FDI flow into GCC rebounds

Foreign director investment (FDI) flow into Gulf hydrocarbon producers rebounded in 2012 after a decline for three successive years because of the cancellation of key projects in some regional countries, according to a regional report.

The flow into the six-nation Gulf Cooperation Council (GCC), which controls over 40 per cent of the world’s recoverable crude deposits, stood at around $27.9 billion (Dh102 billion) last year compared with about $24.5 billion (Dh90 billion) in 2011, an increase of 13.8 per cent, the Kuwaiti-based Gulf Investment Corporation (GIC) said in its monthly economic bulletin.

“The increase illustrates the improvement in the investment climate in the GCC countries and the emergence of new major investment opportunities in key sectors in member states,” said GIC, which is owned by the GCC governments.

It gave no breakdown but the UAE and Saudi Arabia are expected to have attracted more than half those investments, mainly from the West and Asia.

Official data showed FDI into the GCC 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. It was the third year that such flows recede after they hit an all time high of $60.3 billion in 2008.

“Inflows in 2011 were at their lowest level since 2004,” National Bank of Kuwait said, citing a recent 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 end-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 negative 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.

 “Despite the Arab Spring upheavals, which will continue to affect investment flows in 2012, the longer-term prospects for regional FDI are good,” NBK 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.”

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