Foreign direct investment in the GCC declined 14.6 per cent in 2013 as compared to 2012, says United Nations Conference on Trade and Development (UNCTAD).
The FDI in Arabian Gulf markets fell for the fifth consecutive year from $28 billion in 2012 to $24bn in 2013, says World Investment Report 2014, published by UNCTAD recently.
This comes despite an improvement in world FDI, which increased by 9.1 per cent from its level in 2012 to reach $1.5 trillion in 2013. As a result, the GCC’s share of world FDI has fallen to 1.6 per cent – having been as high as 4.2 per cent in 2009.
Part of the decline in foreign investment to the GCC can be explained by the completion of major projects as well as the social tensions and political uncertainty that have affected the broader Middle East, says a statement from National Bank of Kuwait.
In a note to TRENDS, NBK says the GCC, with its ample hydrocarbon resources has, to a large extent, been buffered by the regional unrest, and so the reduction in FDI is likely more a reflection of the tailing-off in investments following the completion of major hydrocarbon projects and the reduction of foreign exposure to certain sectors within GCC economies.
“Examples include the completion of Qatar’s liquefied natural gas (LNG) expansion program and various petrochemical and construction projects in Saudi Arabia.
“Indeed, the UAE led the GCC in FDI for the first time in 2013, with $10.5bn, pushing Saudi Arabia into second place. Along with Bahrain, the UAE is the only country to record four consecutive years of increasing FDI inflows, as investors return to the property, manufacturing and services sectors and as the country gears up for the Dubai World Expo in 2020, says an investors’ note from NBK.
Meanwhile, Saudi Arabia, which is historically the region’s largest recipient of foreign investment, has experienced five consecutive years of declining FDI flows. “FDI decreased by 24 per cent from $12.2bn in 2012 to $9.3bn in 2013. And this has come despite significant investment in capital projects including infrastructure, oil refining and petrochemicals,” it says.
As the World Investment Report 2014 has noted, flush with the proceeds from elevated hydrocarbon prices, Saudi Arabia is very much the dominant player in an ambitious program of capital projects, with many foreign investors increasingly reliant on contracts or joint ventures with the government.
Also, FDI flows to Kuwait are estimated to have decreased in 2013, to $2.3bn. Nevertheless, Kuwait has, since 2009, experienced something of resurgence in FDI as a string of acquisitions by mainly GCC based-entities helped to boost investment in the country.
The most high profile of these was Qatar Telecom’s purchase of Wataniya in 2012 for $1.8bn. The government, for its part, last year unveiled an update to its FDI law of 2001 in order to streamline the FDI approvals process and expand the list of eligible investments.
However, facilitating FDI flows into the region has been the significant strides made by the GCC in improving their business environments. Quite apart from possessing some of the most favorable tax regimes in the world, individual countries have embarked on substantial reforms over the last decade to make it easier to start a business, obtain credit, enforce contracts and trade across borders, for example. Such progress is reflected in the gains made by GCC countries in the World Bank’s Doing Business rankings. The most recent of which, in 2014, showed the UAE leading the region (and much of the world) with a world ranking of 23.
KUWAIT THE REGION’S TOP INTERNATIONAL INVESTOR
In 2013, Kuwait emerged once again as the GCC and the Arab world’s largest overseas investor, with $8.4bn in FDI outflows, says National Bank of Kuwait. “The country almost tripled its investments on the year before. Through its sovereign wealth fund, the Kuwait Investment Authority (KIA), and the investments of private individuals, Kuwait has consistently topped the regional rankings in FDI outflows.
“Qatar and Saudi Arabia were the second and third largest overseas investors, respectively, with $8bn and $5bn in FDI outflows. Qatar more than quadrupled its outflows.
“Aggregate GCC outflows increased by 93 per cent from the year before to reach $26.7 billion as the member states continued to direct their burgeoning foreign exchange reserves into overseas projects and acquisitions,” says NBK.