Grasping Infrastructure Opportunities in M. East & North Africa

Infrastructure in the Middle East and North Africa (MENA) boasts great potential and investment opportunities. According to the latest estimate from MEED, an online business intelligence provider for MENA, the region has more than US$3 trillion of projects in the pipeline, concentrated in construction, power, transportation, and the oil and gas industry. Last week, HSBC together with Deloitte Global Chinese Services Group jointly held a webcast introducing the infrastructure and construction opportunities in MENA, attracting more than 200 participants from home and abroad.

HSBC China Economist Xiao Ping Ma explained the economic environment and prospects for the MENA region to the audience. According to the Regional Economic Outlook released earlier this month by the International Monetary Fund, stronger prospects for the euro area and a marginal strengthening of the outlook for China should benefit the MENA region.

As for China, 2017 became the second most acquisitive year in history by both deal volume and value with 436 deals totaling US$141 billion. However, many Chinese enterprises were challenged from multiple dimensions. According to Deloitte China Financial Advisory Infrastructure & Capital Program Leader Patrick Fung, Chinese investors face four key issues – talent, risk, financing and long-term strategy. The lack of professional personnel with expertise in outbound investment has become a pressing problem for most Chinese companies as projects are getting more complicated. The larger scale of projects also demands more attention be paid to risk management. In terms of investment strategy, it is strongly advisable to set up overseas investment platforms and choose a strategic location for their future operations. It should also be noted that more Chinese investors have recently turned to project financing instead of full corporate guarantees.

To tackle the abovementioned problems, Deloitte China Global Infrastructure Service Center Tax & Business Advisory Director Eric Lin suggested enterprises thoroughly analyze compliance and market risks, optimize financing and operation tax structures, be meticulous in their contract negotiations and find appropriate local partners to achieve the most effective outbound investment.

Cynthia Corby, Deloitte Middle East Construction Industry Leader, and Vishal Rander, Deloitte Project & Infrastructure Finance Director outlined the attractive features of the Middle East market. MENA countries have been focusing on infrastructure construction, which is also regarded as the key industry under the Belt and Road Initiative. Population growth and economic diversification of MENA will fuel its continuous need for infrastructure investment and gradually stabilizing oil prices will facilitate the awarding of contracts. Cynthia highlighted several MENA countries with high-value projects in the pipeline, including Saudi Arabia, the UAE, Egypt, Iraq, Oman, Qatar and Kuwait. Large regional planned projects were also mentioned including Saudi Arabia’s NEOM megacity project, whose value totals a record US$500 billion, and other nuclear power, chemicals, construction and solar power projects each with a value exceeding US$20 billion.

Vishal provided deep insights into the main issues concerning outbound investors tapping into Saudi Arabia and the UAE, analyzed government investment policies, the privatization trend and potential outbound investment opportunities in transportation, electricity, water, social welfare and other fields.

The Deloitte Middle East team outlined the key success factors of Chinese companies investing into MENA, e.g. project due diligence, partner selection and financing structure. To close the first section of the webcast, Vishal shared case studies in which Deloitte has supported overseas investors' financing projects and helped large contractors calculate estimated cost to complete (ETC) for effective cost control in complicated projects.

A Q&A section then received a warm response from attendees as Deloitte professionals gave detailed explanations of the key considerations when investing in MENA infrastructure projects and the impact of VAT implementation on the Saudi Arabian market.

Deloitte is devoted to supporting the BRI. In 2017, it announced a strategic investment of US$40 million to facilitate Chinese companies' business activities along the Belt and Road. Patrick Fung mentioned during the webcast that Deloitte has put up a strong, dedicated BRI team by combing our local team expertise and CSG team, as well as our China infrastructure team, to support Chinese clients investing globally, and has already provided comprehensive services to more than 100 Chinese companies engaged in BRI projects across the globe.