Saudi remains most attractive site for foreign investment in Arab world

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Despite foreign direct investment (FDI) weakness experienced by Saudi Arabia last year, the Kingdom remains the most attractive destination for foreign investment in the Arab world, the United Nations Conference on Trade and Development (UNCTAD) said in its “World Investment Report 2013.”

Foreign direct investment (FDI) in the GCC in 2012 increased slightly over the previous year to reach $26.4 billion, the report said.

The GCC increased its share of developing economy FDI to 3.8 percent from 3.6 percent.

Foreign investment in the GCC has benefited from a combination of relatively high hydrocarbon prices, buoyant economic growth and an ambitious program of government-sponsored investment projects. The region also regularly accounts for over 50 percent of all FDI to the Arab Middle East and North Africa.

FDI flows within the GCC increased in 2012, with the exception of Saudi Arabia, since it was more susceptible to the difficulties experienced by investors in accessing capital from retrenching international banks and witnessed a 25 percent decline in FDI to $12.2 billion, the report noted. However, the Kingdom remains the most attractive destination for foreign investment in the Arab world, the repot said.

In the UAE and Kuwait, FDI inflows increased to $9.6 billion and $1.9 billion, respectively. The 25 percent increase in FDI to the UAE over the previous year was further evidence of the recovery in investors’ appetites after the Dubai World debt crisis.

In Kuwait, the doubling of FDI was primarily the result of Qatar Telecom’s acquisition of additional shares in the mobile operator Wataniya, it said.

GCC FDI flows have also been facilitated by the significant improvements made by individual countries in the ease of doing business, it added.

Meanwhile, FDI flows from the GCC to other countries declined last year, by 17.7 percent to $18.6 billion. Kuwait was once again the largest investor overseas, accounting for 41 percent of outflows with $7.6 billion, followed by Saudi Arabia with $4.4 billion and the UAE with $2.5 billion.

The result brought to an end three consecutive years of declining FDI flows to the region since the pre-financial crisis peak of $61.7 billion in 2008, said the report.

The GCC’s positive performance is further accentuated when placed in the context of developing economy and world FDI flows, both of which declined in 2012, by 4.4 percent and 18.2 percent, respectively.

In 2012, foreign direct investment (FDI) inflows decreased in all three major economic groups − developed, developing and transition economies, although at different paces.

In developed countries, FDI flows fell by 32 percent to $561 billion — a level last seen almost 10 years ago. The majority of European Union (EU) countries and the United States experienced significant drops in their FDI inflows.

FDI flows to developing economies remained relatively resilient, declining by only 4 per cent, accounting for 52 per cent of global inflows in 2012. Flows to developing Asia and Latin America and the Caribbean lost some momentum, although they remained at historically high levels.

All sub-regions in developing Asia – East and South- East Asia, South Asia and West Asia – saw their flows decline in 2012, compared with the previous year.

Africa was the only major region to enjoy a year-on- year increase in FDI inflows in 2012. FDI flows to transition economies declined by 9 percent.

This article was first published in the Saudi Gazette.

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