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28 March 2024

FDI flows tumble 71% in 2009

Published
By Nadim Kawach

Capital flow into the UAE recorded one of its biggest declines of nearly 71 per cent in 2009, according to the United Nations.

From around $13.7 billion in 2008, foreign direct investment (FDI) flow into the UAE dipped to nearly $4bn in 2009, the UN Conference on Trade and Development (Unctad) said in its 2010 global investment report.

The decline was part of overall slackening of FDI flow into the Arab region and worldwide because of the crisis, but the report projected a recovery in such flows this year and in the medium term.

The report showed FDI flows to West Asia, comprising the UAE, other Gulf oil producers, and some other Arab countries, shrank by around 24 per cent to $68bn last year after six years of consecutive increase.

FDI inflows fell in all of the region’s countries except Kuwait, Lebanon and Qatar, which recorded a staggering 112 per cent rise in FDI. Most of the increase in Qatar was in liquefied natural gas, with two more liquefied natural gas super-trains expected to come on stream in 2010, according to Unctad.

“Among the main recipient countries, the UAE and Turkey were hit the hardest, with declines of 71 per cent and 58 per cent, respectively. Cross-border M&A sales in Turkey plummeted from $13.2bn to $2.8bn,” the report said.

It showed Saudi Arabia, the world’s oil superpower which has been locked in reforms to attract capital, remained the region’s largest recipient of FDI, with total inflows reaching $36bn, down by only seven per cent.

As for outgoing capital, the report showed FDI outflows from West Asia decreased by 39 per cent in 2009 but the decline was uneven.

“Outflows from the UAE plummeted from $16bn to $3bn, downgrading the country’s position from largest outward investor in the region to fourth largest,” Unctad said.

Outflows from Kuwait remained almost constant, making it the region’s largest outward investor in 2009, followed by Saudi Arabia, where outward FDI increased significantly, from $1.5bn to $6.5bn.

According to the report, investment policy measures taken in the West Asian region have generally improved the conditions for foreign investment.

Some countries opened sectors of the economy to FDI or raised the ceiling for foreign ownership, it said. A number of countries reduced the tax rate in order to stimulate the economy across the board or in particular sectors or regions.

“Prospects for FDI inflows to West Asia are expected to improve in 2010 and beyond in the medium term, provided new developments in the global economic situation do not affect the revival of investors’ access to international credit markets observed in the second half of 2009,” it said.

The report showed global FDI flows began to bottom out in the latter half of 2009, but it was followed by a modest recovery in the first half of 2010, sparking some cautious optimism for FDI prospects in the short term.

It said the current recovery is taking place in the wake of a drastic decline in FDI flows worldwide in 2009. After a 16 per cent decline in 2008, global FDI inflows slumped a further 37 per cent to nearly $1,114bn last year while outflows fell some 43 per cent to around $1,101bn.

The report said FDI flows contracted in almost all major economies, except for a few FDI recipients such as Denmark, Germany and Luxembourg, and investment sources such as Mexico, Norway and Sweden.

“In the longer term, from 2011 to 2012, the recovery in FDI flows is set to gather momentum. Global inflows are expected to pick up to over $1.2 trillion in 2010, rise further to $1.3trn-$1.5trn in 2011, and head towards $1.6trn-$2trn in 2012. These FDI prospects are, however, fraught with risks and uncertainties arising from the fragility of the global economic recovery,” Unctad said.

“Unless private investment regains its leading economic role, the sustainability of the global recovery remains questionable.”