Three decades of globalisation brought about by the proliferation of free trade agreements, investment liberalisation, and enhanced logistics have facilitated the geographic diversification of supply chains away from domestic markets. From the 1980s to the financial crisis in 2008, supply chains fanned out across the world as companies sought lower-cost locations for the sourcing of inputs and production. For countries in the Middle East, globalised supply chains have enabled greater linkages with markets around the world as well as an increased dependence on foreign imports for the provision of essential products. 

However, since the financial crisis, and especially in the last five years, a more splintered trade environment has emerged, characterised by rising economic nationalism, trade tensions, and the emergence of complex global trade risks, including extreme weather and, most recently, the COVID-19 pandemic. Through a combination of positive trends such as growing consumer markets in emerging economies, the democratisation of manufacturing through innovations like 3D printing, and government policies to increase local participation in global value chains, countries and companies in the Middle East and elsewhere have begun to consider supply chain localisation. 

This report explores the drivers and implications of the shift from global to local supply chains in the Middle East’s Gulf Cooperation Council (GCC) and Levant regions, analysing the drivers of localisation for both governments and corporations, key localisation sectors, and how the pandemic has impacted localisation trends. It also identifies potential approaches for addressing challenges to supply chain localisation in the region. 

Key findings: 

The GCC and Levant nations have courted supply chain localisation through local content policies, investment promotion reforms to encourage foreign direct investment (FDI), and improvements to their logistics and technology infrastructure. Supply chain localisation approaches have varied across countries and in line with their economic growth strategies. Oil-rich and populous Saudi Arabia has underscored the importance of local content as part of an economic transformation plan to diversify from oil and increase employment for nationals, while smaller countries, such as the UAE, Qatar and Bahrain, have emphasised openness to international talent and a “hub and gateway” economic strategy. In Jordan, localisation has been part of specific attempts to build capacity in the solar energy sector through mandatory quotas on competitive tenders. GCC governments have equally been focusing on enhancing their logistics and technology infrastructure to encourage localisation, including through investments in advanced technologies such as 3D printing and cloud computing; the development of “smart” cities employing the Internet of Things; the establishment of special economic zones; and the development of state-of-the-art aviation and port infrastructure. Governments across the Middle East have also sought to improve the overall business environment to enable a more FDI-friendly landscape, although performance is mixed. High-income GCC countries are among the world’s leading performers in this regard, while middle- and lower-income and conflict-affected countries have made more limited gains. Multinational companies have realised a range of benefits from localisation in the region, including greater customer-centricity and improved agility. Improvements in the region’s logistics sectors, especially in the GCC, are enablers that can attract further local production in the future. 

• Food and agriculture, next-generation manufacturing, and energy are prominent sectors for localisation. Food insecurity has prompted significant localisation, especially by Gulf states, through investment in regionally proximate areas like East Africa and, more recently, innovations in agri-tech and vertical agriculture. In manufacturing, increasing investment in and adoption of the IoT, as well as innovations in 3D printing, have supported productivity and reduced costs, making regional manufacturing more competitive. The energy sector is a third focal area, from enhancing local participation in oil and gas to building capacity to support decarbonisation. Solar energy and cleantech are attracting significant localisation efforts through initiatives such as academic research in leading Gulf universities, and the use of local content as a procurement instrument to attract investment in green energy. 

• Key challenges for supply chain localisation include ensuring the right local skills and capabilities, a continual focus on creating an open business environment, and achieving stronger regional integration. To attract localisation, governments in the Middle East have used incentives, such as low tax and light-regulation zones, and regulatory mandates, such as local content policies. To expand and deepen localisation, it is crucial that countries in the Middle East invest in the broader FDI landscape, support the development of industrial clusters, and enhance the skills of the local labour force as the world economy becomes more knowledge-based. Achieving a stable macroeconomic policy environment and enhancing regional integration are also key factors that could positively inform companies’ localisation decisions. 

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