Geneva, Switzerland, (04 July 2012)
Foreign direct investment (FDI) to West Asia declined in 2011 for the third consecutive year, UNCTAD’s annual survey of investment trends reports.
The World Investment Report 20121, subtitled “Towards a New Generation of Investment Policies”, was released today.
FDI to the region decreased by 16 per cent in 2011 to $49 billion, affected both by continuing political instability and by the general deterioration of global economic prospects during the second half of 2011, the report says.
A 35 per cent drop in FDI inflows to the Gulf Cooperation Council (GCC) countries largely explains the decrease, in particular a 42 per cent fall – to $16 billion – to Saudi Arabia (see figure), the biggest recipient. (Other GCC countries are Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.) As a result, the share of GCC countries in the region's total FDI inflows decreased from 69 per cent in 2010 to 53 per cent in 2011. GCC countries are still suffering from the hangover of the days of leveraged financing characterized by large-scale domestic projects, some of which had to be put on hold or cancelled due to uncertainties stemming from the global financial crisis and from spreading political and social unrest in the region, the World Investment Report 2012 says. Unrest in the region also impacted on FDI flows to non-GCC Arab countries, the report notes. Their incoming foreign investment declined by 26 per cent to $7 billion. Turkey registered a 76 per cent increase to $16 billion, mainly as the result of a more than threefold increase in cross-border merger and acquisition (M&A) sales.
FDI outflows from West Asia rebounded by 54 per cent in 2011 after bottoming out at a five-year low in 2010, the report says. The strong rise in oil prices beginning at the end of 2010 increased the availability of funds for outward FDI from GCC countries. Turkey also registered significant growth, with outflows increasing by 68 per cent to $2.5 billion (see figure 1), due to the recovery of both cross-border M&A purchases and greenfield FDI projects – that is, from-the-ground-up investments in new ventures.
FDI inflows will continue declining in 2012 – judging by preliminary data on cross-border M&As and greenfield investment for the first five months of 2012 – as uncertainties at the global and regional levels are causing foreign investors to remain cautious with their investment plans in the region. But the report contends that the concentration of oil wealth in the region and the strategic need to reduce dependence on the oil and gas sectors through economic diversification there, are likely to create further business opportunities and bolster the region's attractiveness for foreign investors over the longer term.
Figure 1 -Top five recipients and sources of FDI flows in West Asia, 2010 and 2011
(Billions of dollars)
Source: UNCTAD, World Investment Report 2012.
Note: Countries ranked on the basis of the magnitude of 2011 FDI flows
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