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Results of JETRO’s 2018 Survey on Business Conditions of Japanese-Affiliated Firms in the Middle East

Feb 15, 2019

Cautious business forecast under uncertain circumstances

Between September and October 2018, the Japan External Trade Organization (JETRO) conducted its latest survey on business operations of Japanese-affiliated firms in ten countries in the Middle East: the United Arab Emirates (UAE), Saudi Arabia, Turkey, Iran, Jordan, Israel, Kuwait, Qatar, Bahrain and Oman. The survey received a record-high number of valid replies from 255 firms. Below is a summary of the results.

Survey outline

Method Questionnaire
Period From September 10 to October 4, 2018
Destination of questionnaire 445 companies (255 respondent companies including 66 manufacturers and 189 non-manufacturers, response rate: 57.3%)
Question items (1) Status of operations, (2) Future business outlook within the next one or two years, (3) Attractiveness and challenges in the investment environment, (4) Promising fields in the future

Key points of the results

  1. Regarding operating profits for 2018, while the majority of respondents reported a surplus, many expect profits to remain at the same level.
  2. While Israel is expected to see a boom as a market, Iran will be more difficult owing to US sanctions.
  3. The investment environment attracts attention due to market size and growth potential and positive sentiments toward Japan, despite the issue of underdeveloped or unclear legal systems.

Summery points

1. Operating profit forecast: While the majority of respondents reported a surplus, many expect profits to remain at the same level.

  • Regarding operational results for 2018, the majority of all firms (55.4%) in the target countries reported a surplus and nearly 20% a deficit. While there were many countries in which the ratio reporting a surplus exceeded 60%, about half of the companies in Iran (47.4%) were in deficit. (Page 9 in the attached document)
  • Regarding operating profit for 2018 in comparison with the previous year, many companies (43.5%) remained at the same level of profit. However, while 58.3% of companies in Israel reported to be improving because of increasing economic growth, 52.6% of companies in Iran were in decline,owning to US sanctions. These results as a whole are mainly due to an increase or decrease in “local market sales.” (Page 10 and 12 to 15 in the attached document)
  • Looking at the operating profit forecast for 2019 year-on-year, most companies expect profits to remain at the same level as a whole (47.4%), with only 34.0% expecting an improvement. Looking at the results by country, 60% of firms in Israel expected an improvement, in contrast with 60% of firms in Iran expecting a decline. While the biggest factor is the increase or decrease in local market sales, the decline in Iran was influenced by the policy of other governments (particularly the US) (75.0%). (Page 11, 16 and 17 in the attached document)

2. Future business outlook: Only about 40% of total companies expect to expand, with the largest ratio expecting to remain at the same level.

  • Only 42% of total respondents in all target countries forecast business expansion, with the majority of firms expecting to remain at the same level (45.9%). Looking at the results by country, 76.9% of firms in Israel expected to expand business, in contrast to 60% of firms in Iran expecting to downsize. (Page 18 in the attached document)
  • Among reasons given for business expansion, “increased sales in the local market” came in first, followed by “export expansion” and “market growth potential.” The most commonly cited function to be expanded was the “sales function” (72.9%). (Page 19 to 21 in the attached document)
  • On the topic of personnel, while the majority of companies reported that the number of both local and Japanese employees would remain the same, of note was a tendency toward increased personnel in Israel and decreased personnel in Iran and Qatar. (Page 22 to 25 in the attached document)

3. Investment environment: Undeveloped or unclear legal systems were the biggest issue, while market size and growth potential and positive sentiment toward Japan were considered advantages.

  • Across the region, “market size and growth potential” was the most cited advantage of the investment environment (52.6%). “Underdeveloped or unclear legal system” (67.5%) ranked first among challenges. (Page 26 in the attached document)
  • Common among all Middle Eastern countries; including Iran (80.0%), Israel (69.2%) and Turkey (64.2%); was the belief that the positive sentiment toward Japan is an advantage. (Page 29 to 31 in the attached document)
  • Regarding issues in countries such as Iran (95%), Turkey (81.1%) and Israel (50.0%), a significant portion consider “unstable political and social conditions” to be their main concern. (Page 29 to 31 in the attached document)

4. Promising fields in the future: “Infrastructure” and “resource and energy" ranked high, while “new industries” are promising.

  • As promising business fields in the future, "infrastructure" (62.8%) and "resources and energy" (56.2%) ranked top in the target countries, with "new industries" (50.4%), "consumer markets" and the "service industry" (both 50.0%) also receiving a high share of responses. (Page 32 in the attached document)
  • “New industries” (startups, IoT, AI, etc.) received an especially high ratio in Israel (100.0%) and Bahrain (80.0%). (Page 32 in the attached document)

Mr. Yonekura and Mr. Ono
Middle East and Africa Division, JETRO
Tel: +81-3-3582-5180 E-mail: orh@jetro.go.jp