UAE megaprojects: FDI magnets
— The UAE, which is Arab world’s top recipient of foreign direct investment (FDI) in 2016, is expected to attract more inflows in years to come due to launch of megaprojects in key economic sectors across the country.
According to a top government official and the experts, the emirate is one of the few countries in the region that can boast of a stable government and peaceful coexistence.
Referring to the World Investment Report 2017 released by UN Conference on Trade and Development (Unctad) recently, they said FDI inflows rose 2.2 per cent from $8.8 billion in 2015 to $9 billion last year due to its conducive and consistent investment policies in the region.
“The UAE boasts a stable investment-conducive and business-friendly environment supported by resilient infrastructure and robust legislation that woo investors from all over the world,” said Sultan bin Saeed Al Mansouri, Minister of Economy.
The UAE is ranked 12th on the list of top source countries for FDI flow for the period from 2017 through 2019, according to the report.
In the Arab world, weak oil prices and political uncertainty continued to weigh on FDI inflows to the region.
“That said, FDI inflows increased by almost 19 per cent, from $25.28 billion in 2015 to $31.08 billion in 2016. To put this into perspective, Arab countries absorbed only 1.4 and 1.8 per cent of the world’s FDI inflows in 2015 and 2016, respectively,” it added.
Atik Munshi, partner at Crowe Horwath UAE, said the UAE is one of the few countries in the region that can boast of a stable government and peaceful coexistence. “It is not surprising that the UAE has attracted FDI where corporate taxes are nearly zero and foreign direct investment sees minimum bureaucratic hindrance,” Munshi told Khaleej Times.
“Expo 2020, UAE vision 2021 and other government measures are aligned to attract FDI. With induction of VAT one can expect more discipline and transparency, which is a positive attraction for FDI,” he added.
Investment destinations
The UAE ($9 billion), Egypt ($8.1 billion) and Saudi Arabia ($7.4 billion) represent the lion’s share of inward FDI in the region last year. The three countries together attracted almost 79 per cent of the total FDI inflow to Arab countries in 2016.
Robust FDI to Egypt continues to boost inflows to North Africa. FDI flows into North Africa rose by 11 per cent to $14.5 billion, driven by foreign investment reforms and new gas discoveries. As in 2015, much of the growth was due to investments in Egypt, where FDI inflows increased by 17 per cent, from $6.92 billion in 2015 to $8.1 billion last year.
But the impact of low oil prices on FDI activities in the region continued to be similar in key economies such as Saudi Arabia, where FDI flows declined by 8.5 per cent, from $8.14 billion in 2015 to $7.45 billion in 2016, the report noted. “The UAE is developing well thought-out strategies in line with the National Agenda of UAE Vision 2021 by aligning efforts and ensuring synergies across all sectors at the federal and local levels in alignment with the directives of our wise leadership,” Al Mansouri said.
The minister said FDI is considered a key enabler for sustainable economic growth on account of its significant role in ensuring cash inflows for megasized developmental projects and despite the decline in global FDI rates in 2016 comparatively with 2015, the foreign investment inflows to the country increased.
“Unctad criteria for assessing FDI sets a threshold of 10 per cent of equity ownership to qualify an investor as a foreign direct investor,” he said, adding that there are myriad foreign investments in the country below this 10 per cent equity ownership and that’s why if these investments are calculated, the total FDI in the country would go beyond the $9 billion mark.
Bright prospects ahead
Al Mansouri further expected that more FDIs to the country over the coming five years as a direct result of the mega projects launched in areas of renewable energy and retail industries.
According to the minister, the cumulative FDIs to the UAE jumped to $117.9 billion by the end of 2016 from $109 billion by the end of 2015, a growth of 8.2 per cent supported by increasing investments in areas of transformational and other heavy industries, including aluminum and petrochemicals, in addition to other sectors, like tourism and aviation.
According to Unctad report, the UAE-bound FDI until the end of 2016 accounted for 16.9 per cent of total FDI to Middle East nations, with the UAE claiming 26.5 per cent of total FDI to the GCC by the end of 2016.
The UAE came second only to Turkey on the list of top countries attracting FDI in the region, accounting for 32.3 per cent of total FDIs coming to the region during 2016, which are estimated at $27.8 billion. The UAE comes on top of GCC states on the same list, claiming 50.2 per cent of the total FDI, estimated at $17.9 billion during the same year.
“With regards to UAE investments aboard, the UAE came on top of Middle Eastern countries, accounting for 50.9 per cent of total foreign investment flows from the region to other countries,” Al Mansouri said, putting at $15.7 billion the value of UAE investment outflows during 2016.
The report indicated a remarkable increase of 97 per cent in the value of mergers completed by the UAE companies overseas, rising from $5.87 billion in 2015 to $11.57 billion in 2016, making up to 59.3 per cent of total merger operations conducted by companies in the Middle East last year.
Modest recovery
According to the report, global investment is seeing a modest recovery, with projections for 2017 cautiously optimistic. Higher economic growth expectations across major regions, a resumption of growth in trade and a recovery in corporate profits could support a small increase in FDI.
“The road to a full recovery for FDI remains bumpy, but we are cautiously optimistic. Although this report projects a modest increase for 2017, other factors such as the elevation of geopolitical risks and policy uncertainty may affect the scale of the upturn,” said Mukhisa Kituyi, secretary-general of the Unctad.
The new report discloses that in 2016, the US remained the largest recipient of FDI, attracting $391 billion in inflows (up 12 per cent from the year before), followed by the UK with $254 billion, vaulting from its No.14 position in 2015 on the back of large cross-border mergers and acquisitions deals. China was third with inflows of $134 billion, a slim decrease of 1 per cent from the previous year.
Global flows are forecast to increase to almost $1.8 trillion in 2017, continuing to $1.85 trillion in 2018 — still below the 2007 peak.
“Policy uncertainty and geopolitical risks could hamper the recovery, and tax policy changes could significantly affect crossborder investment,” said Kituyi.
— issacjohn@khaleejtimes.com