The United Arab Emirates (UAE) ranks 15th globally in Kearney’s 2021 Foreign Direct Investment (FDI) Confidence Index, up from 19th place in 2020. The UAE business environment demonstrates continued strengths in factors most important to investors, including government incentives for investors. The country’s strong enabling environment, featuring advanced technological infrastructure and high innovation levels, is also central to its FDI attractiveness. The UAE is one of only five countries globally that achieved a higher ranking this year in an increasingly competitive global FDI attraction environment.
According to the new report from the global strategy and management consulting firm, investors say they are more cautious regarding FDI globally as they gear up for a long-haul economic recovery. The ranking reveals a significant fall in overall optimism about the global economy since pre- and early-pandemic levels last year; however, investor optimism about the Middle East & North Africa generally remained stable. Optimism levels regarding the economic outlook for the UAE scored higher in relative terms than those documented last year, placing it among the top 5 countries in terms of net optimism.
“The UAE’s striking rise in the rankings again this year speaks to the power of consistency and momentum. Specifically, the score is likely related to its continued investment in advanced technological infrastructure, high levels of innovation, and to the intensity and discipline of its response to the pandemic,” says Rudolph Lohmeyer, Partner, National Transformations Institute, Kearney Middle East. “The UAE was among the first countries to approve a COVID-19 vaccine, and it has embarked on an extremely ambitious campaign to vaccinate its whole population by the end of 2021.
The UAE has vaccinated some of the highest portions of their population (per 100 people), which can be expected to boost economic and investment prospects further. In addition, the UAE continued to engage beyond its borders this year – with the signing of the Abraham Accords in August signaling the UAE’s commitment to regional stability and economic integration. Expo 2020, which was postponed to October 2021, should further contribute to the resurgence in tourism in the latter part of the year.”
Commenting on the 2021 FDI Confidence Index, Paul A. Laudicina, founder of the index and Kearney’s Global Business Policy Council says: “A year into the pandemic and its severe disruption to the global economy, investors understandably appear chastened. In last year’s survey, investors displayed a strong level of optimism about the global economy and their investment outlook, and many were caught flat-footed by the COVID-19 disruption that brought the world to an economic standstill.”
This year’s rankings point to continued apprehension and uncertainty about how quickly the global economy will recover post-COVID. In addition to the fall in confidence about the economy, most of the overall scores for the top-25 countries have fallen compared with previous years. Only 57 percent of investors are optimistic about the three-year global economic outlook, which is much lower than the corresponding figure last year of 72 percent (prior to and at the onset of the pandemic).
Reflecting investors’ increased caution this year, developed economies account for the lion’s share of the top-25 list for two primary reasons. “First, established markets represent more safety and stability to business leaders whose strategies and bottom lines have been shaken by the pandemic,” said Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “And, second, investors continue to prioritize destinations with strong infrastructure, strong governance, investment in technology and innovation, and macroeconomic stability—natural strengths of most developed markets.”
Only three emerging markets are on this year’s Index: China, the United Arab Emirates, and Brazil. China remains the highest-ranked emerging market, a distinction the country has held consistently since 1999. However, concern over escalating US-China trade tensions and a more general corporate rethink of international supply chains could explain its drop to 12th place.
“Beyond these findings, the biggest risk that international investors will continue to face will be the pandemic itself,” Peterson adds. “Overcoming COVID-19 will be key to global economic recovery and the improvement in FDI flows as the two go hand in hand. And economic growth in the near term will be determined in large part by the duration of the global pandemic, the effectiveness of fiscal and monetary responses, and the success of vaccination efforts.”
Laudicina adds, “Despite persistent macroeconomic challenges, investors continue to perceive FDI as vital to corporate profitability and competitiveness over the next three years. And even with investors’ increased caution this year, the FDI plunge in 2020 will likely not become a permanent feature of the global economy.”