Strong Arab economic growth has allied with reforms and bigger profits to boost capital flow into the region by more than 20 per cent to a record $75 billion (Dh275bn) in 2007 despite a surge in inflation, official statistics showed yesterday.

Growth in the combined Arab gross domestic product (GDP) remained almost unchanged from the high rate of more than five per cent recorded in 2006 but inflation surged to one of its highest levels, showed the figures released by the Inter-Arab Investment Guarantee Corporation (IAIGC), an affiliate of the Arab League.

A surge in oil prices has combined with high production by some member states to boost the region's total exports by nearly $75 billion to their highest ever level, IAIGC said in a new report, sent to Emirates Business.

The report, containing preliminary estimates for the first time about the 2007 capital flow into the Arab world, showed foreign direct investment (FDI) jumped by nearly 20.5 per cent to around $75bn last year from $62.4bn in 2006.

Citing statistics by the United Nations Conference on Trade and Development (Unctad) and its own estimates, the Kuwaiti-based IAIGC said several factors contributed to the surge in FDI last year, including high growth, reforms in many Arab countries, relaxation of curbs on foreign investment in some sectors and higher return from investment in the Arab region.

"This increase in the Arab countries' share of FDI is attributable to both internal and external factors. Internal factors include the fact that regulatory frameworks are becoming more relaxed in several regional countries, particularly in the areas of financial, construction, communication and tourism services. In addition, privatisation of the state-owned enterprises and liberalisation of most service sectors have also attracted more FDI by trans-national corporations," it said.

"Another factor is the improved investment climates in several Arab countries, which include eased or improved registration and fiscal procedures for various business start-ups, an increase in the number of one-stop shop for new business, the establishment of new public credit registries and/or private credit bureaus as credit information providers, the reduction of tax and customs duties, implementation of e-government programmes, simplification of procedures for the technical inspection of imports and exports and improvement of the quality and the accuracy of economic statistics," it said.

The surge in the prices of crude oil, metals, raw materials and basic commodities have also contributed to the FDI growth as they attracted more investments to extractive industries and related services.

Other factors included the sharp rise in FDI in the Islamic finance sector.

"There are also external factors driving towards investment in the Arab region, foremost of which are the high rates of return on investment within the Arab region when compared to opportunities elsewhere, specifically in the field of extractive industries such as oil and gas," the report said.

"In addition, some foreign companies' desire to acquire strategic assets led to the conclusion of many new deals in the context of cross-border mergers and acquisitions. The inter-Arab investments during 2007 also contributed to Arab countries' increased share of FDI."

Despite the surge, capital flow into Arab states remained a fraction of the total global FDI, standing at only 4.8 per cent of the $1.53 trillion FDI worldwide. But compared to other developing nations, there was a big improvement as it accounted for nearly 17 per cent of their total FDI of $438bn.

IAIGC gave no breakdown for the 2007 investments but in 2006 Saudi Arabia was the top recipient of FDI, receiving nearly $18.2bn. It was followed by Egypt, with around $10bn and the UAE, which received $8.3bn.

During 2004-2006, Saudi Arabia was also the main FDI destination, with incremental capital inflow of around $32bn. The UAE was ranked second, with cumulative FDI of nearly $29bn.

Last year's Arab FDI was the highest and exceeded triple the 2004 capital inflow of around $24bn and 15 times the 2000 FDI of nearly $5bn.

Besides high FDI, the surge in oil prices kept economic growth in the Arab region as high as 5.8 per cent in 2007, almost unchanged from the previous year.

But according to IAIGC, the rate was far higher in some Arab countries, mainly the oil-rich Gulf states, which recorded a growth of 6-14 per cent. It estimated the combined inflation rate in the region at 8.6 per cent last year.

"The increase is primarily due to the rise in domestic demand vis-à-vis a limited short term production capacity in most Arab countries, in particular the oil-exporting countries, as well as the depreciation of the dollar exchange rate.

"The accumulation of oil revenues in oil producing countries contributed to continuous high levels of investment spending in projects aimed at improving infrastructure, private sector development, and human capital," the report said.

"Budget deficits were turned to a surplus in several Arab countries, debt indicators continued to remain comfortable along with the improvement in the current account positions particularly in those of oil exporting countries and those that have achieved high levels of expatriate remittances.

"The surplus was mainly used to accumulate levels of international reserves which were expected to grow at a rate of as high as 26 per cent to reach $ 660bn at the end of 2007."

High crude sales also boosted the total Arab exports of goods and services to a record $825bn in 2007 from nearly $750bn in 2006, according to IAIGC, which quoted data from the International Monetary Fund.

"The rise in exports is attributed to the sustained high prices of oil, metals and basic commodities as well as improved quality standards of Arab exports, making them more competitive," it said adding, Imports also jumped by around 20 per cent to $618bn from around $517bn in the same period.