Development projects are key to recovery of FDI flows to West Asia

Geneva, 22 July 2010 - The tightening of credit markets has affected cross-border mergers and acquisitions (M&As) and development projects in West Asian involving significant foreign investment. This is the main reason for the decline of FDI inflows to the region by 24% -- to $68 billion -- in 2009, after six years of consecutive increase, says UNCTAD´s World Investment Report 2010(1) . In the case of Turkey, a decline in international trade has weighed on export-oriented FDI.

The organization´s flagship report on investment issues, subtitled Investing in a Low-Carbon Economy, says that FDI inflows fell in all of the region´s main recipient countries except Qatar (an increase of 112% in 2009 over the previous year) and Lebanon (11%) (figure 1), mainly in liquefied natural gas (LNG) and real estate, respectively. The United Arab Emirates and Turkey were hit the hardest, with declines of 71% and 58%, respectively: cross-border M&A sales in Turkey plummeted from $13.2 billion to $2.8 billion, while the Dubai financial crisis explains the FDI collapse in the United Arab Emirates. Saudi Arabia remained the region´s largest recipient of FDI, with total inflows reaching $36 billion, followed by Qatar and Turkey.

FDI outflows from West Asia decreased by 39% in 2009 to $23 billion, mainly due to falling outflows from the United Arab Emirates, from $16 billion to $3 billion. The Dubai financial crisis downgraded the country´s position from largest outward investor in the region to third largest. With $9 billion, Kuwait was the region´s largest outward investor, followed by Saudi Arabia, where outward FDI increased significantly, from $1.5 billion to $6.5 billion (figure 1).

Investment policy measures taken in the West Asian region in 2009 have generally improved the conditions for foreign investment. Some countries opened up new sectors of the economy to FDI (e.g. Qatar) or raised the ceiling for foreign ownership (e.g. Syrian Arab Republic). A number of countries reduced the tax rate in order to stimulate the economy across the board or in particular sectors or regions (e.g. Turkey, Oman).

West Asian governments´ sustained commitment to ambitious infrastructure plans and the revival of international credit markets observed in the second half of 2009 are expected to support a recovery in FDI inflows in 2010. On the other hand, outward investment prospects are mixed in the short term: Qatar´s sovereign wealth fund (QIA) is seeking investment opportunities in Europe, Asia and the United States, while State-owned entities from other investor countries have refocused their attention onto their domestic economies.

ANNEX

Tables and figures

Figure 1. West Asia: top 5 recipients and sources of FDI flows,a 2008-2009 (Billions of dollars)

a) inflows

b) Outflows

Source: UNCTAD, World Investment Report 2010.

Note: a Ranked on the basis of the magnitude of 2009 FDI flows.