CAIRO: Real and perceived political risks, the lack of focus on non-oil sectors, laxity in regulatory policies and a restrictive business environment are some of the factors impeding the growth of foreign direct investment in the Gulf Cooperation Council region, said a recent study.
According to Oliver Wyman’s recent report titled “De-risking the Investment Landscape: High-impact FDI Policies for the GCC,” the region needs to prioritize regulations and policies to de-risk investment.
This approach should help them attract additional FDIs, the report recommended.
“The best way to attract FDI may be to focus on frontier sectors, which are based on emerging technology, generate high growth, and have few incumbent players to disrupt,” the report stated.
The policies adopted earlier in the GCC were unfocused and aimed to attract all possible investments in all potential sectors, which proved unsuccessful, according to the report.
Although most Gulf countries have been proactive in developing initiatives to stimulate FDI, few have successfully attracted foreign investment in the region.
“Historically, FDI into GCC economies has fluctuated with the rise and fall of commodity prices,” explained Wyman’s report. “However, it has failed to materialize as a consistent driver of economic opportunity in non-oil economic sectors.”
HIGHLIGHTS
• Oman and Bahrain are the only two GCC economies that saw FDI inflows over outflows in each of the years from 2016 to 2021.
• While Kuwait registered FDI outflows totaling $3.6 billion in 2021, it saw a sharp drop from $8 billion in the previous year.
“With such readily available domestic capital, many GCC states have historically not needed to prioritize FDI as a source of development finance,” it added.
The report further revealed that GCC states are becoming increasingly aware of the benefits of FDI and its potential impact on their economies, which could enhance productivity.
Foreign investment provides a good source of finance, promotes interactions of local suppliers and consumer markets, and stimulates human capital by training local workers and employing foreign ones.
As stated by the report, an increased level of private competition, an enhancement in technological know-how and a surge in cross-border activity are additional favorable consequences that arise from increased FDI.
The UN Conference on Trade and Development recently released the “World Investment Report 2022,” which showed that Saudi Arabia and the UAE, two of the largest economies in the GCC, saw 2021 FDI outflows exceed FDI inflows by $4.6 billion and $1.9 billion, respectively.
The difference for all GCC members stood at $6.4 billion, although a noticeable improvement from 2019 and 2020, where the differences were $11.1 billion and $8.3 billion, respectively.
Oman and Bahrain are the only two GCC economies that saw FDI inflows over outflows in each of the years from 2016 to 2021, according to the UNCTAD report.
In comparison, FDI inflows to Indonesia in 2021 surpassed the outflows by $16.5 billion. Similarly, FDI inflows to Vietnam and Malaysia trumped outflows by $15.4 billion and $6.9 billion, respectively, UNCTAD data show.
On the other hand, Saudi Arabia witnessed the highest FDI outflows in the GCC in 2021. It recorded $23.9 billion in net outflows in 2021 compared to only $4.9 billion in 2020. It is worth mentioning the Kingdom’s FDI inflows stood at $5.4 billion in 2020.
The UAE came in second with $22.5 billion worth of FDI outflows in 2021 compared to $18.9 billion the year before, the UNCTAD data showed.
While Kuwait registered FDI outflows totaling $3.6 billion in 2021, it saw a sharp drop from $8 billion in the previous year, the report stated.
