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Meddeb riad 29-04-08
This document discusses foreign direct investment (FDI) trends and challenges in attracting productive FDI to support development in the UN Economic and Social Commission for Western Asia (ESCWA) region. It finds that while FDI inflows to the ESCWA region have grown significantly, the top recipients are primarily Gulf countries rich in oil and gas. To better leverage FDI for development, countries need policies to encourage knowledge and technology transfers to domestic firms, entrepreneurship, and regional investment. Public-private partnerships can help develop infrastructure to support continued growth. Strengthening data collection and sharing between UNCTAD and UNESCWA would aid policymaking.
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Meddeb riad 29-04-08
- 1. Foreign Direct Investment MobilizingInternational Resources for Development in the ESCWA Region Riad Meddeb Division on Investment and Enterprise
- 2. I- FDI trendsin ESCWA region II- FDI and development : Challenges for ESCWA countries
- 3. I FDI TRENDS INESCWA REGION
- 4. ESCWA in Comparison 14 12 10 8 6 4 2 0 2002 2003 2004 2005 ESCWA:rate of return Developing economies: rate of return World: rate of return Inflow: share in developing countries Exports of goods and services: share in developing countries GDP: share in developing countries 2006
- 5. FDI Inflows 400'000 Millions ofUS Dollars 350'000 300'000 250'000 200'000 150'000 100'000 50'000 0 2002 2003 ESCWA Total 2004 2005 Developing Economies Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/) 2006
- 6. Top Recipient Countries Top6 by FDI Inflows, 2006 Lebanon Bahrain Jordan United Arab Emirates 2006 Egypt Saudi Arabia 0 5'000 10'000 Millions of USD Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/) 15'000 20'000
- 7. FDI Inflows byCountry FDI Inflows (in millions of US Dollars) 2002 2003 2004 2005 2006 Saudi Arabia 453 778 1'942 12'097 18'293 Egypt 647 237 2'157 5'376 10'043 1'307 4'256 10'004 10'900 8'386 Jordan 74 436 651 1'532 3'121 Bahrain 217 517 865 1'049 2'915 1'336 2'977 1'993 2'751 2'794 Qatar 624 625 1'199 1'152 1'786 Oman 122 494 229 900 952 Syrian Arab Republic 115 180 275 500 600 -2 0 300 515 272 Kuwait 4 -67 24 250 110 Palestinian Territory 9 18 49 47 38 102 6 144 -302 -385 5'008 10'457 19'831 36'767 48'924 United Arab Emirates Lebanon Iraq Yemen Total Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)
- 8. Distribution of FDIflows among ESCWA countries, by range, 2006 Range Inflows Outflows Over $5 billion Saudi Arabia, UAE, Egypt Kuwait $3-4.9 billion Jordan $1-2.9 billion Bahrain, Lebanon, Qatar UAE $0.5-0.9 billion Oman, Syrian Arab Republic Bahrain Saudi Arabia $0.1-0.4 billion Iraq, Kuwait Qatar, Oman Less than $0.1 billion Palestinian territory , Yemen Lebanon, Syrian Arab Rep, Yemen, Paletianian territory and Jordan Source:TNC database (www.unctad.org/fdistatistics/)
- 9. FDI Outflows 200'000 180'000 Millions ofUS Dollars 160'000 140'000 120'000 100'000 80'000 60'000 40'000 20'000 0 -20'000 2002 2003 ESCWA Total 2004 2005 Developing Economies Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/) 2006
- 10. FDI Outflows Top 6by FDI Outflows, 2006 Oman Qatar Saudi Arabia Bahrain United Arab Emirates Kuwait 0 1000 2000 3000 4000 5000 Millions of USD Source: UNCTAD, World Investment Report 2007. 6000 7000 8000 9000
- 11. FDI Outflows byCountry FDI Outflows (millions of US Dollars) 2002 2003 2004 2005 2006 Kuwait -77 -4'960 2'526 5'142 7'892 United Arab Emirates 413 991 2'208 3'750 2'316 Bahrain 190 741 1'036 1'123 980 Saudi Arabia 211 368 709 1'183 753 Qatar -21 88 192 352 379 Oman 3 153 250 114 247 Egypt 28 21 159 92 148 0 40 213 122 71 119 57 48 61 55 39 61 21 26 36 2'90 7 -437 9'366 13'970 14'883 Lebanon Syrian Arab Republic Yemen Total Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)
- 12. Top Recipient Sectors • Servicesremained the dominant sector for FDI in the region, a major proportion of which went to financial services. • There were also several large deals in telecommunications. • High oil prices have are attracting increasing FDI in oil and gas-related industries. • GCC countries with large surpluses are rapidly increasing expenditures on large infrastructure projects, which are also attracting more FDI.
- 13. Diversifying Industries • The Gulfcountries seeking to diversify their production activities beyond oil-related activities have set up initiatives to attract FDI into the manufacturing sector. • One example is the establishment of Free Trade and Industrial Zones in the United Arab Emirates. • The largest of these zones is the Jebel Ali Free Zone in Dubai. Number of foreign firms in Jebel Ali Free Zone, by nationality, 2005-2006 Number Economy 2005 2006 Growth rate (%) Iraq United Arab Emirates India Islamic Rep. of Iran United Kingdom United States Germany Pakistan Japan British Virgin Islands Others 673 609 530 412 367 195 139 104 85 84 1 380 954 856 627 452 389 230 170 115 98 96 1 601 41.8 40.6 18.3 9.7 6.0 17.9 22.3 10.6 15.3 14.3 16.0 Total 4 578 5 588 22.1 Source: JETRO, 2006: 358
- 14. Qualified Industrial Zones • • Jordanhas taken a similar approach with its Qualified Industrial Zones (QIZ). These zones are attracting investors to set up manufacturing plants to take advantage of Jordan's preferential trade agreements with the United States and Europe.
- 15. FDI Potential andPerformance High FDI performance Low FDI performance Front-runners Below Potential Bahrain, Jordan, Qatar, United Arab Emirates Kuwait, Oman, Saudi Arabia Above Potential Under-performers Egypt, Lebanon Syrian Arab Republic, Yemen High FDI potential Low FDI potential Source: UNCTAD World Investment Report 2007
- 16. II FDI AND DEVELOPMENT: Challenge for ESCWA countries
- 17. CHALLENGE The objectives andthe challenge for ESCWA countries is not just to stimulate FDI fows, but private flows which lead to Development
- 18. New Actors since2002 • Foreign investment originating from developing countries has emerged as a new actor unforseen in the Monterrey Consensus. • Private equipty funds and sovereign funds from ESCWA(GCC) have become a essential source of FDI in recent years. • Cross-border M&As by investors from ESCWA countries with large current-account surpluses from high oil prices. • About two-thirds of cross-border M&As from the ESCWA region in 2006 targeted developed countries, especially the United Kingdom, Canada and the United States.
- 19. South-to-South Investment withinESCWA region • Investors from developing countries may have technologies and business models more adaptable to the economies of FDI recipients. • High oil prices are supporting high growth in oil-exporting countries and some Gulf governments are spending much more on infrastructure. • Most greenfield investments from ESCWA went to developing countries in South, East and South-East Asia. • Increase of ESCWA investment in Maghreb countries. • However, investments from one ESCWA country to another within the region is growing and needs to be encouraged.
- 20. Domestic Private Sector • Foreigndirect investment provides capital for a country's economic development, if the right policies and investment environment is in place. • For example, FDI can effect technology and knowledge transfers to the domestic private sector. • Encouraging entrepreneurship, especially in Small and MediumSized Enterprises, are an important component for strengthening the local private sector. • In the right conditions, local companies can take advantage of these transfers to improve their international competitiveness. • Encouraging FDI requires the right domestic and international factors, including a transparent, stable and predictable operating environment.
- 21. Encouraging Investment • Evaluate domesticlaw and regulations for investor friendliness. In some areas, it may be possible to revise legal requirements to be more streamlined and enforceable. • Provide a stable and predictable investment environment through greater transparency and accountability in decision-making. • Develop a local supply of qualified labour by facilitating skills transfer and human-resource development from foreign companies investing in the host country. • Introducing competition to the domestic economy for more efficient sectors and local companies that can be internationally successful.
- 22. Recent Investment-Friendly Policy Developments Qatar • • Intelecommunications, Qatar's Supreme Council of Information and Communication Technology launched the licensing process for a second fixed-line phone operator. The Government is reportedly considering a revision to the investment law to allow majority foreign participation in more sectors. Syrian Arab Republic • • Introduce new law providing equal treatment between domestic and foreign investors. Create the Syrian Investment Authority to implement national investment policies and to handle certain procdures for foreign investors.
- 23. United Arab Emirates • • TheGovernment modified the Agencies Law so companies can break contract with nonperforming agents. It is also preparing a law to open more economic sectors to foreign ownership. Saudi Arabia • • • The Government will start permitting FDI in previously restricted sectors, such as mining, film distribution, air transport, wholesale and retail trade, etc. It will also start granting multiple-entry visas for business people. The Government will also establish industrial cluster zones to encourage industrial investment.
- 24. Infrastructure • • • For continued growth,ESCWA countries will need to meet the infrastructure demands of their economies. The private sector can be deterred from taking on an entire infrastructure project due to the large capital investment and long project duration. Public-private partnerships can combine the technical expertise and management of the private sector with the capital of the public sector.One challenge of public-private partnerships is the need for Governments to have the necessary level of project oversight.
- 25. Strenthening the cooperationbetween UNCTAD and UNESCWA on Data Collection & Sharing • Data on FDI flows and the transactions of international corporations is important • Accurate and recent data help governments and organizations to formulate FDI policies to maximize development • Developing countries need help to augment their capacities in data collecting and analysis • FDI data can aid in efforts for good governance and transparency
- 26. Challenges to FDIGrowth • • • • • Security concerns and political uncertainties in certain parts of the ESCWA region will continue to affect investor confidence in these areas. Trade barriers and domestic regulations remain as deterrents to increased FDI and deregulation is needed to accelerate FDI and economic growth. Domestic workforces need the training and skills to increase economic efficiency and the rate of return for investors. By developing a healthy and competitive private sector, more local companies are open to the transfer of new knowledge and business models from foreign investors. A business environment favourable to entrepreneurship and innovation is needed to foster a strong, diversified private sector for the long term.
- 27. Thank You Visit ourwebsite www.unctad.org/WIR
Editor's Notes
- #2 The Monterey Consensus underlines the importance of FDI as an agent of development,since, according to the text : it contributes towards financing sustained economic growth over the long term. It’s espaciallyimportant for it’s potential to transfer knowledge and technology, create jobs, boost overall productivity, enhance competitiveness and, ultimately, eradicate poverty through economic growth and development. ( para 20). The 2002 Monterrey Consunsus identifies mobilizing international ressources for development, including FDI and other private flows, as one of six leading actions or pillars in support of financing for development. The consensus sets out a number of commitments by both developing and developed countries that together acknowledge the important contribution of FDI toward financing sustained economic growth. Both domestic and international conditions are necessary to facilitate FDI flows to ESCWA region.
- #3 Progress since 2002: The substantial, broad-based increase in FDI flows to developing countries since 2002 has been an important contribution to financing development. FDI flows to the developing countries increased by 92% between 2002 and 2006, rising the record of 325 billion dollars. FDI is the single largest external source of resource flows to developing countries, including other private sources, such as portfolio equity and debt, and official sources, such as loans and grants. FDI’s full value, however, lies in its ability to stimulate competition, spur innovation, introduce new technologies and processes, and elevate the skills of workers and managers in developing countries. FDI makes it possible to raise rates of capital accumulation in both physical and human resources. FDI projects also create new production capacity and jobs, often at higher wages.
- #4 At a global level, FDI inflows reached an estimated $ 1.5 trillion in 2007, surpassing the previous record level in 2000., with a rise in flows to all three major groups of economies- Developed countries, developing countries, andEconomies in transition. The financial and credit crisis that started in the latter half of 2007 has not substantially affected FDI inflows to developing countries thus far. In fact, between 2002 and 2007, total FDI to developing and transition economies nearly tripled, from $ 180 bilion to an estimated $ 518 bilion. Indeed, 2007 witnessed the highest level of FDI inflows to these economies to date. The share of developing countries and econoies in transition in global FDI flows reached 37 % in the period 2004-2006 compared to 27 % in the period 2001-2003. This may suggest that FDI has trengthened its role in capital formation in host economies and in international capital flows to those regions. Indeed FDI flows accounted for 15 % of GFCF in developing countries and econoies in transition 2006, compared to 10% in the period 2001-2003. And FDI flows to those regions accounted for about half of all external private financial flows (FDI, Portflolio flows and loans) in 2006.
- #5 Before 2002, FDI inflows in ESCWA regions represented 2% in 2001 and increased to 13 % in 2006. 0,5 to 3.7 of total of the world . Since 2002, the rate of return of Escwa countries was higher than the one of developing countries and the world.
- #6 Several factors explain this upward trend in recent years. First , regulatory fameworks for FDI are becoming more relaxedin several countries of the region, particularly in srvices such as finnance, real estate and telecommunications. Second the busness climate has improded and economic growth has been robust. Third oil prices encouraged more FDI in oil-and gas related manufacturing and services in 2006. The GCC attracted 54% of total FDI inflows to the subregion in 2006. Saudi arabia was the second largest recipient in West Asia, with inflows of $ 18 bilion, 50% more than in 2005. The United Arab Emirates was the third largest, with FDI inflows going mainly to country’s 15 free trade zones. There were several cross-border M& deal and a noticeable increase in greenfield FDI projects in the country. FDI inflows to the other Escwa countries amounted to $ 7,3 bilion. Inflows to Jordan doubled to $3,1 bilion, partly owing to the acquisition of Umniah Telecom and Technologies by Batelco (Bahrein). The Palestinian territories, Iraq and Lebanon attracted limited FDI due largely to geopolitical problems. Data for 2007 show that FDI inflows declined somewhat after many years of steady increases. Most FDI inflows to the region were greenfield investments from developed countries. Major investors were from the US, the UK, France and Germany. Following behind were FDI flows from within the ESCWA region, especially from the UAE and Saudi Arabia.
- #7 Saudi Arabia, Egypt and United Arab Emirates continued to be the major FDI recipients, accounting for about three-quarters of the regional total. The most important source of FDI were the developed countries, including the United States, the United Kingdom, France and Germany. The second biggest source were intra-regional investments, meaning FDI going from one ESCWA country to another ESCWA country. In general, ESCWA intra-regional investments in 2006 went mostly to service sectors in a few countries.
- #8 Cross-border mergers & acquisitions from developed countries rose slightly from 2006 to 2007. The most significant story, however, is the 144% increase of cross-border mergers & acquisitions from developing countries. Of this increase, 29% came from within the West Asia region. It should be noted that Qatar undertook more than 99% of these intra-regional mergers & acquisitions.
- #10 At more than $170 billion in 2006, FDI flows from developing countries are growing. The ESCWA region is a latecomer and plays a relatively smaller role as an FDI sender. While developed countries like the US still attract the majority of investments from the Gulf states, regional economic integration is increasing and more investments are going to neighbouring countries. This is driven by liberalization, privatization and the growing use of Islamic financial instruments. Egypt, Tunisia(orascom), Algeria (wataniya, Orascom) and Morocco emaar) are the most attractive investment destinations in North Africa. For example, Qatar Petroleum International announced last year that it would building a $1.5-2 billion oil refinery in Tunisia (CEEMarketWatch, 16 May 2007).
- #11 Although developed countries attracted the largest portion of investment from the Gulf countries, a growing amount of FDI outflows are going to Asia and North Africa. FDI outflows from the region targeted mainly oil and gas and related industries, telecommunications, tourism and financial services. MTC, one of Kuwait’s mobile telephone companies is expanding its presence in 14 sub-Saharan countries, investing in greenfield projects in Saudi Arabia and bidding for another licence for mobile telecom in Qatar. The National Bank of Kuwait is engaged in deals in Jordan, Qatar and Turkey. In the case of greenfield FDI, the UAE was the most active investor with 200 projects. Ç=% of the outward investment were in the property/tourism and leisure industries, both within the region and in countries such as China, India, Morocco, Algeria. TNC from UAE are investing in logistical and distribution facilities in the region, and. SA investment in the chimical, plastic and rubber industries in Australia, New Zeland and Viet Nam. The GCC countries led by Kuwait accounted for 89% of 89% of $14 billion of west Asia,
- #12 Increased oil revenues are leading oil-rich countries GCC to diversify their holdings by investing overseas. FDI flows to major oil-exporting countries in the world increased from $2 billion in 2002 and $19 billion in 2006. For example, funds from Gulf countries have been investing in Chinese and Indian IPOs and Asian real estate. These outflows increased significnatly these last 4 years , primarly form the GCC countries in responseto the windfall revenues from oil exports during a unprecedent high world oil prices. The total outflows incresed from 3 bilion dollars in 2002 to 15 bilions dolars in 2006.
- #13 For example, Qatar awarded a $1.5 billion contract in 2007 to Singapore's Keppel Corp for a waste water facility. When it is completed, it will be the largest greenfield waste treatment and water re-use facility in Qatar and the region.
- #14 The Gulf countries seeking to diversify their production activities beyond oil-related activities have set up initiatives to attracting FDI into the manufacturing sector. One example is the establishment of Free Trade and Industrial Zones in the United Arab Emirates. The largest of these zones is the Jebel Ali Free Zone in Dubai Special incentives are offered to manufacturers to set up business there and 100% foreign ownership is allowed.
- #16 Many countries worldwide continue adopting meausres aimed at improving their investment climate. In 2006, UNCTAD annual survey of changes in national laws and regulations related to the operations of transnational corporations identified 184 policy changes worldwide. 80% were identified as making the host-country economy more favourable to FDI. For an example of a favourable change in 2006, Egypt reduced its basic corporate tax of 40% and industrial-activity tax of 32% to a standard corporate tax of 20%. Most Policy measures introduced in ESCWA countries were favourable to foreign investors. Several countries continued to liberalize sectors, but generally not the extractive industries. For instance, the trends towards liberalization in financial services continued in 2006 (in Bahrain, Qatar and Saudi Arabia). There are examples of liberalization in other industries as well. Oman, for example has allowed foreign ownership of real estate, which should encourage FDI in tourism. In the extractive industries , Qatar annouced several changes in contractual and tender conditions, which willfacilitate the process of bidding for and securing contracts managed by Qatar Petroleum. These changes, when implemented , could have a positive impact on FDI inflows, espacially in the context of Qatar’s gas initiative. Kuwaiti Government has announced plans to reduce the corporate income tax rate from 55% to 25 % in order to attract more FDI into non-oil industries. UAE drafted a new linvestment law aimed at improving its investment climate. In order to promote local employment, the labour ministry issued a decree in june 2006 that requires all firms to replace within 18 months all expatriate secretaries and human resource managers with United Arab Emirates nationals. FTA beetween OMAN and USA signed in 2006.
- #20 By developing the right investment environments, ESCWA countries can accelerate the rate of regional economic integration. Investors will seek the highest return, whether locally or abroad, investors from ESCWA might be convinced to increase their investments in the region.
- #21 Give examples of development of private sector in escwa countries
- #22 In recent years, many developing countries have enhanced their attractiveness as investment destinations by providing macroeconomic stability and implementing reforms aimed at fiscal discipline, debt management, privatization, protection of property rights, transparency and the reduction of distortions from administrative barriers. Bilateral investments treaties attract FDI by increasing the predectability and stability of the legal and regulatory systems. The objectives and the challenge is not just to stimulate FDI flows, but private flows led to development. Give examples of IPR Egypt and the reforms within ESCWA countries in 2006. BIT
- #23 Qatar The Government is planning to introduce more competition to its telecommunications sector. Qatar's Supreme Council of Information and Communication Technology launched the licensing process for a second fixed-line phone operator. And reportedly, the Government is considering a revision to the investment law to allow majority foreign participation in more sectors. Syrian Arab Republic In 2007, the Government introduced two laws to attract a greater share of FDI flows. The first law would provide equal treatment between domestic and foreign investors and permit foreign investors to own or lease land for their projects. Repatriation of profits and re-export of capital six months after import would also be allowed. The second law creates the Syrian Investment Authority to implement the Government's investment policies and to handle certain bureaucratic procdures on behalf of foreign investors.
- #24 United Arab Emirates The Agencies Law was modified so companies can petition the Ministry of the Economy to break contract with nonperforming agents It also intends to prepare law to open more economic sectors to foreign ownership. Saudi Arabia To inprove the country's skills base, the Supreme Economic Council issued a decision allowing FDI in previously closed sectors, such as mining, film distribution, air transport, satellite-transmission services and wholesale and retail trade. And in 2007, the Government decided to start granting multiple-entry visas for business people. Also, the Ministry of Industry and Commerce intends to establish industrial cluster zones in several regions to promote industrial investment.
- #25 For continued growth, developing countries will need to meet the infrastructure demands of their economies. For example, the International Energy Agency estimates that investment needs by the electricity industry will reach $12 trillion by 2030. Oftentimes, private industry will have the technical expertise and project-management capability needed for a project. However, the large capital sums and long project durations of large infrastructure projects make it difficult for many private companies to take on an entire infrastructure project. One example of public-private participation in an infrastructure project is Sokhna Port in Egypt. Earlier this year, DP World of Dubai acquired a controlling stake of Sokhna Port for $670 million. DP World will invest a further $1.3 billion in the expansion of the Egyptian port in the next three years. In addition, the Egyptian government will be investing five billion Egyptian pounds to increase the capacity of the port.
- #27 The objectives and the challenge for ESCWA countries is not just to stimulate FDI fows, but private flows which lead to Development. In accord with their commitments in the Monterrey Consensu, Escwa countries as the rest of developing countries have been enhancing the macroeconomic policy and mangement, engendring stability and predectibility in their investment environment, including through financial and investment sector liberalization, the promulgation of investment codes, the concluding of bilateral investment treaties, and double taxation agreements and offering significant tax and other incentives.