UAE top FDI recipient in Middle East, North Africa, and Pakistan

The UAE, which remains the largest FDI recipient in the Mena region with inflows of $22 billion in 2022, representing 4.3 per cent of its gross domestic product, will continue to drive capital inflow into the region.

FDI inflows to the Middle East, North Africa, and Pakistan (Menap) region are set to reach $56 billion in 2022, and $66 billion in 2023 as the UAE witnesses elevated FDI, driven by a friendly business environment, excellent infrastructure, predictable policies, and structural changes aimed at diversifying the economy and creating a dynamic and expanded private sector, economists at the Institute of International Finance said.

While Saudi Arabia has improved the business environment significantly, which will help attract more FDI, in Qatar, a new FDI law allows full foreign ownership in manufacturing and nonfinancial services, the IIF economists said.

Garbis Iradian, chief economist, Mena, and Ivan Burgara, senior research analyst, at the IIF said elevated oil prices, dollar pegs, and ample public foreign assets make Menap oil exporters less prone to the global slowdown.

They forecast that the consolidated current account surplus of the region is poised to surge to $368 billion in 2022 and then decline to $238 billion in 2023. Total capital inflows will remain modest in 2023, as sovereigns issue less debt due to continued fiscal surpluses, they noted.

Iradian said the foreign direct investment would become the main conduit for non-resident capital inflows and predicted that such capital flows to the region would decline from to $128 billion in 2022 to from$208 billion in 2021, and then increase slightly to $145 billion in 2023, equivalent to 3.8 per cent of GDP. “The modest increase next year will be driven by improvements in FDI flows in most Menap countries, as well as a pick-up in official loans to Egypt and Pakistan,” he said.

In the GCC, portfolio and other investments have declined due to less financing needed by sovereigns, as fiscal balances shifted to sizeable surpluses thanks to the elevated price of oil, Iradian noted. “We expect non-resident capital inflows to the GCC (which account for more than 70 per cent of the Menap inflows) to remain subdued at around $90 billion in 2023compared with a peak of $182 billion in 2019.”

The IIF economists noted that the GCC countries are in sound financial standing. Increases in the price of oil have led to large fiscal surpluses, filling government coffers and reducing debt. “Consequently, sovereign default risk in the GCC region is low when compared to EM peers; while sovereign credit ratings, apart from Bahrain and Oman, remain strong. This is in stark contrast to non-oil exporting countries in the Menap region, most notably Egypt and Pakistan,” they said.