With the dust still to settle after the chaos of the Arab Spring, many foreign investors are thinking twice about sinking their cash into the region.
The International Finance Corporation (IFC), the private investment arm of the World Bank Group, is seeking to help make up the shortfall, however. It aims over the next three to four years to increase its investment to between US$5 billion (Dh18.4bn) and $6bn in an effort to create jobs, free up cash for small businesses and drive economic growth. The National spoke to Khawaja Aftab Ahmed, the IFC associate director of financial markets for Europe, Central Asia, the Middle East and North Africa, about the institution's role in the region and the outlook for the year ahead.
To what extent is the UAE an investment haven from the turbulence in the region and globally?
The fundamentals of the UAE are very strong and there are very [few] opportunities for investors to park their money globally. There are very few options for investors globally, especially in my own region, Europe and Central Asia, which used to attract a lot of foreign investment. I see the UAE will attract a lot of foreign investment in the future.
What is your strategy in the Middle East and North Africa?
The biggest issue and opportunity in this region is the demographics. Fifty or 60 per cent of the region is under the age of 25, so every year a large number of youngsters is coming to the labour market, which is creating unemployment. One of the reasons for the Arab Spring was this lack of jobs. To try to address that, we have raised the amount we invest in the region by five times from $100 million to $200m a year five or six years ago. So far this year we have invested about $900m in financial markets and we expect to raise that to $1.5bn by the end of the financial year until June.
What about the post-revolution economies of Egypt, Tunisia and Libya? Are you waiting until the governments stabilise to invest?
In Tunisia, we are looking to invest now. We are in discussion with a number of financial institutions and looking at a number of opportunities in infrastructure and manufacturing. Of course, it's a difficult market as there's still political uncertainty but it's a role we have to play. In Libya, it's still too early but we are in discussion about possible investment. Usually, we start with the financial sector, and the first thing we look at providing is a trade facility line as banks are still often not comfortable about taking a letter of credit risk.
Can you give me an example of recent contrasting investments in the Middle East?
We made an investment into the equity of Bank of Palestine and then we partnered with them to make them a local champion and provide student loans, mortgage finance, developing their risk finance and improving their finance. Another example was partnering with Bank Muscat, which was a corporate bank and is the largest bank in Oman, to outreach to SMEs [small and medium enterprises] and improve mortgage financing. When we started with them, mortgage financing was non-existent, and when this bank came in, eight other banks joined the club. Now it's a much more varied, deeper mortgage market and Bank Muscat is the market leader in helping SMEs.
How can you invest in a country when other private investors are steering clear?
Whenever there's a crisis anywhere, we will be there. We do our due diligence, pick up the right partners and we set trends in those markets. What we try to do is show that investments intended to benefit as many people as possible are sustainable, so we are the first to move into countries where there's a need for us, and international investors shy away from countries like Armenia or Iraq and we make money. We do not compete with private investors, so if they feel comfortable investing, we do not invest. We prefer to act as a catalyst, and move in when we have a role to play.
You cover a very wide geographical market of 52 countries from the Baltic coast to the Gulf. Are there more similarities than differences between those markets?
Even with the Middle East and North Africa, it's very diverse. So you have somewhere like the UAE and Saudi Arabia, which are very sophisticated financial markets, and then you have countries like Yemen and Libya, which are new markets. In Eastern Europe you have smaller markets like Moldova, which share similarities with smaller countries in the Middle East that are opening up. Even in Western Europe, one of the biggest challenges is coming up with projects to create jobs, and it's the same in the Middle East.
What factors will drive financial markets globally this year?
The biggest one is the euro-zone crisis and how that unfolds. It will not have a big impact directly on Mena [Middle East and North Africa] as there's not a great deal of exposure. But European banks are among the biggest providers of finance in most of these markets, whether it's Europe, the Middle East or Africa. If these banks have a liquidity crunch, it will have an impact on banks here. There has been a slowdown in India and China but they are still holding on well, so if they manage that and GDP growth continues, that will balance what is happening in Europe.
(Source: The National)