Middle East – Progress amid tensions

Geopolitics continues to cause considerable instability in the Middle East. However, economic progress and diversification is taking place within the region alongside a steady increase in transactional activity.

Activity in 2024

With regard to transaction volumes, sovereign wealth funds and other government-owned entities continue to be the main drivers. Sovereign wealth funds from the Gulf Cooperation Council (GCC) invested over $82 billion across the globe in 2024, with Abu Dhabi's Mubadala Investment Company, Abu Dhabi Developmental Holding Company and Abu Dhabi Investment Authority, Saudi Arabia’s Public Investment Fund and Qatar's Qatar Investment Authority being the most active. 

Although the allocation of sovereign wealth funds' global portfolios remains significantly skewed towards the US and Europe, the retreat by Western investors from China amid ongoing tensions with the US has made China an attractive market for GCC investors. Saudi Arabia and the UAE's integration into the BRICS alliance in 2024 has reinforced this trend, leading to a shift of a larger proportion of sovereign wealth funds' global portfolios towards Asia, wherein China attracted more than $9.5 billion in capital from the GCC in 2024. 

Private capital investments in the region are on the rise as well, in particular due to the contribution to deal activity of family offices and private offices managing the wealth of royal family members. Following the recent rollback on restrictions on foreign majority ownership in the UAE, Saudi Arabia has echoed similar reforms by amending its investment law. In Saudi Arabia, these laws are designed to encourage more foreign investment and are expected to be effective from February 2025.

The IPO market in the GCC has been more active in 2024 than in the previous year. IPO activity was led earlier in the year by Oman, which had its largest ever IPO with the listing of the energy company OQ Exploration and Production, raising approximately $2 billion, and Saudi Arabia, which welcomed 10 out of the 13 IPOs that occurred in the first half of 2024. However, in November 2024, the IPO on the Abu Dhabi Securities Exchange of Lulu Retail Holdings, the largest pan-GCC full-line retailer in the GCC, which raised $1.72 billion, and the IPO on the Dubai Financial Market of food delivery company Talabat, that raised $2 billion, put the UAE back at the forefront of IPO activity in the region. 

Legal trends

The legal landscape in the Middle East is evolving as well. The general trend across the region is the development of stronger and more sophisticated merger control regulations, with the UAE adopting implementing regulations following the introduction of a new competition law regime in 2023. Regulation is not only being introduced but also enforced. This is evident with Saudi Arabia's General Competition Authority's cumulative fines of SAR 77.5 million (approximately on $20.6 million) imposed on six commercial establishments for allegedly colluding on government bids and tenders.

Middle East governments have also started to introduce tax regimes set to adhere to the Organisation for Economic Cooperation and Development's Pillar 2 rules, which are aimed at tackling challenges of base erosion and profit shifting in the global economy. The UAE is set to impose a 15% Domestic Minimum Top-up Tax (DMTT) from financial years starting on or after 1 January 2025. The DMTT is set to apply to multinationals enterprises operating in the UAE with consolidated global revenues of €750 million or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies. Bahrain has adopted a similar law, and Qatar and Kuwait announced their intention to follow through. 

Outlook for 2025

While some vulnerabilities persist amid ongoing social instability and regional conflicts, robust growth is anticipated across the varying economies of the region. GCC countries are expected to keep pushing in 2025 towards economic diversification and implementation of structural reforms to modernise their economies and to continue leveraging new trade opportunities with Asian countries such as China and India across various sectors including advanced manufacturing, consumer, technology (AI in particular), green energy and financial services.

The non-oil sector is expected to remain the main driver of economic growth in the GCC in 2025, with private investments offsetting a decrease in government spending in some GCC markets. Nonetheless, the success of ambitious plans, such as Saudi Vision 2030 and UAE Centennial 2071, hinge partly on how foreign investors perceive geopolitical and economic risks in the region and subsequently shape their investment decisions.