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16 April 2024

Laws not sufficient for foreign capital

Lack of a unified law to regulate investment is an obstacle, says the IAIGC (SUPPLIED)

By Nadim Kawach

Arab investment laws are still not attractive enough to foreign capital as they include many obstacles and do not provide enough protection to investors, according to the Arab League's main financial and investment institution.

Despite a sharp increase in foreign capital flow into some Arab nations over the past few years, regional countries still impose restrictions and some of their governments do not respect agreements signed with the investors, the Inter-Arab Investment Guarantee Corporation (IAIGC) said.

"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," said Fahd bin Rashid Al Ibrahim, IAIGC Director.

"The obstacles also involve the disparity and deficiencies in the legislation governing business in the region, 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," Al Ibrahim said in Arab press comments this week.

Arab states have often been urged to reform their financial and investment laws to attract capital needed to stimulate their economies and reverse a steady capital flight from the region. The calls gained momentum after the global financial crisis, which has inflicted heavy losses on many Arab investors.

Despite the relative improvement in the investment environment in the region, inter-Arab capital flow has remained a fraction of the total Arab investments abroad.

Between 1995 and 2007, the cumulative inter-Arab investment stood at around $95 billion (Dh348bn), less than five per cent of the overseas Arab assets.

According to the Emirates Industrial Bank (EIB), Arab investments abroad have remained unstable over the past two decades because of persistent financial crises in global markets, the volatile US dollar and sharp oil price fluctuations.

"The GCC's assets have sharply fluctuated over the past two decades because of low oil prices and the fluctuating value of the US dollar as a large part of these assets are in dollar. But the assets began to rapidly increase three years ago due to a surge in oil prices and this allowed regional funds to play a key role in the international financial system," the government-controlled EIB said.

"They also allowed the GCC nations to net high revenues that exceeded in some years their oil earnings, especially when oil prices dipped to very low levels. It is time for the GCC countries to ensure a sort of balance between their foreign assets and local investments following the steep decline in the US dollar and the global financial crisis, which has adversely affected them."

IAIGC figures showed there was a surge in capital flow into Arab states in 2007 as a result of improved investment laws in some member countries, strong economic performance due to high oil prices, and other factors.