BEIRUT: Arab countries emerging from turmoil are stepping up efforts to draw foreign direct investments but their endeavors still fall short of the level of financing required to prop up their economies, experts argued at the Arab Economic Forum.
Arab countries suffered a sharp decrease in FDI inflows following the 2008 global financial crisis, but while global FDI witnessed a partial recovery three years later, the majority of Arab states have failed as of 2014 to attain pre-crisis levels.
FDI in Arab states reached around $47 billion in 2012 compared with $42.9 billion the previous year and was down from over $60 billion in 2010, according to UNCTAD.
Political and security instability since uprisings rocked Egypt, Tunisia, Libya, Yemen and Syria almost two years ago has been the major FDI deterrent, according to experts, who warned that restoring stability would not be enough to attract investors.
Enhancing the business environment by investing in both transportation and communication infrastructure to improve the overall competitiveness of Arab countries and reforming old legislation are among the top priorities that should follow political stability, experts added.
“While not all Arab states can be included in the same basket, common problems among Arab countries comprise an underdeveloped infrastructure, deficient and outdated legislations as well as weak marketing to attract FDI,” Yehia Saleh Mehsen, head of the General Investment Authority in Yemen said.
Director General of the Kuwaiti Direct Investment Promotion Authority Meshaal Jaber al-Ahmad al-Sabah said Arab states should work on promotional campaigns to attract foreign investment and channel or incorporate them in developmental projects.
The negative image of a country is the biggest impediment to attract FDI, said Anwar Abu Sbaitan, CEO of Rasmala Investment Bank.
Besides earning a bad reputation as an investment destination due to high associated political and security risks and a non-transparent business environment, other obstacles such as restrictions on capital flows in some Arab states are also hindering FDI inflows, he said.
“For example, the difficulty in the outflow of capital from Egypt has a negative impact on FDI inflows.”
Some Arab countries are in the process of implementing a series of financial and legislative reforms to attract FDI. Sudan, for example, is easing restriction on capital flows and has established special courts to address foreign investment-related legal disputes, Sudanese Investment Minister Mustafa Osman Ismail said.
From 2000 to 2010, Sudan received FDI amounting to $29 billion, with 74 percent of investments targeting the oil sector. Ismail said Sudan sought to attract investments from Gulf Cooperation Council states in the agricultural sector, which could help ensure food security in the Arab region and benefit Sudan.
The agriculture sector, in which the country has a comparative advantage, received only about 3 percent of FDI inflows between 2009-12. Most of the FDI inflows – mainly by China and India – targeted the exploration and exploitation of natural resources.
“A large part of FDI inflows in Arab states is profit-seeking and not necessarily employment-generating,” said Musa Freiji, head of Egypt-based Wadi poultry.
Saudi Arabia topped the list of inflows in 2012 with $12.2 billion, representing 25.8 percent of total inflows to Arab countries, followed by the UAE at $9.6 billion.