How the GCC is leveraging foreign direct investment to boost regional confidence

Executives in the survey are more likely to embrace regional supply chains or move operations closer to customers, both of which could benefit GCC countries, given their population of wealthy consumers and proximity to populous North African and South Asian markets. 

The GCC, followed by North America, ranks as the world's top investment region according to our survey respondents, with nearly two-thirds anticipating a significant (4%) or slight (62%) rise in its appeal over the next three years.

However, survey respondents from companies that have not yet established operations view the GCC differently. North America, Western Europe, Central and Eastern Europe, and India are all considered more attractive destinations for FDI by them.

The evolution of GCC FDI

At a regional level, Western Europe and Asia-Pacific have consistently been the largest sources of FDI projects into the GCC over the 2018–23 period, and their lead has expanded in recent years. When it comes to countries, the US and UK lead in FDI projects, while India's contributions are rising, with its GCC investments growing from 52 in 2019 to 252 in 2023, a near fivefold increase.

Over the last six years, business services, software and IT, and financial services have dominated as sectors drawing FDI, as governments invest in local training and education.

Business enablement, and sales, marketing and support, have risen as the top commercial activities drawing the majority of foreign direct investment in the last six years.

1. Attractive economies

GCC countries have stood out for stability in the form of fixed exchange rates, continuity in policymaking, low energy prices and a favorable tax environment. Despite gradually introducing taxes on company profits and private consumption in response to OECD initiatives and revenue diversification needs, the GCC maintains its reputation as a favorable tax environment. The rates of corporation tax in the region are globally competitive.

The region’s governments have also been pursuing rapid reforms of both legal and regulatory environments to make the region more attractive to foreign companies. Female workforce participation is now above the average for the Middle East and North Africa region in every GCC country, while in Qatar and the UAE, it also exceeds the global average.

Besides these strong pull factors, every GCC country has made substantial improvements in the Economic Diversification Index since 2010 while nonhydrocarbon sectors are expected to account for the majority of economic growth across the region for the rest of the current decade.

2. National development plans

Almost two-thirds of executives who participated in the survey report that the UAE’s national development plan has had a tangibly positive effect on their investment plans for the country, while over half of executives say the same for Saudi Arabia. This substantiates the ambition of the vision that has been articulated by governments in GCC countries through plans such as Saudi Vision 2030, We the UAE 2031 and Qatar National Vision 2030. Every GCC country, has articulated a long-term national development plan to shift economies toward higher-tech, cleaner industries and to create more skilled jobs.

Survey respondents from companies with a GCC presence were nearly twice as optimistic about the region's growing attractiveness and six times more inclined to plan an expansion there within the next year.

3. Industries of the future

Through their national development plans, GCC governments aim to develop world-leading industries that attract foreign companies. Governments in the region are strategically positioned to nurture such industries, and countries are already supporting renewable energy and associated clean power industries, and advanced technologies such as artificial intelligence (AI), cybersecurity and even space exploration. Renewable energy capacity has increased more than sixfold in the region between 2018 and 2022, led by the UAE.

There is, however, more that needs to be achieved to meet the GCC’s ambitious renewable energy goals. In each GCC country except for the UAE, combined renewable energy sources currently account for less than 1% of the total energy mix.

Almost a fifth of respondents to the survey identified geopolitical tension and conflicts as the biggest threat to the GCC’s attractiveness, twice as many as those who selected any other risk. For companies with revenues of more than US$1.5b, that figure rises to 31%.

When considering the top three risks identified by companies, rather than a single concern, climate change and the threat of environmental disasters becomes the leading concern. More than a third of companies, and 40% of those with revenue of more than US$1.5b, list climate change among their top three risks.

Methodology and sources

1. GCC FDI data

Data on FDI in the GCC in this report comes from fDi Markets, which tracks greenfield FDI projects worldwide.

fDi Markets defines an FDI project as a cross-border investment in a new physical project or expansion of an existing investment that creates new jobs and capital investment. Joint ventures are only included where they lead to a new physical operation. Mergers and acquisitions (M&A) and other equity investments are not tracked. There is no minimum size for a project to be included.

The FDI projects provided by fDi Markets have been grouped into sectors and activities according to EY categorizations.

2. The perception survey

We explore the GCC’s perceived attractiveness via a survey of international decision-makers. Field research was conducted by FT Longitude in April and May 2024 on a representative panel of 300 respondents. All respondents held positions at director level or above within their companies, and all are involved in or in charge of their company’s decisions on establishing or expanding operations abroad. Of the 300 respondents, 80% work for companies with existing operations in the GCC, with 20% working for companies that have not yet established a presence in the region.

Two-thirds (66%) of survey respondents are located inside the GCC, and one-third (33%) outside. One-third work for companies with headquarters in the GCC, and two-thirds for companies with headquarters outside the region.

Summary

The GCC is strategically redirecting investments to diversify away from oil and gas, as reflected in the 2024 EY GCC Attractiveness Survey. FDI is surging, with the UAE leading in projects and Saudi Arabia in investment value.

Western Europe, Asia-Pacific, and the US are key FDI sources, with notable growth from India. Investment is shifting towards business services and technology sectors. Despite challenges such as geopolitical risks and climate change, reforms and national development plans are enhancing the region's appeal.

Recommendations focus on boosting renewable energy, aligning education with FDI sectors, ensuring judicial independence, and improving regional marketing to attract further investments.