Saudi Arabia tops region in FDI inflow
Launching the report in Manama, Nazha Benabbes, head of the UN Conference on Trade and Development (UNCTAD), said the first half had recorded a good year in terms of economic development. In her presentation, she said some GCC countries had also witnessed a significant drop in the flow of FDIs, for example, Kuwait’s FDIs slipped to $1.2 billion in 2010 from $8.5 billion in 2009. Similarly, Qatar’s FDIs witnessed a record drop $11.6 in 2009 to $1.9 billion in 2010.The UAE also saw a significant drop from a record FDIs of $2.7 billion in 2009 to $2 billion in 2010.
The report, subtitled “Non-Equity Modes of International Production and Development,” was released this week in Bahrain. Nazha also highlighted the importance using non-equity modes to simulate the regional economies. FDI flows to West Asia in 2010 continued to be affected by the global economic crisis, decreasing by 12 percent to $58 billion, despite the steady economic recovery registered in 2010 in most of economies of the region, says UNCTAD’s World Investment Report 20111 (WIR11).
While the recovery was underpinned by sizeable increases in oil-rich government spending, private investors’ response remained cautious, the annual survey reports. The estimated value of greenfield FDI fell 42 percent in 2009 and 44 percent in 2010. Sales of cross-border mergers and acquisitions (M&A) were concentrated mainly in Turkey. Although they increased by 30 percent in 2010, they remained at a low level at $4.6 billion as the privatization process in that country came to an end. Trends in FDI inflows in 2010 varied by country. For example, they dropped 12 percent in Saudi Arabia, where foreign investors have withdrawn from or frozen their involvement in a number of mega projects in the petrochemical industry such as ConocoPhillips in the Yanbu project and Dow Chemicals in the Ras Tanura integrated project. They fell 32 percent in Qatar, as the last of four liquid natural gas Qatargas plants that had bolstered FDI in 2009 was completed in 2010. In the UAE, flows stayed at the same low level as in 2009 — when they plummeted to $4 billion due to the economic crisis. In Turkey, incoming FDI increased by 8 percent mainly as a result of a 40 percent increase in investment in real estate. The report says that, according to preliminary data, FDI inflows are likely to bottom out in 2011. However, concerns about political instability in the region are likely to weigh on the recovery. FDI outflows from West Asian economies declined significantly for the second consecutive year. They dropped 51 percent in 2010 due to divestments by West Asian firms. The largest such disinvestment was the $10.7 billion sale by Zain Group (Kuwait) of its African operations to Bharti Airtel (India). At the same time, the estimated value of West Asian greenfield projects abroad dropped 52 percent.
As the region’s outward investment is driven mainly by government-controlled entities, the global economic crisis and political unrest are affecting outward investment by putting pressure on governments to direct more investment into their own economies and to finance higher social spending to pre-empt or respond to popular discontent. Hitherto, however, governments of these countries have had a dual strategy for economic diversification policies that included investing in other Arab countries to compensate for the small size of their domestic economies, and in developed countries and emerging economies to improve or create capabilities in industries perceived as strategic for the development and diversification of their home economies.
Increasingly, the latter strategy has been pursued in the industries still missing at home, such as motor vehicles, alternative energy, electronics and aerospace. This approach differs from the experiences of other countries that have generally sought to develop a certain level of capacity at home before engaging in outward FDI, the report says. Long-term prospects for outward investment are positive on the whole, as expected high oil prices suggest that funds available for investment abroad will continue to rise. It is important, however, that governments of the region assess the performance and effectiveness of all aspects of their outward FDI strategies as an instrument for economic diversification and development, the study says.