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CAIRO: Real and perceived political risks, lack of focus on non-oil sectors, lax regulatory policies and a restrictive business environment are some of the factors hampering the growth of foreign direct investment in the Council region. Gulf cooperation, according to a recent study.
According to Oliver Wyman’s recent report, “De-risking the Investment Landscape: High-impact FDI Policies for the GCC”, the region needs to prioritize regulations and policies to reduce investment risks.
This approach should help them attract additional FDI, the report recommends.
“The best way to attract FDI may be to focus on frontier sectors, which rely on emerging technologies, generate strong growth and have few incumbents to disrupt,” the report says.
Policies adopted earlier in the GCC were untargeted and aimed at attracting all possible investment in all potential sectors, which proved unsuccessful, according to the report.
Although most Gulf countries have been proactive in developing initiatives to boost FDI, few have been successful in attracting foreign investment to the region.
“Historically, FDI in GCC economies has fluctuated with the rise and fall of commodity prices,” Wyman’s report explains. “However, it has not materialized as a consistent driver of economic opportunity in non-oil economic sectors.”
STRONG POINTS
• Oman and Bahrain are the only two GCC economies that recorded FDI inflows rather than outflows in each of the years from 2016 to 2021.
• While Kuwait recorded FDI outflows totaling $3.6 billion in 2021, it saw a sharp decline from $8 billion in the previous year.
“With domestic capital so readily available, many GCC states have historically not needed to prioritize FDI as a source of development finance,” he added.
The report further revealed that GCC states are increasingly aware of the benefits of FDI and its potential impact on their economies, which could improve productivity.
Foreign investment provides a good source of finance, promotes interactions between local suppliers and consumer markets, and boosts human capital by training local workers and employing foreigners.
As noted in the report, an increased level of private competition, improved technological know-how and increased cross-border activity are additional favorable consequences that arise from increased FDI.
The United Nations Conference on Trade and Development recently released the “World Investment Report 2022”, which showed that Saudi Arabia and the United Arab Emirates, two of the largest economies in the GCC, have saw FDI outflows in 2021 exceed FDI inflows by $4.6 billion and $1.9 billion, respectively.
The difference for all GCC members was $6.4 billion, although a notable improvement from 2019 and 2020, where the differences were $11.1 billion and $8.3 billion, respectively. dollars.
Oman and Bahrain are the only two GCC economies to have recorded FDI inflows rather than outflows in each of the years from 2016 to 2021, according to the UNCTAD report.
By comparison, FDI inflows to Indonesia in 2021 exceeded outflows by $16.5 billion. Similarly, FDI inflows to Vietnam and Malaysia exceeded outflows by $15.4 billion and $6.9 billion, respectively, according to UNCTAD data.
On the other hand, Saudi Arabia recorded the highest FDI outflows from the GCC in 2021. It recorded $23.9 billion in net outflows in 2021 compared to only $4.9 billion in 2020. It is worth mentioning that the Kingdom’s FDI inflows amounted to $5.4 billion in 2020.
The United Arab Emirates came second with $22.5 billion in FDI outflows in 2021, up from $18.9 billion the previous year, according to UNCTAD data.
While Kuwait recorded FDI outflows totaling $3.6 billion in 2021, it saw a sharp decline from $8 billion in the previous year, the report said.
