Foreign Investments in the Arab States

Published November 1st, 2000 - 02:00 GMT

Most developing countries, including some Arab states, are still unable to attract foreign investments owing to their faltering economic policies, their slow pace of change toward free markets, and the burden of foreign debt that hinders their efforts to build infrastructure such as roads, communications, and finance and insurance markets.  


Other obstacles to investment include government red tape, poor management, weak private sectors, in addition to political instability in some of these countries.  


Accordingly, a large proportion of capital flowed to the markets of advanced countries and the few developing countries that offer secure, stable investment opportunities.  


Reports indicate that of the $440 billion of direct foreign investments made worldwide in 1998, the advanced countries attracted 58 eprcent, the developing countries 37 eprcent, and the countries in transition 5 eprcent.  


If this situation is to change, the developing countries must exert more effort to create a suitable climate for investment. They must focus on the advantages of abundant manpower and raw materials that they enjoy.  


Moreover, the advanced countries must foster efforts to develop Third World countries by showing more understanding of the obstacles they face, in particular foreign debts, the need for more international development aid, and the relaxing of investment procedures covered by international agreement. 


In addition, developing countries need help to acquire intellectual assets on lenient conditions so that the motto ‘Partners in Development’ can be realized. Ultimately, the development of Third World economies lies in the interests of the advanced nations.  


Most Arab states suffer similar impediments to investment as other developing countries. According to 1998 estimates Arab states received no more than $3.1 billion of total global investments compared with $45.3 billion received by China and $16.3 billion by Brazil.  


Action is needed on two fronts to enable the Arab states to compete better for foreign investments. On the national front they must develop their laws regulating foreign investment and implement economic reform.  


Nowadays this means privatizing companies, especially in the areas of communication, transport, and finance services. Arab states need to reduce the role of the public sector while developing the role of the state as a regulator and innovator of general economic policy.  


They should reinvest the revenue from privatization in infrastructure and introduce tax systems that guarantee the state sufficient resources to alleviate the impact of new economic developments on society.  


Since the World Trade Organization came into existence, several economic blocs have emerged. Now, more than ever, there is a need to develop joint Arab action.  


Hopes are pinned on the Arab Free Trade Area providing a springboard to a single Arab market that can gradually amalgamate the Arab economies into a single bloc., covering 14.2 million square kilometers, a population of 270 million, a workforce of 97 million, and a total GDP of $589 billion, according to 1998 statistics.  


One of the goals of such a market would be to unify economic systems, pass legislation on investment guarantees, and create a new climate for attracting Arab and foreign investment. It could also promote inter-Arab trade and encourage Arab companies to merge so as to form companies with bigger investment clout.  


OAPEC has been a pioneer in the field of joint Arab action. Through the various ventures it has sponsored, it has sought to keep Arab investments in the oil industry at home.  


Joint Arab action, when built on firm foundations, provides opportunities for increased interdependence in Arab economic relations. It can create a web of joint economic interests that may gradually bring together what politics in the Arab world holds apart.  



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