Foreign direct investment (FDI) into and out of Arab countries surged in the early 2000s, but has declined since the world financial crisis took hold in 2009, UNCTAD statistics indicate.
The political instability that has spread through several Arab countries and the increased uncertainty for global economic prospects since the second half of 2011 are likely to put strains on foreign investors and further affect their investment plans for the region, UNCTAD’s economists say.
The next UNCTAD quadrennial conference (UNCTAD XIII) to be held in Doha, Qatar, from 21 to 26 April 2012, is the first to take place in the Middle East, and has drawn attention to patterns of investment and trade in the region.
Bolstered by high rates of economic growth and the implementation of economic reforms and privatizations, FDI climbed steeply in this part of the world in the early years of the new millennium. FDI to these countries reached a record amount of $96 billion in 2008, with the Gulf Cooperation Council (GCC) countries serving as the main magnet. Between 2001 and 2010, accumulated FDI flows to the Arab countries totalled $284 billion, 58 per cent of which targeted GCC countries, 28 per cent North African countries, and 14 per cent other Arab countries, with Saudi Arabia ($154 billion), the United Arab Emirates ($75 billion), and Egypt ($53 billion) being the main recipients.
Through cross-border mergers and acquisitions alone, foreign investors bought a total of $58 billion worth of Arab businesses between 2001 and 2010, of which Egypt accounted for 42 per cent. Intra-Arab deals accounted for 30 per cent of this figure.
Outward FDI from Arab countries surged too, boosted by the availability of large financial surpluses from oil revenues. Outbound FDI totalled $169 billion during the period 2001-2010, of which 82 per cent came from GCC countries. The United Arab Emirates ($54 billion), Kuwait ($40 billion), and Qatar ($26 billion) have been the region’s main outward investors. Outward FDI activities have become part of the diversification policies of GCC countries as they shift away from oil- and gas-based economies. Sovereign wealth funds, State-owned enterprises and other government-controlled entities are playing key roles as vehicles for investing funds abroad.
Cross-border acquisitions of companies abroad by Arab investors totaled $156 billion between 2001 and 2010. The vast majority of these purchases were made by GCC-based enterprises, mainly from the United Arab Emirates ($65 billion) and Saudi Arabia ($32 billion). Developed country–based enterprises represented 72 per cent of Arab cross-border purchases. Some 14 per cent were purchases of firms elsewhere in developing Asia. The share of intra-Arab deals in the total was also 14 per cent.
Both FDI inflows and outflows have plummeted since 2009, strongly affected by the global financial crisis. Inflows declined from $96 billion in 2008 to $65 billion in 2010, hit by the tightening of credit markets which affected big development projects involving significant foreign investment. Outflows fell from the record high of $46 billion in 2008 to $15 billion in 2010 as government-controlled entities in the GCC countries switched their spending from investment abroad to their own crisis-hit economies.
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