Nevertheless, progress is occurring slowly in many countries, and business can still be difficult to undertake due to poor infrastructure, corruption and a lack of transparency.
However, during a United Nations (UN) conference in May 2011, the Secretary General Ban Ki Moon counteracted these concerns, stating that the least developed nations of the world should not be seen as “poor and weak” but as “the best reservoir of untouched potential.” Much of this ‘potential’ continues to lie in the commodity sector, namely in the oil and extractive industries. At the same time, through increased foreign investment other industries are experiencing rapid growth, ones which are anticipated to help propel economic growth within the emerging markets.

In parts of North Africa and the Middle East, remarkable change is happening at a more rapid pace than anyone could have predicted, and the results are both exciting and tragic at the same time. It was a desired improvement in economic prospects that initiated the first demonstrations in southern Tunisia in early 2011, with people angered by rising food prices and unemployment. These protests eventually culminated into a significant wave of political activism, resulting in some of the most dramatic changes in the region since the end of colonialism over 50 years ago. The “Arab Spring” has touched all parts of the Arab world and has seen previously autocratic regimes fall against the demands for democratic accountability, civic rights and a more equitable society. It will be quite some time before the repercussions of these events will settle, and thus awareness and sensitivity are key for any company operating in these markets.

Corporate reach and societal needs are, of course, not always the same, and the scale and speed of the revolutions in North Africa and the Middle East will require multinational companies (MNCs) to be wary in how they assess and deal with new regimes. While these upheavals bring great change and potential, they also bring an instability that was absent with prior governments. Risk factors, such as political stability, are already crucial considerations for companies seeking to either invest in these markets or when they already have existing facilities currently in operation. Indeed, these events will create a number of practical, and possibly ethical, dilemmas for corporate occupiers to address. Many of the countries are currently attempting to establish new administrations, and thus occupiers must remain pragmatic and be prepared to carry out a much more comprehensive due diligence analysis when proposing investment opportunities. It is crucial for MNCs to adopt a flexible business plan and be sympathetic of local conditions when operating within these markets. With a number of these countries socially and politically unstable, companies must be prepared for situations that may change rapidly. Therefore, occupiers and operators must be able to alter their business models to acknowledge that the traditional “one size fits all” approach is unlikely to be applicable in these markets. Flexibility and adaptability are the key characteristics for companies that successfully operate within Africa and the Middle East.

Many MNCs are, of course, already operating and thriving within Africa and the Middle East, and this necessitates certain real estate requirements for their businesses. Most office markets remain characterised by a lack of good quality supply, which has helped to push rents upwards in a number of locations to be among the highest – not just within Africa and the Middle East but also on a global basis. More specifically, these most expensive locations within the region are in Angola and Nigeria, where demand has been propelled by the traditional drivers of many African markets, namely, access to commodities. According to the World Bank, those 24 African countries whose revenues are primarily oil related have absorbed nearly three-quarters of all foreign direct investment over the past 20 years, with that percentage continuing to grow over the past 2-3 years despite the economic slowdown.

Nevertheless, an increasing number of countries in Africa have witnessed tremendous growth within the service industries, such as banking, telecommunications and information technology (IT), all of which are advancing significantly. For example, the IT sector
has almost doubled its foreign direct investment capital into Africa thus far in 2011 compared to the total figure seen in 2010. Furthermore, in Nigeria the restructuring of the banking sector has brought in an influx of foreign direct investment and the banking sector is now, with the exception of the oil sector, one of the largest receiving industries of international capital investment.

One of the most intractable barriers to investing in a large number of African countries is, as anticipated, the crippling lack of basic infrastructure. However, the fact that many African nations are unable to afford large scale infrastructure projects has been seen as an opportunity by the Chinese government in the aim of fostering closer ties with a number of African countries. In return for building new roads, railways, hospitals, etc., Chinese companies are investing in Africa’s plentiful oil, gas and minerals sectors, with the investment further benefitting the African domestic market. For example, in the Democratic Republic of the Congo, China is building over 2,400 miles of roads and 2,000 miles of railways, as well as multiple hospitals and schools, all in return for 10 million tonnes of copper and 400,000 tonnes of cobalt. This trend – of Chinese investment into Africa – is a fairly new phenomenon, and consequentially, two-way trade between China and Africa increased in 2010 by over 45% from 2009’s volume to reach almost $115 billion. By comparison, trade figures between China and Africa amounted to just $1 billion in 1992, merely highlighting the rapid growth in trade between the two regions.

Beyond China’s influence in emerging markets investment, other countries have maintained their significant level of FDI flows. The United States, France and the United Kingdom remain some of the top investors into the African markets, together representing almost 33% of all foreign investment projects since 2008. However, in terms of capital investment, the UAE ranks as the country bringing the most amount of foreign direct investment into Africa, revealing a shift in trade growth between emerging market nations, similar to the situation with China. Indeed, there has also been a rapid increase in FDI flows from the other BRIC (Brazil, Russia, India and China) nations over the past 2-3 years. Additionally, domestic trade has been on the rise, particularly in the case of South Africa, which has now joined the other BRIC countries to form the BRICS. South Africa in many ways serves as the gateway between these countries and the African continent who, like China, are interested in Africa’s need for infrastructure improvements in exchange for access to both the commodities and service industries that Africa offers. South Africa joining the BRICS bloc has opened great opportunities for increased trade between other emerging markets of the world, such as Brazil and Russia, and the developing African continent. Therefore, the development of South Africa as the primary hub to the wider African continent will continue. Although it is not the same size from an economic standpoint as the other BRICS countries, it is one of the more politically and economically stable countries on the African continent. Furthermore, South Africa offers institutional stability and regulatory efficiency that should ensure the trend of companies using South Africa as a bridge to the rest of the continent will continue.

In conclusion, many markets within Africa and the Middle East have experienced an even more turbulent time in recent years than the world at large. As a result, corporates operating in these markets need to be acutely aware of the increased and/or changing pattern of risk factors and act accordingly. At the same time, there exist many new opportunities for businesses in growing sectors, such as banking, telecommunications and construction. Many of these countries will require increased investment to assist in their redevelopment and recovery, and this will also present further opportunities for growth. Therefore, we should expect occupier and investor demand within Africa and the Middle East to expand over the next few years. There will be locations where growth is more apparent and where markets are more accessible or transparent, but the opportunities for the pragmatic and the patient are clearly set to rise.

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