BEIRUT: Foreign direct investment flows to Lebanon dropped 23 percent in 2013 while those to the West Asia region declined by 9 percent compared to the previous year, the UNCTAD World Investment Report 2014 showed.
The main reason behind the 2013 drop in FDI flows to Lebanon was less capital channeled from Gulf countries into the Lebanese real estate sector, according to economic experts who discussed the report in Beirut.
Political and security instability due to a spillover of the Syrian crisis have scared off potential wealthy Gulf investors in Lebanon’s real estate sector. However, beyond the turmoil sweeping the Arab world, structural economic reforms should be implemented to boost regional FDI flows, experts argued.
Out of $2.833 billion in FDI inflows to Lebanon in 2013, only $104 million was categorized as Greenfield investments, ranking Lebanon as the fourth-smallest recipient in the region , according to Nassib Ghobril, head of Economic Research at Byblos Bank.
Greenfield FDI decreased 48 percent year-on-year in 2013, a steep decline which rings alarm bells over the government’s failure to channel investments into productive sectors, Ghobril said. Greenfield FDI accounted for 0.2 percent of GDP in 2013, down from 5 percent in 2009 when total Lebanese FDI reached $4.8 billion.
To counter the drop in regional FDI flows, Lebanon and the Arab world should devise new and innovative strategies to boost investments in the oil and gas sectors as the U.S. moves toward self-sufficiency in energy, former Lebanese Finance Minister Dimianos Kattar said.
Kattar said the Arab world could also draw investment from profitable industries such as pharmaceutical firms which are looking to expand their business worldwide.
According to U.N.-ESCWA chief Economist Abdallah al-Dardari, the Arab world requires annual investments of $61 billion to prevent current unemployment rates from rising.
The lack of structural economic reforms and weak regional integration coupled with fragile progress toward the establishment of democratic systems have led to a decline in FDI flows to West Asia that was further exacerbated by turmoil across the region, Al Dardari said.
Out of $44 billion in FDI flows, Turkey remained West Asia's main FDI recipient in 2013, with flows close to $13 billion almost unchanged from last year, followed by the United Arab Emirates which received $10.5 billion, a 9 percent increase in flows compared to 2012, according to the UNCTAD report.
Flows to Saudi Arabia, which ranked as the third largest host economy in the region, declined for the fifth consecutive year, dropping by 24 percent to $9.3 billion while flows to Iraq increased by about 20 per cent to $2.9 billion mainly attributed to investments in the country’s oil sector.
Despite the upward trend, FDI recovery has been weak in Turkey and the UAE, remaining well below the pre-financial crisis level while the downward trend continued in countries like Saudi Arabia and Qatar, UNCTAD’s Economic Affairs Officer Nicole Moussa said.
After a decline in 2012, global FDI flows rose by 9 percent to $1.45 trillion in 2013 while flows to developing economies reached a new high at $778 billion, accounting for 54 percent of global inflows, and recording a growth rate of 7 percent.
However, developing countries face an annual gap of $2.5 trillion at current levels of investment in Sustainable Development Goals, according to the UNCTAD report.
The report estimated that total investment needs in developing countries range from $3.3 trillion to $4.5 trillion per year for basic infrastructure, food security, climate change mitigation and adaptation, health, and education.
Bridging the gap requires increased private sector investment contributions in such sectors, the UNCTAD report noted while nevertheless highlighting that public sector contribution will remain indispensable to meet demands across all SDG-related sectors.