the Middle East. It is essential to prioritize localization because different cultures have different market structures, and the industrial concentration varies significantly. This presents a major challenge for Chinese products entering the Middle Eastern market. Companies must thoroughly understand the local business environment and adapt their product offerings to meet the diverse needs of different Middle Eastern countries and regions.
For example, Saudi Arabia represents a massive market with significant opportunities released by its "Vision 2030," but it is also a challenging market with high entry barriers. Without a mature business model and strong localization capabilities, it is difficult to gain a foothold in this market.
The reason for this is that Saudi Arabia is a monarchy that has relied primarily on oil and natural gas exports for decades. This has resulted in a limited product range, with the oil industry controlled by the privileged class, leaving Saudi Arabia with virtually no private economic entities. Objectively, Saudi Arabia has become a typical B2B and B2G market, where the primary customers for many foreign companies are local governments, state-owned enterprises, and banks. For Chinese companies, partnering with local enterprises and entering the market through joint ventures is the main pathway to gaining access to this market.
A typical example of business expansion in Saudi Arabia is SenseTime. SenseTime entered the Saudi market in 2018 and has since developed multiple businesses in various sectors.
In smart cities, SenseTime chose to partner with the King Abdullah Financial District (KAFD).
In digital tourism, it collaborated with Sela, a well-known local event management company.
In AI education, it worked with the Saudi Data and Artificial Intelligence Authority to implement AI education programs.
Additionally, SenseTime has formed a joint venture with the Saudi Public Investment Fund (PIF) to establish SenseTime MEA, providing innovative AI solutions to the Middle East and building a local AI ecosystem. These partnerships have proven to be effective shortcuts for achieving localized operations.
Opportunities and challenges coexist for companies venturing into the Middle East. Different companies face varying degrees of difficulty and entry barriers when entering this market. While some experiences can be beneficial, for many companies, expanding abroad means entering new, uncharted territories. It is crucial to find their own "ballast" to navigate the waves.
The Middle East is at a crossroads of transformation. The digital revolution is far from complete, and there is a huge demand for advanced technologies to support industry upgrades. In this reforming region, fields such as cloud computing, fintech, artificial intelligence (AI), renewable energy, the Internet of Things (IoT), smart cities, and medical technology are growing rapidly. At the same time, with intense competition and sluggish growth in the domestic market, Chinese companies need to find new growth curves in the emerging Middle Eastern market. Whether it is the digital "new infrastructure" or the more traditional "old infrastructure," there are numerous opportunities for collaboration between both sides.
Entrepreneurs interested in expanding into overseas markets are encouraged to join Hands-on International in exploring the Middle East, learning about local policies and business environments, and preparing for the next step in their global expansion journey!
