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The Ripple Effect

June 9, 2014 5:47 pm

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

Economies considered to be “dull and old” – like those of the US, Germany, the 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

“Economic prosperity has been one of the reasons behind the rapid acceleration of defense 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 & 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.”