Infrastructure build-out

Large, ongoing infrastructure projects are generating significant demand for US goods and services exports to the Arab world. Substantial regional reinvestment in local MENA economies is sustaining the growth of projects such as Masdar City in Abu Dhabi, 22 business parks and specialized business zones in Morocco, and King Abdullah Economic City (KAEC) in Saudi Arabia. Libya has initiated more than 250 infrastructure projects in housing and transportation, and Iraq is rebuilding its three main airports in Baghdad, Basra and Mosul, as well as those located in Erbil, Sulamaniyah and Najaf.

The Arab market accounted for four percent of the world's total foreign direct investment (FDI) inflows in 2007, and these rose to seven percent in 2009, according to the United Nations Conference on Trade and Development (UNCTAD).

Saudi Arabia's massive FDI inflows are driven by energy and infrastructure investments that average $32 billion per year, followed by the UAE at $10.6 billion and Egypt at $9.3 billion. Inward FDI stocks in the Arab market increased more than ten-fold from $50.8 billion in 1990 to $541.9 in 2009, according to the UNCTAD report.

Saudi Arabia captured 27 percent of the Arab world's total inward investments, followed by the UAE (14 percent), Egypt (12 percent) and Morocco (6 percent). Current market dynamics are clear: FDI will be critical for implementing large infrastructure projects in the MENA region to 2013 and beyond. Given the high return opportunities, three to four investment dollars from abroad are likely to enter the MENA countries for every FDI dollar these countries invest outside their home markets.
 

Satisfying world energy demand requires massive, ongoing regional investments in oil and gas. American exports of equipment and technology will continue to play a crucial role in huge upstream energy development and downstream petrochemical projects. Future demand scenarios require the Organization of Petroleum Exporting Countries (OPEC) to reach an output of between 29 million and 36 million barrels per day (bpd), according to Hasan Qabazard, OPEC's research division director. "This means that OPEC has to spend between $180 billion and $430 billion depending on growth in demand through 2020," he notes.

The Paris-based International Energy Agency maintains that oil and gas development was cut by more than $90 billion in 2009 - and now it is time to catch up. The US Energy Information Agency (EIA) 2011 Outlook forecasts that low-sulfur light crude oil prices will gradually rise four percent per year through 2014 - from an average of $83.21 in 2011 to $88.22 in 2013. Natural gas prices are also forecast to recover two percent per year from 2011 to 2013.

Numerous projects offer long-term FDI opportunities for American companies, particularly in the energy producing nations clustered around the Arabian Gulf:

• Abu Dhabi, the world's sixth largest oil exporter, plans to increase total production capacity to 3.5 million bpd by 2017 through the expansion of onshore fields Asab, Sahil, Shah and Bab. An additional $5.3 billion has been invested in the offshore Zakum field to boost production another 400,000 bpd.

• By 2014, state-run Abu Dhabi National Oil Company is also planning to boost offshore gas output by one billion cubic feet per day (cfd).

• Between 2010 and 2014, Saudi Arabia has committed to spend $120 billion, much of which is to expand oil refining capacity from 2.2 million bpd to 3.2 million bpd.

• Saudi Arabia has 80 new basic petrochemical production projects scheduled for completion by 2015, according to Ali Al-Naimi, the Kingdom's minister of petroleum and mineral resources. By mid-2011, Saudi Aramco and US partner Dow Chemical are expected to finish the engineering and design of a $20 billion petrochemicals, chemicals, and plastics plant in the industrial hub of Jubail.

• Qatar's government and private sector have redoubled efforts to diversify the economy into downstream and new value-added industries. Qatar Petrochemical Company (Qapco) has plans to expand a low-density polyethelene (LDPE) facility at Messaieed.

• Bahrain Petroleum Company plans to invest $15 billion by 2017 to boost production to 100,000 bpd in partnership with California-based Occidental Petroleum and the UAE's Mubadala Development Company.

• Plans to boost production in Iraq's 66 oilfields from 2.4 million bpd to between 10 and 12 million bpd in the next five to seven years would require more than 4,000 miles of new pipeline infrastructure.

A growing number of MENA nations are planning to invest in civilian nuclear power generation to meet rising energy demand, as well as to diversify domestic power supply while cutting carbon emissions. This sector offers unprecedented opportunities throughout the Arab world.

• In 2009, the UAE awarded a $20 billion contract to a South Korean consortium to build four 1400 megawatt nuclear power plants.

• Egypt announced a nuclear energy program in 2009 and retained Australia's Worley Parsons Company for approximately $160 million to oversee this process. Later this year, Egypt is scheduled to announce tenders for its $4 billion power plant at El Dabaa on the Mediterranean coast.

• Jordan plans to begin operating a nuclear power plant by 2017 and has signed agreements with France, China and Canada.

• Kuwait has committed approximately $700 million to nuclear projects revolving around water desalination demands.

• Saudi Arabia has announced the establishment of King Abdullah City for Nuclear and Renewable Energy in Riyadh.
 

Discretionary consumer spending across the MENA region has recovered strongly since late 2009. This recovery will continue at least through the end of this year. Based on a current serial MasterCard survey, Saudi Arabia has the highest consumer confidence index score (95.1) of the seven MENA region markets surveyed.

Consumer confidence remains high in Qatar and Kuwait, and the UAE and Morocco are seen as optimistic.

Growing confidence among the Arab world's high growth market of over 300 million consumers, many of whom spend at much higher levels than their Western counterparts, bodes well for increased US exports to the region. Malls in the region continue to proliferate, brand awareness is higher than ever before, and American companies are responding by offering services and products that are increasingly sensitive to the cultural and religious needs of MENA consumers.

Arab world consumers - including those seeking exotic leisure destinations - are increasingly availing themselves of air travel opportunities. With the advent of lost-cost carriers, there are more than 25 "home grown" airlines now serving the region, translating into growing demand for US jetliners. In late 2010, Boeing commercial aircraft were delivered to the region under direct purchase (70 percent) or lease (30 percent). From fast food to jetliners, consumer spending is on the rise and American products are in demand.
 

Increased security needs in the region have led to major outlays for US defense goods and services. According to the US Government Accountability Office (GAO), Gulf countries alone spent $37 billion on defense items between 2005 and 2009. Announcements of pending or intended purchases indicate that the MENA region could purchase defense systems and upgrades valued up to $146 billion through 2013.