By Andy Sambidge
UAE moves up to second biggest recipient in west Asia behind Turkey as investment in Saudi Arabia falls for fifth year
Foreign direct investment (FDI) flows into Gulf countries weakened in 2013 although the UAE reported a bumpy recovery to become the second biggest recipient in west Asia.
Overall, FDI into west Asia decreased by nine percent to $44 billion, failing to recover for the fifth consecutive year from the fall registered in 2009, UNCTAD’s World Investment Report 20141 revealed.
It said high and persistent regional tensions continue to increase political uncertainty and hold back foreign direct investors.
While in countries like Saudi Arabia and Qatar, FDI flows continue to follow a downward trend, in others like Turkey and the UAE, FDI recovery was weak or bumpy with flows remaining well below their pre-crisis level.
Only in Iraq and Kuwait have FDI flows been on an upward trend in recent years, reaching record levels in 2013 and 2012, the report said.
Turkey remained west Asia's main FDI recipient in 2013, with flows maintaining almost the same level as in the previous year – close to $13 billion.
FDI flows to the UAE continued their recovery, positioning this country as the second FDI recipient in the region after Turkey.
They increased by nine percent to $10.5 billion, albeit well below their level in 2007. This FDI recovery went with the economy rebounding from the 2009 debt crisis, driven by both oil and non-oil activities, the report said.
Flows to Saudi Arabia declined for the fifth consecutive year. They dropped by 24 percent to $9.3 billion, moving the country from the second to the third largest host economy in the region.
"This decline has taken place despite a range of large capital projects under way in infrastructure and in downstream oil and gas, mainly refineries and petrochemicals," the report said.
It added that FDI flows to Kuwait are estimated to have decreased by 41 percent in 2013, after having reached record highs in 2012 owing to a one-off acquisition deal worth $1.8 billion.
The report noted that FDI outflows from West Asia increased by 65 percent in 2013, boosted by rising flows from the Gulf Cooperation Council (GCC) countries.
"The GCC countries enjoy a high level of foreign exchange reserves, and while each of them augmented its investment abroad, a quadrupling of outflows from Qatar and a 159 percent growth in flows from Kuwait explain most of the increase," the report said.
It added that outward FDI from the region is likely to continue to increase. In contrast, prospects for inward FDI remain bleak, as rising political uncertainty is a strong deterrent.
The report also said that global FDI will rise 12.5 percent to $1.62 trillion this year as the economic recovery tempts China, private equity and big companies to spend their warchests.
It also forecast sustained growth in coming years for FDI, reaching $1.75 trillion in 2015 and $1.85 trillion in 2016.