Arab foreign capital inflow to recover this year

Foreign capital flow into the Arab world plunged by nearly 18 per cent in 2009 because of the global fiscal crisis but it is projected to rebound by up to 15 per cent to $91 billion this year, according to official Arab forecasts.

With the exception of Qatar, most regional nations reeled under a heavy decline in foreign direct investment (FDI) last year after recording one of the highest capital inflows in the previous year due to a surge in crude prices, showed the figures by the Inter-Arab Investment Guarantee Corporation (IAIGC).

From a record high $96.9 billion in 2008, the combined FDI flow into the 21 Arab countries tumbled by nearly 18.3 per cent to 79.1 billion in 2009, IAIGC said, citing its own data and figures by UNCTAD.

“After the sharp decline in FDI into the Arab region last year because of the global financial crisis, there were questions on whether such investments will overcome the repercussions of the crisis and rebound this year,” said the Kuwaiti-based IAIGC, a key Arab League establishment.

“Despite the difficulty in forecasting the size of such investments due to the persistent economic uncertainty worldwide, we expect FDI into the Arab region to recovery by around 10-15 per cent this year…it could reach $88 billion under a conservative scenario and $91 billion under an optimistic one.”

IAIGC said it based its projections on several regional and local factors, including an improvement in investment laws in some Arab countries, a projected growth in mergers and acquisitions and better economic performance.

Its figures showed FDI into the Arab nations swelled to an all time high in 2008 because of a surge in their economies after oil prices leaped to their highest ever average of around $95 a barrel and oil output was at one of its highest levels.

But the flow recorded one of its largest falls in 2009 in line with a general investment and economic downturn worldwide.

Qatar, the world’s top LNG exporter, was an exception in the region last year as it recorded a massive increase in FDI to around $8.7 billion from nearly $4.3 billion in 2008 as a result of accelerating investment by its gas partners.

The UAE, which had emerged as the second largest FDI destination in the region after Saudi Arabia over the past three decades, suffered from one of its most painful drops in capital inflow, which plunged to around $four billion last year from nearly $13.7 billion in 2008, according to IAIGC.

Saudi Arabia, the world’s dominant oil power and largest Arab economy, remained the top FDI recipient in the region despite a decline in 2009. IAIGC figures showed the Kingdom received around $35.5 billion in FDI last year compared with a record high $38.1 billion in 2008.

Other key FDI recipients in the region last year were Egypt, which got around $6.7 billion compared with $9.4 billion in 2008, and Lebanon which received nearly $4.8 billion in 2009 compared with $4.3 billion in 2008.

Although it is one of the world’s largest oil exporters, Kuwait has remained one of the smallest FDI beneficiaries in the Middle East, receiving only around $145 million in 2009. In 2008, the flow was negative at $51 million.

Experts attributed the low FDI flow into Kuwait to the fact that the emirate has concentrated more on exporting than on importing capital.

IAIGC data showed capital flow out of Arab nations also contracted last year because of lower fiscal surpluses and slowdown in their economies.

From around $44.2 billion in 2008, Arab capital outflow plummeted by 44.7 per cent to nearly $24.4 billion in 2009, the report showed.

Kuwait emerged as the largest Arab capital exporter in 2009, with an outflow of around $8.7 billion. It was followed by Saudi Arabia, with about $6.5 billion, Qatar with nearly $3.7 billion and the UAE with $2.7 billion.

In 2008, the UAE was the top Arab capital exporter, with pumping nearly $15.8 billion into foreign markets, accounting for 36 per cent of the total Arab capital outflow, according to IAIGC.

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