GCC lures 15% less FDI in 2009

Issac John
Filed on September 13, 2010

DUBAI The United Arab Emirates and Saudi Arabia accounted for 80 per cent of the total $278 billion foreign direct investments that flowed into the GCC during the past two decades, the latest report by United Nations Conference on Trade and Development, or UNCTAD, said.

The UAE was GCC’s second largest recipient with a share $73.4 billion or 26 per cent of the total foreign direct investment, or FDI, flowing into the region during the period.

Saudi Arabia is the largest Arab destination for FDI, attracting nearly $147.1 billion over the two decades, UNCTAD’s 2010 global investment report said.

In 2009, the UAE accounted for around 0.4 per cent of the world’s total, 1.5 per cent of the FDI in developing countries and more than 10 per cent of the Arab FDI inflow, said the report.

In 2009, the aggregate GCC FDI inflows declined by 15 per cent to reach $50.8 billion, having peaked at $60 billion in 2008. “It is a significant slowdown, following 9 consecutive years of growth,” the report said.

The UAE experienced the sharpest drop of 70 per cent, as the Dubai World debt crisis adversely affected investments in the Emirates, the report said.

However, “having weathered the worldwide economic downturn relatively well, GCC countries’ ability to attract FDI should improve over the medium term. Much will depend on the revival of demand for overseas investment projects, access to finance, and sustained efforts on the part of FDI recipient countries in the GCC to make good on their determination to diversify, develop and improve their competitiveness,” a report by the National Bank of Kuwait, or NBK, said.

The FDI flow out of the UAE also dropped to $2.7 billion in 2009 from a record high of $15.8 billion in 2008 on the back of the global financial crisis and lower oil prices.

Last year, FDI flow into Saudi Arabia slumped seven per cent, from a record high of around $38.1 billion in 2008 to about $36 billion. The Kingdom came second in the Arab world in terms of capital exports, pumping $40.3 billion in FDI during 1990-2009, the report said.

Saudi Arabia continued to receive sizeable foreign capital from regional and international investors. Kuwait invested $4.3 billion, the US $5.8 billion, France $2.6 billion, and Japan $2 billion.

Saudi Arabia’s substantial energy, industrial, transportation, financial and real estate sectors provide significant size and scope for compelling investment projects, the UNCTAD report said.

Qatar and Kuwait were among the few countries in the GCC and wider Middle East North Africa region to register FDI increases during 2009.

Qatar more than doubled its FDI inflow to $8.7 billion, up 112 per cent, while Kuwait recorded an FDI flow of $145 million, a growth of 145 per cent although it continued “to lag significantly behind the rest of the GCC as the least attractive destination for FDI in the region.”

Qatar’s liquefied natural gas project and associated industrial plans — due to come on-line in the coming year — were a significant beneficiary of investment flows. The UNCTAD data revealed that the bulk of the UAE’s FDI targeted neighboring countries, with $62.4 billion invested in the region during 1990-2009.

Saudi Arabia accounted for nearly 70 per cent of the UAE’s investments while Egypt, Morocco, Lebanon, Libya and Tunisia were also major recipients. Qatar, the world’s biggest LNG exporter, emerged as the third largest FDI target within the GCC, attracting $28.1 billion during the past two decades. It was followed by Bahrain, with cumulative FDI of about $14.9 billion, the report said.

Oman attracted $13.2 billion in FDI in the past two decades while Kuwait attracted only $986 million. In terms of FDI outflow, Qatar overtook Kuwait for the first time at $16.03 billion as the latter pumped only $16.01 billion during past two decades, according to the report.

In the Arab region, Egypt attracted a cumulative FDI of about $66.7 billion to become the third in the whole Arab world during 1990-2009. Morocco, ranked fourth, attracted around $40.7 billion, followed by Lebanon and Tunisia, with $32.08 billion and $31.8 billion respectively, said the report.

While conflict-battered Iraq received $5.06 billion, the occupied Palestinian territories attracted only $1.2 billion due to persistent tensions and Israeli restrictions. The wider Mena region attracted 30 per cent less FDI in 2009, falling to $33 billion. As a result, the GCC’s overall share of total Mena FDI inflows has steadily increased over the last few years from 52 per cent in 2007 to 60 per cent in 2009.

“The GCC as a destination for FDI is not only reflective of the recently adopted ‘liberalising’ measures but also of an increasing appreciation of the region’s demographic and economic potential,” the NBK said in a report.

“Backed by the expectation of sustained oil surpluses and considerable domestic economy restructuring, investors and transnational corporations are keen to tap into the region’s dynamic,” it said.

“Ambitious infrastructure development plans, coupled with private sector reforms, liberalisation measures and regulatory framework enhancements, would thus help pave the way for significant FDI engagement,” the report said.

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