UAE stays second top FDI recipient in the Middle East

FDI remained sluggish in the GCC countries, the region’s main FDI destination (61 per cent in 2009–2014).

Dubai — The UAE remained the second largest recipient of foreign direct investment (FDI) into the Middle East after Turkey in 2014, according to United Nations.

FDI flows into the UAE and Saudi Arabia — the region’s second and third largest recipients — registered slight declines and remained about $10 billion and $8 billion respectively as Middle East sustained its downward FDI trend in 2014 for the sixth consecutive year, decreasing by four per cent to $43 billion, United Nations Conference on Trade and Development, Unctad, said in its World Investment Report.

FDI remained sluggish in the GCC countries, the region’s main FDI destination (61 per cent in 2009–2014). It was down by four per cent to $22 billion in 2014, despite these states having been relatively unscathed by political unrest and enjoying robust economic growth in recent years, the report said.

FDI flows worldwide dropped to $1.23 trillion in 2014, largely due to shaky investor confidence. But in 2015, FDI is expected to rebound after falling 16 per cent in 2014 due to a fragile world economy and political and military crises.

The past year saw an unprecedented rise in conflicts, according to the UN, including the Ukraine conflict which pitted Russia against the West in the worst post-Cold War standoff.

Flows to developing nations reached their highest level at $681 billion — a two per cent rise, the World Investment Report 2015 said.

China, the world’s second biggest economy, drew a total of $129.6 billion of FDI in 2014. FDI inflow into India surged by 22 per cent to about $34 billion, and in 2015 it is likely to maintain an upward trend as economic recovery gains ground, the report adds. FDI inflows to Pakistan increased by 31 per cent to $1.7 billion as a result of rising Chinese FDI flows in services.

Asia drew a total of $465 billion in FDI, the report said.

The biggest recipients of overseas investment after China were Hong Kong at $103 billion, the US at $92 billion, followed by Britain, Singapore, Brazil, Canada, Australia, India and the Netherlands.

The report however forecast an 11 per cent rise in FDI this year to $1.4 trillion, spurred by higher investments by multinational organisations.

“Expectations are for further rises to $1.5 trillion in 2016 and to $1.7 trillion in 2017,” it said.

“The continuing decline in FDI inflows into the Middle East since 2009 stems from a succession of crises that have hit the region, including the global economic crisis and an eruption of political unrest leading to conflict in some countries. This has deterred FDI not only into countries directly affected but also into neighbouring countries and those across the region,” the report said.

Turkey remained the largest FDI recipient where inflows maintained almost the same level as the previous year, registering a slight two per cent decrease to $12 billion.

“However, growth was uneven across different activities. Real estate acquisitions increased by 29 per cent and accounted for 25 per cent of total FDI flows in 2014. FDI to the manufacturing sector rebounded by 30 per cent to $3 billion after a steep fall in 2013. But flows into public utilities and financial services dropped by 44 and 55 per cent to $1 billion and $2 billion respectively. While investment flows into Jordan and Lebanon remained stable in 2014, deteriorating security in Iraq cut short a recent resurgence of FDI there,” Unctad report said.

Outward FDI from the Middle East declined by six per cent in 2014 driven mainly by divestment (negative intra-company loans) from Bahrain.

Kuwait, which has been the region’s largest overseas investor, saw FDI decline by 21 per cent to $13 billion. Outward FDI from Turkey jumped by 89 per cent to $6.7 billion, driven mainly by equity outflows, which rose by 61 per cent to $5 billion, said the UN report.

The decline of FDI flows into the region has occurred within a regional context of weakening private investment and strengthening public investment in relation to GDP starting from 2008, said the report.

“This was most evident in GCC economies and has translated into state-led construction growth focused on infrastructure and oil and gas development, opening opportunities for foreign contractors to engage in new projects in the region through less risky non-equity modes,” it said.

— issacjohn@khaleejtimes.com