Localising technology and digital manufacturing are major opportunities for economic growth and greater supply chain resilience
Economic diversification is imperative for the Middle East. The region’s overdependence on petrochemicals in manufacturing is a widely acknowledged risk that weakens resilience and could impede future economic growth. The industry contributes 24% of GDP in Saudi Arabia and 16% in the UAE in terms of oil rents, compared with less than 1% in the U.S. and China.
Middle East governments need to decide which tech segments within the vast technology universe—and even which product families within segments—they want to pursue with large-scale projects, and provide ample support to attract global tech companies as occupants.
In recent years, some Middle East countries, chiefly in the GCC, have launched ambitious programmes to diversify and expand their manufacturing. These countries seek to meet national and regional demand, and position themselves as export platforms. Typically, these projects are part of a state-led master economic development plan.
Countries are prioritising technology for localisation because of its growth potential and strategic importance. At present, high-tech manufacturing is concentrated in a handful of countries (none in the Middle East), whose companies function as providers to the world.
The Covid-19 pandemic has highlighted the region’s susceptibility to supply chain disruptions and tested its resilience, making it sometimes difficult or impossible for companies to secure the technology on which they depend.
In response, governments and regional authorities are accelerating their localisation initiatives, as are large, global tech manufacturers with similar interests.
Three categories of manufactured tech products, with a combined Middle East market size of roughly $125bn, are well-suited to Middle East localisation opportunities. These are:
Advanced materials such as nanomaterials, smart materials, and bioplastics;
Advanced components such as electronic semiconductor components, and battery components; and
Advanced finished products such as general-purpose robots, space systems, IoT [Internet of Things] devices, and 3D printers.
Some of these products are disruptive and innovative; others are mainstream but satisfy the pressing needs of regional companies in numerous sectors.
Competition among countries will be fierce as they stake claims on lucrative tech segments, gain first-mover advantage, and attract tenants. Already in the Middle East, Neom Tech & Digital Company, founded in 2021 as the first subsidiary to be established out of Saudi Arabia’s $500bn Neom city project, is building advanced digital infrastructure. Likewise, the industrialisation and innovation strategy of the UAE, led by projects by Abu Dhabi’s Mubadala Investment Company, is focused on the localisation of high-tech products.
In this environment, Middle East governments must target first those localisation opportunities that have confirmed market potential and grant them the right to win. Experience elsewhere indicates that governments should select products that:
Have captive and sizeable national and regional demand;
Are in markets that are not yet highly concentrated;
Can be manufactured cost competitively in global terms; and
That could create potential network effects for additional manufacturing localisation opportunities.
Next, after identifying the right opportunity, Middle East governments must put in place a supportive ecosystem. Financial incentives may include direct subsidies to lower upfront capital expenditure requirements, and indirect subsidies such as tax breaks to reduce long-term operating expenditures. Governments will also need to ensure seamless integration into global supply chains, enabled by reliable and modern physical infrastructure for road, sea, and air transport, and by digital networking capacity.
Likewise, regulatory and policy reforms targeted at the technology sector can help lure potential tenants to the region. These could include support for technology adoption, ensuring data security, and protecting intellectual property. Similarly, pure water, enabled by investments in desalination plants if needed, and high-quality and stable electricity, are prerequisites for a successful ecosystem.
Choice of tenants
Finally, to bolster their chances of success, governments should choose tenants carefully, giving priority to those that hold leadership positions in their industries and that can attract other companies into their operating sphere by virtue of their prominence. Likewise, companies that invest significantly in research and development (R&D) warrant special consideration. These companies are more apt to retain their leadership position and remain viable over the long term, given the pace of change in the tech industry. Companies that can demonstrate a strong financial position and have prior experience with greenfield localisation projects are more apt to possess the capabilities and resources to succeed.
As competition intensifies to establish tech manufacturing and satisfy captive and global demand, Middle East governments must move fast. They need to select those areas – materials, components, or products – where they have a right to win, and create the ecosystems to enable companies to thrive.
This MEED published article was produced byAlessandro BorgognaandChady Smayra, partners, andMaha Raad, principal from Strategy& Middle East, part of the PwC network.
As the pandemic-fuelled liquidity begins to wane and the reality of inflation and higher interest rates sets in, many economies will face considerable challenges. Middle East and North Africa (MENA) countries are vying to attract global investors and increase Foreign Direct Investment (FDI). Yet, capital flows are reversing from emerging to developed markets—specifically in the United States, where interest rates are rising to levels not seen since 2018. The year 2018 is illustrative: during that time, emerging markets experienced substantial capital outflows as international investors reduced their exposure and consolidated their risk into emerging economies with fewer perceived risks, given their proactive and progressive economic policies.
Attracting foreign investors into emerging market economies has always been difficult. Nevertheless, thanks to the extended period of near-zero interest rates, emerging markets were blessed with investors hungry for higher returns. The plentiful supply of money coupled with historically low yields in rich countries led investors to explore higher yields in riskier markets across various assets, including public equities, public debt, private equity, and venture capital. The lower cost of capital allowed investors to finance opportunities that otherwise would have been unfeasible.
Unfortunately, the party is over, and the pain is just beginning. The US Federal Reserve has started an aggressive interest rate hiking campaign, which will likely be the sharpest rise in interest rates since former chair of the Federal Reserve Paul Volcker’s war on inflation from 1979 to 1982. Many economists believe this will likely lead to a recession in the world’s biggest economy.
A US economic slowdown or a recession couldn’t come at a worse time for emerging markets, particularly those in MENA, where most are fighting chronic unemployment, especially among youth and women, slowing growth, and higher debt levels. Large oil-exporting countries in the Gulf Cooperation Council (GCC) — such as Qatar, Saudi Arabia, and the United Arab Emirates (UAE) — are better positioned given heightened commodity prices. However, their lack of interest rate autonomy given the dollar peg limits their ability to deviate their monetary policy from that of the United States.
Additionally, the global demand destruction cannot be ignored as the post-pandemic surge in demand levels off, with consumers beginning to feel the pinch from inflation and rising interest rates. This may put a damper on global energy demand and tourism. Inflation also impacts global emerging markets, causing a perfect storm for the arrival of tough economic times. Currency depreciation against the dollar is increasing the cost of imports and repaying foreign currency debts for banks, companies, and governments, many of which racked up significant debt during the pandemic.
Research suggests that the impact of US monetary tightening on emerging markets will vary depending on the factors for the change. Interest rate hikes driven by US economic expansion will likely lead to positive spillover effects that benefit more than hurt emerging markets and, therefore, are neutral on capital flows. On the other hand, interest rate hikes to fend off inflation will likely lead to emerging markets disruption. Here, there are two key points to mention. First, there is a more significant effect on emerging markets from rising interest rates due to inflation than those due to growth. Second, emerging economies with stable domestic conditions and policies tend to fare better and experience less volatility. In a global economic environment with slower growth, higher cost of capital, and a shrinking capital pool for riskier assets, discerning international investors will consolidate their investments in the highest-quality emerging markets.
The Goldilocks moment experienced in markets over the past couple of years is subsiding. Geopolitical risk, inflation, and US interest rates are all rising. In addition, two crucial macroeconomic trends will impact the future capital flows to emerging markets. First, globalization policies that have focused overwhelmingly on cost efficiency and rationalization will now focus on resiliency and values-based investments. At an Atlantic Council event on April 13, US Treasury Secretary Janet Yellen articulated a blueprint for US trade policy, stating, “The US would now favor the friend-shoring of supply chains to a large number of trusted countries that share a set of norms and values about how to operate in the global economy.”
Second, Environmental, Social, and Governance (ESG) issues are gaining more attention with countries and companies putting them on the agenda. For an indication of what’s to come, consider Total, the French oil and gas giant, marking its shift to renewable energy and rebranding to TotalEnergies, as well as Engine No. 1, a US impact hedge fund, hijacking ExxonMobil’s board to drive a green strategy at the company. As a result of the confluence of these complex issues on top of challenging macro-economic concerns, investor appetite for emerging market assets is weakening. It will become more discerning in the coming years.
But all isn’t lost. There will be divergent outcomes and risks depending on the domestic conditions of each emerging market. Thoughtful investors will continue to seek opportunities in emerging markets, especially in private markets, where the predominant share of opportunities exists. However, as financial conditions tighten, differentiation between emerging markets will increase. MENA countries can better position themselves amongst others competing for capital by:
Attracting and empowering strong policymakers to make dynamic and bold decisions that complex changes in the global economy require. Deepening the bench of talented policymakers should be another priority.
Driving policies supportive of private sector development and investment. Reducing government-owned enterprises and providing ample space for private companies to grow and prosper on an even playing field is critical to building a dynamic economy.
Continuing to nurture the nascent entrepreneurial ecosystem. Entrepreneurial economies are consistently more resilient and lead to better outcomes over the long term.
Enhancing regional and international economic integration through bilateral and multilateral agreements with more robust economies. Proactive engagement with multilateral financial institutions will also increase financial stability and resilience.
Standardizing policies according to global norms for greater regional and international integration. Investor appetite is greatly improved in emerging markets that adopt regulations and standards from developed countries.
Increasing transparency and reducing uncertainty around laws and regulations. Investors and companies need more clarity on the game’s rules in order to play it confidently and competently.
Several MENA countries continue to take bold steps to improve their global competitiveness. One such example is the privatization programs of government-owned enterprises in Egypt, Saudi Arabia, and the UAE to increase liquidity in local capital markets, improve transparency, and expand private sector participation. Those countries that maintain their momentum will be clear winners in the coming years. History is rich with evidence that economic challenges are followed by periods of historic gains.
Amjad Ahmad is Director and Senior Fellow at the Atlantic Council’s empower ME Initiative at the Rafik Hariri Center for the Middle East.
The above-featured image of Smart City Laguna in Fortaleza, one of Planet Smart City’s projects in Brazil
The acquisition will strengthen Planet Smart City’s ability to integrate proptech expertise and environmental, social and governance principles into real estate development around the world.
Smart affordable housing company Planet Smart City has signed an exclusive agreement to acquire Politecna Europa which specialises in architectural and engineering design.
The acquisition will strengthen Planet Smart City’s Competence Centre, offering expertise that integrates proptech and environmental, social and governance (ESG) principles into real estate development.
Politecna Europa, founded by Luca Massimo Giacosa and Pietro Putetto, specialises in project management activities and is at the forefront of architectural, structural, and industrial design in the civil and infrastructure sectors.
The company is involved in activities across Italy, France, Switzerland, and Oman, leveraging a team of more than 100 engineers and architects. The specialist knowledge of both companies will be applied to create intelligent neighbourhoods and homes by increasing their efficiency and maximising the user experience of residents.
Planet Idea, Planet Smart City’s Competence Centre, and Politecna Europa are already working on joint projects around the world. Planet Idea designs innovative solutions in fields including technological systems, planning and architecture, social innovation, and the environment.
These solutions are integrated into real estate development projects that Planet Smart City carries out in Italy, India, Brazil, and the US, as well as supporting consultancy services to third party real estate developers.
“Planet Smart City and Politecna Europa have the same vision of real estate development aimed at the joint application of proptech together with the principles of ESG”
Planet Idea’s interdisciplinary team already includes architects, engineers, and urban planners, as well as digital transformation and social innovation specialists, who all work together at the Competence Centre in Turin.
After the two companies are fully integrated, an entity will be established including 350 professionals. A 4,000 square metre building has been chosen as the headquarters in Turin and, from October, will become an international centre of technological innovation and ESG in real estate.
“Planet Smart City and Politecna Europa have the same vision of real estate development aimed at the joint application of proptech together with the principles of ESG,” said Giovanni Savio, CEO of Planet Smart City.
He added: “The integration of our respective skills and professionalism will lead to the establishment of an interdisciplinary group that will increase our ability to generate and implement ground-breaking ideas.”
Planet Smart City’s mission is to create communities that respect local cultures and support inclusivity and sustainability. It does this through integrating innovative infrastructural, technological and social innovation solutions into its projects.
The research, development and integration of these innovative solutions is undertaken by subsidiary Planet Idea, which operates through multidisciplinary Competence Centres in Turin (Italy) and Pune (India). Planet Idea has, among other projects, created and launched the Planet App, a digital platform of high value-added services that also facilitates communication between residents in Planet Smart City’s neighbourhoods.
The Planet Smart City model has been rolled out in Brazil where four projects are underway: Smart City Laguna; Smart City Natal; Smart City Aquiraz; and Viva!Smart. In 2020, the business expanded into India and the US. In Italy, the company collaborates with leading real estate developers as an advisor in numerous smart social housing districts.
Just as the war in Ukraine is disrupting supplies and fuelling already-high inflation, economic growth in the Middle East and North Africa (Mena) region is forecast to be “uneven and insufficient” this year, according to the World Bank.
Growth rates in the region envisage a narrative of diverging trends. As oil exporters benefit from surging prices, higher food prices have hit the whole region.
The GCC is expected to notch up 5.9% growth this year, buoyed by oil prices and helped by a vaccination rate much higher than the rest of Mena. But most Mena economies — 11 out of 17 — are not seen exceeding their pre-pandemic GDP per capita in 2022, says the World Bank.
GCC economies have seen a relatively strong start to 2022 with the hydrocarbons sector having benefited from increased oil production so far this year, says Emirates NBD. Its survey data for the first quarter of the year point to a solid expansion in non-oil sectors as well, with strong growth in business activity in the UAE, Saudi Arabia and Qatar. In the wider Mena region, however, countries like Egypt, Morocco and Tunisia – home to large, mainly urban populations, but lacking oil wealth – are struggling to maintain subsidies for food and fuel that have helped keep a lid on discontent.
Egypt has been struggling to maintain a bread subsidy programme used by about 70mn of its citizens with the coronavirus pandemic hitting the national budget, and surging wheat prices are exacerbating the challenge.
The World Food Programme has warned that people’s resilience is at “breaking point,” in the region. Global foods costs are up more than 50% from mid-2020 to a record and households worldwide are trying to cope with the strains on their budgets. In North Africa, the challenge is more acute because of a legacy of economic mismanagement, drought and social unrest that’s forcing governments to walk a political tightrope at a precarious time.
The MENA region’s net food and energy importers are especially vulnerable to shocks to commodity markets and supply chains resulting from Russia’s war on Ukraine, according to the International Monetary Fund.
That’s in countries where the rising cost of living helped trigger the Arab Spring uprisings a little over a decade ago. The region’s GDP is forecast to rise 5.2% this year after an estimated 3.3% expansion last year and a 3.1% contraction in 2020.
“Even if this high growth rate for the region as a whole materialises in this context of uncertainty, and there’s no guarantee that it will…(it) will be both insufficient and uneven across the region,” according to Daniel Lederman, World Bank lead economist for the MENA region.
Countries that are net importers of oil and food and which entered 2022 with high levels of debt as a ratio of GDP are most vulnerable, he said, pointing to Egypt and Lebanon as examples. Even before Russia invaded Ukraine, food prices had been rising around the world, driven by the higher shipping costs, energy inflation and labour shortages that have followed in the pandemic’s wake, along with extreme weather. Food crisis was likely to worsen in the Middle East and North Africa as Covid-19 continued, according to a report from the regional directors of Unicef, the Food and Agriculture Organisation, WFP and World Health Organisation in July 2021.
In today’s world that sadly continues on through not exactly a thin patch of worldwide traumas, the Arab League’s Arab Administrative Development Organisation as reported by Gulf Daily News of March 14, 2022, has awarded its Arab Government Excellence to Bahrain. It was 5 government institutions that were rewarded for their unified work as per the vision of the country’s monarch.
Bahrain wins five excellence awards
Five Bahraini ministries and government institutions have won awards at a ceremony to honour excellence in governance in the Arab world.
The announcement was made yesterday at a virtual celebration held under the patronage of UAE Vice President, Prime Minister and Dubai Ruler Shaikh Mohammed bin Rashid Al Maktoum in Dubai.
The Arab Government Excellence Award is organised by the Arab League’s Arab Administrative Development Organisation (ARADO), in co-operation with the UAE government.
The Health Ministry won the award for Best Arab Government Project for Developing the Health Sector, the Labour and Social Development Ministry (Best Arab Government Project for Community Development for its “Khatwa” programme for home projects) and the Interior Ministry’s Customs Directorate (Best Arab Government Development Initiative award for its Governance of Economic and Customs Information to Facilitate Trade).
The Information and eGovernment Authority picked up the Best Arab Government Smart App award in recognition of its Tawasul App for the National Suggestion and Complaint system. The Youth and Sports Affairs Ministry was selected for its Elite Project which was chosen as the best Arab government project for empowering the youth.
This achievement comes within the framework of the efforts made by the Bahraini government, led by His Royal Highness Prince Salman bin Hamad Al Khalifa, Crown Prince, Deputy Supreme Commander and Prime Minister, to benefit from the best practices in upgrading the government’s performance to achieve the kingdom’s Economic Vision 2030.
The award aims to promote the culture of institutional excellence among government work teams in Arab countries.
It also seeks to provide positive leadership thinking to adopt the approach of excellence and innovation in a way that enhances the ability of the governments to deal with the tasks assigned to them through continuous development of the work system and its methods.
Originally posted on Where in the world is Riccardo?: A panoramic photograph of “Algiers the White” (Alger la Blanche) with the city’s glistening buildings rising from the sea, viewed from the overlook at Victory Park, home of the towering Martyr’s Memorial, a dominant landmark constructed in 1982 to mark the 20th anniversary of Algeria’s independence…
Originally posted on Walk Memory Lane: Couscous (North Africa) In the North African nations of Algeria, Mauritania, Morocco and Tunisia, people understand couscous better than most. The dish originated here, and in 2020, UNESCO recognized not only the dish itself, but also the knowledge associated with how couscous is produced. Couscous is a cereal, thus…
Originally posted on Bean's Books and Beyond: Apparently this was a top seller throughout Covid, but I didn’t read it then or in high school or college. Glad I finally got to it and glad Project Lit book club At SJHS chose it for its first book this year. Here’s my review on Insta:…
This site uses functional cookies and external scripts to improve your experience.
Privacy & Cookies Policy
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.