Findings from a multi-sector study carried out by IHS, the leading global source of critical information and insight, were released today at the IHS Forum in Dubai. The study revealed that the Middle East presents investors with significant growth opportunities across defense, chemical, automotive, energy and maritime sectors throughout the next decade.

Key findings:

• The global economic rebound has boosted Middle East growth prospects;
• Defence sector: Between 2014 and 2020, total defense spending in the Middle East and North Africa is estimated to be $920 billion; By 2020, $27 billion will have been injected into the Gulf economy from defense deals via offsets;
• Chemical sector:  Investments will drive the ‘second generation’ of the Middle East chemical sector; Regional chemical exports will help the industry grow faster than other key industries, with more than 8 percent year-on-year growth in 2016;
• Automotive sector: IHS forecasts that the Middle East automotive sector will grow twice as fast as those of Western Europe and the US between 2012 and 2020, with a likely 30 percent rise in regional light vehicle sales;
• Energy sector: $350 billion in investments are needed to meet regional power demand; the GCC will require an $80 billion investment to add 1.5 million barrels per day of crude-topping capacity;
• Maritime sector: Multibillion dollar investments in cargo infrastructure will position the UAE as the port for Africa, the subcontinent and the Middle East.

Global economic rebound boosts Middle East growth prospects
Economies considered to be “dull and old’ – like those of the US, Germany, UK and Japan – will drive the global recovery in 2014. The return to global growth will have a very positive impact on the Middle East, especially the Gulf countries,” said Nariman Behravesh, Ph.D., chief economist at IHS. “We are seeing positive economic growth signs in the Middle East, primarily driven by the Gulf countries,” he said. “Regional consumer spending is on the rise, the regional unemployment rate will be below that of France, Germany and Italy for the next three years and compound annual growth rates are forecast to be above-average through 2035.”

Defense deals to inject $27 billion into Middle East economy by 2020
“Economic prosperity has been one of the reasons behind the rapid acceleration of defence spending in the Middle East since 2011,” said Craig Caffrey, senior defense budget analyst at IHS Jane’s Aerospace, Defense & Security. “Four of the top five fastest- growing defense markets in 2013 were Middle Eastern countries. As we look at spending in the next decade, there are no signs that the sector is slowing down. Between 2014 and 2020, IHS estimates total defense spending in the Middle East and North Africa will be $920 billion.”

Guy Anderson, senior principal analyst at IHS Jane’s Aerospace, Defense and Security, examined the impact of defense deals on the Gulf economy. “By 2020, $27 billion will be injected into the Gulf economy from defense deals via offset programs,” he said.  “Defense offsets are a form of direct or indirect economic compensation to balance defense equipment purchases, and they are increasingly becoming the deciding factor in larger military acquisition programs.”

Saudi Arabia, Anderson said, is assessed by IHS Jane’s to gain the most globally from its offset program. “By 2020, $12.6 billion will be added to the Saudi economy from defense offset deals, the highest globally,” he said. “In second place will be the UAE, with $12.2 billion added during the same time period. India will take the number three spot, with $10.4 billion added to its economy.

“The Gulf has placed a strong emphasis on the long-term economic value of defense offsets,” Anderson said. “An IHS review of Gulf offset programs found that the region is emphasizing the development of its non-oil sector economy, specifically advanced training and investment. Economic diversification is seen as one avenue to achieve long-term economic goals and defense industrialization is viewed as a route to economic change and an opportunity to create jobs for nationals.”

Chemical industry in Middle East: start of a ’second generation’
IHS Chemical says investments will drive chemical exports from the Middle East and will help the chemical industry grow faster than other key industries in the region. China will be the biggest market for these Middle East exports, which will grow by more than 8 percent year-on-year in 2016, representing an increase of more than 6 percent growth above 2013 chemical export figures.

“We are witnessing the beginning of the ‘second generation’ of the Middle East chemical industry,” said Dave Witte, general manager of IHS Chemical and senior vice president at IHS. “The Middle East continues to be a dominant force in petrochemical production. The region faces an opportunity to pivot to strategies that leverage their growing technological expertise, expand their global footprint and seize upon commercial advantages. Additionally, this new era enables Middle East producers to continue building on their leading position in commodity production and expand into intermediates and higher-value products.”

Added Witte, “For the Middle East refining and petrochemical industry, a changing global feedstock mix – combined with increasing competition in the US driven by the availability of cheaper gas feedstock – are reinforcing previous decisions by Middle East petrochemical producers to continue investing in new technology. The industry is also diversifying its feedback mix and expanding its product slates to include more higher-value intermediates.”

For private power development, Middle East is world’s most attractive
To meet the region’s high growth in power demand, IHS forecasts a need for $350 billion in new investment for generation between now and 2030, said Andy Barrett, senior global gas and power advisor at IHS. “This is forecast mainly to build new gas-fired capacity but expected tightness in domestic gas availability in many countries is driving diversification to other fuels and technologies, including clean coal, nuclear and renewables,” he said.

Recently-announced aggressive renewables targets for several countries are unlikely to prove achievable, Barrett noted, but “IHS predicts that around $50 billion of the new investment will be required to develop around 17 GW of (mainly solar) renewable generation. In terms of opportunities for private power development (IPPs) the region should prove to be the most attractive in the world.”

The GCC to add 1.5 million barrels per day of crude-topping capacity from ambitious refining projects
According to Farrah Boularas, senior researcher at IHS Energy, “announced refining and related facilities in the GCC are estimated to exceed $80 billion of cumulative investment through 2020. While not all plans will reach the execution stage, a number have already broken ground.”

Between 2014 and 2020, IHS expects crude distillation and condensate-splitting capacity additions will increase regional output by around 1.5 million barrels per day. In addition, desulfurization capacity will also increase substantially as countries such as Saudi Arabia and Kuwait invest heavily in clean fuel projects, enabling production of motor fuels aligned with Euro V specifications.

Said Boularas, “GCC refiners that are able to complete their projects will therefore intensify competition in supplying Europe and Africa, potentially to the detriment of refiners in Europe, the former Soviet Union, India and Asia.”

Middle East automotive market to grow twice as fast as those of Western Europe, North America between 2012 and 2022
“The Middle East automotive market is forecast to grow twice as fast as those of Western European and North American markets from 2012 to 2022,” said Pierluigi Bellini, analyst at IHS Automotive. “In 2022, IHS Automotive forecasts that light vehicle sales in the GCC will jump 25 percent to 1.74 million, and sales in the Middle East (the GCC, Iran and Israel) will jump 30 percent to 3.45 million.”

“In the region,” Bellini said, “Korean, European and American car companies are increasingly targeting Middle East markets and will drive up competition.” According to IHS Automotive, in 2012, 1.38 million light vehicles were sold in the GCC and 2.66 million were sold in the Middle East.

Multibillion-dollar investments to position GCC as global cargo leader
Initial estimates suggest that Dubai will make an $8 billion cargo infrastructure investment along with $10 billion in private sector contributions to help position the GCC as a global cargo leader, said Richard Clayton, chief maritime analyst at IHS.

“All eyes will be on Dubai in 2020 as it hosts the WorldExpo event,” Clayton said, “and it is promising to be the biggest yet. New roads, a peninsula-wide rail project, another airport, hotels, energy plants and event venues will generate project cargo on a grand scale.”

The region is home to the Jebel Ali mega-facility, and the world’s largest man-made port. IHS forecasts that by the end of 2014, the port will have an annual container capacity of 19 million teu (twenty-foot equivalents units) with output pushing towards 20 million by 2020.”

In partnership with the new Dubai airport, Jebel Ali will generate as much as 12 million tonnes of sea-air cargo, five times more than the current level. We are seeing multi-billion dollar investments in the UAE’s cargo infrastructure as the country positions itself as the port for Africa, the subcontinent and the Middle East.