International economist and analyst Moin Siddiqi tracks the movement of direct foreign investment (FDI) around the Middle East and North Africa (MENA) region and anticipates where the next new tranche of opportunities will arise.
Foreign direct investment (FDI) to emerg-ing and frontier markets in 2013 reached a new high at $778bn, accounting for half of global inflows, according to the World Investment Report 2014. Developing Asia continues to be the region with the high- est inward FDI ($382bn), significantly above the European Union ($246bn), traditionally the region with the highest share of global FDI. Inflows were up also in the other major developing regions, sub-Saharan Africa (up by 4%); Latin America and the Caribbean (up by 14%, exclud- ing offshore financial centres); and Commonwealth of Independent States (up by 28%).
The growth in FDI during 2013 was clearly evident in smaller and medium-sized emerging and frontier markets. This suggests global investors are taking risks again with their FDI strategies and are focused on investing in growth markets with untapped poten- tials. This trend is encouraging for the role FDI can make in coming years in the sustainable development of emerging economies.
By contrast, persistent crises in Syria, Iraq and Libya, coupled with sluggish economic growth in most Middle East and North Africa (MENA) countries continued to deter strategic investors. The latest published figures from the Geneva-based United Na- tions Conference on Trade and Development (UNC- TAD) show that FDI flows to MENA declined in 2013 by 11% to $59.73bn, the fifth consecutive decline since 2009 and a return to the level they had in 2005.
As in past years, FDI inflows remained unevenly distributed, with five major countries (Turkey, UAE – led by Abu Dhabi and Dubai – Saudi Arabia, Egypt and Morocco in that order) receiving almost 70% of regional total or $41.56bn. The top-five recipients also held two-thirds of the region’s total FDI stock, which was valued at $916.38bn. The region’s share of FDI flows to the developing world fell to 7.6%, compared to 18% in 2008.
Leading OECD nations traditionally remain the major sources of FDI to the region, though inflows by transnational corporations (TNCs) from develop- ing countries have risen markedly in recent years, targeting the services sector (chiefly public utili- ties) and petrochemicals. In 2013, MENA attracted Greenfield FDI mainly from the EU, North America and Russian Federati on, in that order. Greenfield FDI from Asia, particularly China and India, was also sizeable, followed by intraregional FDI flows, mainly from the UAE and Saudi Arabia.
The Gulf Cooperation Council (GCC) bloc is long viewed as the preferred FDI destinations in the Middle East because of higher scores on the World Bank’s doing business indicators, access to world- class physical infrastructure, advanced logistics facilities and pro-investor environment pinned by affluent consumer markets, sophisticated banking industry and good quality institutions. The GGC states has injected vast petrodollars into mega development projects – diverse as electricity, water, housing, tourism, leisure, telecommunications and chemicals – often in collaboration with private investors, including foreigners, in the form of public- private partnerships (PPPs) and build-operate transfer (BOT) models. Inflows to six member-bloc (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), however, fell by 12% in 2013, to $24.73bn.
Gulf-based Sovereign Wealth Funds (SWFs) are actively investing in their domestic public services (health, education and infrastructure), which may lower their level of FDI further. Public investment is increasingly seen as having better socio-economic returns than volatile portfolio investment abroad.
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