Urs Breitsprecher participates in the IR Global Guide – The Middle East & North Africa: A dynamic region for inward & outward investment

Foreword by Andrew Chilvers

The Middle East and North Africa (MENA) region is a hugely diverse cultural and geographical mix that stretches from Morocco in northwest Africa to Iran in Southwest Asia.

The region is home to a range of economies with vastly different levels of openness to international trade and investment. But with the help of international organisations such as the OECD and IMF, along with local and foreign investment, much of the region has started to make giant strides in economic development in recent years.

Despite the Covid-19 pandemic that resulted in negative growth of 3.8% for 2020, most analysts agree the region continues to offer ideal opportunities for businesses and investors going forward. Indeed, with the pandemic starting to ease, an estimated $4.1 trillion of projects are planned or underway in many countries across the region as they continue to diversify and expand their economies.

Moreover, to ease the stress on local companies while offering incentives to foreign investors, most MENA countries recently announced a series of fiscal stimulus packages including tax payment reductions and loan guarantees for businesses. These moves have been popular inside and outside the region for encouraging investment and many analysts predict growth increasing to as much as 3.1% for the region in 2021.

Nevertheless, this uptick in economic growth depends on several factors including the ongoing success of the Covid-19 vaccine rollout across the region and the stabilising of oil and gas prices. Furthermore, if geopolitical tensions continue to stabilise, many believe oil exports will recover to 1.8% for 2021 and this will be supported by the resumption of large-scale capital investment projects that were largely put on hold during 2020.

Starting a business in/out of MENA: How easy is it for entrepreneurs and businesses in/out of MENA to start a business in your jurisdiction? How can you help smooth the process for your clients and overcome common pitfalls?

The main issue for MENA companies starting businesses in Germany is trust. Actually, that’s the same case across the EU. A question always asked in Germany is who is the beneficial owner behind the business? If you’re a company from the MENA region, you have to prove it. For instance, I have a case where a Dubai-based company that is owned by a Turkish businessman is claiming damages from a German company. Our task is to prove that the Dubai company actually exists.

Consequently, when you do business in Germany and you’re a company from the MENA region, it’s critically important you prove you’re the beneficial owner. If you use a Dubai trust or trust from another part of the MENA region it’s not accepted here in Germany as a real company. If you can’t show you’re the beneficial owner, you won’t be able to form your own company and get registered as a shareholder. For MENA businesses this is probably one of the biggest problems.

Another problem has to do with legacy issues. Some 20 to 30 years ago when companies from the MENA region started operating in Germany, they spent a lot of money and a lot of German businesspeople took advantage of this. Investors from the MENA region are far more educated now and understand what to look out for, but we are always mindful that our MENA clients are well protected from people trying to take advantage of them.

What are the key recent developments your clients should be aware of when investing in/out of the MENA region to your jurisdiction? What grants and incentives are available to overseas investors?

In Germany, UBO is very big and due diligence is now far more detailed with questions about the political systems in the MENA region. For example, we used to be a very big business partner with Saudi Arabia, but in the past few months relations have dropped because of the human rights issues. As a consequence, there may well be problems for German investors into many of those countries in the region.

Elsewhere, we’re having similar discussions with Turkey, which is traditionally our closest business partner. Nowadays, that’s become more complicated. The good news for potential investors is that with Covid-19, it’s now time to start investing in Germany. We have a lot of subsidies for overseas investors right now. We have a lot of companies that are still healthy but are short of cashflow because of the pandemic. This is particularly the case with tourism and hotels. For example, in Dusseldorf, there’s a well-known 5-star hotel that was on sale for euro120 million, but that’s fallen to euro45 million. This highlights the type of opportunities opening up for investors if they start right now.

And the government is giving out decent subsidies if you’re a foreign investor. For example, we just opened the European headquarters of a Taiwanese company and we were able to receive a decent subsidy that paid for my costs and will pay for the first employees who are hired. For overseas businesses you can immediately start negotiating with the local state authorities and even get German citizenship.

It’s interesting how different sectors are changing significantly because of the pandemic, with governments rushing through different legislation to encourage investment or to prop up certain sectors. Germany is spending a lot of money to help businesses in Germany. One sector which is particularly interesting for investors from the MENA region is the halal food sector. It used to be very small in Germany, but we now have a lot of Muslims in Germany and people are looking at healthy, sustainable food. This is a sector that has a big potential in Germany.

What are the latest trends shaping business growth and creating opportunities in MENA for clients in your jurisdiction? What markets offer the most stability and growth and where would you advise your clients to invest?

I suppose other countries are only interested in cash while we in Germany are the only ones with morals (laughs). As I said before, Saudi Arabia and Germany were very close, but this has changed recently. In Germany, the rules around best practise are fairly strict compared to most countries and human rights have become an important issue. But you have to remember that this also works to an investor’s favour. These strict rules protect businesses against malpractice that you often find in other countries.

Germany is a solid place to invest in. If you have a company here, the rule of law is very strong, and you can protect your rights. It doesn’t matter where you come from. If you think you can do it like in Portugal (laughs), where you’re just interested in the money, it doesn’t work like that here.

And sometimes clients from the MENA region – or further afield in China – think they can negotiate the rules, but they find that these rules are non-negotiable. And often emerging market businesses and investors find that a very difficult place to invest in.

Regarding sectors in Germany, the car market has taken a hit from electric cars coming out of the Far East. IT and technology are doing very well, and the agricultural sector is really performing well. Germany is selling farm produce as well as high tech farm machinery worldwide.

I’m sure in three or four- or five-years’ time the German car industry will bounce back, but they overlooked the trend towards electric cars and that has cost the sector dearly.

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Contributing Advisors