FDI to dip by over $11bn in 2011

Political unrest sweeping the Middle East and North African will ally with global economic uncertainty to depress capital flow into the Arab region by more than $11 billion in 2011 to its lowest level in six years.

Official forecasts showed total flow of foreign direct investment (FD) into the Arab countries could dip to nearly $55bn this year from around $66.2bn in 2010, a decline of nearly $11.2bn or around 16.7 per cent.

The level is expected to be the lowest since 2005, when FDI stood at around $47bn. It will also be way below the record high FDI flow of around $96.7bn in 2008, according to the Inter-Arab Investment Guarantee Corporation (IAIGC), a Kuwaiti-based establishment which is an affiliate of the Arab League.

“Although it is difficult to determine the exact effects of the ongoing unrest in the region on FDI flow, initial projections show that will decline by more than 16 per cent this year,” IAIGC said in its latest quarterly report.

“This is because the current situation has thrown the region into a state of uncertainty in the short term although many world companies still view the investment climate in rich Arab nations, mainly those in the Gulf, as attractive….the global fiscal turmoil could also affect FDI flow into the region in the medium term but this could be offset in case oil prices remain high and some regional governments maintained their high capital spending levels.”

FDI flow into the Arab region, which controls over 60 per cent of the world’s recoverable oil deposits, began plunging after the 2008 global financial distress, diving by nearly $20bn to $76bn in 2009 before dipping again by around $10bn to nearly $66bn, according to IAIGC.A breakdown showed most Arab states would suffer from lower FDI flow this year but countries which have been hit by turmoil would be the main victims.

Only six members are expected to record a slight recovery, including the UAE, which will attract around $4bn this year against $3.9bn in 2010. Saudi Arabia, the largest Arab economy, is also expected to see a slight rise to around $29bn from $28.1bn while the other likely gainers are conflict-battered Iraq, Kuwait, Morocco and Mauritania.

Countries which could be worst hit include Egypt, where FDI could plummet to only around $500 million this year compared with $6.38 billion in 2010.

FDI flow into war-hit Libya could tumble to around $500 million from nearly $3.8bn while in Bahrain it is projected to slump to $100m from $156m.

FDI flow into Syria will also likely to dive to $484m from $1.38bn.

Yemen, which is still reeling under internal conflict, recorded a negative FDI flow of around $329m in 2010 and the balance will remain negative at $200m in 2011. FDI flow into Tunisia will also dip to around $1.2bn from $1.51bn while in Lebanon it will plunge to $3bn from $4.49bn.

The report showed Qatar, the world’s largest LNG exporter, could see a 27 per cent decline in FDI flow to $4bn from $5.5bn. Also in the Gulf, Oman is expected to see a slight fall to $2bn from $2.04bn.

FDI to Algeria is forecast to shrink by nearly 20 per cent to around 1.7bn this year from $2.3bn in 2010 while Morocco could see a surge in FDI to about $2bn from nearly $1.3bn.

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