Regional factors such as oil, conflict and strategic trade routes make China's engagement in the Middle East and North Africa a long story. While there are many opportunities in the private sector and in technology investment, which is by far the most active area, expanding cooperation between China and the Gulf Cooperation Council (GCC) will not be easy.
The relationship between China and the GCC is suffering from "Dutch disease" because of the presence of oil and the complicated trade relationship associated with it. The Middle East does not export a large percentage of its oil to China, but China imports more than a third of its oil and liquefied natural gas from GCC countries, and China is the region's second-largest export market. In fact, oil ties are not limited to imports and exports, with Chinese state-owned oil companies also operating extensively in the region.
Countries without oil, such as Egypt, Jordan and Syria, rely on other resources to attract Chinese investors. That could lower the barriers for Chinese investors to compete and allow them to collaborate in other areas, such as technology.
Mena tends to be ideologically opposed to western influence -- especially from the United States. And China's policy of non-interference in other countries' internal affairs while funding development projects seems more attractive than ever. Moreover, many countries in the Middle East and North Africa do have domestic resources that could create a compounding effect with Chinese money. For example, a growing number of countries have established bilateral investment funds with China to finance projects related to the Belt and Road Initiative. In the United Arab Emirates, Mubadala, the ABU Dhabi investment group, China Development Bank and China's State Administration of Foreign Exchange have created a $10bn joint strategic investment fund. The newly established Asian Infrastructure Investment Bank aims to accelerate bilateral trade and increase the stock of non-financial investment.
Increasing Internet penetration and government focus
As Internet penetration in the Middle East exceeds 60 percent and the number of users exceeds 150 million, Chinese venture capitalists and angel investors are paying attention to the region. Unlike other central locations in OBOR, such as sub-Saharan Africa, menA has a relatively stable digital and physical infrastructure. Southeast Asian markets are starting to saturate, so now some Chinese venture capitalists are turning their attention to the Middle East. They have already set their sights on Israel, investing more than $325 million there in 2018. Driven by these successes, more and more Chinese investors are visiting GCC countries and exploring further in North Africa. Their interests focus on e-commerce, entertainment, leisure, technology, logistics and fintech.
Meanwhile, Chinese companies are likely to thrive in the region, given national policies such as Smart Dubai 2021, Saudi Arabia's 2030 National Transformation Plan, Morocco's Mohammed VI Tangier Technology City and the China-Egypt Suez Economic and Trade Cooperation Zone. Internet of Things and blockchain are core tenets of Smart Dubai 2021, and Chinese technicians are currently leading in both areas. Moreover, given domestic conditions in China, It is easier for Chinese companies than western ones to move into areas where growth is led by the government rather than the private sector.
Even before Amazon bought Souq, the largest e-commerce site in the Arab world, China's e-commerce giants had been eyeing the region. Alibaba has promised to build a "tech city" with Dubai developer Miras Holding Group near jebel Ali, a freeport in Dubai, that will house more than 3,000 high-tech companies.
The Middle East e-commerce market is forecast to be worth $49 billion by 2021. In North Africa, Huawei just announced it will build a cloud data center in Egypt. JollyChic, a Chinese e-commerce company, has managed to become one of the largest e-commerce sites in the region, focusing only on cross-border trade. While other Chinese companies are unlikely to establish their own operations, it still shows the huge potential for imports from China in the region, as well as opportunities for co-operation in cross-border innovation and technology. Unlike China, for example, in the Middle East and North Africa, cash on delivery still accounts for 76 per cent of e-commerce orders, making the payments industry ripe for disruption.
Fintech in tourism
Given the growing number of Chinese tourists visiting the Middle East and North Africa (MENA) region, opportunities are ripe for cooperation in tourism and related industries. Even in Africa, north African countries such as Morocco and Egypt account for the largest number of Chinese tourists. In addition to growth in traditional industries such as retail and hospitality, increased visitor numbers have opened the door to fintech and online booking. Alipay and wechat Pay have made great strides in shopping centers in the region that cater to Chinese tourists. Israel has become the first country in the region to accept Alipay, which is available to Chinese tourists, businesses and tourists, after signing a cooperation agreement with Israel Credit Card. Since then, Dubai-based Masirik Bank and other financial institutions have seized the opportunity to work together.
Apart from online retailer Noon entering China to source Chinese-branded goods and connect it with customers in the Middle East, China has benefited the most from digital economy cooperation between GCC members and North Africa. The size of the Chinese deal may be too big for the growing number of venture capitalists in the GCC. Even Israeli investors find it difficult to invest in China, given the maturity and size of Chinese companies.
