JEDDAH – Foreign direct investment (FDI) to the Gulf region plummeted by 35 percent in 2011, according to a new annual report by the UN Conference on Trade and Development (UNCTAD) released in Geneva titled "The World Investment Report 2012" and subtitled "Towards a New Generation of Investment Policies". The report noted that Saudi Arabia saw the biggest decline – a 42 percent fall to $16 billion. As a consequence, the share of GCC countries in the region's total FDI inflows decreased from 69 percent in 2010 to 53 percent last year. "GCC countries are still suffering from the hangover of the days of leveraged financing characterized by large-scale domestic projects, some of which had to be put on hold or cancelled due to uncertainties stemming from the global financial crisis and from spreading political and social unrest in the region," the report said. The organization noted that FDI to the region decreased by 16 percent in 2011 to $49 billion, affected both by continuing political instability and by the general deterioration of global economic prospects during the second half of 2011. "A 35 percent drop in FDI inflows to the GCC countries largely explains the decrease, in particular a 42 percent fall - to $16 billion - to Saudi Arabia, the biggest recipient. (Other GCC countries are Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.) As a result, the share of GCC countries in the region's total FDI inflows decreased from 69 percent in 2010 to 53 percent in 2011." Unrest in the region also impacted on FDI flows to non-GCC Arab countries, the report noted. Their incoming foreign investment declined by 26 percent to $7 billion. Turkey registered a 76 percent increase to $16 billion, mainly as the result of a more than threefold increase in cross-border merger and acquisition (M&A) sales. FDI outflows from West Asia rebounded by 54 percent in 2011 after bottoming out at a five-year low in 2010, it added. The strong rise in oil prices beginning at the end of 2010 increased the availability of funds for outward FDI from GCC countries. Turkey also registered significant growth, with outflows increasing by 68 percent to $2.5 billion, due to the recovery of both cross-border M& A purchases and greenfield FDI projects - that is, from-the-ground-up investments in new ventures. FDI inflows will continue declining in 2012 - judging by preliminary data on cross-border M&As and greenfield investment for the first five months of 2012 – as uncertainties at the global and regional levels are causing foreign investors to remain cautious with their investment plans in the region. But the report contends that the concentration of oil wealth in the region and the strategic need to reduce dependence on the oil and gas sectors through economic diversification there, are likely to create further business opportunities and bolster the region's attractiveness for foreign investors over the longer term. UNCTAD projections for the medium term based on macroeconomic fundamentals continue to show FDI flows increasing at a moderate but steady pace, reaching $1.8 trillion and $1.9 trillion in 2013 and 2014, respectively, barring any macroeconomic shocks. Investor uncertainty about the course of economic events for this period is still high. – SG
