Gulf slips in luring foreign investments

The “World Investment Report 2017” provides a mixed picture of foreign direct investments (FDIs) into the Gulf countries. Worryingly, there is a lack of stability, largely reflected in the downward trend in foreign investments.

The GCC economies collectively pulled in some $20.9 billion in 2016, down from $23.3 billion in 2015. The figures for 2014 and 2013 are $20.7 billion and $22.5 billion, respectively. The combined inflows into the GCC are not significant by global standards — India alone enticed about $45 billion of FDIs in 2016.

The sustained drop in inward investments into Saudi Arabia is partly responsible for the GCC’s inability to post notable figures. Saudi Arabia had some $39.5 billion as FDI in 2008, only to see the figures declining subsequently, with the UAE later emerging as the primary recipient. The latest data on inward FDIs into the kingdom stand at $7.5 billion in 2016, down from $8.1 billion in 2015.

Among other things, the report confirms the UAE’s regional leadership in attracting foreign investments, attracting $12 billion in 2016. As such, the UAE has received more than half of the GCC inflows.

This undoubtedly says a great deal about the positioning of the UAE economy compared to other regional ones. The UAE is the second largest economy in the Arab world, but the main destination for FDIs.

At $774 million, Qatar ranks a distant third in Gulf states’ ability to attract FDIs. Like other GCC countries, Qatar experienced a slide of foreign investments in 2016.

FDI inflows

Yet inflows of FDIs into Bahrain, Kuwait and Oman amounted to $282 million, $275 million and $142 million, respectively. There is a sharp difference between inward investments in the UAE and Saudi Arabia on the one hand and the other GCC members on the other.

FDI inflows represent a commitment on the part of investors to particular entities and industries. The same is not true of portfolio investments on stock exchanges. Authorities throughout the world like FDIs as they represent obligations on the part of investors.

The fall of oil prices since mid-2014 has adversely affected prospects for GCC economies. Lower revenues have resulted in more restrained spending by public sector entities. Other measures entailed revisiting the subsidy programmes to streamline spending where possible.

Gulf countries ought to entice considerably more foreign direct investments by virtue of being vital economies. Saudi Arabia is the largest oil exporter in the world. For its part, the UAE is a major player in sovereign wealth funds.

GCC states ought to consider enhancing investment laws to put an end to the disturbing trend of declining FDI inflows. In this age of globalisation, competition is global rather than local. Undoubtedly, investors have choices to make about the places hosting their investments.

Some of the existing laws imposing restrictions on ownership and employment ought to be revisited.