The Arab countries of the Middle East and North Africa (MENA) region used to witness an impressive flow of foreign direct investment (FDI), which clearly indicated the region’s potential for sustainable economic growth and development.
According to the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), FDI has played a significant role in supporting national development projects in the MENA region since the early 2000s. “Sectors such as oil and gas, real estate, coal, chemical manufacturing, services (particularly in tourism and hospitality), and renewable energy have been the primary recipients of this FDI, with the majority of investments coming from the United States, France, the United Kingdom, Italy, China, Japan, India, Germany, and Austria.”
It added that so-called greenfield investments “represented over 80% of total FDI projects in most MENA countries,” which have created an upwards of 50,000 jobs so far in the countries within the region, including the United Arab Emirates. Greenfield investments are made when a parent company establishes a subsidiary in a foreign country and builds its operations from scratch. This approach generates employment opportunities and contributes to the economic growth of the host country. “GCC countries are a significant source for these greenfield investments in their fellow MENA countries, contributing significantly to intra-OIC relations,” noted the ICIEC.
Declining FDI
However, the stream of direct investments to the Arab countries of the MENA region has changed over time due to a number of factors such as political stability, economic conditions, and investment policies. Specifically, FDI in MENA countries has become rather stagnant over the last decade.
As per the ICIEC, following the global financial crisis of 2008 and the Arab Spring movements of 2010-2011, countries in the region struggled to attract FDI. Although inward FDI did eventually increase again in 2015, it remained below the peak levels of total FDI inflows observed in MENA countries in 2007, plateauing by 2018 at less than half that level. Conflict-ridden countries in the region have encountered additional difficulties in attracting FDI, resulting in negative FDI inflows. In 2019, the net FDI inflows to the MENA region amounted to only USD 57.8 billion, compared to USD 126.5 billion in 2007.
Getting back up again
In more recent years, nevertheless, the MENA region has seen an increase in FDI inflows, demonstrating that MENA has been truly a challenging yet rewarding destination for foreign investors seeking new opportunities. Yes, the region has been long known for its vast reserves of oil and natural gas, but its economic growth is no longer limited to this sector alone. As governments in the region have shifted their focus towards economic diversification, the region has witnessed a rise in foreign direct investment inflows.
One of the largest recipients of foreign direct investment in the MENA region is the United Arab Emirates. The UAE has been successful in attracting foreign investors due to its business-friendly policies, strategic location, and well-developed infrastructure. In recent years, the UAE has focused on developing its non-oil sectors, such as tourism, logistics, and financial services, which has resulted in an increase in FDI inflows.
In fact, the World Investment Report 2022 released by the United Nations Conference on Trade and Development ranked the UAE as the number one country in the Arab world and the 19th globally in terms of FDI attractiveness, citing the USD 20.7 billion worth of FDI the country was able to receive in 2021, which was 4% up from 2020. The same report also revealed that the country’s FDI outflows in 2021 amounted to $22.5 billion, representing a 19% increase from the previous year, and ranking the country 17th globally with regard to FDI outflows.
Another country that has been actively seeking foreign investment is Saudi Arabia. The Vision 2030 program, which aims to diversify the country’s economy away from oil dependence, has encouraged foreign investors to explore opportunities in sectors such as renewable energy, healthcare, and education. Saudi Arabia has also undertaken several initiatives to improve its business environment, such as reducing bureaucracy and streamlining procedures for setting up new businesses.
Overcoming challenges
Attracting FDI in the MENA region is not without its challenges. One of the biggest challenges is political instability and security concerns in some countries like Syria and Yemen, which resulted in a fewer number of foreign direct investment to these countries.
One of the hurdles that foreign investors face in the MENA region as well is the complex regulatory environment and bureaucracy in some countries. The process of setting up a business can be lengthy and complicated, which can be discouraging for investors. Thankfully, many governments in the region are taking steps to address this challenge. They are implementing initiatives such as streamlining procedures and reducing paperwork to make it easier for foreign investors to do business in the region.
The COVID-19 pandemic has affected investment flows worldwide, and the Arab countries in the MENA region is no exception. The pandemic has disrupted global supply chains and caused a decline in global trade, resulting in a decrease in foreign direct investment inflows to the region.
Some sectors, however, have seen an increase in FDI inflows due to the pandemic. For instance, the healthcare and e-commerce sectors have experienced a surge in investments. The region can actually build on this, and create a more welcoming investment environment and tackle the challenges that currently exist. If the Arab nations in the MENA region keep their focus on economic diversification and make further improvements to the business environment, they can attract even more foreign investments and drive economic growth in the future.
As with its previous editions, this year’s Annual Investment Meeting will shed some light and offer solutions to the current challenges and obstacles faced in the current investment climate in the region and the world. Anchored on the theme “The Investment Paradigm Shift: Future Investment Opportunities To Foster Sustainable Economic Growth, Diversity and Prosperity,” AIM 2023 seeks to build a global economy roadmap through establishing investment opportunities, upholding solidarity and developing economic relations among nations, as well as addressing the ordeals that will make a profound impact to economic development.
