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Chinese infrastructure investment and opportunities welcome in Middle East

FOCUS: China is already a significant source of investment in the Middle East, both in terms of financial and human capital, and any increase due to the One Belt One Road (OBOR) policy will be welcomed by governments struggling with oil price volatility.22 Aug 2016

This is part of our series analysing China's One Belt One Road infrastructure investment programme. For more, sign up to request Pinsent Masons detailed region by region guide to OBOR.

Chinese state owned enterprises have been very visible in the development of infrastructure and commercial development across the Middle East for some years now. This has been particularly welcome because of the resource management and the project management that China can bring to big infrastructure programmes.

Chinese investment can bring not just money but also a large foreign labour force, the importance of which can't be underestimated. In some places, particularly in the Gulf states, local contractors simply don't have access to the workforce needed to complete these projects.

Many of the region's governments are of course now facing infrastructure deficits after a year of oil price volatility, and looking for investment from external sources. OBOR may be the policy boost that is needed to get investment into these projects.

The new funding bodies that have been set up will encourage more investment in the Middle East, and will potentially change the type of investment that's being made from one-off, discrete investments to longer term, joined-up projects.

The policy will also be welcome in terms of the opportunities it brings for local business. Not only will local contractors be keen to work with Chinese investors in building infrastructure, but there may be potential for this to open doors to the Chinese market for Middle East suppliers.

It would be ambitious to try to compete with the Chinese in manufacturing, but sectors like technology and financial services may gain access to new markets. Middle East expertise in areas like clean, renewable energy and in commercial development could be of use to the Chinese in their own market.

It is early days: few projects are being labelled 'OBOR' in the region, but the impetus is clearly there, with a focus on Iran. There has been significant trade between China and Iran for the past 20 to 30 years and China will want to increase its trading links and hubs in the country. Now that sanctions have been lifted, Iran is expected to export an extra 700,000 barrels a day of crude oil by the end of 2016, and the lifting of sanctions on financial services will boost other sectors, but the country's infrastructure needs a good deal of investment.

Saudi Arabia, Egypt and the UAE have all been highlighted under the OBOR plan, too. All three need infrastructure both in the public sector and industry, but investment has been held back by low oil prices.

OBOR investment will be welcome where it helps government to complete infrastructure projects that might not otherwise be affordable, and where local business also has an opportunity to get involved.

Dubai-based Sachin Kerur is an infrastructure expert with Pinsent Masons, the law firm behind out-Law.com.

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