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29 March 2024

Unrest to curb Arab capital flow

Published
By Nadim Kawach
Foreign direct investment (FDI) flow into the Arab countries is expected to decline by up to 15 per cent in 2011 because of political unrest sweeping some countries in the region, according to an official Arab group.
 
FDI flow into 18 Arab nations that provided investment data plunged by nearly 23 per cent to $64.3 billion in 2010 from around $83.9 billion in 2009 mainly because of a sharp slowdown in investment to Saudi Arabia, the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGCC) said in a study.
 
“Although it is difficult to determine the exact effects of the current unrest in the region on FID inflow, preliminary estimates show that direct investment in the Arab countries is expected to decline by between 10 and 15 per cent this year,” said IAIGC, a key Arab League organization.
 
“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 region, mainly Gulf nations, as attractive.”
 
The report showed the decline in FDI flow into the Arab world last year affected many regional states but added Saudi Arabia was the main victim as investment into the Kingdom dived by nearly 41 per cent to $21.6 billion from $35 billion in 2009.
 
It attributed the decline to the shelving of some giant hydrocarbon projects in Saudi Arabia, mainly those which had been planned as joint ventures with foreign partners, including Dow Chemical and Conoco Philips.
 
But the report noted that despite the decline, Saudi Arabia maintained its position as the largest investment destination in the region, attracting nearly 33.5 per cent of the total FDI flow into the Arab world last year.
 
In the UAE, initial estimates showed FDI flow slipped by about 1.4 per cent to $3.9 billion from around $four billion, the report showed.
 
Qatar, the world’s top LNG exporter, emerged as the second largest FDI recipient in the Arab world, attracting around $6.6 billion, down by 24.4 per cent over the previous year, the report showed.
 
FDI into Egypt also slumped by 4.9 per cent to $6.7 billion while capital flow into Lebanon grew to around $4.59 billion from $4.8 billion. Morocco also recorded an increase in FDI to $4.4 billion from $3.1 billion while there was a decline in investment in Jordan, Algeria, Tunisia, Sudan, Bahrain, Yemen and Kuwait.
 
It was the second successive year that FDI flow into the Arab region recorded a decline because of the 2008 global fiscal distress.
 
In 2009, Arab FDI plunged by nearly 18 per cent and most regional nations suffered from the decline except Qatar.
 
From a record high of $96.9 billion in 2008, the combined FDI flow into the 21 Arab countries tumbled to $79.1 billion in 2009, according to the United Nations Conference on Trade and Development (UNCTAD).
 
Qatar, which controls the world’s third largest gas deposits, was an exception in the region in 2009 as it recorded a massive increase in FDI to around $8.7 billion from $4.3 billion in 2008 as a result of a surge in capital by its gas partners.
 
The UAE, which had emerged as the second largest FDI destination in the region after Saudi Arabia over the past three decades, suffered from one of its most painful drops in capital inflow, which plunged to around $four billion last year from nearly $13.7 billion in 2008, according to IAIGC.