Foreign Direct Investment

Mobilizing International Resources for Development in the ESCWA Region

Riad Meddeb

Division on Investment and Enterprise

I- FDI trends in ESCWA region

II- FDI and development : Challenges for ESCWA countries

I

FDI TRENDS IN ESCWA REGION

ESCWA in Comparison

0

2

4

6

8

10

12

14

2002 2003 2004 2005 2006

ESCWA: rate of returnDeveloping economies: rate of returnWorld: rate of returnInflow: share in developing countriesExports of goods and services: share in developing countriesGDP: share in developing countries

FDI Inflows

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)

0

50'000

100'000

150'000

200'000

250'000

300'000

350'000

400'000

2002 2003 2004 2005 2006

Mil

lio

ns

of

US

Do

llar

s

ESCWA Total Developing Economies

Top Recipient Countries

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)

Top 6 by FDI Inflows, 2006

0 5'000 10'000 15'000 20'000

Saudi Arabia

Egypt

United ArabEmirates

Jordan

Bahrain

Lebanon

Millions of USD

2006

FDI Inflows (in millions of US Dollars)    

2002 2003 2004 2005 2006

Saudi Arabia 453 778 1'942 12'097 18'293

Egypt 647 237 2'157 5'376 10'043

United Arab Emirates 1'307 4'256 10'004 10'900 8'386

Jordan 74 436 651 1'532 3'121

Bahrain 217 517 865 1'049 2'915

Lebanon 1'336 2'977 1'993 2'751 2'794

Qatar 624 625 1'199 1'152 1'786

Oman 122 494 229 900 952

Syrian Arab Republic 115 180 275 500 600

Iraq -2 0 300 515 272

Kuwait 4 -67 24 250 110

Palestinian Territory 9 18 49 47 38

Yemen 102 6 144 -302 -385

Total 5'008 10'457 19'831 36'767 48'924

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)

FDI Inflows by Country

Distribution of FDI flows among ESCWA countries, by range,

2006 Range Inflows Outflows

Over $5 billion Saudi Arabia, UAE, Egypt

Kuwait

$3-4.9 billion Jordan

$1-2.9 billion Bahrain, Lebanon, Qatar UAE

$0.5-0.9 billion Oman, Syrian Arab Republic

Bahrain Saudi Arabia

$0.1-0.4 billion Iraq, Kuwait Qatar, Oman

Less than $0.1 billion Palestinian territory , Yemen

Lebanon, Syrian Arab Rep, Yemen, Paletianian territory and Jordan

Source:TNC database (www.unctad.org/fdistatistics/)

FDI Outflows

-20'000

0

20'000

40'000

60'000

80'000

100'000

120'000

140'000

160'000

180'000

200'000

2002 2003 2004 2005 2006

Mil

lio

ns

of

US

Do

llar

s

ESCWA Total Developing Economies

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)

FDI Outflows

Source: UNCTAD, World Investment Report 2007.

Top 6 by FDI Outflows, 2006

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Kuwait

United ArabEmirates

Bahrain

Saudi Arabia

Qatar

Oman

Millions of USD

FDI Outflows by Country

FDI Outflows (millions of US Dollars)

2002 2003 2004 2005 2006

Kuwait -77 -4'960 2'526 5'142 7'892

United Arab Emirates 413 991 2'208 3'750 2'316

Bahrain 190 741 1'036 1'123 980

Saudi Arabia 211 368 709 1'183 753

Qatar -21 88 192 352 379

Oman 3 153 250 114 247

Egypt 28 21 159 92 148

Lebanon 0 40 213 122 71

Syrian Arab Republic 119 57 48 61 55

Yemen 39 61 21 26 36

Total2'90

7 -437 9'366 13'970 14'883

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)

Top Recipient Sectors

• Services remained the dominant sector for FDI in the region, a major proportion of which went to financial services.

• There were also several large deals in telecommunications.

• High oil prices have are attracting increasing FDI in oil and gas-related industries.

• GCC countries with large surpluses are rapidly increasing expenditures on large infrastructure projects, which are also attracting more FDI.

Diversifying Industries

• The Gulf countries seeking to diversify their production activities beyond oil-related activities have set up initiatives to attract FDI into the manufacturing sector.

• One example is the establishment of Free Trade and Industrial Zones in the United Arab Emirates.

• The largest of these zones is the Jebel Ali Free Zone in Dubai.

Number of foreign firms in Jebel Ali Free Zone, by nationality, 2005-2006

Number Growth rate

Economy 2005 2006 (%)

Iraq 673 954 41.8

United Arab Emirates 609 856 40.6

India 530 627 18.3

Islamic Rep. of Iran 412 452 9.7

United Kingdom 367 389 6.0

United States 195 230 17.9

Germany 139 170 22.3

Pakistan 104 115 10.6

Japan 85 98 15.3

British Virgin Islands 84 96 14.3

Others 1 380 1 601 16.0

Total 4 578 5 588 22.1

Source: JETRO, 2006: 358

Qualified Industrial Zones

• Jordan has taken a similar approach with its Qualified Industrial Zones (QIZ).

• These zones are attracting investors to set up manufacturing plants to take advantage of Jordan's preferential trade agreements with the United States and Europe.

FDI Potential and Performance

High FDI performance Low FDI performance

High FDI potentialFront-runners

Bahrain, Jordan, Qatar, United Arab Emirates

Below Potential

Kuwait, Oman, Saudi Arabia

Low FDI potentialAbove Potential

Egypt, Lebanon

Under-performers

Syrian Arab Republic, Yemen

Source: UNCTAD World Investment Report 2007

II

FDI AND DEVELOPMENT :

Challenge for ESCWA countries

CHALLENGE

The objectives and the challenge for ESCWA countries is not just to stimulate FDI fows, but private flows which lead to

Development

New Actors since 2002

• Foreign investment originating from developing countries has emerged as a new actor unforseen in the Monterrey Consensus.

• Private equipty funds and sovereign funds from ESCWA(GCC) have become a essential source of FDI in recent years.

• Cross-border M&As by investors from ESCWA countries with large current-account surpluses from high oil prices.

• About two-thirds of cross-border M&As from the ESCWA region in 2006 targeted developed countries, especially the United Kingdom, Canada and the United States.

South-to-South Investment within ESCWA region

• Investors from developing countries may have technologies and business models more adaptable to the economies of FDI recipients.

• High oil prices are supporting high growth in oil-exporting countries and some Gulf governments are spending much more on infrastructure.

• Most greenfield investments from ESCWA went to developing countries in South, East and South-East Asia.

• Increase of ESCWA investment in Maghreb countries.

• However, investments from one ESCWA country to another within the region is growing and needs to be encouraged.

Domestic Private Sector

• Foreign direct investment provides capital for a country's economic development, if the right policies and investment environment is in place.

• For example, FDI can effect technology and knowledge transfers to the domestic private sector.

• Encouraging entrepreneurship, especially in Small and Medium-Sized Enterprises, are an important component for strengthening the local private sector.

• In the right conditions, local companies can take advantage of these transfers to improve their international competitiveness.

• Encouraging FDI requires the right domestic and international factors, including a transparent, stable and predictable operating environment.

Encouraging Investment

• Evaluate domestic law and regulations for investor friendliness. In some areas, it may be possible to revise legal requirements to be more streamlined and enforceable.

• Provide a stable and predictable investment environment through greater transparency and accountability in decision-making.

• Develop a local supply of qualified labour by facilitating skills transfer and human-resource development from foreign companies investing in the host country.

• Introducing competition to the domestic economy for more efficient sectors and local companies that can be internationally successful.

Recent Investment-FriendlyPolicy Developments

Qatar• In telecommunications, Qatar's Supreme Council of

Information and Communication Technology launched the licensing process for a second fixed-line phone operator.

• The Government is reportedly considering a revision to the investment law to allow majority foreign participation in more sectors.

Syrian Arab Republic• Introduce new law providing equal treatment between domestic

and foreign investors.

• Create the Syrian Investment Authority to implement national investment policies and to handle certain procdures for foreign investors.

United Arab Emirates• The Government modified the Agencies Law so

companies can break contract with nonperforming agents.

• It is also preparing a law to open more economic sectors to foreign ownership.

Saudi Arabia• The Government will start permitting FDI in previously

restricted sectors, such as mining, film distribution, air transport, wholesale and retail trade, etc.

• It will also start granting multiple-entry visas for business people.

• The Government will also establish industrial cluster zones to encourage industrial investment.

Infrastructure

• For continued growth, ESCWA countries will need to meet the infrastructure demands of their economies.

• The private sector can be deterred from taking on an entire infrastructure project due to the large capital investment and long project duration.

• Public-private partnerships can combine the technical expertise and management of the private sector with the capital of the public sector.One challenge of public-private partnerships is the need for Governments to have the necessary level of project oversight.

Strenthening the cooperation between UNCTAD and UNESCWA on Data Collection & Sharing

• Data on FDI flows and the transactions of international corporations is important

• Accurate and recent data help governments and organizations to formulate FDI policies to maximize development

• Developing countries need help to augment their capacities in data collecting and analysis

• FDI data can aid in efforts for good governance and transparency

Challenges to FDI Growth

• Security concerns and political uncertainties in certain parts of the ESCWA region will continue to affect investor confidence in these areas.

• Trade barriers and domestic regulations remain as deterrents to increased FDI and deregulation is needed to accelerate FDI and economic growth.

• Domestic workforces need the training and skills to increase economic efficiency and the rate of return for investors.

• By developing a healthy and competitive private sector, more local companies are open to the transfer of new knowledge and business models from foreign investors.

• A business environment favourable to entrepreneurship and innovation is needed to foster a strong, diversified private sector for the long term.

Thank You

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