FY 2018 Survey on Business Conditions of Japanese Affiliated Companies in the Middle East

FY 2018 Survey on Business Conditions of Japanese Affiliated Companies in the Middle East January 2019 Japan External Trade Organization (JETRO) Middle East & Africa Division, Overseas Research Department

Contents 1 Important Survey Findings 2 Overview 3 Company Profile 4 1. Operating Profit Forecast (1) FY 2018 Operating Profit Forecast 9 (2) FY 2018 Operating Profit Forecast (compared to 2017) 10 (3) FY 2019 Operating Profit Forecast (compared to 2018) 11 (4) FY 2018 Operating Profit Forecast (Reasons for Improvement) 12 (5) FY 2018 Operating Profit Forecast (Reasons for Deterioration) 14 (6) FY 2019 Operating Profit Forecast (Reasons for Improvement) 16 (7) FY 2019 Operating Profit Forecast (Reasons for Deterioration) 17 2. Future Business Outlook (1) Direction in the Next 1-2 Years 18 (2) Direction in the Next 1-2 Years (Reasons for Expansion) 19 (3) Direction in the Next 1-2 Years (Expanding Functions) 20 (4) Direction in the Next 1-2 Years (Reasons for Downsizing/Withdrawl) 21 (5) Changes in Human Resource Structure (Increase/Decrease of Local Employees) 22 (6) Changes in Human Resource Structure (Increase/Decrease of Japanese Expat/Employees) 24 3. Investment Environment Advantages and Challenges (1) Investment Environment Advantages and Challenges (All) 26 (2) Investment Environment Advantages and Challenges (UAE) 27 (3) Investment Environment Advantages and Challenges (Saudi Arabia) 28 (4) Investment Environment Advantages and Challenges (Turkey) 29 (5) Investment Environment Advantages and Challenges (Iran) 30 (6) Investment Environment Advantages and Challenges (Israel) 31 (7) Future Promising Business Areas 32

Important Survey Findings 2 Cautious Approach due to Uncertain Circumstances In 2018, more than 50% of companies surveyed posted a profit, with little under 20% registering losses. When comparing the business performance of 2018 with that of the previous year, approximately 40% answered "leveling off." Also for 2019, about 50% are forecasting "leveling off" in performance, but Israel is anticipated to show improvements in business performance with its strong economy in recent years. Iran s performance is expected to deteriorate due to US sanctions. For both improvement and deterioration, the primary factor overall is "sales in local markets." For the business development in the next 1-2 years, the percentage of respondents answering "remain the same" (45.9%) slightly exceeds those selecting "expansion" (42.4%), providing cautious outlook. In Israel, little under 80% of companies intend to expand their business. The main attractions of the investment environment are "market scale and growth potential" and "positive image regarding Japan." "Underdeveloped legal system or unclear legal system operation" is the largest challenge, but "political and social instability" in Turkey and Iran are also concerning factors. We look at "infrastructure" and "resources and energy" as promising fields in the future. In Israel and Bahrain, "new industries" (start-ups, IoT, etc.) are also promising.

Overview 3 Objective To understand the actual conditions of Japanese-affiliated companies' business activities in the Middle East (10 countries: United Arab Emirates (UAE), Turkey, Saudi Arabia, Iran, Jordan, Israel, Kuwait, Qatar, Bahrain, and Oman) and provide the results to the public. Map Companies Surveyed A questionnaire survey was locally conducted for Japanese-affiliated companies with bases in each of the surveyed countries in the Middle East. Valid responses were received 255 companies (86 from UAE, 53 from Turkey, 35 from Saudi Arabia, 20 from Iran, 14 from Jordan, 13 from Israel, 13 from Kuwait, 12 from Qatar, 5 from Bahrain, and 4 from Oman) Period September 10 - October 4, 2018 Response Rate The response rate was 57.3%. Questionnaires were distributed to 445 companies in 10 countries, and valid responses were received from 255 of them. Remarks This was the 6th survey for UAE and the 5th for Saudi Arabia. It was the 4th survey that covered all industries for Turkey, and the second survey that had been performed in Qatar. JETRO informed the companies to be surveyed of the URL for the questionnaire, and asked them to complete and return it, or sent them questionnaires in Japanese/English by e-mail. Notes All response rates are shown in percentages (%). The response rate is rounded off to the second decimal place. As a result, some of the total figures do not add up to 100%. In this report, N stands for the number of valid responses (parameter). No. of Japanese-affiliated Companies No. of (as of October 1, 2017) Bases Y-o-Y (%) UAE 337 4.7% Turkey 197 4.8% Saudi Arabia 115-2.5% Israel and the Gaza Strip, etc. 66 15.8% Qatar 46-2.1% Iran 32-3.0% Oman 20 5.3% Bahrain 20-13.0% Jordan 19-5.0% Kuwait 18 12.5% Lebanon 7-12.5% Yemen 0 % Iraq - - Syria - - Total 877 3.1% Source: Ministry of Foreign Affairs, Annual Report of Statistics on Japanese Nationals Overseas (FY 2018 Summary version)

Company Profile 1: Year of Establishment 4 Year of Establishment Before 1969 1970s 1980s 1990s 2000s After 2010 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 255) 6.3 13.7 5.5 11.4 25.9 37.3 Turkey (N = 53) 7.5 5.7 5.7 13.2 17.0 50.9 Saudi Arabia (N=35) 5.7 8.6 8.6 2.9 22.9 51.4 UAE (N=86) 1.2 7.0 12.8 43.0 36.0 Qatar (N=12) 16.7 16.7 41.7 25.0 Bahrain (N=5) 4 2 4 Kuwait (N=13) 23.1 23.1 23.1 15.4 Oman (N=4) 75.0 25.0 Iran (N=20) 4 45.0 5.0 5.0 5.0 Israel (N=13) 30.8 69.2 Jordan (N=14) 42.9 21.4 14.3 21.4

Company Profile 2: Way of Advancing into the Market 5 Way of Advancing into the Market Own capital Joint venture (Own over 50% of the shares) Representative office Joint venture (Own over 50% of the shares) Branch office 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 255) 29.8 8.6 9.8 16.9 34.9 Turkey (N = 53) 35.8 11.3 5.7 20.8 26.4 Saudi Arabia (N=35) 25.7 34.3 17.1 14.3 8.6 UAE (N=86) 38.4 1.2 7.0 22.1 31.4 Qatar (N=12) 8.3 16.7 16.7 58.3 Bahrain (N=5) 2 8 Kuwait (N=13) 30.8 69.2 Oman (N=4) 10 Iran (N=20) 45.0 1 45.0 Israel (N=13) 30.8 15.4 23.1 23.1 Jordan (N=14) 7.1 7.1 21.4 64.3

Company Profile 3: Total Number of Employees 6 Total Number of Employees 1-9 10-49 50-99 100-499 500-0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 254) 42.1 31.1 8.3 12.2 6.3 Turkey (N = 53) 28.3 22.6 7.5 22.6 18.9 Saudi Arabia (N=35) 2 37.1 17.1 17.1 8.6 UAE (N=85) 47.1 36.5 8.2 8.2 Qatar (N=12) 5 41.7 8.3 Bahrain (N=5) 6 4 Kuwait (N=13) 61.5 23.1 Oman (N=4) 10 Iran (N=20) 5 35.0 1 5.0 Israel (N=13) 61.5 23.1 Jordan (N=14) 42.9 35.7 7.1 14.3

Company Profile 4: Number of Regular Employees 7 Number of Regular Employees 0 1-9 10-49 50-99 100-499 500-0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 224) 46.4 32.1 8.5 9.4 3.6 Turkey (N = 39) 35.9 25.6 12.8 15.4 10.3 Saudi Arabia (N=33) 21.2 39.4 12.1 18.2 9.1 UAE (N=80) 48.8 36.3 8.8 6.3 Qatar (N=11) 54.5 45.5 Bahrain (N=5) 8 2 Kuwait (N=8) 87.5 12.5 Oman (N=4) 10 Iran (N=20) 55.0 35.0 5.0 5.0 Israel (N=10) 6 1 1 2 Jordan (N=14) 42.9 35.7 7.1 14.3

Company Profile 5: Industry (Manufacturing/Non-manufacturing) 8 Industry (manufacturing/ non-manufacturing) Manufacturing industry Non-manufacturing industry Unknown 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 255) 25.9 74.1 Turkey (N = 53) 52.8 47.2 Saudi Arabia (N=35) 25.7 74.3 UAE (N=86) 16.3 83.7 Qatar (N=12) 8.3 91.7 Bahrain (N=5) 6 4 Kuwait (N=13) 23.1 76.9 Oman (N=4) 10 Iran (N=20) 5.0 95.0 Israel (N=13) 38.5 61.5 Jordan (N=14) 14.3 85.7

Operating Profit Estimate1: Surplus rate over 50% in 2018 9 Overall, over 50% of the companies surveyed answered that they estimated a surplus, and some countries even have more than 60% of companies that reported profit. Although Turkey suffered decline in currency value, they are politically stable and security has been restored, so 60% of companies answered that they were in surplus. Due to the reinforced US sanctions against Iran, almost half of companies are in deficit. Companies in Bahrain that reported profit remained 20%. Operating Profit Estimate for 2018 Surplus Balance Deficit 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 249) 55.4 25.3 19.3 Turkey (N = 51) 62.7 19.6 17.6 Saudi Arabia (N=34) 41.2 26.5 32.4 UAE (N=85) 61.2 28.2 10.6 Qatar (N=11) 63.6 27.3 9.1 Bahrain (N=5) 2 6 2 Kuwait (N=13) 69.2 23.1 Oman (N=4) 5 25.0 25.0 Iran (N=19) 26.3 26.3 47.4 Israel (N=13) 53.8 15.4 30.8 Jordan (N=14) 64.3 21.4 14.3

10 Operating Profit Estimate 2: Over 40% says flat for 2018 (Compared to 2017) Majority of companies in Israel believes profit improvements because of its robust economy growth. On the other hand, taking US economic sanctions into account, a majority of companies in Iran expect a decline in profit. In oil-producing countries, only 20% - 30% of companies foresee profit improvements, reflecting the trend of low crude oil prices. 2018 Operating Profit Estimate (Compared to 2017) Improve No change Deteriorate 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 246) 26.4 43.5 30.1 Turkey (N = 51) 35.3 29.4 35.3 Saudi Arabia (N=32) 25.0 37.5 37.5 UAE (N=85) 21.2 48.2 30.6 Qatar (N=11) 27.3 63.6 9.1 Bahrain (N=5) 2 6 2 Kuwait (N=13) 38.5 46.2 15.4 Oman (N=4) 25.0 75.0 Iran (N=19) 5.3 42.1 52.6 Israel (N=12) 58.3 25.0 16.7 Jordan (N=14) 21.4 64.3 14.3

Operating Profit Estimate3: About 50% responded that the outlook for 2019 (Compared to 2018) is also "flat" 11 US sanctions against Iran will most likely continue, so more than 60% of companies say business performance will worsen. Jordan's improvements will remain at %. Companies in oil-producing countries are often seen as flat or improving despite the declining trend of crude oil prices. Operating Profit Forecast for 2019 (Compared to 2018) Improve No change Deteriorate 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 247) 34.0 47.4 18.6 Turkey (N = 50) Saudi Arabia (N=34) 32.0 47.1 32.0 47.1 36.0 5.9 UAE (N=85) 34.1 56.5 9.4 Qatar (N=11) 45.5 54.5 Bahrain (N=5) 4 4 2 Kuwait (N=13) Oman (N=4) 30.8 5 53.8 5 15.4 Iran (N=19) 5.3 31.6 63.2 Israel (N=13) 61.5 23.1 15.4 Jordan (N=13) 84.6

Number of responding companies Sales increase due to export expansion Sales increase in local markets Exchange rate fluctuations Reduction in procurement costs Reduction in labor costs Decrease in other expenditures (administrative, utility, and fuel costs) Improvements in production efficiency (manufacturing industry only) Improvements in sales efficiency Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Operating Profit Forecast 4: The reason for the improvement in 2018 was "sales increase" in local markets and exports 12 Majority of companies in many countries responded "sales increase in local markets, followed by "increase in sales due to expanded exports. In Saudi Arabia and UAE, more than 80% of companies pointed out "sales increase in local markets." 2018 Operating Profit Forecast (Reasons for Improvement) Entire Region 63 44.4 69.8 11.1 11.1 17.5 17.5 14.3 14.3 1.6 17.5 Turkey 18 5 61.1 33.3 5.6 27.8 16.7 38.9 16.7 16.7 Saudi Arabia 8 25.0 87.5 12.5 37.5 37.5 12.5 12.5 12.5 25.0 UAE 16 5 81.3 12.5 12.5 18.8 18.8 6.3 Qatar 3 66.7 33.3 Bahrain 1 10 10 10 10 Kuwait 5 4 6 2 2 Oman 1 10 Iran 1 10 10 Israel 7 57.1 71.4 14.3 28.6 28.6 14.3 14.3 14.3 Jordan 3 33.3 66.7

Operating Profit Estimate 5: Sales increase in local markets has an impact on improvement in operating profit forecasts 13 The main reason for the expected improvement in operating profit is "sales increase in local market," then "expanded exports." Reasons for improvement in 2018 operating profit forecasts Sales increase due to export expansion Sales increase in local markets Exchange rate fluctuations Reduction in procurement costs Reduction in labor costs Decrease in other expenditures (administrative, utility, and fuel costs) Improvements in production efficiency (manufacturing industry only) Improvements in sales efficiency Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 55) 16.4 58.2 5.5 1.8 1.8 1.8 14.5 Turkey (N = 14) 14.3 57.1 21.4 7.1 Saudi Arabia (N=6) 66.7 16.7 16.7 UAE (N=15) 13.3 66.7 6.7 6.7 6.7 Qatar (N=3) 66.7 33.3 Bahrain (N=1) 10 Kuwait (N=5) 2 6 2 Oman (N=1) 10 Iran (N=1) 10 Israel (N=6) 5 33.3 16.7 Jordan (N=3) 33.3 66.7

Number of responding companies Sales decrease due to export slowdown Sales decrease in local market Exchange rate fluctuations Increase in procurement costs Increase in labor costs Increase in other expenditures (administrative, utility, and fuel costs) Rise in interest rates Production cost insufficiently shifted to the selling price of goods Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Operating Profit Estimate 6: Reasons for deterioration are also related to the sales decrease in local markets 14 Many countries are affected by sales decrease in local markets. In Iran, 80% of companies responded the US government sanction against Iran (influenced by government policy) as the main reason for deterioration. 2018 Operating Profit Forecast (Reasons for Deterioration) Entire Region 74 25.7 55.4 25.7 23.0 18.9 20.3 10.8 14.9 43.2 2.7 24.3 Turkey 18 5.6 55.6 66.7 38.9 16.7 22.2 33.3 27.8 5 5.6 16.7 Saudi Arabia 12 8.3 58.3 8.3 25.0 41.7 25.0 8.3 8.3 25.0 25.0 UAE 26 61.5 65.4 19.2 15.4 23.1 15.4 38.5 3.8 23.1 Qatar 1 10 Bahrain 1 10 Kuwait 2 10 Oman 0 Iran 10 1 4 4 1 1 8 2 Israel 2 5 5 5 5 Jordan 2 10 5 5 5 10

Operating Profit Forecast 7: The main cause of deterioration in 2018 is also "decreased sales in local markets" Little less than 70% of companies in Iran responded the influence of the policy (impact from the US government sanction against Iran) as the main cause of deterioration. In Turkey, mainly due to exchange rate fluctuations (depreciation of the currency) and subsequent price escalation, decrease in sales resulting from the loss of purchasing power serves as the main factor of deterioration. Reasons for deterioration in 2018 operating profit estimate Sales decrease due to export slowdown Exchange rate fluctuations Increase in labor costs Rise in interest rates Effects of policies created by local and other governments Sales decrease in local market Increase in procurement costs Increase in other expenditures (administrative, utility, and fuel costs) Production cost insufficiently shifted to the selling price of goods Change to trade rules including FTA implementation and tariff review (including rules of the third countries) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 15 Entire Region (N = 64) 14.1 26.6 9.4 1.6 3.1 18.8 23.4 Turkey (N = 13) 23.1 38.5 1.6 1.6 15.4 15.4 Saudi Arabia (N=11) 9.1 54.5 9.1 27.3 UAE (N=23) 34.8 21.7 4.3 8.7 8.7 21.7 Qatar (N=1) Bahrain (N=1) Kuwait (N=2) Oman (N=0) 10 10 10 No response Iran (N=9) 22.2 66.7 11.1 Israel (N=2) 5 5 Jordan (N=2) 10

Number of responding companies Sales increase due to export expansion Sales increase in local markets Exchange rate fluctuations Reduction in procurement costs Reduction in labor costs Decrease in other expenditures (administrative, utility, and fuel costs) Improvements in production efficiency Improvements in sales efficiency Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Operating Profit Forecast 8: Improvement factors in 2019 are "increase in local sales" and "increase in exports" 16 "Sales increase in local markets" and "expanded exports" are the main factors selected in many countries. In Qatar, UAE, and Saudi Arabia, many companies hope for "sales increase in local markets." 2019 Operating Profit Forecast (Reasons for Improvement) Entire Region 82 5 68.3 7.3 4.9 11.0 11.0 9.8 18.3 7.3 13.4 Turkey 16 75.0 56.3 25.0 12.5 25.0 18.8 31.3 31.3 6.3 12.5 Saudi Arabia 16 18.8 75.0 6.3 12.5 18.8 6.3 25.0 18.8 18.8 UAE 27 55.6 77.8 3.7 11.1 11.1 14.8 3.7 3.7 Qatar 5 8 2 4 Bahrain 2 5 5 5 5 5 Kuwait 4 75.0 5 25.0 Oman 2 5 5 5 Iran 1 10 10 Israel 8 5 62.5 12.5 12.5 12.5 Jordan 1 10 10

Number of responding companies Sales decrease due to export slowdown Sales decrease in local market Exchange rate fluctuations Increase in procurement costs Increase in labor costs Increase in other expenditures (administrative, utility, and fuel costs) Rise in interest rates Production cost insufficiently shifted to the selling price of goods Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Operating Profit Forecast 9: The deteriorating factor in 2019 is "sales decline in local markets" 17 In Turkey, mainly due to exchange rate fluctuations (depreciation of the currency) and subsequent price escalation, decrease in sales resulting from the loss of purchasing power serves as the main factor of deterioration. In Iran, 75% of companies stated the impact of US sanctions against Iran, while 50% of companies pointed out exchange rate fluctuations (currency depreciation). 2019 Operating Profit Forecast (Reasons for Deterioration) Entire Region 46 21.7 54.3 41.3 26.1 26.1 19.6 13.0 19.6 32.6 10.9 Turkey 18 22.2 66.7 72.2 33.3 33.3 27.8 27.8 22.2 11.1 Saudi Arabia 2 5 5 5 UAE 8 5 75.0 37.5 12.5 12.5 37.5 37.5 12.5 Qatar 0 Bahrain 1 10 Kuwait 2 5 5 Oman 0 Iran 12 16.7 41.7 5 16.7 16.7 8.3 75.0 16.7 Israel 2 5 5 5 5 Jordan 1 10 10 10 10

Future Business Operations1: More than 40% says "maintain current status" and "expansion" 18 Expansion remains around 40% while maintain current status got the majority vote of 45.9%. Because the future of US sanction against Iran is uncertain, 60% of companies are expected to "shrink business." Israel has a robust economy, so about three quarters of companies responded that they are "expanding. Direction of business operations in the next one to two years Expansion Remain the same Reduction Transfer to a third country/region 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N=255) 42.4 45.9 10.2 1.6 Turkey (N=53) 41.5 47.2 11.3 Saudi Arabia (N=35) 42.9 48.6 8.6 UAE (N=86) 48.8 4 2.31.2 Qatar (N=12) 33.3 41.7 16.7 8.3 Bahrain (N=5) 2 6 2 Kuwait (N=13) Oman (N=4) 38.5 5 53.8 5 Iran (N=20) Israel (N=13) 5.0 3 76.9 6 23.1 5.0 Jordan (N=14) 42.9 57.1

Number of responding companies Sales increase due to export expansion Sales increase in local markets High growth potential High receptivity for high-value added products Reduction in costs (procurement and labor costs) Deregulation Ease of securing labor force Reviewing production and distribution networks Relationship with clients Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Future Business Operations 2: Primary reason for expansion was sales increases and high growth potential 19 Nearly 80% of companies in Israel who answered "expansion," said the factor was "sales increase in local markets" and "growth potential In other countries, many companies mentioned "high growth potential" in addition to "sales increase in local markets" and "export increase. Reasons for expansion Entire Region 108 5 70.4 51.9 23.1 2.8 0.9 2.8 18.5 20.4 5.6 2.8 7.4 Turkey 22 68.2 72.7 5 18.2 13.6 27.3 9.1 13.6 9.1 Saudi Arabia 15 2 8 6 33.3 6.7 26.7 13.3 26.7 6.7 UAE 42 59.5 73.8 54.8 23.8 2.4 16.7 23.8 2.4 7.1 Qatar 4 25.0 75.0 5 25.0 25.0 25.0 25.0 Bahrain 1 10 10 10 10 10 Kuwait 5 4 6 2 2 4 Oman 2 5 5 5 5 5 Iran 1 10 10 Israel 10 4 5 5 4 1 4 Jordan 6 16.7 66.7 33.3 16.7 16.7

Number of responding companies Sales function Production (ubiquitous products) Production (high value-added products) R & D Function of regional headquarters Logistics function Administrative functions in providing services (shared service center, call center, etc.) Future Business Operations 3: Sales function got the majority vote for the function to expand. 20 Majority of companies in all countries selected sales function as the function to expand. Both Bahrain and Jordan plan to expand "function of regional headquarters. Functions to be expanded Entire Region 107 72.9 13.1 18.7 11.2 15.0 15.0 7.5 16.8 Turkey 22 59.1 31.8 27.3 22.7 4.5 27.3 4.5 13.6 Saudi Arabia 15 66.7 2 4 6.7 6.7 2 6.7 33.3 UAE 41 82.9 2.4 12.2 22.0 12.2 9.8 9.8 Qatar 4 10 25.0 25.0 5 Bahrain 1 10 10 10 Kuwait 5 8 2 2 2 Oman 2 5 5 Iran 1 10 Israel 10 7 1 2 5 1 1 1 Jordan 6 5 16.7 5 33.3

Number of responding companies Sales decrease due to export slowdown Sales decrease in local markets Low growth potential Low receptivity of high valueadded products/services Increase in costs (procurement and labor costs) Tighter regulations Difficulty in securing labor force Reviewing production and distribution networks Relationship with clients Effects of policies created by local and other governments Change to trade rules including FTA implementation and tariff review (including rules of the third countries) Future Business Operations 4: Impact from policies by local/other governments is also a factor of shrinking and withdrawing business 21 In Iran, the impact from policies by other government (US economic sanctions against Iran) seems to be the primary cause. Reasons for "reduction," "relocation or withdrawal to third countries" Entire Region 28 17.9 39.3 3.6 7.1 17.9 3.6 7.1 7.1 46.4 28.6 Turkey 6 33.3 5 16.7 16.7 33.3 33.3 33.3 Saudi Arabia 2 10 UAE 3 33.3 10 33.3 33.3 33.3 Qatar 2 5 5 Bahrain 1 10 Kuwait 1 10 Oman 0 Iran 13 15.4 30.8 23.1 84.6 23.1 Israel 0 Jordan 0

Changes in Human Resource Structure 1: The number of local employees in more than 50% of companies will remain unchanged. 22 Israel responded that 75% of companies increased the number of their local employees in the past year. Number of local employees changes in the previous year Increase No change Decrease 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 252) 32.9 52.4 14.7 Turkey (N = 52) 36.5 44.2 19.2 Saudi Arabia (N=34) 41.2 41.2 17.6 UAE (N=86) 34.9 53.5 11.6 Qatar (N=12) 33.3 5 16.7 Bahrain (N=5) 6 4 Kuwait (N=13) Oman (N=4) 15.4 76.9 10 Iran (N=20) 2 6 2 Israel (N=12) 75.0 25.0 Jordan (N=14) 7.1 78.6 14.3

Changes in Human Resource Structure 2: 60% of companies responded that the number of their local employees will remain unchanged 23 Israel commented that 40% of companies will continue to increase their number of employees. 30% - 50% of companies in Iran and Qatar, which are suffering from US sanctions and diplomatic relationship respectively, responded they will decrease the number of employees. Number of local employees - future plans Increase No change Decrease 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire Region (N = 247) 26.7 60.3 13.0 Turkey (N = 51) Saudi Arabia (N=35) UAE (N=83) Qatar (N=12) 16.7 26.5 35.3 45.7 5 52.9 68.7 42.9 33.3 11.8 11.4 4.8 Bahrain (N=5) 10 Kuwait (N=13) Oman (N=4) Iran (N=20) 5.0 15.4 4 61.5 10 55.0 23.1 Israel (N=12) 41.7 58.3 Jordan (N=12) 10

Changes in Human Resource Structure 3: The number of Japanese expatriate employees for over 70% of companies remain unchanged in the past. 24 Although majority of the companies didn t change the number of employees, there is a high percentage of companies including Qatar and Iran which reduced the number of expatriates. On the contrary, the percentage of companies in Israel that increased the number of employees was high. Number of Japanese expatriate employees changes in the previous year Increase No change Decrease 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Entire region (N = 251) 12.7 72.1 15.1 Turkey (N = 53) 17.0 73.6 9.4 Saudi Arabia (N=34) 5.9 70.6 23.5 UAE (N=86) 15.1 73.3 11.6 Qatar (N=12) 8.3 5 41.7 Bahrain (N=5) 10 Kuwait (N=12) Oman (N=4) 8.3 75.0 10 16.7 Iran (N=20) 1 55.0 35.0 Israel (N=12) 33.3 66.7 Jordan (N=13) 92.3

Changes in Human Resource Structure 4: 70% of companies foresee that the number of Japanese expatriate employees remains unchanged 25 In particular, the percentage of companies that reduce the number expatriates is high in Iran. 30% of companies in Israel is planning to increase the number of Japanese expatriates employees. Number of Japanese expatriate employees - future plans Increase No change Decrease Entire Region (N = 249) Turkey (N = 52) Saudi Arabia (N=35) UAE (N=83) Qatar (N=12) Bahrain (N=5) Kuwait (N=13) Oman (N=4) Iran (N=20) Israel (N=12) Jordan (N=13) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10.8 72.3 16.9 13.5 11.4 63.5 68.6 23.1 2 12.0 81.9 6.0 75.0 8 25.0 2 84.6 10 4 6 33.3 66.7 84.6

Investment environment (entire region): Advantage is market scale and growth potential, challenge is legal system 26 Many companies responded market scale and growth potential as advantage. On the other hand, "positive image regarding Japan" also appeals in many countries such as Iran, Israel, and Turkey. As for the challenges, nearly 70% of companies pointed out "underdeveloped legal system or unclear legal system operation, and more than 50% said slow administrative procedures. Advantages of the investment environment (%) Challenges of the investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Market scale or growth potential 52.6 Underdeveloped legal system or unclear legal system operation 67.5 Positive image regarding Japan 51.4 Slow administrative procedures 53.2 Merits of tax systems (No corporate tax and income tax) 32.4 Political/Social instability 49.2 Good living environment for Japanese expatriates 30.4 Increase in labor costs 38.5 Less language and communication obstacles 28.5 Transaction risks (including debt collecting risk) 34.1 Benefits of free zone/economic special zone 28.1 Increase in administrative commissions 29.8 Political/Social stability 2 Regulations on foreign investment 25.8 Sufficient infrastructure (electricity, distribution, telecommunications, etc.) 24.5 Labor shortage or difficulty in recruiting 18.7 Formation of local industrial clusters by relevant companies (client companies, etc.) 22.1 Increase in real estate rental fees 18.3 No labor disputes 14.6 Linguistic or communication problems 18.3 Sufficient labor supply 9.9 Introduction of Value Added Tax (VAT) 17.9 Industrial diversity 7.5 Market scale or growth potential 16.7 Quick administrative procedures 3.6 Insufficient infrastructure (electricity, distribution, telecommunications, etc.) 15.5 Good incentives for investment 3.2 9.1 N=253 Insufficient incentives for investment 14.7 4.8 N=252

Investment environment (United Arab Emirates): Advantage is free zone/special economic zones, and challenge is legal system 27 75% of companies praised "merits of free zone and special economic zones," followed by "tax system." As for the challenges, "underdeveloped legal system" is the major issue, but nearly 50% also mentioned "increase in labor costs and administrative commissions. Advantages of the investment environment (%) Challenges of the investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Benefits of free zone/economic special zone Merits of tax systems (No corporate tax and income tax) 75.6 69.8 Underdeveloped legal system or unclear legal system operation Increase in labor costs 47.6 61.9 Good living environment for Japanese expatriates 65.1 Increase in administrative commissions 46.4 Less language and communication obstacles 59.3 Slow administrative procedures 34.5 Political/Social stability 55.8 Transaction risks (including debt collecting risk) 33.3 Sufficient infrastructure (electricity, distribution, telecommunications, etc.) 55.8 Regulations on foreign investment 26.2 Market scale or growth potential 32.6 Market scale or growth potential 26.2 Positive image regarding Japan 30.2 Introduction of Value Added Tax (VAT) 25.0 Formation of local industrial clusters by relevant companies (client companies, etc.) 27.9 Political/Social instability 23.8 No labor disputes 22.1 Increase in real estate rental fees 19.0 Sufficient labor supply 14.0 Labor shortage or difficulty in recruiting 9.5 Quick administrative procedures 9.3 Linguistic or communication problems 3.6 Good incentives for investment 1.2 Insufficient infrastructure (electricity, distribution, telecommunications, etc.) 2.4 Industrial diversity 1.2 3.5 N=86 Insufficient incentives for investment 1.2 N=84

Investment environment (Saudi Arabia): Advantage is market scale and growth potential, many challenges including legal system and procedures. 28 Nearly 90% of companies praised "market scale and growth potential." More than 80% of companies point out "underdeveloped legal system or unclear legal system operation and "slow administrative procedures as issues. Nearly 70% of companies are facing employment problems such as "labor cost and "labor shortage" due to Saudization (a policy that encourages employment of Saudi nationals). Advantages of the investment environment (%) Challenges of the investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Market scale or growth potential 88.6 Underdeveloped legal system or unclear legal system operation 85.7 Positive image regarding Japan 42.9 Slow administrative procedures 8 Formation of local industrial clusters by relevant companies (client companies, etc.) 28.6 Increase in labor costs 68.6 No labor disputes 2 Labor shortage or difficulty in recruiting 65.7 Merits of tax systems (No corporate tax and income tax) 17.1 Political/Social instability 54.3 Political/Social stability 11.4 Increase in administrative commissions 45.7 Sufficient infrastructure (electricity, distribution, telecommunications, etc.) 8.6 Insufficient incentives for investment 4 Less language and communication obstacles 8.6 Regulations on foreign investment 37.1 Industrial diversity 5.7 Transaction risks (including debt collecting risk) 37.1 Good incentives for investment Benefits of free zone/economic special zone 2.9 Insufficient infrastructure (electricity, distribution, telecommunications, etc.) Linguistic or communication problems 22.9 22.9 Good living environment for Japanese expatriates Introduction of Value Added Tax (VAT) 22.9 Quick administrative procedures Increase in real estate rental fees 8.6 Sufficient labor supply N=35 Market scale or growth potential 5.7 N=35 8.6 11.4

Investment environment (Turkey):Advantage is "market size and growth potential," challenge is "unstable political and social situation" 29 More than 70% of companies say "market size and growth potential" makes the country an attractive investment environment, and over 60% say "positive image regarding Japan. More than 80% of companies mention political and social instability as issues. Advantages of the investment environment (%) Challenges of the investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Market scale or growth potential 73.6 Political/Social instability 81.1 Positive image regarding Japan Formation of local industrial clusters by relevant companies (client companies, etc.) Sufficient labor supply 24.5 17.0 64.2 Underdeveloped legal system or unclear legal system operation Slow administrative procedures Transaction risks (including debt collecting risk) 3 56.6 71.7 Industrial diversity 13.2 Linguistic or communication problems 32.1 Good living environment for Japanese expatriates 11.3 Increase in labor costs 30.2 Merits of tax systems (No corporate tax and income tax) Sufficient infrastructure (electricity, distribution, telecommunications, etc.) No labor disputes 9.4 9.4 7.5 Increase in real estate rental fees Increase in administrative commissions Insufficient infrastructure (electricity, distribution, telecommunications, etc.) 22.6 18.9 18.9 Good incentives for investment 5.7 Regulations on foreign investment 15.1 Less language and communication obstacles 5.7 Market scale or growth potential 7.5 Political/Social stability 3.8 Labor shortage or difficulty in recruiting 7.5 Benefits of free zone/economic special zone Quick administrative procedures 1.9 N=53 Introduction of Value Added Tax (VAT) Insufficient incentives for investment 7.5 5.7 N=53 7.5 5.7

Investment environment (Iran): Attractive characteristics are "marketability" and "positive image regarding Japan, and challenges include "legal system" and "political/social situation" 30 As for the advantages of the investment environment, more than 80% of companies mentioned "market size and growth potential" and "positive image regarding Japan. All companies pointed out "underdeveloped legal system or unclear legal system operation and 95% said "political/social instability" as issues. Advantages of the investment environment (%) Challenges of the investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Market scale or growth potential 85.0 Underdeveloped legal system or unclear legal system operation 10 Positive image regarding Japan 8 Political/Social instability 95.0 Industrial diversity 35.0 Slow administrative procedures 85.0 Sufficient labor supply 15.0 Transaction risks (including debt collecting risk) 8 Benefits of free zone/economic special zone 5.0 Regulations on foreign investment 65.0 Good living environment for Japanese expatriates 5.0 Increase in real estate rental fees 6 Sufficient infrastructure (electricity, distribution, telecommunications, etc.) Formation of local industrial clusters by relevant companies (client companies, etc.) 5.0 5.0 Insufficient incentives for investment Linguistic or communication problems 55.0 55.0 Less language and communication obstacles No labor disputes Merits of tax systems (No corporate tax and income tax) 5.0 5.0 Insufficient infrastructure (electricity, distribution, telecommunications, etc.) Increase in administrative commissions Introduction of Value Added Tax (VAT) 15.0 15.0 5 Political/Social stability Increase in labor costs 1 Good incentives for investment Labor shortage or difficulty in recruiting 5.0 Quick administrative procedures 5.0 Market scale or growth potential N=20 N=20

Investment environment (Israel): Advantage is "positive image regarding Japan, and challenge is "labor cost" 31 Nearly 70% of the companies selected "positive image regarding Japan as the most attractive factor of the investment environment. More than 60% pointed out "increase in labor costs" and 50% responded "unstable political and social situations as issues. Advantages of the investment environment Challenges of the (%) investment environment (%) 0 20 40 60 80 100 0 20 40 60 80 100 Positive image regarding Japan 69.2 Increase in labor costs 66.7 Less language and communication obstacles 30.8 Political/Social instability 5 Merits of tax systems (No corporate tax and income tax) 23.1 Underdeveloped legal system or unclear legal system operation 33.3 Market scale or growth potential 23.1 Labor shortage or difficulty in recruiting 33.3 Political/Social stability Formation of local industrial clusters by relevant companies (client companies, etc.) 15.4 15.4 Insufficient infrastructure (electricity, distribution, telecommunications, etc.) Slow administrative procedures 16.7 16.7 Good incentives for investment 15.4 Market scale or growth potential 16.7 Good living environment for Japanese expatriates Linguistic or communication problems 16.7 Industrial diversity Increase in administrative commissions 8.3 Benefits of free zone/economic special zone Transaction risks (including debt collecting risk) 8.3 Sufficient infrastructure (electricity, distribution, telecommunications, etc.) Regulations on foreign investment Quick administrative procedures Increase in real estate rental fees No labor disputes Insufficient incentives for investment Sufficient labor supply 23.1 N=13 Introduction of Value Added Tax (VAT) N=12

Number of responding companies Consumer market New industry Service industry Resources/Energy infrastructure Manufacturing industry Promising Business Fields in the Future: Overall Infrastructure and Resources and Energy are at the Top 32 "Infrastructure" and "Resources/Energy" are at the top, but besides manufacturing industry, all fields are in close competition. These countries are attractive in other areas such as "new industries (start-up, IoT, etc.), consumer market, and service industry. There are many companies in Israel and Bahrain who find new industries particularly promising. Business fields looking promising in the future market of residential country or the Middle East Entire Region 242 5 50.4 5 56.2 62.8 7.0 3.3 Turkey 51 51.0 45.1 49.0 33.3 51.0 11.8 11.8 Saudi Arabia 33 45.5 51.5 66.7 75.8 72.7 9.1 UAE 80 55.0 51.3 46.3 53.8 6 6.3 1.3 Qatar 10 3 3 4 9 6 1 Bahrain 5 6 8 6 8 6 Kuwait 12 58.3 5 58.3 5 75.0 Oman 4 5 25.0 75.0 10 75.0 Iran 20 65.0 35.0 5 85.0 8 5.0 Israel 13 10 38.5 23.1 46.2 Jordan 14 5 5 35.7 57.1 78.6 7.1 7.1

Middle East and Africa Division, Overseas Research Department 6F ARK Mori Building, 1-12-32 Akasaka, Minatoku, Tokyo 107-6006 TEL: 03-3582-5180 FAX: 03-3582-5309 E-MAIL: ORH@jetro.go.jp Any use of information in this report shall be at the user's discretion and its own responsibility. JETRO makes every effort to provide accurate information and data. However, JETRO cannot be held liable whatsoever for damages or losses arising from the use of information in this report.