Agenda 2023

The Flow of Direct Investments to the Arab Countries of the MENA Region: Reality, Opportunities, & Challenges

The Union of Arab Chambers and the Annual Investment Meeting, in cooperation with the League of Arab States and the Investment and Technology Promotion Office in Bahrain - UNIDO, are organizing a dialogue session entitled: “The Flow of Direct Investments to the Arab Countries of the MENA Region: Reality, Opportunities, & Challenges”, as a part of the activities held within the Annual Investment Meeting – AIM 2023, during the period between 8-10 May 2023, Abu Dhabi – UAE.

This is in light of the progress made by the Arab countries of the Middle East and North Africa region in reforming investment policies during the past ten years, in order to keep pace with the changes that have occurred in the forms of the global economy, and what the Corona pandemic has imposed on the supply chain and the paths that forced the world's economies to follow. However, these reforms still need to be further pursued to the sustainability phase in order to extend the benefits of investments to the region. The World Bank has forecast that the region's economies will grow by 5.5 percent in 2022, the fastest rate since 2016. However, this growth is uneven across the region, as many of its countries are still grappling with the lingering effects of the coronavirus (COVID-19) pandemic, additional pressures from the sharp rise in oil and food prices due to the war in Ukraine, higher global interest rates, as well as slowdowns in the economies of the United States, China, and the Eurozone.

This panel will shed the light on the investment opportunities and the Ecosystem that the region enjoys, the challenges that stand in the way of achieving them, and how to overcome these challenges by developing investment policies and carrying out appropriate economic reforms, especially for the countries which have gone through political crises, led to weakening investors' confidence in their investment ecosystem. The Union of Arab Chambers has been organizing many conferences related to investment, which is an essential part of its role as an official representative of the Arab private sector, to promote opportunities and projects available in the Arab countries and to attract investments. The outcomes of this session will be followed up by a number of events and activities that will be organized by the Union of Arab Chambers with the aim of expanding Arab and African investments.

Foreign Direct Investment (FDI) has long been recognized as a key driver of economic growth, prosperity, and competitiveness across countries. Particularly in the Global South, FDI has been viewed as a critical element in promoting sustainable development, given its potential to foster economic advancement. Despite this, FDI inflows have been unevenly distributed, with African, Caribbean, and Pacific (ACP) countries still struggling to attract FDI. In fact, only 5% of total global FDI inflows have been recorded in ACP countries in 2021. Hence, there is great potential to enhance investment facilitation and promotion efforts, spearheaded by national and sub-national investment promotion agencies (IPAs), thereby accelerating FDI in ACP countries. 

To support ACP IPAs in this undertaking and contribute towards a better understanding of their emerging strategies and technical assistance needs, WAIPA and its partner, the United Nations Industrial Development Organization (UNIDO), conducted a joint Survey in 2022, covering 61 IPAs in total in the ACP region.  

The empirical results, which will be presented in this session, highlight the most pressing challenges faced by ACP IPAs. Besides being burdened by a mandate overload and signs of budget shortcomings, ACP IPAs overwhelmingly articulated the need for technical assistance in investment targeting, monitoring and investment opportunity profiling. This need partly stems from the fact that the digitalization of most ACP IPAs is still in its infancy with only limited digitalisation capabilities and often no established digitalization strategies under implementation, although the COVID-19 pandemic accelerated digital transformation more generally.  

The 2030 Sustainable Development Goals (SDGs) play also an important role in the work of IPAs, as a large majority of their strategic plans are at least partially aligned with them. However, a significant proportion of IPAs show shortcomings in soliciting and tracking investors’ contributions especially with regard to their environmental impact or CSR, which can be problematic in a global context where corporate sustainability and environmental due diligence become increasingly relevant. 

Some emerging recommendations are that ACP IPAs should explore ways to better bundle mandates, reviewing budget allocations, and incorporating a business-like structure into their respective governance models. More focus should also be placed on digital tools and related certifications, taking existing strategies into action. IPAs are also advised to focus on target sectors and align promotion efforts closer to the SDGs as well as regularly review their priority sectors to take account of market shifts and track investors’ sustainability contributions. 

To further reflect on these insights, the keynote on the survey will be followed by a panel discussion, inviting Investment Promotion Agencies’ officers to critically assess these results and recommendations. Obtaining feedback from stakeholders evaluating the relevance and feasibility is crucial for the IPAs themselves but also for partners such as UNIDO and WAIPA, to better tailor future support areas to ACP IPAs. 

The launch of the African Continental Free Trade Area (AfCFTA) in July 2019 at the 21st Extraordinary Summit of the African Union Heads of State and Government was a milestone towards creating a single continental market as set out in the African Union’s Agenda 2063: The Africa We Want. The AfCFTA constitutes the largest free trade area in the world with a GDP of US$ 2.5 trillion, covering a market of 1.2 billion people projected to reach 2.5 billion by 2050, and by then constituting 26 per cent of the world’s working age populationi. Through its eight protocols on Trade in Goods and Services, Free Movement of Persons, Investment, Intellectual Property Rights, Competition Policy, Digital Trade and Women and Youth in Trade, the AfCFTA constitutes a new framework for attracting investment towards promoting industrialization, diversification, and inclusive development in Africa. This is achieved through increased market efficiency and reduced cost of doing business by offering opportunities for economies of scale, facilitation of trade and investment flows and by shifting the composition and direction of foreign direct investment flows into Africa.

The implementation of the AfCFTA is indeed moving forward having reached 54 Member States, with 46 of these having ratified the Agreement. On 1 January 2021, trading under the AfCFTA was launched and an initial step towards realizing the free movement of goods, services, people and capital. It has now considerably progressed with the adoption of the AfCFTA’s three Protocols on Competition, Intellectual Property Rights and Investment.

With the adoption of the AfCFTA Investment Protocol, the investment landscape in Africa is entering a new stage nested in African countries’ aspiration to foster structural transformation and encourage an effective and competitive private sector that translates into sustainable outcomes for the investment destinations. The Protocol addresses the issue of fragmented investment regulatory frameworks by dismantling different investment rules for harmonizing investment regulations and boost transboundary investment in an African Common Investment Area. Thus, all investors guided by the protocol’s common conceptualization of responsible investment would enjoy the same level of protection, benefit from improvements in the business environment, have access to investment facilities and observe identical international obligations. In other words, the Protocol will be levelling the playing field for all private sector actors, and best match Africa’s single market ambition, as the same set of rules will apply across the continent.

Levelling the playing field for transboundary investments in Africa may stimulate the creation of value chains in goods and services, promoting industrialization and economic diversification. According to ECA research, the AfCFTA will promote diversification in new industrialized sectors that support structural transformation compared to more traditional sectors such as oil and mining which will increasingly take a smaller share of the intra-African trade. ECA research estimates that intra-African trade sectors within agri-food, services and industries are expected to increase respectively with 49.1 per cent, 37.9 per cent and 35.7 per cent by 2045 as compared to a scenario without the implementation of the AfCFTA. At the sub-sectoral level, these sectors include cereals and crops, and industries such as pharmaceutical products, vehicles, and transport equipment and in services, tourism and transport are subject for notable increases in intra-African trade.

Initiatives in key sectors that support future investment opportunities that foster sustainable economic growth, diversity and prosperity include the development of an African Carbon Market through the Africa Carbon Markets Initiative (ACMI) which was launched at the COP27 with the long-term ambition to reach 300 million credits retired annually by 2030. Achieving such a commendable ambition could unlock US$ 6 billion in revenue, supporting 30 million jobs by 2030 and enable countries to foster value chain creation, expand energy access while driving climate action towards the goals of the Paris Agreement.

Other initiatives with significant potential to leverage the framework of the AfCFTA as a platform for investments that drive the green transition and foster economic growth is the case of the ecosystem for the battery, electric vehicles between Zambia and the Democratic Republic of Congo (DRC) as well as the project of the Common Agro-industrial Park between Zimbabwe and Zambia. Zambia and DRC have signed a historical cooperation agreement to facilitate the development of value chains in the electric battery and clean energy sector enabling businesses to build regional value chains and capture more added value to their endowments in battery minerals including cobalt, copper, lithium and manganese and profit from the global transition towards green energy, electrification of transport systems and decarbonization. The Common Agro-Industrial Park (CAIP) between Zimbabwe and Zambia will leverage the two countries’ comparative advantages and develop value chains for agricultural goods such as cotton, maize, wheat, rice and dairy. The CAIP will create and strengthen linkages between industries to enhance value chain integration in the region and promote the development of industry skills and facilitate the shifting of economic activity towards higher value-added activities driving economic growth.

The world is moving towards a healthier, more resilient, zero carbon world. Now that 73% of global emissions are covered by a net zero goal, countries must translate national commitments into credible policies, while every sector must undergo an exponential transformation. Solving the decarbonization challenge will create economic and societal advantages for the countries, businesses, cities, regions, investors, and communities who emerge as leaders. Within this decade, upgrading to a zero-carbon future can create 35 million more jobs and USD$26 trillion more in economic benefits compared with attempting to resuscitate the high-carbon status quo. Corporate commitments under the Race to Zero campaign now cover over 15% of the global economy and USD$ 9.81 trillion in revenue, joined by nearly 800 cities and 31 regions covering 0.62 billion people with credible climate action commitments. While significant change is already underway, it must accelerate in all areas of the economy and society in order to deliver a resilient zero carbon future in time. To win the race to zero emissions by 2050, the world must achieve near term breakthroughs across every sector of the global economy. The KADIN Indonesia published its ambition during the COP26 in Glasgow to establish Kadin Net Zero Hub which encourages Indonesian private sector to take up the mantle and commit to their net zero pledge: “To Become a Net Zero Company by 2060 at the Latest”. As we are at the midpoint to ASEAN Chairmanship 2023 and looking at how important to race the Net Zero ambition, this session will discuss how we can ensure that the Net-Zero agenda can be the spotlight, can continue the momentum, and can receive the attention it needs. This session is organised by Equatorise Advisory, in partnership with AIM and KADIN Indonesia.