Ongoing volatility in the GCC region has prompted companies in those markets to scale back and seek more stable nearby destinations. Egypt’s Red Sea region isn’t their only option.
One reality governments must deal with is “investors don’t like uncertainty,” said the late Kenneth Lay, founder, CEO and chairman of Enron, a major global energy company.
The war in Iran is perhaps the biggest regional wake-up call for businesses in the GCC. Almost two weeks into the war, Oxford Economics downgraded its GCC GDP growth forecast for this calendar year from 4.4% to 2.6% “due to lower production, exports, tourism and domestic demand.”
The worrisome forecast and uncertainty about the conflict’s timeline and endgame have prompted “dozens of companies with operations in the Gulf to consider moving some business to Istanbul’s newly emerging, state-backed financial center,” Reuters reported in mid-April.
“In the past month [March], we have held meetings with more than 40 companies, most of them headquartered in East Asia and Gulf countries,” Istanbul Financial Center (IFC) CEO Ahmet Ihsan Erdem told Reuters.
One reason GCC investors are looking to Türkiye is incentive packages announced after multinational firms and foreign skilled workers became targets in the war.
Investor exodus?
According to multiple media reports, companies across tech, financial services, energy and logistics, and retail and consumer goods sectors have significantly scaled back their GCC operations.
CNBC reported in early March that NVIDIA and Amazon had “shuttered all corporate offices in the Middle East,” requiring employees to work remotely. Amazon Web Services (AWS) told its users to back up their data on personal devices, citing fears of attacks on its Gulf servers. “The ongoing conflict in the region means that the broader operating environment in the Middle East remains unpredictable,” said AWS.
Other companies curbing GCC operations include Citigroup, Standard Chartered, PricewaterhouseCoopers and Deloitte, which “evacuated [their] Dubai offices as regional tensions escalate,” according to the International Accounting Bulletin. PwC also has “temporarily closed its offices … as a precautionary measure [in] Saudi Arabia, Qatar, the UAE, and Kuwait.” Meanwhile, HSBC closed its Qatar offices “until further notice,” according to a customer notice.
GCC-owned companies are also temporarily shutting down or significantly slashing production in light of the selective closure of the Hormuz Strait, through which 20% of the world’s oil is exported and most GCC imports pass. The list includes QatarEnergy, Saudi Arabia’s oil and gas drilling and production services company ADES Holding, Emirates Global Aluminum and Aluminum Bahrain.
The situation hasn’t been helped by the U.S. State Department’s “depart now” announcement in the early days of the war for 13 countries in the Middle East. It stopped short of sending military planes to evacuate American expats, instead urging them to “use available commercial transportation, due to serious safety risks.” As of mid-April, the directive remained in effect. Other countries have issued similar warnings, including the U.K., Germany, the Netherlands, and Australia.
Alternative destinations
In April, Türkiye announced incentives “to lure investors,” according to several media outlets in the Middle East and Türkiye.
These new perks are reportedly tax-related, including “income derived from exported financial services is fully deductible from corporate income tax, while related transactions are exempt from associated charges,” reported Middle East Eye after interviewing unnamed sources. “There are also payroll tax incentives for internationally experienced personnel, with 60% or 80% of real net monthly wages exempt from income tax, depending on the number of years of overseas experience.”
Bloomberg reported in April the Turkish government will likely modify taxation laws to increase the number of firms eligible for breaks.
Additionally, the World Economic Forum (WEF) “brought together senior political and business leaders in Istanbul [in] March … for a country strategy meeting on Türkiye.” During the gathering, “[Türkiye’s] President Recep Tayyip Erdoğan delivered an address and engaged in strategic dialogue with 40 global CEOs and chairs, while Mehmet Şimşek, minister of treasury and finance, chaired a discussion on economic policy and investment,” the WEF noted.
Alois Zwinggi, WEF president and CEO, stressed, “As the global economy undergoes profound transformation, Türkiye plays an increasingly strategic role in trade, investment and production networks. Amid evolving geoeconomic dynamics, the meeting spurred public-private collaboration to contribute to long-term growth and resilience in Türkiye and beyond.”
Not smooth sailing
The biggest challenge facing GCC companies relocating to Türkiye is likely how different Türkiye’s legislation and macroeconomics are compared to the UAE. Middle East Eye reported concerns from “several analysts and investors” about “Türkiye’ s sticky inflation, which is expected to reach 25% this year, and a widening trade deficit.”
Another issue is that Dubai International Financial Centre (DIFC) operates under its own civil and commercial laws (similar to the Suez Canal Free Economic Zone in Egypt) and is administered by independent DIFC Courts. Türkiye does not have a dual legal system. “It would be a tough sell for the government,” said Guven Sak, a prominent economist associated with the Ankara- based Tepav think tank. “But Ankara can still try to reassure financial companies within the existing legal structure.”
Third, companies relocating from the GCC to Türkiye face exchange- rate risk, which is absent in the oil- rich Gulf, where local currencies are pegged to the dollar. That puts extra pressure on governments with free- floating or managed exchange rates to reassure investors the economy would be resilient to dollar swings.
Fourth, Middle East Eye quotes an anonymous source arguing the relocation of multinationals from the GCC to Turkiye won’ t be significant, as “most of them already have operations or subsidiaries there anyway. And in areas like energy, AI, and business linked to India and China, there isn’ t much overlap.”
For the rest, relocation could prove attractive, as “banks operating from [IFC] campus pay effectively zero corporate tax on financial services exports through 2031,” Guney Yildiz, senior adviser on geopolitics and strategic insights at Anthesis Group, a consultancy, told Middle East Eye. “On paper, that’ s actually better than Dubai, because [it] offers zero tax on most activities, but carves out banks and insurers, which pay the standard 9%.”
Guven Sak, an economist at Tepav think tank, told Middle East Eye, “Dubai filled the void left by Beirut, which was unable to realize its potential because of civil war. With the right incentives, we can attract Chinese businesses that are heavily invested in the UAE’ s Jebel Ali Free Zone, which sits across from Iran.”
Quick GCC recovery?
Fallout from the ongoing conflict will likely persist long after disruptions end. “The lasting damage would be to the Gulf states’ soft power – their brand as stable, predictable havens for investment and tourism in an otherwise turbulent region,” Rob Geist Pinfold, a lecturer at King’s College London, told NDTV Profit, a news platform, in early March, less than a week after the war started.
Ultimately, the region’s future as a top-tier investment destination will rest almost entirely on crafting government narratives to attract domestic and foreign investors and companies.
“In the short term, the Gulf monarchies will be under pressure to maintain the narrative of calm at home,” said a paper from Carnegie Endowment. “Top Emirati officials toured a shopping mall to convey a literal sense of ‘business as usual,’ while a host of Dubai-based influencers conveniently converged on the same theme,” the paper noted.
In the long term, the war undermines a core principle driving the GCC governments’ efforts to diversify away from oil. “A longer-term concern is that the Gulf states – especially the UAE and Saudi Arabia – have banked heavily on ‘connectivity’ as a bridge to a post-oil economic future,” said Carnegie Endowment. “But attracting tourists, building and operating data centers, and sustaining complex logistical hubs will be difficult [amid geopolitical fallout].”
