Foreign director investment (FDI) flow into Gulf oil producers plunged by nearly 35 per cent in 2011 for the third successive year mainly because of the cancellation of large projects in the UAE and Saudi Arabia, the largest Arab economies.
FDI into the six-nation Gulf Cooperation Council (GCC), which controls over 40 per cent of the world’s proven oil deposits, totalled around $25.9 billion last year, far below the peak flow of $60.3 billion in 2008.
“Inflows are, consequently, at their lowest level since 2004,” National Bank of Kuwait said, citing a report by the UN Conference on Trade and Development (UNCTAD).
“The suspension or cancellation of a number of mega projects in the region particularly in Saudi Arabia and the UAE due to difficulties in securing project financing were cited by UNCTAD as major reasons for the contraction in inflows.”
The report showed that in the UAE and Saudi Arabia, the number of cancelled or suspended construction projects as of October 2011 stood at about $958 billion and $354 billion, respectively. But FDI to the UAE has actually been increasing year-on-year since the Dubai debt problems of 2009, the report showed.
Qatar, on the other hand, recorded net FDI inflows of -$86.8 million, which is most likely a result of repatriation of investments and proceeds by foreign corporations following completion of LNG infrastructure expansion.
In the wider region, FDI inflows to countries affected by the Arab Spring have plummeted. Egypt, Libya and Syria, witnessed significant declines.
“Indeed, North Africa was the worst performing region among all developing economies in 2011. The restoration of socio-political stability and security is a pre-requisite for the resumption of FDI, which, in turn, is crucial to the longer-term growth prospects of these transitioning countries— not least given the importance of FDI in employment creation,” NBK said.
In contrast, FDI flows out the GCC rebounded from two successive years of declines, reaching $21.8 billion in 2011, an increase of 53 per cent.
“Despite the Arab Spring upheavals, which will continue to affect investment flows in 2012, the longer-term prospects for regional FDI are good,” the report said.
“With the GCC states pursuing ambitious development and diversification plans and unrest-affected countries like Egypt, Tunisia and Libya committed to restructuring their economies and to secure their political transition, business opportunities should be forthcoming, particularly in the services and manufacturing sectors.”