Countries across the GCC can significantly increase foreign direct investment (FDI) inflows by applying different mechanisms and methodologies, according to a new report published by Oliver Wyman and the World Government Summit (WGS).
Titled “De-risking the Investment Landscape: High-impact FDI Policies for the GCC,” the report details FDI fluctuations within the region and ways they can be addressed.
Matthieu De Clercq, Partner Public Sector and Economic Development, Oliver Wyman, said: “Economic diversification in UAE ensured that FDI remained resilient even with low oil prices, which allowed for a higher inflow of FDI into the country. Soon after, Saudi Arabia began implementing policy reforms, which increased the country’s attractiveness. Still, COVID-19 has had unprecedented impacts, stalling much of the progress that has been in the works over the past few years.”
The report indicates that UAE-based Dubai International Financial Center (DIFC) is an example of a successful policy aimed at attracting FDI. The center succeeded in registering assets worth more than $178 billion and 820 companies. DIFC is aiming to triple in size by 2024. Another example is Khalifa Industrial Zone in Abu Dhabi (KIZAD), which resulted in attracting investments amounting to about $20 bn.
Other regional initiatives to attract FDI include the formation of a dedicated Ministry of Investment in Saudi Arabia and permitting 100% foreign ownership of companies in most economic sectors in Oman as of 2020.
With the onset of the pandemic, there has been a significant decline in foreign direct investment globally, with a 42% decrease in 2020, valued at approximately $859 bn, which is down from $1.5 trillion in 2019.
Still, the UAE remained strong and steadfast with FDI inflows to the country growing 44.2% in 2020 to $19.88 bn, compared to 2019, according to a report by the Ministry of Economy.
FDI inflows UAE
FDIs in the UAE are mainly in the sectors of:
- wholesale and retail trade
- real estate activities
- financial services and insurance
- mining and quarry exploitation
The main investors in the UAE are Switzerland, the UK, India, the US, France, Austria, Japan, Saudi, Kuwait, and The Netherlands.
FDIs were recorded across sectors, primarily oil and gas, considering several investment partnerships struck by the Abu Dhabi National Oil Company (ADNOC) with a number of foreign companies.
The UAE has drawn FDIs for the digital economy, in sectors like Artificial Intelligence, the Internet of Things, blockchain, medical know-how, augmented and virtual reality (AR and VR), robotics, self-drive automobiles, renewable energy, innovation, and agritech, among others.
As for FDI outflows, they amounted to $9.2bn and covered various vital economic sectors, including aviation, transportation, mining, renewable energy, real estate, construction, communication, oil and natural gas, traditional and renewable energy, logistics, ports and infrastructure, tourism, leisure, banking, and agriculture.
In March, Sheikh Mohammed Bin Rashid Al Maktoum, Dubai Ruler, approved a 5-year plan that seeks to increase Dubai’s foreign trade from 1.4 trillion to 2 trillion Dirhams ($378 billion to $540 bn).
The UAE’s non-oil GDP is expected to grow by 3.6% by the end of 2021, the Central Bank of the UAE (CBUAE) has estimated.
The UAE was the world’s 15th-biggest recipient of FDI in 2020, ranking one place above the UK and seven places higher than the prior year, according to the UN Conference on Trade and Development (UNCTAD).
“Natural resources transactions drove investments in the country,” primarily the $10bn brought in from investors to ADNOC’s gas pipelines, UNCTAD’s World Investment Report said. By contrast, the UK’s FDI inflows fell by 57%.
ADNOC’s strategy of releasing capital tied up in non-core assets has been a key driver of FDI into the UAE in recent years. In 2019, it attracted $5 bn into its oil pipelines, and last year’s $10 bn sale of a 49% stake in the company that has the leasing rights to its gas pipelines brought in funds from a number of sovereign and institutional infrastructure investors.
The UAE also attracted investment into other sectors. Some 53% of FDI into Dubai in the first half of last year was into medium and high-tech sectors, according to UNCTAD’s report.
The UAE made a number of changes to commercial and company laws over the past few years in a bid to spur investment including allowing 100% foreign ownership of onshore companies in most sectors of the economy.
Business confidence in Dubai
Dubai’s business environment is expected to see positive momentum in the third quarter of 2021 as confidence among companies and investors improves ahead of Expo 2020 Dubai, a newly released survey from Dubai Chamber has predicted.
The Business Leaders’ Outlook for Q3-2021 found that 66% of respondents said they expect to see better business conditions during the quarter, compared to 51% who said the same in the previous quarter. At the same time, 66% of business leaders surveyed were more optimistic about the business environment, compared to 48% in the second quarter.
Around 57% of business leaders said they expect a recovery in oil prices to positively affect the business environment in the third quarter, while 62% of business leaders said global restrictions on trade and travel would be a risk impacting business conditions in the emirate.
The survey found that SMEs, in particular, were more optimistic about Dubai’s economy in the short term compared to large companies serving regional and global markets, while debt collection, late payments, strong competition in prices, and the high cost of raw materials were identified as key challenges and risks that could potentially impact the economic situation.