Operating a business in the Middle East requires executives to navigate an exceptionally challenging geopolitical and macroeconomic environment while dealing with unique labour and technological considerations on the ground. This often requires managing expectations against reality. The aim of this report is to dispel regional business myths and take an evidence-based approach to assessing business opportunities and risks. We have identified these through a survey of business executives in the Middle East, complemented with in-depth interviews. This report presents these findings, along with strategies businesses are adopting to navigate these unchartered waters. 

Key findings include:

• The region’s business executives appear not to be swayed by short- and medium-term international and regional geopolitical risk factors. Respondents were more concerned about short-term macroeconomic risks such as oil price volatility (61% of respondents), changes to domestic tax structures (55%) and exchange-rate volatility (52%). Although Gulf Co-operation Council (GCC) tensions with Qatar were cited by 47% of respondents, it was only perceived as a lower level risk. The Economist Intelligence Unit believes that the boycott of Qatar by Saudi Arabia, Bahrain, the UAE and Egypt will continue over the medium term, as close ties with Iran are unlikely to be radically reformed over the next five years, a major point of contention. Furthermore, as the oil and gas industry in Qatar has largely been unaffected and they have taken steps towards self-sufficiency, the economic pressures of the boycott have been limited. Longer-term geopolitical events such as the ongoing conflicts within Yemen and Syria as well as the US withdrawing from the Iran nuclear deal were cited as having no direct impact on their business by a majority of respondents. However, respondents were concerned by the risk posed by civil unrest in the country they are located in (45%).
   
• Executives recognise the longer-term shifts in oil demand and supply and the risk of continued reliance on oil for economic growth. They strongly advocated for economic diversification to reduce the region’s exposure to oil price volatility. With the exception of the infrastructure and energy sectors, all other sectors broadly support continued reform with between 40% and 56% of respondents in each sector viewing a slowdown in economic diversification as a risk.
   
• Short-term mega-events in the region (Expo 2020 and the World Cup in 2022) are perceived to bring positive spillovers. Respondents believe the economic benefits of Dubai’s hosting of Expo 2020 will be felt beyond the UAE’s borders—the event was cited as an opportunity by more than 60% of respondents in Saudi Arabia, Kuwait, Jordan, Egypt and Oman and Bahrain. Larger companies responded more positively to these mega-events than smaller companies.
   
• The UAE, Saudi Arabia and Egypt continue to be sweet spots for business operations in the Middle East. Market size and level of political stability are the key factors facilitating business expansion in the region. A key impediment to expansion in the Middle East is fierce competition from domestic players, as business is still highly driven by personal networks and implicit state support in some cases. Beyond the Middle East, executives prefer expansion into Asian markets (particularly India and China) over East Africa.
   
• The vast majority of respondents believed that advanced technologies such as artificial intelligence (AI), the Internet of Things (IoT), robotics and blockchain will have a positive impact on business operations. Building on digital transformations under way in their countries, survey respondents expect to see these implemented across the region in three to five years, and some are already taking steps to prepare for their adoption. Over 55% of respondents have taken five or more steps to prepare for the adoption of advanced technologies. Upskilling employees (71% of respondents) and hiring new talent (66%) were prioritised over investments and redesigning business practices.
   
• Region-wide interviews indicate that more needs to be done to accelerate the pace of adoption of advanced technologies. Interviewees attribute the slow adoption to limited understanding among senior management of advanced technologies, although the survey identified high capital investment, cyber-security risks and the skills shortage as greater impediments. Our survey revealed that non-C-suite respondents are more likely to recognise that advanced technologies will increasingly disrupt their business than the C-suite.
   
• Financing instruments remain focused on traditional and Islamic bank financing mechanisms, according to 93% of respondents. Alternative funding mechanisms like peer-to-peer, crowdfunding, private equity, private debt and venture capital are largely underdeveloped in the region.