trends in foreign direct investment in the arab...
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Trends in Foreign Direct
Investment in the Arab Region
Regional Seminar on Investment Policies toward Sustainable
Development and Inclusive Growth, Rabat, Morocco, 10-13 December 2013
Souraya Zein
Outline • Trends of FDI inflows in Arab countries;
• Characteristics of the inflows;
• Main challenges facing Arab countries;
• Recommendations.
The Arab Region 22 Countries with Different Income Levels:
• Major Oil Exporting Countries;
• Diversified Economies;
• Least Developed Countries
• Global FDI Inflows declined by 33 per cent in 2009, then had a partial
recovery, driven mainly by developing countries. The latter witnessed a
period of sustained growth in FDI inflows.
• Arab countries were hit severely by the crisis, and were unable to attain
the pre-crisis level.
Arab Countries
Developing Countries
World
0
5,000
10,000
15,000
20,000
25,000
2007 2008 2009 2010 2011 2012
Billio
ns o
f U
S$
FDI Inflows
Source: UNCTAD, WIR and National sources
FDI Inflows to Arab Countries
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012
Bil
lio
n o
f U
S$
Arab Countries
Inflows to Arab countries as % of World
Inflows to Arab countries as % Developing Countries
Strong upward trend
between 2002 and
2008 (boom in real
estate sector, high oil
prices and opening up
of petroleum sector to
foreign investments);
Sharp decrease for 3
consecutive years
between 2009 and
2011 (financial crisis,
falling oil prices and
declining profit margins
within the petroleum
sector, economic
recession, sharp
corrections in the real
estate sector and
- political instability in
some countries).
Source: UNCTAD, WIR and National sources
FDI Inflows to Arab countries by sub-region
• Given the difference in the economic structure, Arab countries have
been differently affected by the considerable decline of FDI in 2009.
Major Oil Exporting Countries
Diversified Economies
Least Developed Countries
0
10
20
30
40
50
60
70
80
2007 2008 2009 2010 2011 2012
Billi
ons
of U
S$
Source: National sources
FDI Inflows to Arab countries by sub-region
(contined)
• The principal factors that explain the considerable gap in FDI
inflows between Arab countries include:
– the pace of economic and investment reforms and the degree of
enforcement of these reforms,
– the assessment of political risks by potential investors,
– the business climate and infrastructure,
– the access to inexpensive production factors (land, energy, and
physical and human capital) and
– the integration into regional and global markets.
• Other reasons are attributable to the worldwide FDI decline and
refer mostly to slowdown in economic growth in both developed and
developing economies, more difficult access and more expensive
funding, cautiousness of big companies to invest and of banks to
finance new ventures and failure to boost cross-border mergers and
acquisitions.
3. Lebanon,
8%
2. United Arab
Emirates,
20%
1. Saudi Arabia,
26%
Largest recipients in 2012
Distribution of FDI Inflows in 2012 by sub-region
Major Oil Exporting
Countries, 64%
Diversified Economies,
27%
Least Developed
Countries, 9%
Source: National sources
Sectoral Distribution of FDI Inflows
to Egypt, 2012
• FDI Inflows to Egypt witnessed sharp decline between 2007 and 2011.
• Rebounded in 2012, driven by large investments from European countries.
• Oil sector attracts the largest share of FDI inflows
Oil, 74.37%Manufacturing,
6.72%
Agriculture, 0.01
%
Real Estate, 0.66%
Finance, 3.11% Other sectors, 15.13%
Source: Central Bank of Egypt
11578
2798
-2000
0
2000
4000
6000
8000
10000
12000
14000
2007 2008 2009 2010 2011 2012
FDI Inflows to EgyptIn millions of US$
Sectoral Distribution of FDI Inflows to Saudi Arabia, 2010
• Contracting, Oil and Real estate sectors were the main recipients of FDI
inflows.
• The sources of these inflows were diverse: 34% from European
countries,16% from other Arab countries; 15% from USA and 7% from
China
Mining and Petrochemicals,
13.8
Other Industries , 6.7
Contracting , 20.9
Computer and related activities
, 5.1
Real Estate, 12.4
Transport, Storage and
Communications, 7.2
Trade, 5.6
Other activities, 28.3
Source: Saudi Arabian General Investment Authority (SAGIA)
•Saudi Arabia adopted
a consistent reform
program and was
ranked 12 globally in
Ease of doing business
Sectoral Distribution of FDI Inflows to Morocco, 2010
• More than 75% of FDI Inflows to Morocco originated from European Countries.
• Telecommunications sector is the largest recipient.
• Morocco was the most active Arab country in implementing regulatory reforms in
2010/2011, improving its global ranking in ease of doing business from 115 in
2011 to 94 in 2012.
Source: Moroccan Foreign Exchange Office
Industry, 10%
Tourism, 10%
Real Estate, 23%
Banking, 13%
Telecommunications, 32%
Other Services, 3%
Other Sectors, 8%
• Majority of Arab countries have taken serious steps in upgrading
the investment climate as one of the crucial factors attracting
foreign investors.
• Oil and gas industries and related manufacturing are the major
recipient of FDI;
• Telecommunications, real estate and financial services sectors
are increasing their share of FDI inflows;
• Investments from developing countries, in particular India and
China, have increased in the recent years;
• A large part of FDI inflows is profit-seeking, and not necessarily
employment-generating. The region still faces high rates of
unemployment;
• There is also little technology transfer, given that most of the FDI
is directed towards the mining or real estate sectors, with low
levels invested in the manufacturing sector;
Main characteristics of FDI inflows to Arab Countries
– Sudan saw an increase in FDI inflows between 2009 and
2012 due to large investments, mainly from China and
India, in the exploration and exploitation of natural
resources. The agriculture sector, where the country has a
comparative advantage, received only about 3%
– Libya witnessed a large FDI inflows in 2012, driven mainly
by investments in petroleum sector.
– In Lebanon, FDI inflow was mainly driven by investments
in financial services and real estate sectors.
– In Iraq, FDI inflows witnessed 3 years of consecutive
increase (2009-2012) driven by large investments in
infrastructure and petroleum sectors.
Main characteristics of FDI inflows to Arab Countries
(continued)
Main challenges facing Arab countries
• Despite the fact that some countries performed well in
attracting FDI in 2009, the global financial crisis proved that
these inflows are vulnerable.
• While the relevance of these challenges varies significantly
from country to another, the Arab region in general suffers
from:
– weak and inconsistent enforcement of regulations,
– high levels of bureaucracy and corruption,
– dominant public sector and
– slow implementation of privatizations programs.
• Arab countries need to exercise more efforts to increase their
share of global FDI inflows and to enhance the positive impact
of these inflows by:
– Further improving the institutional environment, both in terms of
enhancing efficiency and transparency;
– Enhancing the business environment: Investing in both
transportation and communication infrastructure to improve the
overall competitiveness of Arab countries as investment
destinations;
– Investing in education in order to enhance human capital which
would promote innovation, increase productivity and would
ultimately attract domestic and foreign capital.
– Ensuring that legislation has a clear and unique interpretation.
Recommendations
– Combating bureaucracy, corruption and red tape, including the
establishment of an independent supervisory authority.
– Supporting the private sector and national investments, as it is
an indicator of the investment climate.
– Enhancing macroeconomic stability.
– Adopting appropriate policies that direct investments towards the
most productive sectors.
Recommendations (continued)
