Arab world's most wanted: FDI

The Arab world's track record in attracting FDI has been pathetic.

The region had ignored FDI - and FDI had ignored the Arab world.

Has the situation changed will be known on September 4th when UNCTAD will release its authoritative study - the World Investment Report 2003.

FDI figures available so far - for 2001 - do not show the Middle East in a good light.

Of the USD823.82bn in FDI generated worldwide, the vast West Asia and North Africa stretch of 21 countries accounted for a meagre 1.29 per cent with just USD10.68bn.

This is a feeble performance for 5 per cent of the globe's population. The Arab world's 300m strong people are not the poorest in the world, nor is the region without economic potential. The Arab world has young, fairly literate and skilled people and its governments have realised the importance of FDI.

They have gone to the global financial community and received warm response to their bond offerings. They have invited oil majors and have achieved much interest. From Casablanca to Dubai, the region is rich in tourism potential.

Then, why is FDI still not commensurate with potential?

The situation is even worse in the oil-rich GCC, which should be well known to investors.

In 2001, the six GCC countries received just 0.1 per cent or one-tenth of one per cent of global FDI.

The region was not able to cross even USD1bn mark and had to be content with just USD842 million. Even in the Arab world, the GCC accounted for only 7.88 per cent of the region's total FDI inflows.

It is true that global FDI flows peaked in 2000 at USD1,392.95bn. These shrunk by over 40 per cent to USD823.82bn in 2001. But the fall in FDI inflows into the GCC states was far greater at over 72 per cent.

This is clearly not enough.

It is not that the region does not have opportunities. What has been lacking is that it has not given due importance to FDI as a driver of economic growth, nor has it made serious efforts to market opportunities to those who move global FDI flows.

It is said that September 11, 2001 did not help, nor has the continuing hiatus in Palestine and Iraq.

But then, why did tension in the Korean peninsula not stop the economic miracle of South Korea, or the Irish divide check investments into the island economy?

Poor FDI figures reflect poor integration into the global economy and the consequent marginalisation in terms of global economic activity. Not only does capital pass by, but so do the latest in ideas, technology and best practices. Incoming capital brings many times its value by developing vendor and other infrastructure including jobs and housing.

Simply put, FDI generates economic and lifestyle growth. Its value is such that in many developing countries, FDI accounts for a massive one-third of their gross domestic product.

It is only recently that Arab nations have realised the value of FDI.

In the Gulf, various Investment Promotion Agencies (IPAs) have come up like the Saudi Arabian General Investment Authority (Sagia), the Dubai Development and Investment Authority (DDIA) and the Economic Development Board (EDB) in Bahrain.

Efforts to highlight the importance of FDI within the region and to draw the attention of global FDI movers have begun - like the International Investment Summit and Exhibition organised by DDIA in May. Along with Sagia and EDB, DDIA has proposed an umbrella institution that could act as an Arab IPA. But nothing has come of it so far.

Competition for FDI is increasing. There is less money going around the world - leading to greater rivalry among various nations of the globe to attract it. The Arab world needs to wake up and take far greater and more urgent measures, or else it will continue to be left behind by the rest of the world.