The GCC nations and India are strengthening historic ties across cultural, trade, economic, defence and political areas. Relations between the two regions are maturing beyond trade, as they realise the potential of strategic cooperation and growth, investment banking advisory firm Alpen Capital announced in its latest report, titled “GCC-India corridor — Investment opportunities and challenges”.
This report presents the state of economic relations between the GCC and India by analysing the trend in investment flows and the strategic government initiatives to strengthen ties. It assesses the competitiveness of countries in ease of doing business and further identifies and discusses the potential sectors for cooperation and investment in both the regions. It also outlines the investment drivers and challenges in the regions.
“Though bilateral trade continues to dominate the multi-billion dollar relationship, we see that the investment flows are rising rapidly, as the regions recognise that the GCC-India corridor presents immense opportunities for investors. The GCC governments are continuously reforming policies to create an environment conducive for investment by foreign entities. On the other hand, India, as a fast growing and emerging economy, is in the process of upgrading infrastructure, creating a digitally empowered society, increasing local manufacturing and enhancing energy production. Such initiatives from both regions will create increased investment opportunities and further strengthen the relations between GCC and India”, said Rohit Walia, Executive Chairman, Alpen Capital (ME) Limited.
“Acknowledging the growth potential that exists between the GCC and India, the two regions have held leadership level visits and talks in the recent years to explore new areas of cooperation. India’s share of the total investments into the GCC increased from 4.7 per cent in 2011 to 16.2 per cent in 2016 while GCC investments into India also continued to rise from 0.7 per cent in 2011 to 2.95 in 2016. Sectors such as Oil & Gas, Food Processing, Healthcare, Education and infrastructure seem to be the top picks for investors looking towards GCC as an investment destination. In India, sectors such as Infrastructure, ICT, Food Processing, and Healthcare prove to be more attractive as investment opportunities for GCC companies. We are likely to see an increase in the flow of investments between the regions the improving ties and regulatory environment,” added Sanjay Bhatia, Managing Director, Alpen Capital (ME) Limited.
GCC as an investment destination
The GCC nations have been able to self-fund their economic development through the wealth accumulated from the export of oil and gas. Nonetheless, foreign investments have remained imperative in diversifying revenue base, strengthening technological capabilities, improving export competitiveness and creating employment opportunities.
In contrast to the overall decline in total FDI into the GCC, investments from India grew at a CAGR of 15.9 per cent from $1.4 billion in 2011 to $2.9 billion in 2016. During the period, India’s share of the total investments into the GCC increased substantially from 4.7 per cent to 16.2 per cent.
Nearly 85 per cent of the Indian investments into the GCC were in the UAE, with India regarded as the third largest investor in the Emirates after the UK and the US.
Favourable Business Climate: The GCC region offers a conducive environment for business with least demanding tax structure, low-cost electricity and natural gas, strong transport connectivity and investor-friendly free trade zones (FTZs) and Special Economic Zones (SEZs).
Re-export Potential: Due to their strategic location between the East and West, the GCC nations are seen as a gateway to the markets of wider Middle East and CIS countries. Subsequently, the UAE and Oman have developed themselves as re-export hubs and their potential is increasing with growing cross-border trade.
High Spending Power: With an average GDP per capita (in PPP terms) of $ 61,559, most of the GCC nations rank amongst the top ten richest countries in the world. Although the prevailing economic slowdown is affecting spending power of the consumers, the situation is likely to improve in the long-term with intensifying revenue diversification measures.
Encouraging Demographics: Between 2016 and 2021, the population in the GCC is expected to grow by 6.5 million individuals. The growing consumer base comprising young, diverse and digitally enabled population will boost domestic consumption. Moreover, the region is home to 8.5 million Indians (~16 per cent of total population), making them a vital contributor to the region’s economy. Several Indian entrepreneurs have established large business houses in the GCC.
The round of oil price meltdown has affected the oil-based revenue of the GCC countries. Subsequent austerity measures to shore up revenues have reduced government spending on infrastructure projects, consumer spending power and business activity in the region, thereby leading to a decline in investment inflows. Thus, a persistent weakness in oil prices coupled with measures such as the forthcoming introduction of value added tax (VAT) could impede investments.
A limited pool of local talent, increasing emphasis on nationalisation of jobs and high attrition rates are hindering the growth of labour-intensive sectors in the GCC. Other challenges to investments in the region include diplomatic rift with Qatar and rising interest rate.
The currencies of GCC countries, except Kuwait, are pegged to the US Dollar. The currency peg is presently acting as a double-edged sword, with one end cutting the non-oil export competitiveness due to the appreciation of the US Dollar and the other hand affecting credit growth due to rate hikes by the US central bank. Such a credit environment is unfavourable for companies looking to raise capital to fund their general business activity or expansion plans.
Sectors presenting scope for Indian investors in the GCC include oil & gas, food processing, education, healthcare, cement, tourism & hospitality, real estate, infrastructure, financial services and information communication and technology (ICT).
India as an investment destination
According to a survey on World Investments Prospects by the United Nations Conference on Trade and Development (UNCTAD), India emerged as the third most attractive FDI destinations for 2017–2019.Indian government has relaxed FDI limits in various sectors to boost FDI.
Annual FDI from the GCC to India stood at $1.4 billion in 2016, translating into a five-year CAGR of 41.2 per cent, faster than the FDI growth from India to the GCC. The rapid growth is mainly due to substantial inflows during 2016 across the GCC countries, barring Oman. The GCC share in total FDI into India has increased over the years, but still remains low at 2.9 per cent.