Egypt Independent

Confidence returns to Middle East investment

Middle East governments and companies are raising cash again from debt and equity markets, while solid oil prices and improving economic fundamentals are helping the region recover and restructure.

Yet even as the region regains its footing after the global financial crisis, political tensions and concerns over security remain a nagging worry for investors in the region.

"The outlook is better than a year ago, though investment levels are still well below those seen in 2005-8," said economist Simon Kitchen at investment bank EFG Hermes, referring to Egypt's investment climate.

"Political uncertainty may also be discouraging some investments by local and foreign businesses. Investors want consistency on policy," Kitchen added.

The investment climate in the Gulf region is improving on the back of strong oil prices, expansionary spending by governments and a revival in project activity, analysts say.

"The shortcomings of the region are very short-term in nature and problems in the real estate and banking sectors are being worked through. There is light at the end of the tunnel," said Paul Cooper, managing director at Sarasin Alpen and Partners in Dubai.

State-owned conglomerate Dubai World's US$25 billion debt deal last month has eased concerns over the Gulf emirate's debt woes, with developer Nakheel builder of man-made islands in the shape of palms, next in line to restructure.

In another sign of better times ahead, UAE retailer Axiom Telecom this week announced plans to list a 35 percent stake on the Nasdaq Dubai market, the first IPO from the Gulf state in two years, which could spark a revival of the region's IPO market.

Outside the Gulf, banks in Egypt and Lebanon have emerged from the economic crisis relatively unscathed, with both states expecting strong economic growth.

In Egypt, the government expects growth of at least 6 percent in the fiscal year to the end of June 2011, up from 5.3 percent the previous year.

It is hoping for foreign direct investment of US$9 billion, rising from US$6.8 billion, but analysts say many investors still balk at weak transport infrastructure, frequent power cuts and an education system that fails to develop the skills they need.

Lebanon is expected to record economic growth of 8.0 percent and forecasts 5.0 percent growth next year.

But Lebanon is one of the world's most highly indebted countries and servicing over $50 billion debt consumes a major part of the budget.

Growing political tension over an international investigation into the 2005 killing of former premier Rafik al-Hariri has prevented the unity government from implementing reforms or getting the 2010 budget through parliament.

If tensions escalate into sectarian violence many Lebanese could withdraw their savings and the Lebanese pound could come under pressure. But the country has bounced back quickly from previous conflicts.

Political and security tensions also run high in the Gulf with concerns over Iran and last month's broad crackdown by Bahrain, which arrested Shia opposition leaders accused of trying to overthrow the Sunni monarchy.