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29 March 2024

Arabs pursue plan to boost internal capital

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Arab countries are pushing ahead with an ambitious project with the help of the World Bank to boost capital flow among them as part of intensifying post-crisis reforms intended to stimulate their economies.

Arab central bank governors discussed the project at their talks in Libya this week and said they remain committed to reforms that are expected to gain pace in the aftermath of the 2008 global fiscal distress.

The Abu Dhabi-based Arab Monetary Fund (AMF), a key Arab League institution which organized the Tripoli meeting, said the central bank governors review a report on that project prepared jointly by the AMF and the World Bank.

“The talks covered plans to create a mechanism for clearing and balance of payments settlement among the Arab countries in the light of the recent report prepared by the AMF and the World Bank,” the AMF said.

“This is a vital project for the Arab nations as its main objective is to bolster trade among regional nations and spur inter-Arab capital flow.”

The AMF, an IMF-style Arab organisation, said the project is part of overall reforms in the region aimed at spurring growth after most local economies were jolted by the crisis, mainly the oil producing nations.

It said reforms would be a key theme in the joint Arab address to be made during the meeting of the International Monetary Fund and the World Bank in October.

“The Arab countries will underline their commitment to pursuing economic and financial reforms to increase the chances of merging their economies into the global economy,” the AMF said in a statement.

According to the AMF, which groups the Arab League’s 21 nations, the mechanism involves the preparation of periodical reports on economic data and investment projects in Arab nations with the aim of identifying business opportunities and giving investors better access to regional markets.

“These reports are part of an overall project being carried out by the AMF and the World Bank…it includes the creation of a regional mechanism for the settlement of balance of payments in the Arab countries with the aim of providing comprehensive information on inter-Arab capital and encouraging the movement of capital, goods and other exchanges within the region,” it said.

It said the project followed a steady rise in inter-Arab investment but added the flow could accelerate after those arrangements are enforced.

“The remarkable thing in the capital flow into the Arab countries over the past years is that there has been a steady rise in inter-Arab investment,” it said.

“Some Arab countries recorded an increase in capital inflow even after the global crisis and the main reason for this was the big increase in regional investment.”

In a recent study, another key Arab League organization said the pick-up in regional investment was because many Arab investors were forced by the crisis to shun global markets and turn to home countries.

“Another key factor was the improvement in investment laws and a push by most Arab countries to attract capital given their importance in economic growth in the absence of other major financial sources in some regional nations,” said the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGC).
It said the investment climate and infrastructure in most Arab countries had largely improved over the past few years but added more work needs to be done.

The report showed the bulk of the increase in FDI flow into the region in 2008 was in inter-Arab investments, which leaped by nearly 64 per cent.

The growth in capital inflow boosted the share of Arab states in global FDI to 5.3 per cent in 2008 from around 3.9 per cent in 2007 and only 0.4 per cent in 2000.

The sharp rise in inter-Arab investments was the main factor in the FDI growth in the region, as they jumped to $34 billion in 2008 from about $21 billion in 2007.

After a steady rise in the past 10 years, FDI flow into the Arab region plunged by more than $15 billion in 2009 because of the 2008 crisis.