81% of executives anticipate ME as ‘favorite’ for investments

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AMMAN — According to the latest edition of the EY Global Capital Confidence Barometer (CCB), 81 percent of business executives surveyed in the MENA region expect the Middle East to be a preferred investment destination.اضافة اعلان

This will generate the most growth and opportunities for their companies in the next three years, Ernst & Young (EY) said in a statement recently.

Though 90 percent of MENA respondents experienced a decline in revenue due to the COVID-19 pandemic, most companies feel satisfied with their performance during the crisis.

In addition, 71 percent of those surveyed expect to see revenues return to pre-pandemic levels by 2022 or earlier, while 69 percent anticipate a return to normalized profitability within the same timeframe.

Prompted by the pandemic, almost all executives (98 percent) conducted a comprehensive strategy and portfolio review, and they plan to focus on investing in customer-centric digital and technology capabilities.

Mergers and acquisitions (M&A) will be the preferred strategic option as companies look to accelerate growth in the post-pandemic world, with 37 percent of MENA companies planning to actively acquire in the next 12 months, the statement said.

Matthew Benson, EY MENA strategy and transactions leader, said in the press release that “reduced travel, social-distancing, remote-working, and low oil prices” had a disproportionate impact on corporate earnings. Despite this, MENA businesses have remained “nimble and resilient”, Benson said, adding that there are several sectors with opportunities for consolidation.

Corporate strategies focus on resilience and accelerating digital transformation

The CCB report found that 87 percent of MENA companies are undertaking substantial business and technology transformations to stay relevant and accelerate growth. The statement added that the application of technology in the workplace due to COVID-19 has made MENA businesses more productive, resulting in many sectors following suit.

The respondents cited a specific focus on digitizing customer experiences and business processes. Digital solutions to increase customer interactions and ways to reduce labor costs through automation are also being explored, the statement said.

To support their transformations, 76 percent of MENA companies plan to increase investments in technology and digital, while 64 percent will focus more on innovation.

Growth plans rely on bolt-on acquisitions and domestic assets

Eighty-four percent of MENA respondents planned smaller acquisitions to increase their market share and 55 percent of those planning M&A activity were seeking assets domestically rather than internationally.

The CCB report stated that 94 percent of executives were anticipating greater competition of assets, primarily from MENA region private capital.

The top five investment destinations in the MENA region, including both domestic and cross-border M&A activities, are the Kingdom of Saudi Arabia, the United Arab Emirates, Kuwait, Oman, and Egypt.

The segments most likely to actively pursue acquisitions in the next 12 months are automotive and transportation (45 percent), advanced manufacturing (41 percent), financial services (39 percent), real estate and construction (36 percent), and oil and gas (28 percent), the statement said.

MENA governments and foreign direct investment

To encourage economic activity, governments in the region are enacting regulations that are more friendly to foreign direct investment, both on a corporate level (e.g. foreign ownership of assets, easing of capital market norms, and simplifying the ability to invest in local capital markets) and a citizen level (e.g. elongation of visa periods, citizenship, among other incentives), the statement concluded.

At the same time, governments are trying to promote liquidity in the capital markets via mandatory listings for certain types of organizations and secondary markets for medium-cap companies.