Foreign Direct Investment. Mobilizing International Resources for Development in the ESCWA Region Riad Meddeb Division on Investment and Enterprise. I- FDI trends in ESCWA region II- FDI and development : Challenges for ESCWA countries . I. FDI TRENDS IN ESCWA REGION. ESCWA in Comparison.
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Foreign Direct Investment Mobilizing International Resources for Development in the ESCWA Region Riad Meddeb Division on Investment and Enterprise
I- FDI trends in ESCWA region II- FDI and development : Challenges for ESCWA countries
I FDI TRENDS IN ESCWA REGION
FDI Inflows Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)
Top Recipient Countries Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)
Distribution of FDI flows among ESCWA countries, by range, 2006 Source:TNC database (www.unctad.org/fdistatistics/)
FDI Outflows Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics/)
FDI Outflows Source: UNCTAD, World Investment Report 2007.
Top Recipient Sectors • Services remained 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.
Diversifying Industries • The Gulf countries 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.
Qualified Industrial Zones • Jordan has 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.
FDI Potential and Performance Source: UNCTAD World Investment Report 2007
II FDI AND DEVELOPMENT : Challenge for ESCWA countries
CHALLENGE The objectives and the challenge for ESCWA countries is not just to stimulate FDI fows, but private flows which lead to Development
New Actors since 2002 • 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.
South-to-South Investment within ESCWA 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.
Domestic Private Sector • Foreign direct 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 Medium-Sized 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.
Encouraging Investment • Evaluate domestic law 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.
Recent Investment-Friendly Policy Developments • Qatar • In telecommunications, 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.
United Arab Emirates The Government 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.
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.
Strenthening the cooperation between 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
Challenges to FDI Growth • 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.