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29 March 2024

Arabs need reforms to lure capital

IAIGC said FDI flow into the Arab region contracted by around 18 per cent in 2009 because of the crisis (FILE)

Published
By Nadim Kawach

Arab countries need to undertake more reforms in their economies to lure in further capital which is vital for the achievement of sustainable growth and creation of jobs, a senior Arab investment official has said.

Despite the surge in foreign director investment (FDI) flow into the Arab countries over the past five years, the region's share of worldwide capital has remained too low and this poses a big challenge for them, said Fahd bin Rashid Al-Ibrahim, Director General of the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGC), a key Arab League institution.

Writing in IAIGC's latest bulletin, Ibrahim said capital flow into the Arab region shot up to nearly $376 billion during 2005-2009, nearly five times the FID received by regional nations in the previous five years.

Inter-Arab investments also leaped by around seven times to nearly $129 billion during the same period, his figures showed.

Ibrahim said the surge in capital inflow was a result of an improvement in investment laws in some Arab states, upgrading of sovereign credit rating of others, an increase in investment return in the region and change of investment mood by multi-national companies following the 2008 global fiscal crisis.

As for the surge in internal flows, it was caused mainly by the fact that many regional investors opted to keep their funds at home or invest in other Arab countries because of the turmoil in world markets, Ibrahim said.

"Despite the improvement, the Arab region's share of FDI worldwide is still very low, not exceeding seven per cent of emerging economies...another challenge is that there is a big gap in the sectoral distribution of FDI in the Arab world, which means there are still some obstacles to foreign investment," he said.

"For this reason, Arab nations need to take action to face such challenges...this action should not be confined to governments but to private establishments....it must involve more reforms, mainly improvement of the investment climate because this is a continuous process that should not be stopped or shelved by time given the numerous experiences in this regard in other countries."

Ibrahim said capital is needed to spur growth in the long-term, create jobs and tackle persistent economic woes, including debt and slow exports.

"This also requires efforts to support political stability along with a set of other incentives that will ensure sustained growth in FDI inflow."

In a study last week, IAIGC said FDI flow into the Arab region contracted by around 18 per cent in 2009 because of the crisis but expected it to rebound by up to 15 per cent to nearly $91 billion this year.

With the exception of Qatar, most regional nations reeled under a heavy decline after recording one of the highest capital inflows in the previous year due to a surge in crude prices, according to the report.

 "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," it said.

"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."

Ibrahim said reforms in the Arab world are also need to clear what he described as many obstacles foreign investment. He said the reforms are also needed to ensure enough capital into nearly 1,338 proposed projects in the Arab region, with an estimated value of about $720 billion.

"There are too many obstacles for foreign investment and inter-Arab investment in the region.....they include the absence of a unified law to regulate investment in member states and failure of some governments to comply with the agreements they sign with the investors," he said.

"The obstacles also involve the disparity and deficiencies in legislations governing business, mainly the labour law and investment protection rules, as well as the absence of an effective judicial system to settle any trade or business issue...of course these obstacles vary from one country to another but their presence is largely obstructing capital flow into the Arab world."