Qatar has bucked the global gloom and registered a sizeable increase in Foreign Direct Investment (FDI) in 2008. The country registered a 43 percent increase in FDI inflows, mainly in liquefied natural gas (LNG), power and water; and telecommunications.
FDI inflows rose only slightly in Bahrain and fell in Kuwait and Oman in the GCC region during the period compared to the previous year, reported United Nations Conference on Trade & Development’s (UNCTAD) annual study of worldwide investment trade.
The document, “The World Investment Report 2009”, said the members of the Gulf Cooperation Council (GCC), including Qatar, have used their abundant oil wealth to launch massive projects in a variety of industries, such as refining, petrochemicals, electricity, water, telecommunications real estate, and tourism and leisure. In the process, their reliance on FDI has increased, not so much for its financial contribution, but for the technology, expertise and management it brings with it.
“The increase of FDI inflows to West Asia in 2008 was largely due to soaring flows to Saudi Arabia, which rose by 57 percent to $38bn. The petrochemical and refining industry in that country accounted for most of the growth inflows, which amounted to $12bn—a 57 percent increase over the previous year—and there was a fourfold rise in the real estate sector, where inflows totalled $7.9bn. Saudi Arabia attracted 42 percent of total inflows to the region, consolidating its position as the region’s top FDI recipient”, the UN report said.
In Turkey, the second largest recipient in the region, inflows declined by 17 percent to $18bn, after reaching an exceptionally high level in 2007 due to a number of cross-border merger & acquisition mega deals in the financial industry. Inflows fell by 3 percent in the UAE to $14bn, as the global financial crisis in the last quarter of 2008 began to hit Dubai’s tourism, real estate and banking sector.
The sharp fall in oil prices and the steadily worsening outlook for the world economy since the third quarter of 2008 have dampened the optimism that infused the region for the past six years. Countries are now facing the prospect of deficit on their fiscal and current accounts for the first time in over five years, and development projects across the region are being hit hard by the global credit crunch and the changing economic outlook.
The number of international banks willing to lend to projects in GCC countries has shrunk sharply; only 12 banks were actively seeking project finance deals there at the end of 2008, down from 45 in 2006. As a result major oil and gas, industrial and infrastructure projects that have a substantial amount of FDI have been delayed.
However, Qatar’s FDI outflow declined from $45.3bn to $2.4bn during the period. Saudi Arabia’s outward FDI fell the most—from $13.1bn to $1.1bn. FDI outflows from West Asia amounted to $34bn in 2008, down by 30 percent.
Outward stocks in West Asia amounted to $132bn, with GCC countries accounting for more than 80 percent of the total. All major investors from the region are GCC countries.
The UN document, however, added that the FDI inflows to West Asia are expected to fall in 2009 as the impact of the global economic and financial crisis causes a further drop in international trade and in key revenue sources, as well as continued tightening of credit markets for investment projects.
According to UNCTAD’s “World Investment Prospects Survey 2009-2011, FDI prospects in west Asia seem more favourable than those reported in the previous survey. A remarkable phenomenon of the UN agency findings is that the FDI by Sovereign Wealth Funds (SWFs), which are relatively new investors, registered a record $20bn in FDI in 2008, a rise of 16 percent over the previous year figure globally.
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