KPMG survey reveals Middle East companies to move ahead with expansions despite credit crunch

Although corporate investors in the major Gulf economies will be splitting their investments between the UAE, Qatar and India in the year ahead, in five years' time their focus will be firmly on India, with the UAE second and China third.

These predictions come in a survey of 50 senior corporate investment strategists carried out for KPMG International.

The strategists, representing large multinational companies based in Saudi Arabia, Kuwait, UAE, Oman, Qatar, Bahrain and Egypt, were asked a series of questions on which countries, other than their own, they plan to invest in during the year ahead, and in five years' time.

For next year, the UAE is the choice of 26% of investors, followed by Qatar and India, both on 22%. Saudi Arabia, Bahrain and China are joint third on 14%.

But in five years' time, India is the clear leader, with 34% of investors planning to invest. The UAE is second with 22% planning to invest, and China is third with 16%.

Qatar is fourth with 14%, and the US moves ahead of Saudi Arabia, with 12% planning an investment compared with 10% investing in the Kingdom.

"These responses suggest that large Middle Eastern corporations are set on becoming more international in their operations, but are taking a cautious, step-by-step approach to investment outside the region," said Abdelhamid Attallah, a partner in KPMG's Egypt member firm.

"The worldwide problems with credit do not seem to worry these people very much. Only 13% think that this will be a problem for the foreseeable future, and many say that it will affect investment plans for no more than two or three years."

Most of the companies surveyed are in the early stages of international expansion. Around half (46%) will be investing in their chosen countries for the first time.

Of those who are reinvesting in their chosen countries, 70% plan to use the profits from past investments to build their presence, suggesting that they prefer not to risk new money until these investments have proved themselves over time.

The most internationally minded investors seem to be those from Saudi Arabia, whose investment intentions five years from now are dominated by investments in India, China and the US. Just over half (53%) of these investments will be first entries into these countries.

By contrast, 80% of investments from Kuwaiti corporations will be into countries where they already have a presence. But the clear favorites for these companies in the next year are other Gulf states, particularly the UAE and Qatar.

In five years' time India is the choice of 40% of Kuwaiti investors, but virtually all other investment will still be in countries in the Middle East region.

"We also asked our respondents which countries they expect to be most influential in their sector in the next year and in five years' time," said Abdelhamid Attallah. "The results showed a real change in the balance of economic power."

"Among the Gulf States, Saudi Arabia is expected to be the most influential state in the coming year, followed by the UAE and Qatar. But in five years our respondents believe that Saudi and the UAE will be in equal first place, as the investments now being made into service industries in the UAE mature into market influence."

"On a global scale, between next year and 2013/14 China is expected to displace the U.S. as the most influential country from outside the region, and India will move ahead of both the U.S. and the U.K."

"This shows very clearly that the rise of China and India as global economic powers is expected to be felt here just as strongly as in the rest of the world. For a region that has so long been influenced by European and American business, this may represent a major shift in emphasis."