Top regional investment banker urges for evolving economic reforms to attract foreign direct investment to Arab world

Mr. Janahi, highlighting the significant fiscal and economic reforms that are sweeping the Middle East, said that he was confident that the interest of foreign investors in the region was set to grow, in large part due to the many economic reforms taking place in the Middle East, particularly in the GCC countries now.

Making a presentation at the annual IPA World Forum 2004 in Brussels, Mr. Janahi addressed a global audience of key influencers on the state of foreign investment in the Middle East, the challenges that the region faced and the need to expedite economic reforms. Mr. Janahi pointed out that the Arab region as a whole has managed to attract less than 1 per cent of global FDI flows and only 4 per cent of the FDI flows to the developing world.

"Available FDI statistics on the region show that of the US$823.82 billion of FDI generated worldwide in 2001, the Middle East and North Africa region accounted for only US$10.68 billion, a relatively lackluster performance for a region that constitutes 5 per cent of the world's population," he said, adding that the GCC countries received an FDI flow of only 0.1 per cent in 2001, or one-tenth of 1 per cent of global FDI.

Reflecting on his experience as an investment banker, he noted that much of the FDI taking place in individual GCC countries was funded by Arab money, much of it from other GCC countries and that the time has come to attract more investment from other parts of the world.

Mr.Janahi however, said that a paradigm shift was occurring in the Middle East driven by an acute desire to diversify sources of revenue and to create job opportunities for a rapidly increasing young population. "There is no denying that geopolitical tensions continue to plague the region and in turn eclipse many positive developments that are taking place in many parts of the Middle East and North Africa (MENA) region, particularly in the Gulf countries."

"The responsibility therefore lies with countries in the region to expedite economic reforms to make it an attractive destination for foreign investors," Mr. Janahi said.

Stressing the need to generate more jobs, he pointed out that in the MENA region alone, 18 countries from Morocco to Iran, excluding Turkey, have a rapidly rising young population. Quoting the World Bank Group, Mr. Janahi said that the average growth rate of the labour force between 2000-2010 is expected to be 4 per cent a year which is double compared to developing countries.

"This essentially means that 4 million new entrants, excluding females, will have to be productively employed in this region each year. As the World Bank has put it, this rising population of job seekers can be a demographic gift to the region provided they are gainfully employed and their creativity tapped," he said.

Mr. Janahi said the most pressing argument to attract FDI and promote private investment in the region was the urgent need to generate jobs for a rapidly rising young population. "According to the World Bank and International Monetary Fund, the 260 million people of the 22 Arab countries have a combined GDP less than that of Spain or Mexico," he said.

Economic diversification and integrating with the global economy were the two other major factors that were driving changes in the Middle East. "In the GCC particularly, there is increased awareness that oil cannot be the only sustenance to the economy in the medium to long term," Mr. Janahi pointed out in his presentation.

He said the governments in the region were trying to address the irritants that work against FDI. He said significant impediments are small economies with limited liquidity, lack of economic integration, mismatch of labour skills and market needs, unpredictable macro-economic conditions and public policy choices, lack of transparency in corporate governance and weak Intellectual Property Rights laws.

"The governments in the region are fast realizing the need to address the issues that discourage FDI. Albeit at a slow pace, there is change taking place. There is greater awareness in not being segregated from the global economic community and in seeking global funds to fuel growth in national economies," Mr. Janahi said.

He said Investment Promotion Agencies (IPAs) formed by the governments like the Saudi Arabian General Investment Authority (SAGIA), Dubai Development and Investment Authority (DDIA) and Economic Development Board of Bahrain (EDB) are effective in attracting foreign investment.

Mr. Janahi said the private sector and the government have joined hands to attract FDI in most of the GCC countries. A prime example in Bahrain is the US$1.3 billion Bahrain Financial Harbour project, a master-planned integrated financial and business community. BFH is now one of the largest projects attracting FDI to the Kingdom.