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POLICY CHALLENGES

Higher oil production to boost Mena growth

Manama, December 18, 2013

The global economy will see a modest uptick in growth next year, with the US GDP growth accelerating to 2.6 per cent as businesses increase investments, according to global asset manager PineBridge Investments.

The asset management firm, whose regional headquarters is in Bahrain, said the euro zone and China maintain their current growth trajectory, but politics, particularly in the US, could hamper the recovery.

"Economies in the Middle East and North Africa (Mena) face a different set of policy challenges next year," PineBridge Investments Middle East chief executive Talal Alzain was quoted as saying in the Gulf Daily News, our sister publication.

Alzain said that while economies such as Egypt are working to stabilise their political systems, others, such as the GCC economies, must accelerate the process of reducing their dependence on oil exports through continued diversification and moving towards promotion of services and manufacturing.

"We expect economic growth across the region to increase moderately during the year, helped in part by higher oil production and concur with the IMF's forecast of 3.8 per cent real GDP growth for next year, up from 2.1 per cent this year," he said.

"In the longer term, a growing young population, increasing consumption and rising budget expenditure should overcome policy challenges in many of these countries, creating promising conditions for investment," Alzain added.

"The Mena region and Turkey are increasingly fertile ground for private market activity," he said.

"High rates of economic growth are fostering the development of local small and medium-sized enterprises, which have substantial financing requirements.

"Investors and business owners need to access growth capital to seize opportunities ahead of competitors," he added.

Most of the region's private companies remain family-owned and family-run, with some institutionalisation and organisational systems constraining their ability to capture opportunities before others.

Many business owners with promising prospects look to experienced institutional investors to act as agents of change, driving institutionalisation and realising growth opportunities.

Additionally, the region is benefiting as new leaders invest significantly in infrastructure as a first step towards achieving their goals for economic diversification, the firm said.

Finally, regional commonalities of culture, social values, language and business are creating opportunities for expansion.

For example, well-managed service businesses in Turkey have tremendous expansion potential into the GCC, while the region's energy and related service companies are well-positioned to tap the developing energy markets in North Africa, Turkey and Northern Iraq.

From a private equity perspective, growth investments in partnership with businesses benefiting from these regional trends appear promising.

These include business services, social infrastructure and industrial and manufacturing companies.

Moreover, real estate offers real opportunities. Sectors benefiting from the GCC's economic growth, including logistics and warehousing, education, healthcare and retail, offer attractive income yields.

Furthermore, limited access to growth capital in the region is creating attractive conditions for sale-and-leaseback transactions.

Selling their properties and leasing them back over the long-term offers corporates a practical way of unlocking dormant capital that is invested in their operational real estate assets and channeling it back into their core business, the firm said.

Sale-leasebacks are gaining popularity among owner-occupiers in the GCC region as companies look to free up their capital towards high-return growth opportunities.

Investing in existing buildings with high-quality tenants on long-term leases appeals to a broad spectrum of real estate investors because it offers a favourable blend of low risk and stable long term yield.

The key is to focus on sale and leasebacks with top-tier companies within industries that are supported by positive regional macroeconomic fundamentals, the firm added.-TradeArabia News Service




Tags: Mena | economy | growth |

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