1

FDI in the GCC CountriesSAMA Quarterly Workshop

7 March 2016

Salah Alsayaary

2

Agenda:• Concepts

• Global Trend

• GCC Trend

• Aggregate

• Country- Level

• Factors Affecting FDI in GCC

• Recommendations

3

Definition:

The investment that is made by nonresident in another country while

maintaining effective management control (at least 10 percent of the voting

power according to the IMF).

Types of FDI

inward or outward

Horizontal or Vertical

Greenfield or Brownfield

4

Benefits:• Technology and knowledge transfer.

• Job creation

• Improving labor force skills

• Improves the countries’ infrastructures

• Diversification of revenues (corporate tax)

• Good effect on Balance-of-payments (BOP)

“FDI has beneficial impact but it may have a cost..”

Costs :• Hindering domestic investment in some cases.

• Adverse effects on the BOP

• It may have Negative Influence on Exchange

Rates

• Lower the comparative advantage of the country

5

Global Trend

Global FDI flows jumped 36% in 2015

to an estimated US$1.7 trillion (UNCTAD,

World Investment Report, 2015)

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014 2015

Source: WDI and UNCTAD

World’s FDI Net Flow ($ bill)

36%

6

1%

2%

4%

19%

20%

21%

33%

0% 10% 20% 30% 40%

Sub-Saharan Africa

Middle East & North Africa

South Asia

Latin America & Caribbean

North America

Europe & Central Asia

East Asia & Pacific

Source: WDI

FDI Net Flow (2014)

384

163

136

90

68

65

59

56

45

44

0 100 200 300 400 500

United States

Hong Kong SAR, China

China

Netherlands

United Kingdom

Singapore

India

Brazil

Canada

France

Source: WDI

FDI inflow 2015Top 10 Economies (bill. $)

69%

31%

1%

FDI Net Flow (2010-14)

High income Middle income Low income

Source: WDI

Global Trend

7

24.7

416.4

0

100

200

300

400

500

1995 2011 2012 2013 2014

Source: UNCTAD

FDI Stock in GCC Countries (Billion $)

Bahrain, 5% Kuwait, 4%

Oman, 5%

Qatar, 7%

Saudi Arabia, 52%

United Arab Emirates,

28%

FDI Stock in GCC Countries (% of total)

Source: UNCTAD

60

52

43

30 27 24

4.2

1.6

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013

Net FDI flow to GCC Countries

GCC FDI ($ billion, LHS)

Share of World FDI (%, RHS)

Source: UNCTAD

GCC Trend

-20

0

20

40

60

2010 2011 2012 2013 2014

Source: UNCTAD

Net FDI Flow to GCC Countries

United Arab Emirates Kuwait

Oman Qatar

Bahrain Saudi Arabia

8

22.4

4.41.7

5.3

1.4

11.2

-5

0

5

10

15

20

25

30

35

Bahrain SaudiArabia

Kuwait Oman Qatar UAE

Source: WDI

FDI inflow (% gross fixed capital formation)

2005-07 2012 2013 2014

8%

1%

26%

3%

12%

47%

27%

17%

61%

22%

39%

72%

26%

29%

56%

0% 10% 20% 30% 40% 50% 60% 70% 80%

UAE

Bahrain

Saudi Arabia

Kuwait

Qatar

Source: the World Bank

Distribution of FDI by Sector (2013)

Non-TradablesCommercial ServicesNon-Oil ManufacturingResources and Oil Manufacturing

GCC Trend

9

15.9

16.8

17.8

18.8

14

15

16

17

18

19

20

2011 2012 2013 2014

source: UNCTAD

FDI Stock (Billion $)

781891

989 958

0

200

400

600

800

1000

1200

2011 2012 2013 2014

Source: WDI

FDI Net Flow (Million $)

2.69

2.90

3.01

2.83

2.50

2.60

2.70

2.80

2.90

3.00

3.10

2011 2012 2013 2014

Source: WDI

FDI Net Flow (% GDP)

Bahrain

10

15.2

18.1

16.1

15.4

13

14

15

16

17

18

19

2011 2012 2013 2014

Source: UNCTAD

FDI Stock (Billion $)

3259

2873

1434

486

0

500

1000

1500

2000

2500

3000

3500

2011 2012 2013 2014

Source: WDI

FDI Net Flow (Million $)

2.12

1.65

0.82

0.30

0.00

0.50

1.00

1.50

2.00

2.50

2011 2012 2013 2014

Source: WDI

FDI Net Flow (% GDP)

Kuwait

11

15.9 16.918.5

19.7

0

5

10

15

20

25

2011 2012 2013 2014

Source: UNCTAD

FDI stock (billion $)

8741040

1626

739

0

200

400

600

800

1000

1200

1400

1600

1800

2011 2012 2013 2014

Source: WDI

FDI Net Flow (Million $)

1.29 1.36

2.08

0.90

0.00

0.50

1.00

1.50

2.00

2.50

2011 2012 2013 2014

Source: WDI

FDI Net Flow (%GDP)

Oman

12

31.5

30.9

29.9

31

29

29.5

30

30.5

31

31.5

32

2011 2012 2013 2014

Source: UNCTAD

FDI Stock (Billion $)

939

396

-840

1040

-1000

-500

0

500

1000

1500

2011 2012 2013 2014

Source: WDI

FDI Net Flow (Million $)

0.55

0.21

-0.42

0.50

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

2011 2012 2013 2014

Sourse: WDI

FDI Net Flow (%GDP)

Qatar

13

186.8

199

207.9

215.9

170

180

190

200

210

220

2011 2012 2013 2014

Source: UNCTAD

FDI Stock (Billion $)

16308

12182

88658012

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2011 2012 2013 2014Source: WDI

FDI Net Flow (Million $)

2.44

1.66

1.19 1.07

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2011 2012 2013 2014

Source: WDI

FDI Net Flow (% GDP)

Saudi Arabia

14

85.495

105.5115.6

0

20

40

60

80

100

120

140

2011 2012 2013 2014

Source: UNCTAD

FDI Stock (Billion $)

7679

960210488 10066

0

2000

4000

6000

8000

10000

12000

2011 2012 2013 2014

Source: WDI

FDI Net Flow (Million $)

2.202.57 2.71

2.52

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2011 2012 2013 2014

Source: WDI

FDI Net Flow (% GDP)

UAE

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Factors Affecting FDI in GCC Countries

Natural Resources: Rent

16

0

20

40

60

80

100

120

-10000

0

10000

20000

30000

40000

50000

60000

70000

Foreign direct investment, net inflows (million, current US$) (LHS) US $/ bbl (RHS)

Sources: WDI, OPEC

Factors Affecting FDI in GCC Countries

Natural Resources: Oil Prices

17

0

20

40

60

80

100

120

140

-10000

0

10000

20000

30000

40000

50000

60000

70000

Foreign direct investment, net inflows (million, current US$) (LHS)

Trade Weighted U.S. Dollar Index: Broad, Index January 1997=100, Monthly, Not Seasonally Adjusted (RHS)

Sources: FRED, WDI

Factors Affecting FDI in GCC Countries

Exchange Rates; Dollar Movement

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Factors Affecting FDI in GCC Countries

Economic Growth

19

-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0

-10000

0

10000

20000

30000

40000

50000

60000

70000

Foreign direct investment, net inflows (million, current US$) (LHS) Average GDP Growth in the G-7 (RHS)

Source: WDI & IMF

Factors Affecting FDI in GCC Countries

Growth in Advanced Economies

20

-10000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

FDI Net Flows to GCC Countries ($ million, LHS)

FDI Net Flows to EM Countries ($ million, RHS)

source: WDI

Factors Affecting FDI in GCC Countries

FDI in major Emerging Economies

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Factors Affecting FDI in GCC Countries

Trade Openness

22

-10

01

02

03

0

consu

mer

pri

ces

(an

nu

al %

)

0 10 20 30 40Foreign Direct Investment inflow (% GDP)

Source: WDI

The Relationship between FDI and Inflation

ARE

BHR

KWT

OMN

QAT

SAU

01

23

45

co

nsu

mer

pri

ces in

de

x (

ann

ua

l %)

2 3 4 5Foreign Direct Investment inflow (% GDP)

Source: WDI

The Relationship between FDI and Inflation

Factors Affecting FDI in GCC Countries

Inflation

23

-10

01

02

03

0

Gen

era

l go

vern

men

t to

tal exp

en

ditu

re (

% G

DP

)

10 20 30 40 50Foreign Direct Investment inflow (% GDP)

Source: WDI

The Relationship between FDI and Government Expenditure

BHR

KWT

OMN

QAT

SAU ARE

01

23

45

Gen

era

l go

vern

men

t to

tal exp

en

ditu

re (

% G

DP

)

15 20 25 30Foreign Direct Investment inflow (% GDP)

Source: WDI

The Relationship between FDI and Government Expenditure

Factors Affecting FDI in GCC Countries

Government Expenditures

24

-50

51

01

5

Po

lity s

core

0 .2 .4 .6 .8 1Foreign Direct Investment inflow (% GDP)

Source: WDI & Polity IV project and Authors Calculation

The Relationship between FDI and Quality of Institutions

ARE

BHR

KWT

OMNQATSAU

01

23

45

Po

lity s

core

0 .05 .1 .15Foreign Direct Investment inflow (% GDP)

Source: WDI & Polity IV project and Authors Calculation

The Relationship between FDI and Quality of Institutions

Factors Affecting FDI in GCC Countries

Quality of Institutions

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Recommendations

• It is important to learn from experiences when applying new policy

regarding FDI.

• Countries should build their FDI strategy based on their needs and set

targets to be achieved by FDI promotion.

• The focus should be on investments that provide added value and job

creation in the economy.

• It is important to have updated data for all aspects of FDI on aggregate and

sectoral levels.

• Provide more information about investment opportunities.