Foreign Direct Investment (fDi)

Dubai is the top city in fDi’s latest Middle East ranking and Jebel Ali is the top free zone. Charles Piggott reports on the leaders.

Dubai is back at the top of fDi’s Middle East Cities of the Future ranking after losing ground to Manama two years ago. Dubai scored higher than any other city for economic potential, business friendliness, infrastructure and quality of life.

Saudi Arabia’s commercial capital, Jeddah, which was not ranked by fDi’s 2007 survey, takes second place, reflecting recent development of both the city and its infrastructure, closely followed by Abu Dhabi in third place, up from sixth in 2007. Ras Al Khaimah in the United Arab Emirates (UAE), which is still competitive on costs, ranks as fDi’s most attractive city for FDI.

“This is an exciting time,” says Kamal Ahmed, chief operating officer of Bahrain’s Economic Development Board. Oil-rich governments across the Gulf are investing heavily in infrastructure and human resources to stimulate non-oil industries and this has created unprecedented levels of investment opportunities for foreign investors.

Mr Ahmed says: “More companies are relocating, standards of living are rising as a whole and all countries are booming as a result.” Despite the financial crisis, he says the Middle East has remained liquid, although the difficulty of attracting international bank finance has made developers reluctant to announce large new projects.

“We have no plans to slow development. If we continue to utilise our resources wisely, we’ll see the Gulf region become a much more important regional economy, maybe not on the same scale as China and India, but a much more important market, particularly as we move towards economic integration.”

Rising investment in real estate, particularly in the Gulf states, has driven costs higher and fDi’s 2008/09 rankings reflect this. Despite less sophisticated infrastructure, lower-cost alternatives are moving higher up fDi’s rankings. Alexandria, Cairo, Amman and Aqaba all score in the top five cities for cost-effectiveness – behind Sanaa in Yemen – but ahead of major cities in the Gulf. 


Dubai Internet City executive-director Malek Sultan Al Malek receiving his award 


Free trade zones

The long-established Jebel Ali Free Zone keeps its place at the top of fDi’s ranking of special economic zones. Saudi Arabia’s King Abdullah Economic City, one of the world’s largest construction projects, ranks at number two. By 2020, the Saudis expect two million people to live and work in a city that will be four times the size of Manhattan and one of the most high-tech cities in the world.

Bahrain’s International Investment Park, located adjacent to the new Khalifa Bin Salman Port (due to open December 2008) and a short drive from both the international airport and causeway to Saudi Arabia, ranks third. The new zone has been given a key role in Bahrain’s ambition to transform itself to become a gateway to the Gulf.

Meanwhile, fDi’s introduction of a ‘ones to watch’ category reflects the large number of dedicated investment zones under construction or at the planning stage. Saudi Arabia’s breathtakingly ambitious King Abdullah Economic City project is the judges’ clear winner in this category, followed by Dubai World Central’s Aviation City. 



Dr Khater Massad, CEO of Ras Al Khaimah Investment Authority


Methodology

Cities are ranked according to 76 criteria (see below) based on information supplied by cities themselves in answer to a questionnaire, and from third-party sources such as the World Bank, news wires and other sources. During the spring and summer of 2008, fDi magazine sent questionnaires to cities and special economic zones across the Middle East and north Africa. We asked them to give detailed information on inward investment conditions and their plans for future development.

Cities provided information in four main areas:

  • Economic potential: Cities were asked to describe their economic potential – recent GDP growth, government initiatives and economic priorities.
  • Inward investment: They also provided information on recent inward investment, including the volume and number of investments made during the past two years, the most significant investments made in 2007 (including the level of investment and number of jobs created) and the most significant investments of 2006.
  • FDI strategy: Respondents also told fDi about their promotional strategy for attracting inward investment, including recent initiatives, incentives and regulatory changes introduced during the past two years.
  • Major projects: Cities gave details of current and recently completed major infrastructure and urban planning projects, including projected costs.
Cities were also asked to complete a tie-breaker question in which they outlined their unique selling point for investors. Answers to the above questions were put before fDi magazine’s panel of judges. Cities were scored out of 10 for certain criteria, with 10 points awarded to the best city in each category. (In the categories of business friendliness and unique selling point, a maximum of 20 points was available.) Scores were awarded on the basis of cities’ answers and the judges’ own experience. Categories based on third-party data, for example 2009 national GDP growth forecast, were scored on a pro rata basis, with the top city scoring 10 points and the lowest city zero.



Khalid Ibrahim Al Kassim, deputy director-general for planning and development at Dubai government’s department for economic development, accepting awards


Special economic zones

Special economic zones were asked to provide information in four main areas.

  • Facilities: Special economic zones were asked to describe main facilities, including amenities such as hotels, convention centres, restaurants, housing and security. They also gave details of office, industrial and warehouse facilities and other high-tech or specialist activities supported by their zone. fDi also asked about the range of onsite administrative services available.
  • Costs: Zones were asked to outline costs per square metre for industrial facilities, warehouse space, commercial facilities, office space and undeveloped land. They were also asked to outline all financial and non-financial incentives such as tax exemptions and training grants.
  • Infrastructure: Participants were asked to describe all major land, sea and air transport routes accessible from their zone. They were also to asked to detail all current, recently completed and planned infrastructure projects, including costs.
  • Development and promotion: Zones gave details of recent business growth, expansion projects (including costs), recent investment and the development of specialist facilities.
fDi researchers also gathered information from special economic zones’ websites, from news wires and other sources.



Ibrahim M Ajanahi , senior vice-president of commercial sales at Jafza’s Jebel Ali Free Zone, receiving an fDi award


Scoring

Special economic zones were scored out of 10 on each of the following criteria:

  • Facilities: Recent development; success in attracting growth industries; amenities (for example, restaurants, health and leisure facilities, security); quality of office space; quality of warehouse space; quality of industrial facilities; availability of business and other services; high-tech or specialist features.
  • Costs and incentives: Financial incentives; non-financial incentives; cost of industrial space; warehouse costs; cost of commercial space; cost of office space; cost of undeveloped land.
  • Development potential: Transport links; recent or planned infrastructure projects; business growth in the past 12 months; development plans; leading investors and partnerships; unique selling point.

JUDGING PANEL



Andrew Seidler
Director of taxation services at accounting and business consultancy group Tenon

Tel Rashid
Regional manager for the Middle East and Africa at human resource consultancy Spengler Fox

Graham Mather
Chairman, World Free Zone Convention

Courtney Fingar
Editor, fDi magazine

Charles Piggott
Contributing research editor, fDi magazine


JUDGING CRITERIA

ECONOMIC POTENTIAL
•    Economic potential (fDi judges)
•    2009 GDP growth forecast (%, World Bank)
•    National GDP, 2009 forecast (IMF)
•    Economic initiatives (fDi judges)
•    Richest cities in 2020 (PwC forecast)
•    Inflation (2008 forecast, %, World Bank)
•    Cash surplus (% GDP, World Bank)
•    High-tech exports (% of total, World Bank)
•    Industrial production growth (%, CIA World Factbook)
•    Growth of urban population (annual %, World Bank)

BUSINESS FRIENDLINESS
•    Time required to start a business (days, World Bank)
•    Business friendliness (fDi judges)
•    Ease of doing business rank (World Bank Doing Business survey)
•    Corruption perception index (Transparency International)
•    Global competitiveness (IMD scoreboard)
•    Number of procedures to start a business (World Bank)
•    New business registrations (% of total, World Bank)
•    Time dealing with government officials (% management time, World Bank)
•    Firms expected to give gifts in meetings with tax officials (World Bank)
•    E-government readiness (World Bank)
•    Gross capital formation (% GDP, World Bank)

TAX AND OTHER COSTS
•    Paying taxes (World Bank Doing Business survey)
•    Total office costs, year-on-year growth (%, Global Office Occupancy Costs 2008 survey, DTZ)
•    Base office rent ($ per square metre, Global Office Occupancy Costs 2008 survey, DTZ)
•    Other office expenses, (Global Office Occupancy Costs 2008 survey, DTZ)
•    Firing cost (number of weeks’ wages, World Bank Doing Business survey)
(continued)
•    Total tax rate (%, World Bank)
•    Highest corporate tax rate (%, World Bank)
•    Cost of calls to the US (World Bank)
•    Per capita income (World Bank)
•    Mobile phone, monthly cost (World Bank)

HUMAN RESOURCES
•    Employing workers (World Bank Doing Business survey)
•    Expenditure per student (primary education, % GDP, World Bank)
•    Number of tertiary graduates (World Bank)
•    Percentage of labour force with tertiary education (World Bank)
•    Public education expenditure (% GDP, World Bank)
•    Number of universities in top 100 (Webometrics, Middle East survey)
•    Labour force (CIA World Factbook)
•    Unemployment (%, CIA World Factbook)
•    Worker reputation (Anholt Nations Brand Index)
•    Adult literacy rate (%, World Bank)

QUALITY OF LIFE
•    Purchasing power, 2009 forecast (IMF)
•    Life expectancy at birth (World Bank)
•    Urban access to improved sanitation (World Bank)
•    Private health expenditure (% of GDP, World Bank)
•    Health expenditure (per capita, World Bank)
•    Crime and security rating (Country Indicators for Foreign Policy, CIFP)
•    Relocation appeal (Anholt Nations Brand Index)
•    Health and sanitation (Mercer worldwide)
•    Quality of living (Mercer worldwide survey)
•    Air pollution ( World Bank)

INFRASTRUCTURE
•    Major projects (fDi judges)
•    Roads (km, CIA World Factbook)
•    Capacity expansion planned by 2012 (Centre for Aviation)
•    Airport investment ($, Centre for Aviation)
•    Air cargo (tonnes, Centre for Aviation)
•    Secure internet servers (per million people, World Bank)
•    Population covered by mobile telephone (%, World Bank)
•    Telephone faults (per 100 mainlines, World Bank)
•    International internet bandwidth (per person, World Bank)
•    Global port ranking (Cargo Systems)

FOREIGN DIRECT INVESTMENT
•    Unique selling point (fDi judges)
•    Number of FDI deals (fDi judges)
•    Major investments in 2007/2008 (fDi judges)
•    FDI net inflows ($, World Bank)
•    Fixed investment, (gross, CIA World Factbook)
•    FDI stock (CIA World Factbook)
•    Net FDI (% GDP, World Bank)
•    FDI incentives and initiatives (fDi judges)
•    Exports of goods and services (% of GDP, World Bank)
•    Merchandise trade (% GDP, World Bank)
•    Protecting investors (World Bank Doing Business survey)
•    Trading across borders (World Bank Doing Business survey)
•    Enforcing contracts (World Bank Doing Business survey)
•    FDI Confidence Index (AT Kearney)
•    Political risk rating (Country Indicators for Foreign Policy fragility index)


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